<PAGE>
As filed with the Securities and Exchange Commission on March 2, 2000
Registration No. 333-95565
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MEDAREX, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 2836 22-2822175
(State or other (Primary standard (I.R.S. Employer
jurisdiction of industrial Identification Number)
incorporation classification
or Organization) code number)
---------------
MEDAREX, INC.
707 STATE ROAD #206
PRINCETON, NJ 08540
(609) 430-2880
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DONALD L. DRAKEMAN
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
MEDAREX, INC.
707 STATE ROAD #206
PRINCETON, NJ 08540
(609) 430-2880
---------------
COPIES TO:
DWIGHT A. KINSEY, ESQ. DAVID R. KING, ESQ.
SATTERLEE STEPHENS BURKE & BURKE LLP MORGAN, LEWIS & BOCKIUS LLP
230 PARK AVENUE 1701 MARKET STREET
NEW YORK, NY 10169 PHILADELPHIA, PA 19103-2921
(212) 818-9200 (215) 963-5000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Title of each class of Maximum
Securities to be Amount to be Offering Price Proposed Maximum Aggregate Amount of
Registered Registered Per Unit (1) Offering Price (1) Registration Fee (2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,012,500 $170.88 $343,896,000 $90,788.54
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) promulgated under the Securities
Act of 1933, as amended.
(2) $75,758.07 previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission becomes effective. This prospectus is not +
+an offer to sell securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued March 2, 2000
1,750,000 Shares
Medarex, Inc.
COMMON STOCK
-----------
Medarex, Inc. is offering 1,750,000 shares of common stock.
-----------
Our common stock is listed on the Nasdaq National Market under the symbol
"MEDX." On March 1, 2000, the reported last sale price for our common stock was
$184 1/16 per share.
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Medarex
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total....................................... $ $ $
</TABLE>
We have granted the underwriters an option to purchase up to an additional
262,500 shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities commissions have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on [ ], 2000.
-----------
MORGAN STANLEY DEAN WITTER
CHASE H&Q
DAIN RAUSCHER WESSELS
WARBURG DILLON READ LLC
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................. 19
Use of Proceeds..................... 20
Price Range of Common Stock......... 21
Dividend Policy..................... 21
Capitalization...................... 22
Dilution............................ 23
Selected Consolidated Financial
Data............................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 29
Management....................... 49
Principal Shareholders........... 52
Description of Capital Stock..... 54
Underwriters..................... 56
Legal Matters.................... 58
Experts.......................... 58
Where You Can Find Additional
Information about Medarex....... 58
Information Incorporated by
Reference....................... 59
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
----------------
In this prospectus, "Medarex," the "company," "we," "us" and "our" refer to
Medarex, Inc. and our wholly-owned subsidiaries. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information different from that contained in this prospectus.
We are offering to sell, and seeking offers to buy, shares of common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any
sale of the common stock.
----------------
We own the HuMAb-Mouse(TM) trademark. This prospectus also includes
trademarks owned by other companies.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus or incorporated by reference in this prospectus. You should
read the entire prospectus carefully, especially "Risk Factors," the
consolidated financial statements and the notes to these statements and the
documents incorporated by reference in this prospectus.
MEDAREX
We are a leading human monoclonal antibody-based company with integrated
discovery, development and clinical supply manufacturing capabilities. We are
able to create fully human monoclonal antibodies in our genetically engineered
"HuMAb-Mice." These mice are "transgenic"--that is, the mouse genes for
creating antibodies have been inactivated and have been replaced by human
antibody genes. To date, 15 companies have acquired the rights to use our
HuMAb-Mice in their development of new products, including major pharmaceutical
and biotechnology companies such as Novartis, Amgen, Immunex, Schering AG and
Centocor.
As new disease-related targets are continually being discovered through
genomic and other research programs, we intend to use our HuMAb-Mice and
additional human antibody technology to develop therapeutic products for
ourselves and for our existing and prospective corporate partners. To this end,
we have recently entered into a strategic alliance with Eos Biotechnology, Inc.
to develop and commercialize at least six and up to nine genomics-derived
antibody-based therapeutic products for the treatment or prevention of life
threatening diseases that may include breast, colorectal and prostate cancers.
Eos Biotechnology is a leader in the development, application and utilization
of a variety of genomics-derived product candidates.
We believe that genomic and other research techniques are leading to the
discovery of an unprecedented number of potential targets for therapeutic
antibody products. To date, nine monoclonal antibody-based products have been
approved for sale by the FDA. The estimated 1999 revenues for the six highest
selling of these antibodies are $1.3 billion worldwide. The majority of these
antibodies have been on the market for less than three years. Most of the
antibodies currently in development and all of the antibodies that form the
basis of products approved to date have been made in normal, or "wild type,"
mice and subsequently made "chimeric" or "humanized," leading to a product that
contains both human and rodent proteins. These remaining rodent proteins may be
recognized by a patient's immune system as "foreign," potentially limiting the
utility of the product or causing allergic reactions. Instead of engineering
mouse antibodies to make them humanized, we have genetically engineered mice so
that they make fully human antibodies.
Using our genetically engineered mice, it is possible to create and develop
product candidates very rapidly. We have recently been able to complete the
process of making a very high affinity human antibody to a therapeutic target,
and filed an investigational new drug application, or IND, with the FDA in less
than 12 months. We believe that this efficient and rapid development capability
will provide an attractive platform for product development for our corporate
partners and for our own in-house development programs.
The potential of our genetically engineered mice to rapidly generate high
affinity, fully human antibodies has led to numerous corporate partnerships
under which biopharmaceutical companies have acquired the right to use our
HuMAb-Mice. We initiated or expanded six corporate partnerships in 1998, and an
additional six in 1999. We are currently negotiating additional arrangements
and expect to enter into several new or expanded corporate partnerships in 2000
and in each of the next several years.
The financial terms of our corporate partnerships typically include license
fees and a series of milestone payments commencing upon initiation of clinical
trials through commercialization which may total up to $7 to $10 million per
target if the antibody receives approval from the FDA and equivalent foreign
agencies. We also will receive royalties on product sales. In some cases, our
corporate partners reimburse us for research and development activities
conducted on their behalf. Generally, under the terms of these collaborations,
our corporate partners are responsible for all costs of product development,
manufacturing and marketing of any products.
3
<PAGE>
We have recently announced that we have expanded our ability to create human
antibodies by entering into a binding letter of intent for a corporate
partnership with Kirin Brewery Co. Ltd. This arrangement will provide us with
the exclusive rights outside of Asia to use, and to provide our corporate
partners with access to, Kirin's Tc Mouse technology. Like our HuMAb-Mouse,
Kirin's Tc Mouse has been designed to create fully human antibodies. The Tc
Mouse is "transchromosomic," meaning that 100% of the human antibody genes
contained in the transplanted chromosomes are present in the mouse.
Over 200 companies are developing monoclonal antibody-based products. We
believe that many of these companies are potential partners for our HuMAb-Mouse
and Kirin's Tc Mouse technology. In part, this reflects the enormous increase
in knowledge about potential targets currently in research and development. For
example, genomics research has identified that there are over 100,000 human
genes, many of which are expected to be disease-related. In many cases, these
genes encode proteins that may be attractive targets for monoclonal antibody-
based products. We believe that our genetically engineered mice and our product
development experience coupled with our manufacturing facilities, which comply
with the applicable FDA current good manufacturing practice regulations, or
cGMP, will allow us to rapidly create and develop numerous fully human
antibodies based upon these targets. We intend to develop some of these
products for our own portfolio and some in collaboration with our existing and
prospective corporate partners.
In addition to our fully human antibody discovery capabilities, we also have
the resources to develop other monoclonal antibody products from creation
through preclinical development, clinical trials and clinical supply
manufacturing under the FDA's regulations. Prior to the acquisition of our
HuMAb-Mouse technology in 1997, this was the principal focus of our business
and led to eight products in clinical trials. All of these products were based
on mouse or humanized monoclonal antibodies. We have recently entered into
corporate partnerships with a number of companies and are seeking additional
alliances that will support the costs of developing this portfolio of mouse and
humanized monoclonal antibody-based products. For some of these products, we
have retained commercial rights in North America, and in other cases, we will
potentially receive milestone payments and royalties on commercial sales. We
believe that transferring the costs of developing our mouse and humanized
antibody-based products to these corporate partnerships will allow us to focus
our development efforts on new fully human monoclonal antibody-based products
and services.
----------------
We were incorporated in New Jersey on July 6, 1987. Our principal executive
offices are located at 707 State Road #206, Princeton, New Jersey 08540. Our
telephone number is (609) 430-2880.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered............................... 1,750,000
Common stock to be outstanding after the offering.. 34,418,395
Over-allotment option.............................. 262,500
Use of proceeds.................................... We intend to use the net
proceeds of this offering:
. to fund the in-
licensing of potential
therapeutic targets and
the development of
fully human antibody-
based products
utilizing these
targets;
. to fund the expansion
of our human antibody
partnering business;
. to fund expansion of
existing operations and
facilities; and
. for general corporate
purposes, including
research and
development expenses
and other working
capital requirements.
Nasdaq National Market symbol...................... MEDX
</TABLE>
Unless otherwise stated, all information contained in this prospectus
relating to the number of outstanding shares of our common stock excludes as of
February 29, 2000:
. 2,042,809 shares of common stock issuable upon the exercise of
outstanding options having a weighted average exercise price of $6.00
per share;
. 454,796 shares of common stock issuable upon exercise of warrants at an
exercise price of $10.00 per share;
. 1,625 shares reserved for issuance under our existing stock option plans
and 1,000,000 shares to be reserved for issuance under a new stock
option plan subject to shareholder approval; and
. 602,500 shares of common stock held in treasury.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with our
consolidated financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this prospectus. The consolidated statement of operations data for
the years ended December 31, 1997, 1998 and 1999 and the consolidated balance
sheet data at December 31, 1999, are derived from the audited consolidated
financial statements included in this prospectus. The "As Adjusted" balance
sheet data gives effect to the receipt of the estimated net proceeds from the
sale of 1,750,000 shares of common stock offered by us in this offering at an
assumed public offering price of $184.06 per share.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues......................................... $ 3,232 $ 6,792 $ 9,924
Costs and expenses:
Cost of sales.................................. 150 1,218 709
Research and development....................... 14,100 23,122 19,929
General and administrative..................... 3,644 5,065 8,036
Stock bonus to GenPharm employees.............. 2,275 -- --
Acquisition of in-process technology........... 40,316 -- --
-------- -------- --------
Total costs and expenses..................... 60,485 29,405 28,674
-------- -------- --------
Operating loss............................... (57,253) (22,613) (18,750)
Interest and dividend income..................... 1,903 1,956 1,205
Interest expense................................. (27) (1,539) (8)
-------- -------- --------
Loss before provision (benefit) for income
taxes....................................... (55,377) (22,196) (17,553)
Provision (benefit) for income taxes............. -- 341 (522)
-------- -------- --------
Net loss......................................... $(55,377) $(22,537) $(17,031)
======== ======== ========
Net loss per common share--basic and diluted..... $ (2.93) $ (.89) $ (.53)
======== ======== ========
Weighted-average number of common shares
outstanding during the period--basic and
diluted......................................... 18,871 25,390 31,920
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------
Actual As Adjusted
--------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities......... $ 30,147 $ 307,735
Working capital.......................................... 22,382 299,970
Cash reserved for genomics collaboration ................ -- 25,000
Total assets............................................. 40,482 343,070
Long-term obligations.................................... 6,023 6,023
Accumulated deficit...................................... (126,436) (126,436)
Total shareholders' equity............................... 22,299 324,887
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider each of the following risks and all of the
other information set forth in this prospectus before deciding to invest in
shares of our common stock. Some of the following risks relate principally to
our business and the industry in which we operate. Other risks relate
principally to the securities market and ownership of our common stock. The
risks described below are not the only ones facing our company. Additional
risks not presently known to us or that we currently believe to be immaterial
may also adversely affect our business. Our business, financial condition or
results of operations could be materially adversely affected by any of these
risks. The trading price of our common stock could decline due to any of these
risks, and you may lose all or part of your investment. This prospectus also
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
faced by us described below and elsewhere in this prospectus.
Risks Related To Our Business
Product candidates developed from our HuMAb-Mouse technology are in early
stages of development. Only one of our fully human monoclonal antibody
products has entered clinical trials. No product candidates employing our
human antibody technology have completed clinical trials.
Our human antibody technology is a new approach to the generation of
antibody-based therapeutic products. Product candidates employing our human
antibody technology are in early stages of development. Only a limited number
of fully human antibody product candidates employing our human antibody
technology have been generated pursuant to our collaborations, and only one of
these fully human monoclonal antibody product candidates has entered clinical
trials. Only one investigational new drug application, or IND, has been
submitted and clinical trials have not begun for any additional product
candidates employing our human antibody technology. In addition, we are not
aware of any commercialized fully human monoclonal antibody therapeutic
products that have been generated from any technologies similar to ours. We
cannot be certain that any product candidates employing our human antibody
technology will advance beyond the early stages of product development or
demonstrate clinical efficacy.
We cannot be certain that our human antibody technology will generate
antibodies against all the antigens to which it is exposed in an efficient and
timely manner, if at all. If our human antibody technology fails to generate
antibody product candidates, and if we or our partners do not succeed in the
development of products employing our antibody technology, those product
candidates may not be approved or commercialized and our business will suffer.
Our product candidates developed from mouse and humanized antibody
technologies are in early stages of development. None of these product
candidates has completed clinical trials. Further development of these
products will depend upon the efforts of our corporate partners.
Our mouse and humanized monoclonal antibody therapeutic products are still
under development, and no revenues have been generated from their sale. Prior
to the acquisition of our HuMAb-Mouse technology in 1997, these products were
the principal focus of our business and led to eight products in clinical
trials. All of these products were based on mouse or humanized antibodies.
Only one of such products progressed to Phase III clinical trials, enrollment
in which is currently suspended.
We have recently entered into corporate partnerships with a number of
companies and are seeking additional alliances that will support the costs of
developing our portfolio of mouse and humanized monoclonal antibody-based
product candidates. The success of these products is dependent upon the
efforts of our corporate partners in developing these products in the future.
Neither we nor our present or proposed corporate partners know if any of these
products will be effective, or if significant toxic side effects will occur
negating the therapeutic utility, if any, of these product candidates.
7
<PAGE>
We have incurred large operating losses and these losses may continue.
We have incurred large operating losses and these losses may continue. In
particular, as of December 31, 1999, we had an accumulated deficit of
approximately $126.4 million. Our losses have resulted principally from:
. research and development costs relating to the development of our
technology and antibody product candidates; and
. general and administrative costs relating to our operations.
We intend to continue to make significant investments in:
. preclinical testing and clinical trials;
. research and development;
. establishing new collaborations; and
. investing in new technologies.
We do not know when or if we or our corporate partners will complete any
pending or future product development efforts, receive regulatory approval or
successfully commercialize any approved products. We may continue to incur
substantial operating losses even if our revenues increase. As a result, we
cannot predict the extent of future losses or the time required for us to
achieve profitability, if at all.
Our operating results may vary significantly from period-to-period and these
variations may be difficult to predict. These variations may adversely affect
the trading price of our common stock.
Our future revenues and operating results are expected to vary
significantly from period-to-period due to a number of factors. Many of these
factors are outside of our control. These factors include:
. the timing of the commencement, completion or termination of
collaborative agreements;
. the introduction of new products and services by us, our collaborative
partners or our competitors;
. delays in preclinical testing and clinical trials;
. costs and expenses associated with preclinical testing and clinical
trials;
. the timing of regulatory approvals, if any;
. sales and marketing expenses; and
. the amount and timing of operating costs and capital expenditures
relating to the expansion of our business operations and facilities.
Our revenues in any particular period may be lower than we anticipate and,
if we are unable to reduce spending in that period, our operating results will
be adversely affected. You should not rely on period-to-period comparisons of
our results of operations as an indication of future performance.
It is likely that in some future periods our results of operations may be
below the expectations of public market analysts and investors. If this
occurs, the price of our common stock may decline.
Clinical trials will need to be conducted for all product candidates employing
our antibody technology. These trials are expensive and time-consuming, and
their outcome is uncertain.
Product candidates employing our antibody technology must demonstrate that
they are safe and effective for use in humans through preclinical testing and
clinical trials in order to be approved for commercial sale. Conducting
clinical trials is a lengthy, time-consuming and expensive process. The length
of time may vary substantially according to the type, complexity, novelty and
intended use of the product candidate, and often can
8
<PAGE>
be several years or more. Delays associated with products for which we are
directly conducting preclinical or clinical trials will cause us to incur
additional operating expenses. The commencement and rate of completion of
clinical trials may be delayed by many factors, including:
. inability to manufacture sufficient quantities of qualified cGMP
materials for clinical trials;
. slower rates of patient recruitment;
. inability to adequately observe patients after treatment;
. unforeseen safety issues; and
. government or regulatory delays.
Even if we obtain positive results from preclinical or clinical trials, we
may not achieve the same success in future trials. Clinical trials may not
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals for product candidates employing our human antibody technology. The
failure of clinical trials to demonstrate safety and efficacy for our desired
indications could harm the development of that product candidate as well as
other product candidates, and our business and results of operations will
suffer.
Market acceptance for product candidates employing our antibody technology is
uncertain. If these products fail to gain acceptance, our business will
suffer.
Even if clinical trials demonstrate the safety and efficacy of products
developed by us or our corporate partners using our technology and all
regulatory approvals have been obtained, product candidates employing our
antibody technology may not gain market acceptance among physicians, patients,
third-party payors and the medical community. For example, the current
delivery systems for antibody-based therapeutic products are intravenous and
subcutaneous injection, which are generally less well received by patients
than tablets or capsule delivery. The degree of market acceptance of any
product candidates employing our technology will depend on a number of
factors, including:
. establishment and demonstration of clinical efficacy and safety,
especially as compared to conventional treatments;
. cost-effectiveness;
. alternative treatment methods;
. reimbursement policies of government and third-party payors; and
. marketing and distribution support for our product candidates.
In addition, many of our activities involve genetic engineering in animals
and animal testing. These types of activities have been the subject of
controversy and adverse publicity. Animal rights groups and various other
organizations and individuals have attempted to stop genetic engineering
activities and animal testing by lobbying for legislation and regulation in
these areas.
If products employing our technology do not achieve significant market
acceptance, our business will suffer.
The successful commercialization of our antibody products will depend on
obtaining coverage and reimbursement for use of these products from third-
party payors.
Sales of pharmaceutical products largely depend on the reimbursement of
patients' medical expenses by government health care programs and private
health insurers. Without the financial support of the governments or third-
party payors, the market for products employing our human antibody technology
will be limited. We cannot be sure that third-party payors will reimburse
sales of products employing our human antibody technology, or enable us or our
corporate partners to sell them at profitable prices.
9
<PAGE>
Third-party payors control health care costs by limiting both coverage and
the level of reimbursement for new health care products. In the future, the US
government may institute price controls and further limits on Medicare and
Medicaid spending. Internationally, medical reimbursement systems vary with
differing degrees of regulation. Pricing controls and reimbursement
limitations could affect the payments we receive from sales of products
employing our human antibody technology. These variations could harm our
ability and the ability of our corporate partners to sell products employing
our human antibody technology in commercially acceptable quantities at
profitable prices.
We have limited manufacturing capabilities. If we are unable to expand our
current facilities to manufacture adequate quantities of products to meet
demand, our business and financial condition will be harmed.
To be successful, our therapeutic products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. While we believe our current facilities are adequate for the
limited production of product candidates for clinical trials, our facilities
are not yet adequate to produce sufficient quantities of any products for
commercial sale. We may seek to expand our facilities to manufacture some
products commercially. In order to manufacture products for such purposes, we
will have to enhance our existing facilities and obtain requisite consents, or
acquire new facilities, which will require additional funds and inspection and
approval by the FDA and other regulatory agencies. We have no experience in
large-scale manufacturing, and we may not be able to successfully increase our
capacity or achieve profitability.
We have no sales or marketing experience. If we are unable to develop adequate
sales and marketing capabilities, we may be unable to directly commercialize
our products.
We currently have no sales, marketing or distribution capabilities. We may
choose to market some of our products directly through a sales and marketing
force. In order to do this, we will have to develop a sales and marketing
staff and establish distribution capability. Developing a sales and marketing
force would be expensive and time-consuming and could delay any product
launch. If we choose to market any of our products directly but are unable to
successfully implement a marketing and sales force, our business and operating
results will be harmed.
We are dependent on our corporate partners to fund our business and to develop
products employing our antibody technology.
We depend on our corporate partners to fund our business and to develop
products employing our antibody technology. We rely on our corporate partners
to:
. fund our business operations;
. access proprietary antigens for the development of product candidates;
. fund our research and development activities;
. fund and conduct preclinical testing and clinical trials;
. seek and obtain regulatory approvals;
. manufacture products; and
. commercialize and market future products.
Our dependence on our corporate partners subjects us to a number of risks,
including:
. our corporate partners have significant discretion whether to pursue
planned activities;
. we cannot control the quantity and nature of the resources our corporate
partners may devote to product candidates;
. our corporate partners may not develop products employing our antibody
technology as expected;
10
<PAGE>
. business combinations or significant changes in a corporate partner's
business strategy may adversely affect that partner's willingness or
ability to continue to pursue these product candidates; and
. our corporate partners may require us to grant exclusive research and
development or marketing rights.
If we do not realize the contemplated benefits from our corporate
partnerships, our business will suffer.
If a significant number of our existing corporate partnerships are not
completed or are terminated, or if we are not able to establish additional
corporate partnerships, we may be required to increase our internal product
development and commercialization efforts.
We have entered into a binding letter of intent with Eos Biotechnology to
develop and commercialize at least six and up to nine genomics-derived
antibody-based therapeutic products. The binding letter of intent includes the
principal terms of the transaction which will be incorporated into a
definitive agreement. By its terms, the letter of intent will remain in full
force and effect and the parties will operate in accordance with its terms
until such time as a definitive agreement is executed. If we are unable to
agree on the terms of the definitive agreement, our business may be harmed. We
have signed a binding letter of intent with Kirin with respect to its Tc Mouse
and our HuMAb-Mouse technologies. This binding letter of intent includes the
principal terms of the transaction. Any additional terms are subject to the
execution of a definitive agreement. If we cannot agree with Kirin on these
additional terms, an arbitrator will decide on the additional terms. If these
additional terms are not favorable to us, our business may be harmed. We have
also signed a binding letter of intent with Scil Biomedicals GmbH relating to
some of our mouse and humanized antibody products. This letter of intent sets
forth the principal terms of the transaction which are to be incorporated into
a definitive agreement. If we cannot agree on the terms of this agreement, our
business may be harmed. In addition, we have signed a non-binding letter of
intent with Immuno-Designed Molecules, S.A., or IDM, a biotechnology company
based in Paris, France, to collaborate on certain antibody products. We cannot
assure you that we will be able to negotiate a definitive agreement with IDM
on terms that are favorable to us, if at all.
We have entered into corporate partnerships and intend to enter into
additional corporate partnerships with third parties in the future. In
addition, our corporate partners generally have the right to terminate our
corporate partnerships at any time. Lengthy negotiations with potential new
corporate partners or disagreements between us and our corporate partners may
lead to delays or termination in the research, development or
commercialization of product candidates. If we are not able to establish
additional corporate partnerships on terms that are favorable to us or if a
significant number of our existing corporate partnerships are terminated and
we cannot replace them, we may be required to increase our internal product
development and commercialization efforts. This would likely:
. limit the number of product candidates that we will be able to develop
and commercialize;
. reduce the likelihood of successful product introduction;
. significantly increase our need for capital; and\
. place additional strain on management's time.
We may have conflicts of interest with our corporate partners that could
adversely affect expectations regarding our collaborations.
We may have conflicts of interest with our corporate partners that could
adversely affect our business. For example, existing or future corporate
partners may pursue alternative technologies, including those of our
competitors. Disputes may arise with respect to the ownership of rights to any
technology or products developed with any current or future corporate partner.
If our corporate partners pursue alternative technologies or fail to develop
or commercialize successfully any product candidate to which they have
obtained rights from us, our business will suffer.
11
<PAGE>
We have a minority interest in a foreign entity and expect to obtain a
minority interest in an additional foreign entity. There may be conflicts of
interest between us and these entities.
We have a 45% interest in Genmab, a Danish company we formed along with
outside investors to develop and commercialize a portfolio of fully human
antibodies derived from our HuMAb-Mouse technology. We currently have a 6%
interest in IDM and expect to obtain additional equity in IDM, or a comparable
interest in a new jointly owned entity, which will result in us having a 43%
aggregate equity interest in such entity. IDM intends to develop and
commercialize a portfolio of antibody-based products. We will have significant
minority ownership positions in each of these entities, but we will also have
contractual obligations and rights which could result in conflicts between us
and these entities.
We are dependent on our key personnel. If we are not able to attract and
retain key employees and consultants, our business could be harmed.
We are highly dependent on the members of our scientific and management
staff. If we are not able to retain any of these persons, our business may
suffer. In particular, we depend on the services of Donald L. Drakeman, our
President and Chief Executive Officer, and Michael A. Appelbaum, our Executive
Vice President-Finance and Administration, Secretary and Treasurer. For us to
pursue product development, marketing and commercialization plans, we will
need to hire additional qualified scientific personnel to perform research and
development. We will also need to hire personnel with expertise in clinical
testing, government regulation, manufacturing, marketing and finance. We may
not be able to attract and retain personnel on acceptable terms, given the
competition for such personnel among biotechnology, pharmaceutical and
healthcare companies, universities and non-profit research institutions. If we
are not able to attract and retain qualified personnel, our business will
suffer.
We depend on patents and proprietary rights. If we cannot adequately protect
our patent and proprietary rights, our business will suffer.
Our success depends in part on our ability to:
. protect trade secrets;
. operate without infringing upon the proprietary rights of others; and
. obtain patents.
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We protect our proprietary position by filing United States and foreign patent
applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. While a
number of patents have been issued in the United States and Europe relating to
our human antibody technology, we may not be able to obtain patent protection
in other countries. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. The patent position of biotechnology companies involves complex
legal and factual questions and, therefore, enforceability cannot be predicted
with certainty. Patents, if issued, may be challenged, invalidated or
circumvented. Thus, any patents that we own or license from third parties may
not provide sufficient protection against competitors. Also, patent rights may
not provide us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have
developed. The laws of foreign countries may not protect our intellectual
property rights to the same extent as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary know-how.
We seek protection, in part, through confidentiality and proprietary
information agreements. These agreements may not provide protection or
adequate remedies for our human antibody technology in the event of
unauthorized use or disclosure of confidential and proprietary information, or
breach of these agreements. Furthermore, our trade secrets may otherwise
become known to, or be independently developed by, our competitors.
12
<PAGE>
Our commercial success depends significantly on our ability to operate
without infringing the patents and other proprietary rights of third parties.
In the event that our technologies may infringe on the patents or violate
other proprietary rights of third parties, we and our corporate partners may
be prevented from pursuing product development or commercialization. Such a
result would harm our business.
If the validity of our patents or other proprietary rights is challenged, our
business will suffer.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property lawsuits, United States
Patent and Trademark Office interference proceedings and related legal and
administrative proceedings in the United States and internationally involve
complex legal and factual questions. As a result, such proceedings are costly
and time-consuming to pursue and their outcome is uncertain. Litigation may be
necessary to:
. enforce our issued and licensed patents;
. protect trade secrets or know-how that we own or license; or
. determine the enforceability, scope and validity of the proprietary
rights of others.
If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts
of our technical and management personnel will be diverted. An adverse
determination may subject us to significant liabilities or require us to seek
licenses that may not be available from third parties on commercially
favorable terms, if at all. Therefore, we and our collaborative partners may
be restricted or prevented from manufacturing and selling products employing
our human antibody technology, which would harm our business.
In some cases, litigation or other proceedings may be necessary to defend
against or to assert claims of infringement, to enforce patents issued to us
or our licensors, to protect trade secrets, know-how or other intellectual
property rights owned by us, or to determine the scope and validity of the
proprietary rights of third parties. Such litigation could result in
substantial costs to us. An adverse outcome in any such litigation or
proceeding could subject us to significant liabilities, requiring us to cease
using the subject technology or to license the subject technology from the
third party. This could have a material adverse effect on our business,
financial condition and results of operations.
Even though we have received patents pertaining to the HuMAb-Mouse
technology, this does not mean that we and our permitted licensees of HuMAb-
Mice will have exclusive rights to antibodies against all targets that are
made using this technology, or that we or our licensees will have the right to
make, develop, use or sell such antibodies.
. Our patents covering the HuMAb-Mouse technology include patents that
cover particular human monoclonal antibodies. These patents do not cover
all human antibodies.
. Our patents may not protect against the importation of products, such as
antibodies, made using HuMAb-Mouse technology.
. Moreover, other parties could have blocking patent rights to products
made using HuMAb-Mouse technology, such as antibodies, and their
production and uses, either because of a proprietary position covering
the antibody or the antibody's target. For example, we are aware of
certain United States and European patents held by third parties
relating to particular targets for their human monoclonal antibodies, to
human monoclonal antibodies against various targets and bispecific
products, and the manufacture and use of such products. In particular,
we are aware of a patent in the United States and Europe which pertains
to certain monoclonal antibodies against CTLA-4.
We seek to obtain licenses to such patents when, in our judgment, such
licenses are needed. If any licenses are required, we may not be able to
obtain any such license on commercially favorable terms, if at all. If these
13
<PAGE>
licenses are not obtained, we may be prevented from using certain of our
technologies or taking certain products to market. Our failure to obtain a
license to any required technology or product may have a material adverse
effect on our business, financial condition and results of operations. We
cannot assure you that our products and/or actions in developing or selling
our products will not infringe such patents. In general, our patent protection
may not prevent others from developing competitive products using our
technology or other technologies. Similarly, others may obtain patents that
could limit our ability and the ability of our licensees to use, import,
manufacture, market or sell products or impair our competitive position and
the competitive position of our licensees.
We are not the exclusive owner of the technology underlying our HuMAb-Mice.
In March 1997, GenPharm entered into a cross-license and settlement agreement
with Abgenix, Cell Genesys, Inc., Xenotech, L.P. and Japan Tobacco, Inc.,
pursuant to which Abgenix and these entities paid us and GenPharm a total of
approximately $38.6 million during 1997 and 1998. This payment was in exchange
for a non-exclusive license to certain patents, patent applications, third-
party licenses and inventions pertaining to the development and use of certain
transgenic rodents, including mice, that produce fully human antibodies that
are integral to our products and business. These patents, licenses and
inventions form the basis of our HuMAb-Mouse technology. Our business may
suffer from the competition of these entities or if any of these entities
breach the cross-license and settlement agreement.
We may face product liability claims related to the use or misuse of products
employing our antibody technology which may harm our business, financial
condition and results of operations.
The administration of drugs to humans, in clinical trials or after
commercialization, exposes us to product liability claims. Product liability
claims may be expensive to defend and may result in large judgments against
us. In November 1998, we voluntarily suspended clinical trials for one of our
products after some patients experienced serious adverse events, or SAEs. In
connection with the trial, we received a small number of claims against us. We
believe that our product liability insurance is sufficient to cover the
claims. We currently maintain liability insurance with specified coverage
limits. Although we believe these coverage limits are adequate, we cannot be
certain that the insurance policies will be sufficient to cover all claims
that may be made against us. Product liability insurance is expensive,
difficult to obtain and may not be available in the future on acceptable
terms. Any claims against us, regardless of their merit, could harm our
business, financial condition and results of operations.
We face intense competition and rapid technological change, and the failure to
compete effectively would harm our business.
The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. Developments by our
competitors may render our human antibody technology obsolete or non-
competitive. We are aware of several pharmaceutical and biotechnology
companies that are actively engaged in research and development in areas
related to antibody therapy. These companies have commenced clinical trials of
antibody products or have successfully commercialized antibody products. Many
of these companies are addressing the same diseases and disease indications as
we and our corporate partners. Also, we compete with companies that offer
antibody generation services to companies that have antigens. These
competitors have specific expertise or technology related to antibody
development. We compete directly with Abgenix, Inc., with respect to the
generation of fully human antibodies from transgenic mice. We also compete
with Cambridge Antibody Technology Group plc and MorphoSys AG with respect to
the generation of fully human antibodies derived from phage display
technology, and with Protein Design Labs, Inc. with respect to humanized
murine antibodies.
Some of our competitors have received regulatory approval or are developing
or testing product candidates that compete directly with product candidates
employing our antibody technology. Many of these companies and institutions,
either alone or together with their corporate partners, have substantially
greater financial resources
14
<PAGE>
and larger research and development staffs than we or some of our corporate
partners do. In addition, many of these competitors have significantly greater
experience than we do in:
. developing products;
. undertaking preclinical testing and clinical trials;
. obtaining FDA and other regulatory approvals of products; and
. manufacturing and marketing products.
Accordingly, our competitors may obtain patent protection, receive FDA
approval or commercialize products before we or our corporate partners do. If
we or our corporate partners commence commercial product sales, we or our
corporate partners will be competing against companies with greater marketing
and manufacturing capabilities, areas in which we and certain of our corporate
partners have limited or no experience.
We also face intense competition from other pharmaceutical and
biotechnology companies to establish corporate partnerships, as well as
relationships with academic and research institutions, and to license
proprietary technology. These competitors, either alone or with their
corporate partners, may succeed in developing technologies or products that
are more effective than ours.
If our operating losses are greater than anticipated, we may need substantial
additional funding. We may not be able to obtain sufficient funds to grow our
business or continue our operations.
We will continue to expend substantial resources for research and
development, including costs associated with developing our antibody
technology and conducting preclinical testing and clinical trials. Our future
liquidity and capital requirements will depend on:
. the size and complexity of research and development programs;
. the scope and results of preclinical testing and clinical trials;
. the retention of existing and establishment of further corporate
partnerships, if any;
. continued scientific progress in our research and development programs;
. the time and expense involved in seeking regulatory approvals;
. competing technological and market developments;
. the time and expense of filing and prosecuting patent applications and
enforcing patent claims; and
. the cost of establishing manufacturing capabilities, conducting
commercialization activities and arrangements and in-licensing products.
We may be unable to raise sufficient funds to complete development of any
of our product candidates or to continue operations. As a result, we may face
delay, reduction or elimination of research and development programs or
preclinical or clinical trials, in which case our business will suffer.
Risks Related to Government Approvals
We are subject to extensive and costly government regulation. If we fail to
obtain or maintain governmental approvals, we will not be able to
commercialize our products and our business will suffer.
Product candidates employing our human antibody technology are subject to
extensive and rigorous domestic government regulation. The FDA regulates the
development, testing, manufacture, safety, efficacy, record-keeping, labeling,
storage, approval, advertising, promotion, sale and distribution of
biopharmaceutical products. If products employing our human antibody
technology are marketed abroad, they will also be subject
15
<PAGE>
to extensive regulation by foreign governments. The regulatory review and
approval process, which includes preclinical testing and clinical trials of
each product candidate, is lengthy, expensive and uncertain. Securing FDA
approval requires the submission of extensive preclinical and clinical data
and supporting information to the FDA for each indication to establish the
candidate's safety and efficacy. The approval process takes many years,
requires substantial resources, involves post-marketing surveillance, and may
involve ongoing post-marketing studies. Delays in obtaining regulatory
approvals may:
. adversely affect the successful commercialization of any drugs that we
or our corporate partners develop;
. impose costly procedures on us or our corporate partners;
. diminish any competitive advantages that we or our corporate partners
may attain; and
. adversely affect our receipt of revenues or royalties.
Material changes to an approved product, such as manufacturing changes or
additional labeling claims, require further FDA review and approval. Once
obtained, any approvals may be withdrawn. Further, if we, our corporate
partners or our contract manufacturers fail to comply with applicable FDA and
other regulatory requirements at any stage during the regulatory process, the
FDA may impose sanctions, including:
. delays;
. warning letters;
. fines;
. product recalls or seizures;
. injunctions;
. refusal of the FDA to review pending market approval applications or
supplements to approval applications;
. total or partial suspension of production;
. civil penalties;
. withdrawals of previously approved marketing applications; or
. criminal prosecutions.
We expect to rely on our corporate partners to file INDs and direct the
regulatory approval process for products employing our human antibody
technology. Our corporate partners may not be able to conduct clinical testing
or obtain necessary approvals from the FDA or other regulatory authorities for
any product candidates employing our human antibody technology. If they fail
to obtain required governmental approvals, our corporate partners will be
delayed or precluded from marketing these products. As a result, commercial
use of products employing our technology will not occur and our business may
be harmed.
We do not have, and may never obtain, the regulatory approvals we need to
market our product candidates.
To date, we have not applied for or received the regulatory approvals
required for the commercial sale of our products in the United States or in
any foreign jurisdiction. None of our product candidates has been determined
to be safe and effective, and we have not submitted a new drug application, or
NDA, to the FDA or to any foreign regulatory authorities for any of our
product candidates. We have only limited experience in filing and pursuing
applications necessary to obtain regulatory approval, and we cannot assure you
that any of our product candidates will be approved for marketing.
16
<PAGE>
If our manufacturing partners do not obtain or maintain current good
manufacturing practices, we may not be able to commercialize our product
candidates.
We will depend on our corporate partners and other third parties to
manufacture products employing our human antibody technology. Before
commercializing a new drug, manufacturers must comply with the applicable FDA
current good manufacturing practice regulations, or cGMP, which include
quality control and quality assurance requirements as well as the maintenance
of records and documentation. Manufacturing facilities are subject to ongoing
periodic inspection by the FDA and corresponding state agencies, including
unannounced inspections, and must be licensed before they can be used in
commercial manufacturing of products employing our technology. After
regulatory approvals are obtained, the subsequent discovery of previously
unknown problems or failure to maintain compliance with the regulatory
requirements may result in restrictions on the marketing of a product,
withdrawal of the product from the market, seizures, injunctions, or criminal
sanctions. We cannot assure you that such third parties will be able to comply
with the applicable regulations.
Our operations involve hazardous materials and are subject to environmental
controls and regulations.
Our business activities involve the controlled use of hazardous materials.
We cannot eliminate the risk of accidental contamination or injury from these
materials. In the event of an accident or environmental discharge, we may be
held liable for any resulting damages, which may exceed our financial
resources and may materially adversely affect our business, financial
condition and results of operations.
Risks Related To This Offering
The possible volatility of our stock price could significantly affect the
value of your investment.
There has been significant volatility in the market prices of biotechnology
companies' securities. Various factors and events may have a significant
impact on the market price of our common stock. These factors include:
. fluctuations in our operating results;
. announcements of technological innovations or new commercial therapeutic
products by us or our competitors;
. published reports by securities analysts;
. progress with clinical trials;
. governmental regulation;
. developments in patent or other proprietary rights;
. developments in our relationship with collaborative partners;
. public concern as to the safety and efficacy of our products; and
. general market conditions.
The trading price of our common stock has been, and could continue to be,
subject to wide fluctuations in response to these factors, including the sale
or attempted sale of a large amount of our common stock into the market. Broad
market fluctuations may also adversely affect the market price of our common
stock.
The total price you will pay for our common stock in the offering will be much
more than the value of our assets after subtracting our liabilities.
The price you will pay for our common stock will be much more than the book
value per share of our outstanding common stock after the offering.
Accordingly, you will suffer immediate and substantial dilution of your
investment. In the past, we have issued options and warrants to buy our common
stock at prices below the offering price. You will experience further dilution
upon the exercise of outstanding stock options and warrants.
17
<PAGE>
Future sales of our common stock could cause the market price of our common
stock to decline.
As of February 29, 2000, we have 32,668,395 shares of common stock
outstanding, of which 3,257,354 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 registration pursuant to such
rule. In addition, the holders of 1,023,341 shares of such restricted
securities are entitled to registration rights which could expedite the resale
of such shares into the public market. We are unable to predict the effect
that sales made under Rule 144 or pursuant to any registration may have on the
market price of our common stock. The sale of a significant number of
additional securities, or even the possibility thereof, may lower the market
price of these securities.
We have filed registration statements on Form S-3 under the Securities Act
relating to 4,246,673 shares of common stock that may be offered by certain of
our stockholders and corporate partners. These shares of common stock are
freely tradable without restriction or further registration under the
Securities Act, except for shares held by our affiliates, which will be
subject to resale limitations of Rule 144.
In addition, we have filed registration statements on Form S-8 under the
Securities Act which cover 2,042,809 shares of common stock currently issuable
under our stock option plans. Shares issued under these plans, other than
shares issued to affiliates, will be freely tradable in the public market.
All of the shares of our common stock sold in this offering will be freely
tradable under the Securities Act unless purchased by our affiliates. In
connection with this offering, our officers and directors, as well as
shareholders holding an aggregate of 4,176,673 shares of our common stock,
will be required to refrain from selling shares of our common stock for a
period of 90 days after the date of this prospectus without the written
consent of the underwriters.
Our restated certificate of incorporation and New Jersey law contain
provisions that could delay or prevent an acquisition of our company.
Our restated certificate of incorporation and by-laws contain provisions
that may discourage third parties from seeking to acquire our company. These
provisions include:
. a classified board of directors;
. a requirement that special meetings of shareholders be called only by
our board of directors, chairman of the board, chief executive officer
or president;
. advance notice requirements for shareholder proposals and nominations;
. limitations on the ability of shareholders to amend, alter or repeal our
by-laws; and
. the authority of the board of directors to issue, without shareholder
approval, preferred stock with such terms as the board of directors may
determine.
We are also afforded the protections of the New Jersey Shareholders
Protection Act. This New Jersey statute contains provisions which impose
restrictions on shareholder action to acquire control of our company. The
effect of the provisions of our restated certificate of incorporation and by-
laws and New Jersey law may discourage third parties from acquiring control of
our company.
Our management will have broad discretion as to the use of proceeds of this
offering.
Our management will have broad discretion regarding how we use the net
proceeds of this offering. You will be relying on the judgment of management
regarding the application of the proceeds of the offering. The results and
effectiveness of our use of the proceeds from this offering are uncertain.
18
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus including, without
limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results,
performance or achievements, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. We believe that it is important to
communicate our future expectations to our investors. However, there may be
events in the future that we are not able to accurately predict or control.
The factors listed above in the section captioned "Risk Factors," as well as
any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking
statements.
Certain of these factors are discussed in more detail elsewhere in this
prospectus, including, without limitation, under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Given these
uncertainties, you should not place undue reliance on such forward-looking
statements. We disclaim any obligation to update any such factors or to
publicly announce the result of any revisions to any of the forward-looking
statements contained herein, to reflect future events or developments. Before
you invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, results of operations and
financial position.
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 1,750,000 shares of our common stock
in this offering are estimated to be approximately $302.6 million, assuming a
public offering price of $184.06 per share, after deducting underwriting
discounts and commissions and estimated expenses. If the underwriters' over
allotment is exercised in full, we estimate that our net proceeds will be
approximately $348.1 million. We intend to use the net proceeds of this
offering:
. to fund the in-licensing of potential therapeutic targets and the
development of fully human antibody-based products utilizing these
targets;
. to fund the expansion of our human antibody partnering business;
. to fund expansion of existing operations and facilities; and
. for general corporate purposes, including research and development
expenses and other working capital requirements.
We have recently entered into a binding letter of intent with Eos
Biotechnology to develop and commercialize genomics-derived antibody-based
therapeutic products. Pursuant to the letter of intent, on or before May 15,
2000 we are required to pay $5.0 million to Eos Biotechnology and to deposit
an additional $20.0 million in a third party escrow account to be released
over time to Eos Biotechnology upon the achievement of certain milestones. We
have no other present commitments or agreements with respect to any
acquisitions of, or investment in, any new technologies. Our management will
have broad discretion to allocate proceeds from this offering to uses that it
believes are appropriate. Pending such uses, the net proceeds of this offering
will be invested in short-term, investment grade, interest-bearing securities.
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PRICE RANGE OF COMMON STOCK
Our common stock is listed on the Nasdaq National Market under the symbol
"MEDX." The following table sets forth the high and low sale prices per share
of common stock, as reported on the Nasdaq National Market, during the periods
indicated.
<TABLE>
<CAPTION>
Common Stock
Price
--------------
High Low
------- ------
<S> <C> <C>
Year ended December 31, 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
Year ended December 31, 1999
First Quarter................................................. $ 4.31 $ 2.88
Second Quarter................................................ $ 5.97 $ 2.88
Third Quarter................................................. $ 9.97 $ 4.00
Fourth Quarter................................................ $ 41.50 $ 6.44
Year ending December 31, 2000
First Quarter (through March 1)............................... $185.25 $28.38
</TABLE>
The number of shares of our common stock outstanding as of February 29,
2000 was 32,668,395. As of such date, there were approximately 584 record
holders of common stock.
DIVIDEND POLICY
We currently expect to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual basis and on an adjusted basis after giving effect to our receipt
of the estimated net proceeds from the sale of 1,750,000 shares of common
stock offered by us in this offering at an assumed offering price of $184.06
per share and after deducting the estimated underwriting discounts and
commissions and other offering expenses to be paid by us. You should read the
information in this table together with the "Use of Proceeds," "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections of this prospectus and our
consolidated financial statements and the accompanying notes included in this
prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
Deferred contract revenue-long-term...................... $ 6,000 $ 6,000
Other long-term obligations.............................. 23 23
Shareholders' 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,
32,714,942 issued and 32,112,442 outstanding, actual
and 34,464,942 shares issued and 33,862,442
outstanding, as adjusted.............................. 327 345
Capital in excess of par value......................... 149,032 451,602
Treasury stock, at cost; 602,500 shares actual and
602,500 shares as adjusted............................ (3,031) (3,031)
Deferred compensation.................................. 2,970 2,970
Accumulated other comprehensive loss................... (563) (563)
Accumulated deficit.................................... (126,436) (126,436)
-------- --------
Total shareholders' equity........................... $ 22,299 $324,887
-------- --------
Total capitalization............................... $ 28,322 $330,910
======== ========
</TABLE>
The total number of shares outstanding after this offering do not include:
. 262,500 shares of common stock issuable upon the exercise of the
underwriters' over-allotment option;
. 2,042,809 shares of common stock issuable upon exercise of outstanding
options having a weighted average exercise price of $6.00 per share, as
of February 29, 2000;
. 454,796 shares of common stock issuable upon the exercise of certain
warrants at an exercise price of $10.00 per share;
. 1,625 shares reserved for future grants under our stock option plans and
1,000,000 shares to be reserved for issuance under a new stock option
plan subject to shareholder approval; and
. 602,500 shares of common stock held in treasury.
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<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was $21,832,000 or $.68
per share. Net tangible book value per share is determined by dividing our
tangible net worth by the total number of shares of common stock outstanding
on December 31, 1999. After giving effect to the assumed sale of 1,750,000
shares of our common stock in this offering at a price of $184.06 per share,
and deducting underwriting discounts and commissions and estimated expenses,
our pro forma net tangible book value as of December 31, 1999 would have been
approximately $324,420,000 or $9.58 per share. This represents an immediate
increase in net tangible book value per share of $8.90 to our shareholders,
and an immediate dilution in net tangible book value per share of $174.48 to
purchasers of common stock in the offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.......................... $184.06
Net tangible book value per share at December 31, 1999......... $ .68
Increase in net tangible book value per share attributable to
new investors................................................. $8.90
-----
Net tangible book value per share after the offering............. 9.58
-------
Dilution per share to new investors.............................. $174.48
=======
</TABLE>
Dilution is determined by subtracting net tangible book value per share
after the offering from the public offering price per share.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement
of operations data for the years ended December 31, 1997, 1998 and 1999 and
the consolidated balance sheet data as of December 31, 1998 and 1999 are
derived from our consolidated financial statements that have been audited by
Ernst & Young LLP, independent auditors, and are included elsewhere in this
prospectus. The consolidated statement of operations data for the years ended
December 31, 1995 and 1996 are derived from our audited consolidated financial
statements not included in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Sales....................... $ 312 $ 255 $ 221 $ 1,349 $ 1,079
Grants, contract and license
revenues................... 1,467 1,626 3,011 5,443 8,845
------- ------- -------- -------- --------
Total revenues............. 1,778 1,881 3,232 6,792 9,924
Costs and expenses:
Cost of sales............... 123 132 150 1,218 709
Research and development.... 6,442 7,596 14,100 23,122 19,929
General and administrative.. 2,275 2,558 3,644 5,065 8,036
Stock bonus to GenPharm
employees.................. -- -- 2,275 -- --
Acquisition of in-process
technology................. -- -- 40,316 -- --
------- ------- -------- -------- --------
Operating loss............. (7,062) (8,405) (57,253) (22,613) (18,750)
Interest and dividend income.. 561 1,542 1,903 1,956 1,205
Interest expense.............. (8) (5) (27) (1,539) (8)
------- ------- -------- -------- --------
Loss before provision
(benefit) for income
taxes..................... (6,509) (6,868) (55,377) (22,196) (17,553)
Provision (benefit) for income
taxes........................ -- -- -- 341 (522)
------- ------- -------- -------- --------
Net loss................... $(6,509) $(6,868) $(55,377) $(22,537) $(17,031)
======= ======= ======== ======== ========
Basic and diluted net loss per
share(1)..................... $ (.69) $ (.45) $ (2.93) $ (.89) $ (.53)
======= ======= ======== ======== ========
Weighted average common shares
outstanding(1)............... 9,457 15,289 18,871 25,390 31,920
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities.......... $ 34,664 $ 30,147
Working capital........................................... 29,581 22,382
Total assets.............................................. 42,235 40,482
Long-term obligations..................................... 62 6,023
Accumulated deficit....................................... (109,405) (126,436)
Total shareholders' equity................................ 35,229 22,299
</TABLE>
- --------
(1) Computed on the basis described for net loss per share in note 2 to the
consolidated financial statements.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our consolidated
financial statements and the accompanying notes included elsewhere in this
prospectus and contains trend analysis and other forward-looking statements
that involve substantial risks and uncertainties. Our actual results could
differ materially from those expressed or implied in these forward-looking
statements as a result of various factors.
Basis of Financial Statement Presentation
We are primarily engaged in the discovery and development of human
antibody-based therapeutics to fight cancer and other life-threatening and
debilitating diseases. We have developed a broad platform of patented
technologies for antibody discovery and development, including our technology
for the creation of high affinity fully human antibodies. Through our 1997
acquisition of GenPharm International, Inc., and our recent letter of intent
for our collaboration with Kirin, we expanded our business to include both our
HuMAb-Mouse and Kirin's Tc Mouse technologies. These technologies allow us to
rapidly create fully human antibodies in about two to four months. Not only
can we create new proprietary products, but these technologies provide us with
the opportunity to expand our corporate collaborations with both existing and
new partners. We entered into six new corporate partnerships relating to the
HuMAb-Mouse technology during 1998 and an additional six new corporate
partnerships in 1999. To date, we have received upfront payments and we
anticipate that we will receive license fees, milestone payments and royalties
from such partnerships. We believe that our acquisition of GenPharm, our
collaboration with Kirin and our expansion into the human antibody business
will provide us with significant additional sources of revenue in the
foreseeable future.
Revenue--Our revenue is principally derived through licensing our human
antibody technology to pharmaceutical and biotechnology companies and through
government grants. The terms of these collaborations typically include
potential license fees and a series of milestone payments commencing upon
initiation of clinical trials through commercialization which may total $7
million to $10 million per product if the antibody receives approval from the
FDA and equivalent foreign agencies. We are also entitled to royalties on
product sales.
Research and Development Expenses--Research and development expenses
consist primarily of compensation expense, facilities and supply expense
relating to antibody product development and to the breeding, caring for and
continued development of our HuMAb-Mice, as well as to the performance of
contract services for our collaborative partners.
General and Administrative Expenses--General and administrative expenses
consist primarily of compensation, facility, travel and other expenses
relating to our general management, financial, administrative and business
development activities.
Results of Operations
Years Ended December 31, 1997, 1998 and 1999
Revenues for 1997, 1998, and 1999 were principally derived from contract
and licensing activities. Total revenues in 1997 of $3,232,000 included
$865,000 of contract revenue received from Santen Pharmaceutical Co., Ltd. of
Osaka, Japan, or Santen, $743,000 from Aventis Behring, $377,000 from Eisai
Co., Ltd. of Tokyo, Japan, or Eisai, and $269,000 from Small Business
Innovation Research grants. Total revenues in 1998 of $6,792,000 increased
110% over 1997. The increase relates to $1,112,000 received from the sale of
MDX-447, one of our monoclonal antibody products, to Merck KGaA, our corporate
partner for MDX-447, and increases in contract and license revenues with Merck
KGaA, Eisai, Schering AG, Centocor, Aventis Behring, FibroGen, Inc., Novartis
and medac GmbH. Revenue for 1999 increased by $3,132,000, a 46% increase from
1998. The increase relates principally to a $4,000,000 milestone payment from
Centocor, Inc. Centocor holds exclusive commercial licenses to develop HuMab-
Mouse antibodies to license four targets. In addition, the increase in 1999
reflects payments pursuant to license agreements with Merck KGaA.
25
<PAGE>
Our cost of sales increased by $1,068,000 in 1998, a 712% increase over
1997. In 1998, the increase was principally due to manufacturing expenses
incurred in producing MDX-447 for proposed new human clinical trials to be
conducted in conjunction with Merck KGaA. Our cost of sales decreased by
$509,000 during 1999, a 42% decrease as compared to 1998. The 1999 decrease is
due to lower production of MDX-447 for Merck KGaA.
Research and development expense increased $9,022,000 in 1998, 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
component used in MDX-210 and MDX-447, personnel costs and supply expenses.
Research and development expenses decreased $3,193,000 during 1999, a 14%
decrease from 1998. The 1999 decrease was principally due to decreased
clinical trial activity partially as the result of the suspension of patient
enrollment in the Phase III clinical trial of MDX-RA. The research and
development expense reduction was partially offset by higher personnel costs.
Research and development costs are expected to increase at an accelerated rate
as our products progress through the regulatory approval process.
General and administrative expenses increased $1,421,000 in 1998, a 39%
increase over 1997. The increase was primarily attributable to higher legal
fees incurred in connection with a $7,500,000 milestone payment from Xenotech,
L.P. relating to the issuance of a U.S. patent, personnel costs, consulting
and shareholder relation expenses. General and administrative expenses
increased by $2,971,000 for 1999, a 59% increase from 1998. The increase is
primarily attributable to higher personnel costs and heightened business
development activities. These expenses are expected to increase as our
products are developed and we expand our HuMAb-Mouse licensing activities.
Acquisition of in-process technology charges of $40,316,000 in 1997 related
to the February 28, 1997 acquisition of Houston Biotechnology ($10,386,000)
and the October 21, 1997 acquisition of GenPharm ($29,930,000).
Interest and dividend income increased by $53,000 in 1998, a 3% increase
over 1997. These increases reflected higher average cash balances. Interest
and dividend income decreased by $751,000 for 1999, a 38% decrease as compared
to 1998. This decrease was the result of both a lower average cash balance and
a lower return on investments.
In 1998, interest expense increased by $1,512,000. The increase is
attributable to the amortization of a discount of the liability due to
GenPharm shareholders pursuant to the acquisition of GenPharm in October 1997.
This liability was satisfied on various dates through September 1, 1998 and as
a result, interest expense decreased by $1,531,000 for 1999, a 99% decrease as
compared to 1998.
Our income tax provision of $341,000 for the year ended December 31, 1998
represented taxes paid related to the GenPharm acquisition, which were in
excess of the amount of the liability provided for on the date of the
acquisition. Our benefit for income taxes for the year ended December 31, 1999
consisted of $1,434,000 received from the sale of a portion of our New Jersey
state NOLs and research and development tax credits offset, in part, by a
provision for state taxes.
We do not believe that inflation has had a material impact on our results
of operations.
Liquidity and Capital Resources
We have financed our operations since inception primarily through private
placements and public sales of our securities, contract and license revenues
and research product sales. Through December 31, 1999, we had raised
$68,652,000 from sales of securities.
We had $34,664,000 and $30,147,000 in cash, cash equivalents and marketable
securities as of December 31, 1998 and 1999, respectively. Operating
activities consumed $11,894,000, $12,577,000 and $5,610,000 of cash for the
years ended December 31, 1997, 1998 and 1999, respectively.
26
<PAGE>
Through December 31, 1998 and December 31, 1999, we had invested $7,042,000
and $7,707,000, respectively, in property and equipment.
We have incurred and will continue to incur significant costs in the area
of research and development, including preclinical and clinical trials, as our
products develop. Administrative costs are also expected to increase with the
expansion of administrative activities and the creation of an internal sales
force.
In connection with our merger with Essex Medical Products, we issued
promissory notes to Essex Chemical Corporation in the principal amount of
$100,000 and committed to pay 20% of our net after-tax income until a total of
$1,000,000 has been paid, contingent upon the occurrence of certain events. At
our option, this contingent obligation may be satisfied by the payment of
shares of our common stock having a fair market value equal to the amount
owed, provided such shares are registered for sale with the SEC. On June 6,
1991, we repaid the $100,000 of notes, plus accrued interest to Essex.
At December 31, 1999, we had federal net operating loss ("NOL")
carryforwards of approximately $58,931,000. The NOL carryforwards 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 ($9,642,000) and 2018 ($17,128,000). We have 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 believe that
it is very likely that such a change occurred during 1996, 1997 or 1998. 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 our value immediately before the
change, changes to our 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, 1997 or 1998 we have not determined
the amount of the potential limitation. Any such material limitation could
have a significant impact on our ability to use our NOL carryforwards.
The New Jersey Division of Taxation has developed a program that allows new
or expanding technology and biotechnology businesses 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 was January 1, 1999. In 1999, we received
$1,434,000 for the sale of a portion of our NOLs and Research and Development
Tax Credits. During 2000 we intend to sell additional New Jersey NOLs.
In 1997, 27% or $865,000 of our revenue was derived from Santen for
research funding, 23% or $743,000 was from Aventis Behring for research
funding and milestone payments and 12% or $377,000 was from Eisai for research
funding.
In 1998, 20% or $1,339,000 of our total revenue was derived from Aventis
Behring for research funding, 13% or $900,000 was 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
our common stock over the fair market value.
In 1999, 40% or $4,000,000 of our total revenue was derived from a
milestone payment made by Centocor. In addition, 31% or $3,056,000 of our
total revenue was derived from Merck KGaA, consisting of $500,000 for
producing MDX-447 for proposed new human clinical trials, $1,056,000 for
research funding and a $1,500,000 technology option fee.
No other single source accounted for more than 10% of our total revenues
for 1997, 1998 and 1999.
We have recently entered into a binding letter of intent with Eos
Biotechnology to develop and commercialize genomics-derived antibody-based
therapeutic products. Pursuant to the letter of intent, on or
27
<PAGE>
before May 15, 2000 we are required to pay $5,000,000 to Eos Biotechnology and
to deposit an additional $20,000,000 in a third party escrow account to be
released over time to Eos Biotechnology upon the achievement of certain
milestones.
We have entered into a non-binding letter of intent with IDM relating to
the development of certain of our non-HuMAb-Mouse antibody-based products.
Under the terms of the letter of intent, we are required to pay IDM $2,000,000
upon the execution of a definitive agreement which we anticipate will occur
during the first quarter of 2000. In addition, we are required to purchase
additional equity in IDM, or a comparable interest in a new jointly owned
entity to fund up to an additional $5,000,000 in the event IDM does not
complete a public or private financing of at least $7,000,000 on or before
December 31, 2000. Such an event could cause us to incur losses to the extent
of our investment in IDM.
We intend to use the net proceeds of the shares sold in this offering,
together with our current cash and cash equivalent balances, marketable
securities and cash generated from contract and licensing arrangements to fund
the in-licensing of potential therapeutic products and the development of
fully human antibody-based products utilizing these targets; the expansion of
our human antibody partnering business; the expansion of our existing
operations and facilities; and for general corporate purpose, including
research and development and other working capital requirements.
Although we believe that the proceeds from this offering, together with our
current cash balances, cash equivalents, and marketable securities and cash
generated from contract and licensing activities will be sufficient to meet
our operating and capital requirements for at least the next 24 months, we may
require additional financing within this time frame. We may be required to
raise additional funds through public or private financings, collaborative
relationships or other arrangements.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS 133 requires us to measure all
derivatives at fair value and to recognize them in the balance sheet as an
asset or liability, depending on our rights or obligations under the
applicable derivative contract. We will adopt SFAS 133 no later than the first
quarter of fiscal year 2001. SFAS 133 is not expected to have an impact on our
consolidated results of operations, financial position or cash flows.
Recently Issued Staff Accounting Bulletin
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial Statements.
The SAB spells out four basic criteria that must be met before registrants can
record revenue. In addition, the SAB also provides guidance on the disclosures
(both in footnotes and in Management's Discussion and Analysis of Financial
Condition and Results of Operations) registrants should make about their
revenue recognition policies and the impact of events and trends on revenue.
The SAB states that all registrants are expected to apply the accounting and
disclosures described in it no later than the first fiscal quarter of the
fiscal year beginning after December 15, 1999. The application of SAB No. 101
is not expected to have any effect on our financial condition and results of
operations.
Update on Year 2000 Computer Issues
We did not experience any computer or systems problems relating to the Year
2000. Upon review of our internal and external systems during 1999, we
determined that we did not have any material exposure to such computer
problems and that the software and systems required to operate our business
and provide our services were Year 2000 compliant. As a result, we did not
incur, and do not expect to incur, any material expenditures relating to Year
2000 systems remediation.
28
<PAGE>
BUSINESS
Overview
We are a leading human monoclonal antibody-based company with integrated
discovery, development and clinical supply manufacturing capabilities. We are
able to create fully human monoclonal antibodies in our genetically engineered
"HuMAb-Mice." These mice are "transgenic"--that is, the mouse genes for
creating antibodies have been inactivated and have been replaced by human
antibody genes. To date, 15 companies have acquired the rights to use our
HuMAb-Mice in their development of new products, including major
pharmaceutical and biotechnology companies such as Novartis, Amgen, Immunex,
Schering AG and Centocor.
As new disease-related targets are continually being discovered through
genomic and other research programs, we intend to use our HuMAb-Mice and
additional human antibody technology to develop therapeutic products for
ourselves and for our existing and prospective corporate partners. To this
end, we have recently entered into a strategic alliance with Eos Biotechnology
to develop and commercialize at least six and up to nine genomics-derived
antibody-based therapeutic products for the treatment or prevention of life
threatening diseases that may include breast, colorectal and prostate cancers.
We believe that genomic and other research techniques are leading to the
discovery of an unprecedented number of potential targets for therapeutic
antibody products. To date, nine monoclonal antibody-based products have been
approved for sale by the FDA. The estimated 1999 revenues for the six highest
selling of these antibodies are $1.3 billion worldwide. The majority of these
antibodies have been on the market for less than three years. Most of the
antibodies currently in development, and all of the antibodies that form the
basis of these approved products, have been made in normal, or "wild type,"
mice and subsequently made "chimeric" or "humanized," leading to a product
that contains both human and rodent proteins. These remaining rodent proteins
may be recognized by a patient's immune system as "foreign," potentially
limiting the utility of the product or causing allergic reactions. Instead of
engineering mouse antibodies to make them humanized, we have genetically
engineered mice so that they make fully human antibodies.
Using our genetically engineered mice, it is possible to create and develop
product candidates very rapidly. We have recently been able to complete the
process of making a very high affinity human antibody to a therapeutic target
and filed an IND with the FDA in less than 12 months. We believe that this
efficient and rapid development capability will provide an attractive platform
for product development for our corporate partners and for our own in-house
development programs.
The potential of our engineered mice to rapidly generate high affinity,
fully human antibodies has led to numerous corporate partnerships under which
biopharmaceutical companies have acquired the right to use our HuMAb-Mice. We
initiated or expanded six corporate partnerships in 1998, and an additional
six in 1999. We are currently negotiating additional arrangements, and expect
to enter into several new or expanded corporate partnerships in 2000 and in
each of the next several years.
The financial terms of our corporate partnerships typically include license
fees and a series of milestone payments commencing upon initiation of clinical
trials through commercialization which may total up to $7 to $10 million per
target if the antibody receives approval from the FDA and equivalent foreign
agencies. We also will receive royalties on product sales. In some cases, our
corporate partners reimburse us for research and development activities
conducted on their behalf. Generally, under the terms of these collaborations,
our corporate partners are responsible for all costs of product development,
manufacturing and marketing of any products.
We have recently announced that we have expanded our ability to create
human antibodies by entering into a binding letter of intent for a corporate
partnership with Kirin. This arrangement will provide us with the exclusive
rights outside of Asia to use, and to provide our corporate partners with
access to, Kirin's Tc Mouse technology. Like our HuMAb-Mice, Kirin's Tc Mice
have been designed to create fully human antibodies. The Tc Mouse, however, is
"transchromosomic," meaning that 100% of the human antibody genes contained in
the transplanted chromosomes are present in the mouse.
29
<PAGE>
Over 200 companies are developing monoclonal antibody-based products. We
believe that many of these companies are potential partners for our HuMAb-
Mouse and Kirin's Tc Mouse technology. In part, this reflects the enormous
increase in knowledge about potential targets currently in research and
development. For example, genomics research has identified that there are over
100,000 human genes, many of which are expected to be disease-related. In many
cases, these genes encode proteins that may be attractive targets for
monoclonal antibody-based products. We believe that our genetically engineered
mice and our product development experience coupled with our cGMP
manufacturing facilities will allow us to rapidly create and develop numerous
fully human antibodies based upon these targets. We intend to develop some of
these products for our own portfolio and some in collaboration with our
existing and prospective corporate partners.
In addition to our fully human antibody discovery capabilities, we also
have the resources to develop other monoclonal antibody products from creation
through preclinical development, clinical trials and clinical supply
manufacturing under the FDA's regulations. This was the principal focus of our
business prior to the acquisition of our HuMAb-Mouse technology in 1997, and
it led to eight products in clinical trials. All of these products are based
on mouse or humanized antibodies. We have recently entered into corporate
partnerships with a number of companies and are seeking additional alliances
that will support the costs of developing this portfolio of mouse and
humanized monoclonal antibody-based products. For some of these products, we
have retained commercial rights in North America, and in other cases we will
potentially receive milestone payments and royalties on commercial sales. We
believe that transferring the costs of developing our mouse and humanized
antibody-based products to these corporate partnerships will allow us to focus
our resources and efforts on our human antibody business and the development
of new fully human monoclonal antibody-based products and services.
Our Business Strategy
We believe that genomic and other research techniques are leading to the
discovery of an unprecedented number of potential targets for therapeutic
antibody products. Our human antibody technology represents a rapid and
efficient method for generating product candidates based upon these targets.
By combining our human antibody technology with our development and clinical
supply manufacturing expertise, we intend to participate in this "genomics
revolution" in two primary ways:
. by providing human antibody development services to existing and
prospective corporate partners through the expansion of our current
corporate partnerships and the establishment of new corporate
partnerships; and
. by developing a broad and diverse pipeline of our own therapeutic
product candidates and acquiring rights to targets.
Providing Human Antibody Development Services. We intend to provide human
antibody creation and development services to biotechnology and pharmaceutical
companies throughout the world. Each collaboration will allow our corporate
partner to generate fully human antibodies to antigens selected by that
corporate partner. These fully human antibodies will be created either by our
corporate partners in their own laboratories or by us in our facilities. We
intend to use both our HuMAb-Mice and Kirin's Tc Mice--as well as any new
generations of mice that we or Kirin may develop--to create these human
antibodies. In return for providing our corporate partners with access to our
HuMAb-Mice and Kirin's Tc Mice, or to our antibody-creation services, we
expect to receive license fees, milestone payments and royalties. In some
cases, we may accept equity interests in our corporate partners in place of
some or all of these payments. In this aspect of our business, we expect that
our corporate partners will typically pay for all of the costs of developing
the products, including any expenses we may incur.
We can also provide our corporate partners with antibody development and
clinical supply manufacturing services. We have an experienced team of
scientists working in a cGMP production facility, and they have conducted
preclinical development and manufacturing of numerous monoclonal antibodies,
leading to the clinical testing of seven products in five countries. By
combining our antibody-creation capability with our development and
manufacturing experience, we can provide many, if not all, of the services
that our corporate partners may require to efficiently move new product
candidates into clinical testing.
30
<PAGE>
This process affords us the opportunity to participate in a broad range of
potential product candidates without incurring all of the costs of product
development. We currently have 15 corporate partners pursuing the development
of over 30 different potential antibody-based products, and we expect to enter
into several more corporate partnerships each year. Some of these products
will be based on novel targets developed from genomic research while others
will be based on targets that have been validated as therapeutically important
by prior clinical testing, and in some cases FDA approval, of products based
on antibodies that are not fully human.
Developing Our Own Human Antibody Product Pipeline. We intend to use our
expertise in monoclonal antibodies to develop new product candidates for life-
threatening and debilitating conditions. We are currently in discussions with
several companies that have identified potential therapeutic targets for
monoclonal antibody products based upon genomic and other research techniques.
We believe that we will be able to acquire rights to a number of such targets,
which will provide us with the ability to generate new antibody-based product
candidates directed at such targets. Moreover, because we have become known in
the industry as providers of human antibody development services, we believe
that we will continue to be in a position to evaluate numerous opportunities
to acquire new targets or otherwise to participate directly in the development
of therapeutic product candidates. We intend to use a significant portion of
the proceeds of this offering to identify attractive opportunities, to obtain
licenses to potential targets, and to develop new antibody-based product
candidates, either by ourselves or in collaboration with companies that have
expertise in target identification and validation. We intend to develop some
of these products through clinical testing and regulatory approval.
Antibodies' Role in Fighting Disease
One of the body's natural defenses against disease is the creation of
antibodies by the immune system. Upon the body's recognition of viruses,
bacteria and other disease causing agents, or "pathogens," B cells in the
immune system will generally produce proteins known as antibodies. These
antibodies will be capable of binding to the pathogen, thus potentially
neutralizing the pathogen's ability to infect the body's cells or triggering
an immune response to destroy the pathogen. Scientists typically use the term
"antigen" to refer to the pathogen or other substance to which the antibody
binds. Each antibody binds to a particular antigen and, therefore, is specific
to that antigen, like a key fitting into a lock. The degree of tightness of
the binding of an antibody to its antigen is called its "affinity." In
general, higher degrees of specificity and affinity will lead to more
efficient elimination of the disease causing agent.
We usually describe antibodies as having a "Y" shaped structure. The base,
or single arm portion of the Y-shaped antibody, along with the portions of the
two other arms that are attached to the base, is referred to as the "constant"
portion. The structure of the constant region of antibodies is common to many
antibodies. The rest of the antibody, the remainder of the two arms, is called
the "variable" region. The variable region determines an antibody's
specificity for a particular antigen. Because variable regions define the
specific binding sites for a variety of antigens, there is a need for
significant structural diversity in this portion of the antibody molecule.
Such diversity is achieved in the body primarily through a unique mode of
assembly involving a complex series of recombination steps for various gene
segments of the variable region.
Upon first exposure to a foreign antigen, the body's B cells will rapidly
produce a series of low affinity antibodies that are specific to that antigen.
Through further exposure to the antigen, the B cells will continue producing
antibodies with increasingly high affinities. This natural process is known as
"affinity maturation." The antibodies also become more specific for the
particular antigen. The increasing specificity and affinity leads to
antibodies that are likely to be more effective in neutralizing or causing the
destruction of a pathogen.
Monoclonal Antibodies
The original technology for creating monoclonal antibodies involved the use
of normal or "wild type" mice. These mice were immunized with a target
antigen, resulting in the production by the mice of antibodies binding to that
antigen. Antibody-producing B cells from the mice were then fused with an
immortalized cell line, leading to the creation of a hybridoma cell that can
indefinitely produce a single type of antibody, a "monoclonal antibody," that
binds to the target antigen. One of the reasons for the initial development of
monoclonal
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antibodies was to allow medical scientists to make antibodies that would
target a cancerous or diseased cell in patients. This antibody would then be
used to treat the disease, either by itself or by linking the antibody to a
toxin or radioisotype.
As a result of the recent clinical and commercial success of a number of
monoclonal antibody-based products, pharmaceutical and biotechnology companies
have shown an increased level of interest in monoclonal antibodies over the
last several years for use as therapeutic products. We believe that this
interest results from the fact that monoclonal antibodies can be generated to
a wide range of disease targets and can be created relatively rapidly and
efficiently compared to many other materials for pharmaceutical product
development. We believe that over 200 companies are currently working on
monoclonal antibody therapeutics. A survey released in 1996 by the
Pharmaceutical Research and Manufacturers of America indicated that monoclonal
antibodies were the single largest category of biopharmaceutical products in
clinical development at the time of the survey.
ANTIBODIES LEAD THERAPEUTICS
[PIE CHART]
Antisense
Clotting Factors
CFS's
Erythropoletins
Gene Therapies
Growth Factors
Growth Hormones
Interferons
Interleukins
Monoclonal Antibodies
R S Receptors
TPA's
Others
Based on a 1996 survey by the pharmaceutical Research and Manufacturers
of America reported in Biotechnology Medicines in Development.
Medical researchers have now developed a better understanding of the
critical variables for determining exactly why a particular antibody binds to
a specific antigen. Scientists have also developed a better understanding of
the binding ability, or affinity, of a particular antibody. In addition, with
the continued development and expansion of genomics research, scientists have
gained greater knowledge as to which targets are more likely to affect disease
progression. Finally, as more and more clinical trials involving monoclonal
antibody-based products are undertaken or completed, scientists have a better
understanding of the clinical conditions amenable to treatment with systemic
biologic intervention using monoclonal antibodies. As a result, the last
several years have witnessed the clinical success, regulatory approval and
commercial launch of a number of monoclonal antibody-based therapies.
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Set forth below are the names of the companies that have developed these
monoclonal antibody therapeutic products which have been approved for sale by
the FDA, the names of the products and the products' principal indications.
<TABLE>
<CAPTION>
Company Name Name of Product Indications
------------ --------------- -----------
<S> <C> <C>
Ortho Biotech Orthoclone-OKT(R) Organ Transplant Rejection
Centocor/Eli Lilly and Company ReoPro(R) Acute Cardiac Conditions
IDEC Pharmaceuticals/Genentech Rituxan(TM) Non-Hodgkin's Lymphoma
MedImmune, Inc. Synagis(TM) Viral Respiratory Disease
Genentech Herceptin(R) Breast Cancer
Centocor Remicade(R) Crohn's Disease, Rheumatoid
Arthritis
Hoffmann-LaRoche, Inc. Zenapax(R) Acute Transplant Rejection
Novartis/Ligand Pharmaceuticals Simulect(R) Acute Transplant Rejection
Immunex/Wyeth-Ayerst Enbrel(TM) Rheumatoid Arthritis
</TABLE>
The projected 1999 revenues of the six highest selling products listed
above are expected to exceed $1.3 billion worldwide. More than 50 monoclonal
antibody candidates are now in clinical trials.
We believe that these clinical successes, the availability of technologies
for making fully human antibodies, such as our HuMAb-Mouse and Kirin's Tc
Mouse, and drug discovery technologies, particularly genomics, that identify
potential antibody targets, will continue to drive the development of new
antibody-based therapeutics.
Limitations of Current Approaches to Development of Monoclonal Antibody
Products
Mouse-Derived Antibodies. The original mouse-derived antibodies consisted
of entirely mouse, or murine, proteins. When used to treat patients, these
mouse proteins may be recognized by the human immune system as foreign,
leading to the development of human anti-mouse antibodies, or HAMA. A HAMA
reaction in a patient can neutralize the therapeutic activity of a murine
antibody and may lead to allergic reactions, especially in connection with
repeated dosing. This may limit the therapeutic usefulness of mouse-derived
antibodies.
Chimeric or Humanized Antibodies. To avoid potential HAMA concerns, and to
attempt to prolong the time the antibody remains in the patient's body,
scientists sought methods for replacing portions of a mouse monoclonal
antibody with human proteins. As a result, a number of companies and academic
research institutions have developed techniques for creating chimeric or
humanized monoclonal antibodies. The goal of these approaches has been to
remove up to 90% of the mouse antibody and replace those parts with the
equivalent portions of human antibodies. The remaining parts of the antibody,
those that are important for binding to the desired antigen, continue to be
murine. This process of humanizing an antibody can be expensive and time
consuming, taking from several months to over a year 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, the strength of its
binding to the antigen, or alter its specificity for the target antigen.
The Evolution of Antibodies
[GRAPHIC] Mouse Mab (100% Mouse)
[GRAPHIC] Chimeric Mab (33% Mouse)
[GRAPHIC] "Humanized" Mab (10% Mouse)
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Phage Display. In lieu of humanizing a mouse antibody, methods have been
developed to create fully human monoclonal antibodies--i.e., antibodies
consisting of 100% human protein sequences. 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. Phage display technology involves the cloning of
human antibody genes into bacteriophage, viruses that infect bacteria, in
order to display antibody fragments on the surfaces of bacteriophage
particles. This approach attempts to mimic in vitro the immune surveillance
and affinity maturation processes that occur naturally in the body. 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 to increase the affinity. This affinity
engineering may not always be successful.
The Medarex Solution--Our Human Antibody Discovery Technology
Our human antibody discovery technology includes our HuMAb-Mouse technology
and Kirin's Tc Mouse technology. Both of these technologies use genetically
engineered mice to produce fully human monoclonal antibodies.
Our HuMAb-Mouse Technology. We have developed a method that uses
genetically altered mice to create fully human monoclonal antibodies. These
mice are "transgenic"--that is, the mouse genes for creating antibodies have
been inactivated and have been replaced by human antibody genes. Because genes
determine what proteins are made, our transgenic mice make human antibody
proteins. We have thus created mice, known as "HuMAb-Mice," that have the
ability to make fully human monoclonal antibodies. This result avoids the need
to humanize murine monoclonal antibodies. Because the human genes in our
HuMAb-Mice are relatively stable, they are passed on to offspring of the mice.
Thus, such traits can be bred indefinitely at relatively low cost and without
any additional genetic engineering.
Kirin's Tc Mouse Technology. Our corporate partner, Kirin, has developed
mice with 100% of the human antibody genes. These mice are
"transchromosomic"--that is, the mouse genes for creating antibodies have been
inactivated and have been replaced by the human chromosomes containing all of
the human antibody genes, including the genes for all heavy chain classes, for
example, IgA, IgD, IgE, IgG, IgM, as well as all isotypes of antibodies, such
as IgG1 and IgG4. These "Tc" Mice also have the ability to make fully human
monoclonal antibodies. We recently entered into a binding letter of intent to
acquire access to this technology under which Kirin gained rights to our HuMAb
technology and paid us an upfront fee of $12 million.
HuMAb-Mouse Technology
Gene Transfer Immunization
[GRAPHIC] [right arrow] [GRAPHIC] [right arrow] [GRAPHIC]
Mouse with Human MAb
Human Ig
Genes
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Our HuMAb-Mice, as well as Kirin's Tc Mice, are able to produce completely
human monoclonal antibodies when they are immunized using the same techniques
that have been used for many years to make mouse monoclonal antibodies. The
creation of these monoclonal antibodies takes approximately three to six
months, the same amount of time as the immunization of normal, wild-type mice.
We believe that the monoclonal antibodies derived from these human antibody
technologies typically have affinities as high or higher than antibodies
obtained from other technologies. The antibodies from these human antibody
technologies are 100% human and do not require any humanization. Since the
immune system in both our HuMAb-Mice and Kirin's Tc Mice have been left intact
except for the genes related to antibody formation, the mice are capable of
producing fully human antibodies to human antigen targets.
Advantages of Our Human Antibody Technology
We believe that our human antibody services and products offer potential
advantages to the services and products offered by competitors that rely on
other antibody development technologies such as humanization and phage display
techniques, including:
Antibodies that are Fully Human. Unlike humanization techniques, our human
antibody technology generates antibodies with 100% human protein sequences,
which we believe will permit the development of products with a favorable
safety profile. Additionally, fully human antibody-based products are likely
to be eliminated less quickly from the human body, potentially reducing the
frequency and amount of dosing.
Breadth of Human Antibody Technology. Our collaboration with Kirin will
allow us to provide our corporate partners with access to Kirin's Tc Mouse
transchromosomic technology, thereby affording them with an additional option.
Kirin's Tc Mice contain 100% of the human antibody genes, including the genes
for all heavy chain classes, as well as all isotypes, of antibodies. The
combination of our HuMAb-Mice and Kirin's Tc Mice will provide us with a broad
range of human antibody technology.
High Affinity Antibodies. The natural affinity maturation process of our
human antibody technology creates antibodies that, in a number of cases, have
affinities one hundred to one thousand times higher than the chimeric or
humanized antibodies now approved for sale in the United States. These high
affinity antibodies have been made to a wide range of target antigens. Our
human antibody technology uses the natural in vivo affinity maturation process
to generate antibody product candidates usually in two to four months. In
contrast to antibodies generated using humanization and phage display
technology, our human antibodies are produced without the need for any
subsequent engineering to make them more human, a process which at times has
proven to be challenging and time consuming. By avoiding the need to further
engineer antibodies, we reduce the risk that an antibody's structure and
therefore functionality will be altered between the time of the selection of
the initial antibody and the time the final antibody is placed into
production.
Rapid Development Capabilities. By combining our human antibody technology
for creating antibodies with our in-house development and clinical supply
manufacturing expertise, we have been able to progress from immunization to
IND filing in less than 12 months. We are using this rapid development
capability for the development of our own product candidates and as a service
for our corporate partners.
Diverse Selection of Antibodies Respond to Many Disease Targets. Our human
antibody technology has the potential to generate high affinity antibodies
that recognize more antigen structures than other technologies. In addition,
our human antibody technology has created large panels of monoclonal
antibodies to many potentially medically relevant antigens. For a given
antigen target having multiple antibodies to choose from could be important in
selecting the optimal antibody product for development. One of our corporate
partners, Schering AG, has stated that our HuMAb-Mice were capable of
generating a panel of high affinity human antibodies to a target antigen even
after several attempts to generate murine antibodies to that target in wild
type mice had failed.
Providing Flexibility to Our Customers. Our HuMAb-Mouse technology can be
used either in our laboratories or in the laboratories of our corporate
partners. This provides our corporate partners with the
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flexibility to incorporate our technology into their research and development
programs or to contract with us to produce the antibodies. High affinity
antibodies from our HuMAb-Mice have been made by some of our corporate
partners in their own laboratories in addition to the ones we have made in our
facility.
Enabling More Efficient Product Development. In contrast to humanization or
phage display, which require the cloning of an antibody gene and the
generation of a recombinant cell line, the B cells generated in our HuMAb-Mice
and Kirin's Tc Mice can be turned directly into hybridoma cell lines for human
antibody production. Therefore, a supply of monoclonal antibodies can be
produced quickly to allow the timely initiation of preclinical and clinical
studies. Furthermore, since our human antibody technology can potentially
produce multiple product candidates more quickly than humanization and phage
display technology, preclinical testing can be conducted on several antibodies
in parallel to identify the optimal product candidate which will be tested in
clinical trials.
Certainty of Intellectual Property Rights. We are not aware of any licenses
required to create fully human antibodies to a target owned by the user except
under patents owned or licensed by us. In contrast, various entities hold
patents that may cover the chimerization or humanization of monoclonal
antibodies. In addition, several companies and academic institutions have
developed phage libraries for the creation of monoclonal antibodies, and a
number of companies and academic research centers have received patents that
may apply to the creation of phage-derived monoclonal antibodies.
Our Genomics Collaborations
Genomics research has identified that there are over 100,000 human genes,
many of which are expected to be disease related. In many cases, these genes
encode proteins that may be attractive targets for a monoclonal antibody-based
product.
Eos Biotechnology. In February 2000, we entered into a binding letter of
intent with Eos Biotechnology providing for the establishment of a strategic
alliance to develop and commercialize genomics-derived antibody-based
therapeutic products. Eos Biotechnology is a leader in the development,
application and utilization of a variety of genomics-derived product
candidates. Eos Biotechnology will identify novel disease targets associated
with life threatening diseases that may include breast, colorectal and
prostate cancers. Under the terms of this letter of intent, Eos Biotechnology
will be responsible for all costs of developing the products through Phase IIa
clinical trials. Thereafter, we will share all revenue and expenses with Eos
Biotechnology on an equal basis with respect to at least six and up to nine
product candidates that have successfully completed Phase IIa clinical trials.
The letter of intent also grants us certain rights with respect to the
manufacture of any such product candidates developed by the alliance, as well
as the right to become the exclusive licensee in Europe for certain product
candidates.
In exchange for these rights, we will pay Eos Biotechnology $5 million in
cash upon the earlier to occur of 30 days from the date we sign a definitive
agreement or May 15, 2000. In addition, we will deposit $20 million in cash in
an interest bearing escrow account. These monies will be released to Eos
Biotechnology over time upon their achievement of certain milestones. Eos
Biotechnology will also receive up to $75 million in value as credits against
certain license fees, milestone payments and royalties that they may otherwise
owe to us under our HuMAb-Mouse collaboration for our alliances with Eos
Biotechnology and for other Eos Biotechnology collaborations.
The principal terms of the alliance are contained in the letter of intent
and will be incorporated into a definitive agreement. By its terms, the letter
of intent will remain in full force and effect and the parties will operate in
accordance with its terms until such time as a definitive agreement is
executed.
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<PAGE>
Our Human Antibody Partnering Business
We have established collaborations with the following 15 companies to use
our technology to produce fully human antibodies to over 30 potential antigen
targets. Under these collaborations, we and our corporate partners intend to
generate antibody product candidates for the treatment of cancer,
inflammation, transplant rejection, cardiovascular disease and other diseases.
<TABLE>
<CAPTION>
Number of
Partner Date Antigens
- ------- ---- ---------
<S> <C> <C>
Kirin December 1999 Multiple
IDM December 1999 Multiple
Amgen September 1999 Multiple
Eos Biotechnology August 1999 Multiple
Genmab March 1999 Multiple
Immunex January 1999 Multiple
Novartis November 1998 Multiple
medac September 1998 Single
FibroGen July 1998 Multiple
Bristol-Myers Squibb June 1998 Multiple
EluSys Therapeutics May 1998 Multiple
Schering AG February 1998 Multiple
Centocor, a subsidiary of Johnson & Johnson February 1997 Multiple
LeukoSite, Inc., a subsidiary of Millennium
Pharmaceuticals, Inc. January 1995 Multiple
Eisai May 1993 Single
</TABLE>
We expect that substantially all of our revenues over the next few years
will come from payments from our existing and future corporate partners. These
collaborations typically provide our corporate partners with access to our
human antibody technology for the purpose of generating fully human antibodies
to specific antigen targets identified by our corporate partners. In most
cases, we provide our HuMAb-Mice to our corporate partners who then immunize
the mice to generate fully human antibodies. In other cases, we may immunize
the mice with our corporate partner's antigen.
Most of our corporate partnerships share a similar structure. There is
usually an initial period during which our corporate partner may elect to
enter into a research license for antibodies to a particular designated
target. Subsequently, our corporate partner may elect to obtain a commercial
license for monoclonal antibodies to a particular target. Thereafter, our
corporate partners typically are required to pay us milestone payments during
various stages of the clinical trial and regulatory approval process. Upon
commercialization, we are entitled to receive royalties on product sales.
Most of our corporate partners have entered into multi-antigen
collaborations with us that allow them to use our human antibody technology
broadly throughout their research and development programs. In those cases,
our corporate partners will need to obtain commercial licenses from us for any
human monoclonal antibodies that they seek to commercialize. To date, a number
of our corporate partners have elected to obtain a commercial license for
monoclonal antibodies to several targets. In some cases, once a corporate
partner has obtained a commercial license for a monoclonal antibody, we can no
longer license our human antibody technology for that particular antibody.
The financial terms of these collaborations typically include potential
license fees and a series of milestone payments commencing upon initiation of
clinical trials through commercialization which may total $7 million to
$10 million per target if the antibody receives approval from the FDA and
equivalent foreign agencies. In some cases, partners reimburse us for research
conducted on their behalf, which includes immunization services and the
creation of hybridomas. We are also entitled to receive royalties on product
sales. Our corporate partners are generally responsible for all costs of
product development, manufacturing and marketing.
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Our Human Antibody Development Business
We believe that our engineered mice, development experience and cGMP
clinical supply manufacturing facilities will allow us to rapidly create and
develop numerous fully human antibodies based upon these targets. We intend to
develop some of these product candidates for our own account and some in
collaboration with other companies.
In addition to our HuMAb-Mouse and Kirin's Tc Mouse antibody discovery
technologies, we have considerable experience in clinical development and
clinical supply antibody manufacturing. To facilitate the clinical testing and
commercialization of antibody-based products for us and for our partners, we
have assembled a team of experienced scientific, production and regulatory
personnel. This team operates in our cGMP clinical supply manufacturing
facility, which has a capacity of 10 kilograms of monoclonal antibody
production per year. Over the last five years, we have received regulatory
approval to commence clinical testing of seven products in five countries. By
combining our HuMAb-Mouse technology for creating antibodies with our in-house
development and manufacturing expertise, we have been able to progress from
immunization to the filing of an IND in less than 12 months for one human
antibody. We believe that our existing facilities are adequate for the
production of materials for clinical trials of our products and for providing
the services we offer to our corporate partners in connection with our human
antibody technology. 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.
We are currently in discussion with several companies that have identified
potential therapeutic targets or have created platforms for the identification
of such targets. We are actively seeking the opportunity to in-license such
targets, and we intend to invest a significant portion of the proceeds of this
offering in acquiring the rights to these targets and in developing novel
therapeutic products by making human antibodies that interact with the
targets. We expect that we will develop such products at least through Phase
II clinical testing. Upon the completion of Phase II testing, we may decide to
fund further development or to find a corporate partner to complete the
development of the product.
We intend to participate with some of our corporate partners in the
development of antibody products based on their novel targets. We are already
in the process of developing a number of human antibodies. Our affiliate,
Genmab, is conducting Phase I/II clinical trials of MDX-CD4, an anti-CD4 human
antibody being developed for rheumatoid arthritis. CD4 is a receptor on T-
cells that is believed to be associated with the inflammatory process.
Additionally, we are developing MDX-101 internally. MDX-101 is a fully human
antibody developed through the use of our HuMAb-Mouse technology that targets
an immune receptor known as CTLA-4. This receptor, which is a protein found on
the surface of T-cells, is believed by scientists to suppress the attack by
immune system killer cells on tumors or infectious agents. By using a fully
human antibody to block the activity of CTLA-4, we believe that patients'
immune systems may be able to more potently attack foreign pathogens and
cancers. We expect to begin initial clinical testing of MDX-101 in prostate
cancer patients during 2000.
We believe that our human antibody partnering business has allowed us to
develop close relationships with numerous companies and institutions that may
enhance our ability to acquire the rights to attractive therapeutic targets.
Examples of potential therapeutic products to which we and our affiliates have
acquired access through our human antibody partnering business include MDX-
101, our anti-CTLA-4 product, which was acquired from Gilead Sciences, Inc.,
and Genmab's antibody product, which was acquired as part of our collaboration
with Immunex. In each of these cases, we were able to acquire potentially
valuable product opportunities as a result of our human antibody services--
that is, our ability to rapidly create, develop and initiate clinical testing
of human monoclonal antibodies on behalf of corporate partners.
Our Genmab Joint Venture
In March 1999, we and BankInvest Biomedical Development Venture Fund
announced the formation of Genmab, a new Danish company established to develop
and commercialize a portfolio of fully human antibodies derived from our
HuMAb-Mouse technology. Genmab received funding of approximately $7.5 million;
BankInvest VF was the lead investor with A/S Dansk Erhvervsinvestering and
others as co-investors. We elected to accept a 45% equity ownership stake in
Genmab in place of milestone payments and royalties. Genmab plans
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to take advantage of Denmark's high quality medical and research institutions
to conduct clinical trials of human antibody products. Genmab will focus
primarily on developing several products to treat inflammatory conditions,
such as rheumatoid arthritis and psoriasis, and has received a license to
certain of our rights to MDX-CD4, a fully human antibody in Phase I/II
clinical trials for the treatment of rheumatoid arthritis. Genmab also has
entered into a collaboration with Immunex to develop fully human antibodies to
a molecule that appears to be involved in inflammatory and autoimmune
diseases. Genmab has recently received notice from the Vaekst Fonden, a growth
fund established by the government of Denmark, of its intention to provide
additional financing of approximately $7 million. To date, Dr. Lisa Drakeman,
our Senior Vice President--Business Development, has acted as Genmab's
President and Chief Executive Officer. Dr. Lisa Drakeman does not receive any
compensation from Genmab for these services. Upon Genmab's formation, Dr. Lisa
Drakeman received approximately 2% of the equity of Genmab.
Our Corporate Collaborations
Our HuMAb-Mouse Collaborations
To date, we have entered into 15 collaborations to generate human antibody
product candidates utilizing our HuMAb-Mouse technology.
Kirin. In December 1999, we entered into a binding letter of intent with
Kirin providing for the global commercialization of technology for creating
fully human monoclonal antibodies. Under the terms of this letter of intent,
Kirin was designated as the exclusive distributor of our HuMAb-Mouse
technology in Asia, and we were designated as the exclusive distributor of
Kirin's Tc Mouse outside of Asia. Kirin paid us $12 million in upfront fees
and will pay certain additional payments over the term of this arrangement. We
will exchange broad licenses with Kirin, subject to milestone and royalty
payments, for in-house use of each other's technology for the development of
human antibody therapeutic products. We will also initiate a research
collaboration with Kirin to develop a novel approach to the creation of fully
human antibodies by combining our proprietary technologies. The binding letter
of intent with Kirin includes the principal terms of the transaction. These
terms are not subject to change except upon mutual consent and will be
incorporated into a definitive agreement. Any additional terms are subject to
the execution of the definitive agreement. Under the terms of the letter of
intent, any disagreements that arise with respect to such additional terms are
subject to binding arbitration.
IDM. In December 1999, we entered into a collaboration with IDM involving
the use of our HuMAb-Mouse technology for the generation of fully human
antibodies. Under the terms of the agreement, we could receive research
payments, license fees and milestone payments as well as royalties on further
commercial sales. The agreement allows IDM to access our antibody development
technology for multiple targets. In addition, we intend to enter into an
agreement which will make IDM our first partner for CTLA-4 blockade technology
to enhance cancer vaccines. IDM intends to pursue an anti-CTLA-4 approach in
conjunction with its proprietary Dendritophages(TM) as a cellular vaccine for
the treatment of melanoma and prostate cancers.
Amgen. In September 1999, we entered into a collaboration with Amgen to
generate human monoclonal antibodies to multiple antigens. Under this
collaboration, we have received research payments and may receive license fees
and milestone payments, as well as royalties on commercial sales.
Eos Biotechnology. In August 1999, we entered into a collaboration with Eos
Biotechnology to generate human monoclonal antibodies to several target
antigens identified through genomic research. Under this collaboration, we
could receive research payments, license fees and milestone payments, as well
as royalties on commercial sales. This collaboration is in addition to our
recent strategic alliance with Eos Biotechnology for the development and
commercialization of genomics-derived antibody-based therapeutic products.
Immunex. In January 1999, we entered into a license arrangement with
Immunex involving our 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, we will receive technology access fees and
could receive research payments, license fees and milestone payments, as well
as royalties on commercial sales.
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Novartis. In November 1998, we entered into a global licensing arrangement
with Novartis involving our HuMAb-Mouse technology. Under the terms of the
agreement, Novartis can 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 our common stock of $2 million. Novartis made an additional $1 million
equity investment in November, 1999. A further $3 million in equity purchases
may be made after the initial five year term of the agreement. In addition, we
could receive license fees, milestone payments and royalties on sales of
products made utilizing the HuMAb-Mouse technology.
medac. In September 1998, we entered into an antibody development agreement
with medac, a privately held company. Under this research collaboration and
license agreement, we are using our HuMAb-Mouse technology to produce a new
bispecific antibody to treat Hodgkin's Lymphoma. We are employing our HuMAb-
Mouse technology to generate a fully human monoclonal antibody to CD30, a
potential cancer antigen for which medac claims proprietary rights.
FibroGen. In July 1998, we and FibroGen, a privately held biotechnology
company, entered into an antibody development agreement for potential anti-
fibrotic therapies. We could receive research and development payments,
license fees, milestone payments and royalty payments on future product sales
by FibroGen. The agreement calls for us to use our 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, or CTGF, and its processed fragments, bone
morphogenic protein 1 and tolloids, key proteins implicated in fibrotic
disease.
Bristol-Myers Squibb. In June 1998, we entered into a research agreement
with Bristol-Myers Squibb involving our HuMAb-Mouse technology. Bristol-Myers
Squibb is using 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 Squibb to commercialize these antibodies on terms
that could result in license fees and milestone payments, plus royalties.
EluSys. In May 1998, we entered into an antibody development agreement with
EluSys, a privately held biotechnology company. Under this research
collaboration and license agreement, EluSys will employ our HuMAb-Mouse
technology to produce a fully human antibody to a proprietary target antigen.
We could receive license fees, milestone payments and preclinical and clinical
manufacturing payments plus royalty payments on future product sales by
EluSys. In addition, we and EluSys will collaborate to develop a second human
antibody to a different proprietary target antigen that will be shared by both
companies.
Schering AG. In February 1998, we entered into a collaboration with
Schering AG for the use of our HuMAb-Mouse technology in the production of
fully human antibodies to a proprietary antigen. In May 1999, this
collaboration was expanded to include additional antigens. We could receive
research and development payments, a license fee, milestone payments and
royalty payments on future product sales by Schering AG.
Centocor. In February 1997, we entered into a research and
commercialization agreement with Centocor, which is now a subsidiary of
Johnson & Johnson. The collaboration is focused on developing completely human
antibodies to four antigens. The Centocor agreement provides for research
payments to be paid to us, as well as an equity investment in our company of
$4 million which was paid in 1998. In addition, we received $4 million in
January 1999 for the exercise of Centocor's option for commercial rights to
these 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 us.
LeukoSite. In January 1995, we entered into a collaboration with LeukoSite,
which is now a subsidiary of Millennium, to produce human antibodies from our
HuMAb-Mouse against certain specified antigens. The term of the LeukoSite
agreement and the research program to be conducted thereunder were extended in
1996. In February 1999, we and LeukoSite expanded this collaboration to allow
LeukoSite the ability to utilize the
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HuMAb-Mouse system as part of its discovery research program. In exchange, we
received additional rights to an anti IL-8 antibody that we were previously
jointly developing with LeukoSite for the treatment of psoriasis. We could
receive milestone payments and royalties on commercial sales of products
developed and commercialized by LeukoSite using the HuMAb-Mouse technology.
Eisai. In May 1993, we 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 and subsequent amendments provide for $12 million of research
payments as well as a further $18.5 million of milestone and other payments.
To date, we have received research and milestone payments totaling $13.6
million. An IND was filed with the FDA in 1998 for the first of the HuMAb-
Mouse products developed through this collaboration, and a Phase I clinical
trial in rheumatoid arthritis commenced in January 1999. Eisai has exclusive
marketing rights for Japan and for countries in Asia and Europe. We originally
retained marketing rights for North America and the remaining parts of the
world, which were licensed to Genmab in 1999. We are entitled to receive
royalty payments on Eisai sales as well as payments for providing bulk product
to Eisai.
Our Humanized and Murine Monoclonal Antibody Business
With the rapid increase of antigen targets being developed, particularly by
genomics companies, we have shifted the focus of our business and intend to
concentrate our resources and efforts primarily on our fully human antibody
development business. As a result, we have entered into a number of
collaborations whereby our corporate partners will bear significant
responsibility for the development and commercialization of certain of our
humanized and murine monoclonal antibody-based products. Currently, these
products employ murine and humanized monoclonal antibody technologies for the
treatment of cancer, autoimmune disorders and ophthalmic conditions.
Scil Biomedicals. In January 2000, we entered into a binding letter of
intent with Scil Biomedicals GmbH for the development of MDX-210, our
antibody-based product for the treatment of cancers overexpressing HER-2, for
applications outside cellular therapy. Scil was formed by certain owners and
senior executives of Boehringer Mannheim following the acquisition of
Boehringer Mannheim by Roche Holding AG. MDX-210 is in Phase II trials for the
treatment of patients with hormone refractory prostate cancer. Scil has agreed
to pay us an upfront fee of $2 million and will pay all of the remaining costs
of the Phase II trials and has agreed to fund 100% of the Phase III costs
necessary to obtain regulatory approval in North America and Europe up to a
maximum of $17 million. Scil will have the rights to commercialize MDX-210 in
Europe, subject to royalties payable to us. If we elect to fund 50% of the
Phase III costs, we will retain all rights outside of Europe; if we elect to
have Scil pay all of the Phase III costs, we will share copromotion rights in
North America with Scil.
As part of this agreement, Scil has also acquired certain rights to MDX-RA.
MDX-RA is an immunotoxin used to prevent secondary cataracts. MDX-RA 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 1998
there were approximately 2.2 million primary cataract surgeries and
approximately 800,000 secondary cataract surgeries.
A Phase III placebo controlled clinical trial of MDX-RA began in December
1997. In November 1998, we voluntarily suspended the Phase III trial after 565
patients had been treated. The reason for the suspension was the occurrence of
serious adverse events, or SAEs, in seven patients receiving a placebo and six
treated with MDX-RA. We believe that the cause of the SAEs resulted from the
buffer solution used as part of the product. As a result of these SAEs, we
have received a small number of claims, of which only three have resulted in
lawsuits being filed. One of these lawsuits has been settled for an
insubstantial amount. The others are in the very early stages. We believe our
product liability insurance is sufficient to cover any such claims.
Under the terms of our letter of intent, we will transfer our development
rights for this product to Scil, which has agreed to undertake the continued
development and commercialization of MDX-RA. Scil will pay 100% of
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the costs up to $8 million for clinical trials, regulatory filings and
approvals and manufacturing scale up for development of MDX-RA in Europe, the
Near East and North America. Thereafter, we will share all such costs with
Scil equally except for costs for additional clinical studies that are
required only for a specific territory, in which case the party having rights
in that territory will pay 100% of such costs. Pursuant to the letter of
intent, we received $2 million in upfront fees. In addition, Scil will pay us
royalties on commercial sales and will be responsible for all third party
royalties. We have agreed to pay Scil certain milestone payments up to $3
million. We will remain responsible for any claims relating to the prior
clinical trials.
The principal terms of the Scil collaboration are contained in the binding
letter of intent and will be incorporated into a definitive agreement for each
product. In the event we are unable to execute definitive agreements with
Scil, we intend to seek additional collaborative partners for the development
and commercialization of these products.
Santen. We also have a strategic alliance with Santen pursuant to which
Santen has obtained the exclusive marketing rights to MDX-RA in Japan. We have
reached an understanding with Santen to modify the manufacturing and royalty
provisions in the original agreement, as well as to provide us an option to
reacquire commercial rights to the MDX-RA product for the Japanese market. In
return, we allowed Santen to issue a contingent note in the amount of $1
million 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. In
light of the suspension of the Phase III clinical trials, the time for payment
of this note has been extended.
Merck KGaA. We originally developed MDX-447 in conjunction with Merck KGaA.
Merck has the rights to commercialize MDX-447 in Europe, to negotiate for co-
marketing or co-promotion rights in the United States, and has a 50%
commercial interest outside Europe and the United States. Pursuant to our non-
binding letter of intent with IDM, we expect to transfer our financial
interest in MDX-447 to IDM, which will be responsible for its continuing
development.
IDM. In January 2000, we entered into a non-binding letter of intent with
IDM which provides for among other things, the development of MDX-210 for
cellular therapy applications. We expect IDM to initiate a Phase III clinical
trial of MDX-210 in ovarian cancer in connection with IDM's macrophage
activated killer, or MAK, cells in the first half of 2000.
The commercial rights to our MDX-447, MDX-220 and MDX-22 products are
proposed to be transferred to IDM pursuant to this agreement. We will continue
to collaborate with Merck KGaA and IDM in connection with MDX-447, a
monoclonal antibody-based product for patients with tumors overexpressing the
epidermal growth factor receptor, or EGFr. MDX-220 is in Phase I/II clinical
trials for colon and prostate cancer. MDX-22 is in Phase II clinical trials
for acute myeloid leukemia. IDM will pay all of the further costs of
development of these products.
Under the terms of the letter of intent, we are required to pay IDM $2
million upon the execution of a definitive agreement which we anticipate will
occur during the first quarter of 2000. We currently have a 6% interest in
IDM. The agreement provides for us to obtain additional equity in IDM, or a
comparable interest in a new jointly owned entity, which will result in us
having a 43% aggregate equity interest in such entity. In addition, we are
required to purchase additional equity to fund up to an additional $5 million
in the event IDM does not complete a public or private financing of at least
$7 million on or before December 31, 2000. In addition, we will waive our
existing rights to acquire the commercialization rights in North America to
IDM's MAK technology in targeted immunotherapy.
The IDM letter of intent contains the principal terms of the collaboration
which are to be incorporated into a definitive agreement. In the event we are
unable to reach a definitive agreement with IDM, we intend to seek other
corporate partners for the development and commercialization of these
products.
Aventis Behring. In April 1996, we announced a collaborative arrangement
with Aventis Behring to jointly develop MDX-33, a humanized monoclonal
antibody for the treatment of a variety of autoimmune hematological disorders.
MDX-33 is designed for the treatment of ITP, an autoimmune condition in which
patients' platelets
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are destroyed by their own immune systems. Conventional treatments include
steroids, removal of the spleen and high doses of intravenous IgG. We believe
that intravenous IgG creates an antibody blockade by overwhelming certain
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 these receptors, and we believe that MDX-33
may achieve the same therapeutic results as large doses of IgG. MDX-33 is
currently in Phase II clinical trials.
Under the terms of the agreement, Aventis Behring will finance product
development through Phase II clinical trials up to a maximum of $20 million.
Upon successful completion of these clinical trials, Aventis Behring will also
fund Phase III clinical trials, regulatory approvals and commercial launch
costs. Subject to the terms of the agreement, we have the potential to receive
up to approximately $10 million in payments from Aventis Behring for the
achievement of specific milestones. Upon commercialization, Aventis Behring
will have exclusive worldwide marketing rights to MDX-33 for autoimmune
hematological disorders, and we will be entitled to royalty payments and may
also manufacture the product for Aventis Behring.
MDX-44. We are also internally developing MDX-44, our monoclonal antibody-
based product for the treatment of psoriasis and other dermatological
conditions. MDX-44 is an immunoconjugate consisting of a humanized antibody
linked to ricin. Promising results of animal testing of MDX-44 were published
in the January 2000 issue of Nature Biotechnology. We expect to have initial
results of clinical testing of MDX-44 in patients with atopic dermatitis in
2000.
Our Cross License Agreement With Abgenix
In 1994, prior to our acquisition of GenPharm, Abgenix and related entities
brought a lawsuit against GenPharm relating to intellectual property issues
involved in creating transgenic mice capable of generating fully human
antibodies. GenPharm filed counterclaims, and the litigation was settled in
March 1997 upon the execution of a patent cross-license and settlement
agreement. Under the terms of this agreement, GenPharm granted a license, on a
non-exclusive basis, to certain patents, patent applications, third party
licenses and inventions pertaining to the development and use of certain
transgenic rodents, including mice, that produce fully human antibodies. In
exchange for this license, GenPharm received payments in 1997, and after our
acquisition of GenPharm we received payments, including interest, from Abgenix
and its related parties which totaled approximately $38.6 million. Neither
Abgenix nor any of its related entities have any further payment obligations
to us under the agreement. Neither we nor GenPharm were required to make any
payments to Abgenix or any related entity under the terms of the agreement.
The agreement also provides us with a non-exclusive license to certain
intellectual property held by Abgenix.
Research Collaborations
Utrecht University. Medarex Europe B.V., our wholly-owned European
subsidiary, has established an alliance with Utrecht University, the largest
research university in the Netherlands. Research is being conducted with the
HuMAb-Mouse technology and related areas of immunotherapy.
Marketing
Our potential products fall into two groups: those intended to be marketed
and sold by us and those expected to be marketed by our corporate partners. We
believe that a small sales force could successfully introduce and detail
certain of our potential products which have concentrated marketplaces.
Currently, we have no such sales force. We may develop our own internal sales
force for these products if they proceed to commercialization.
We acknowledge that the successful marketing of some of our potential
products is beyond the capabilities of all but the largest pharmaceutical
organizations. For this reason, we plan 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.
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Our product licensing strategy is to require our licensees to fund our
later stage development work on the licensed products. In addition to
receiving royalties on sales, we may retain manufacturing and co-marketing or
co-promotion rights to these products.
Manufacturing and Facilities
We have leased 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 review 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. By leasing this facility and spending
modestly to adapt it, we believe that we have preserved a considerable amount
of capital that might otherwise have been used to build a biopharmaceutical
production facility. 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 products and for providing the services we offer to our corporate partners
in connection with our human antibody technology. 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 January 1998, we entered into a four year lease for approximately 10,000
square feet in a modern facility located in San Jose, California. This space,
which is owned by Becton Dickinson Corporation, includes an animal facility to
house our HuMAb-Mice, research and development laboratories and administrative
offices. In September 1999, we entered into a five year lease for
approximately 6,000 square feet of administrative office space in a modern
facility located in Princeton, New Jersey. This facility serves as our general
corporate headquarters. In November 1999, we entered into a five year lease
for approximately 12,000 square feet of administrative office space in a
modern facility located in Annandale, New Jersey. The aggregate future minimum
lease commitments over the remainder of the lease terms are approximately $6.9
million.
Regulatory Issues
General. The production, distribution and marketing of products employing
our technology and our 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 our products. Product development and approval within this
regulatory scheme, if successful, will take a number of years and involve the
expenditure of substantial resources.
Products employing our technology 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 biologic may be marketed in the United States
includes:
. preclinical laboratory and animal tests;
. submission to the FDA of an application for an IND, which must become
effective before human clinical trials may commence;
. preliminary human clinical studies to evaluate the drug or biologic and
its manner of use; and
. 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 therapeutic use.
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If the product is regulated as a drug, the FDA Center for Drug Evaluation
and Research, or CDER, will require the submission and approval of a New Drug
Application, or NDA, before commercial marketing may begin. If the product is
regulated as a biologic such as antibodies, the FDA Center for Biologics
Evaluation and Research, or CBER, will require the submission and approval of
a Biologic License Application, or 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 to support the proposed
clinical therapeutic use. Each domestic and foreign biopharmaceutical
manufacturing establishment, including our contract manufacturers, must also
be registered with the FDA and pass an inspection by the FDA prior to approval
for commercial distribution. If they fail to pass the inspection, we will not
receive approval to market these products.
Under the Prescription Drug User Fee Act, the FDA receives fees for
reviewing a BLA or NDA and supplements thereto, for each commercial
manufacturing establishment and for each product. 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 the 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. If deemed
complete, the FDA will "file" the NDA or BLA, triggering substantive review of
the application. The FDA can refuse to file any NDA or BLA that it deems
incomplete or not easily reviewable. If the FDA refuses to file an
application, the FDA will retain 25% percent of the user fee as a penalty. The
application may be resubmitted after incorporating the additional information
or changes demanded by the FDA, or it may be requested that the application be
filed for substantive review over protest. In either case, a new NDA or BLA
review fee may be required.
Moreover, we are now, and may become subject to additional, various
federal, state and local laws, regulations and recommendations relating to
safe working conditions, laboratory 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 our research work.
Certain issues that have potential impact on future marketing of products
employing our technology 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 work.
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 small numbers of 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 larger groups of patients afflicted with the target disease to
validate the clinical end point, to determine preliminary efficacy, optimal
dosages and expanded evidence of the safety profile. In Phase III, large-scale
clinical trials involving hundreds of patients are conducted in patients with
the target disease to provide sufficient data for the statistical proof of
efficacy and safety required by U.S. and foreign regulatory agencies. Such
Phase III trials must be well-controlled, and success of such trials often
depends on whether the required level of control is maintained. Maintenance of
such control is very difficult and we cannot assure you that such control will
be maintained and be performed in compliance with good clinical practice, or
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GCP, regulations. 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 be
in compliance with GCP regulation, that the data will demonstrate that the
product is safe or effective or, in the case of a biologic product, potent as
well, or will provide sufficient data to support FDA approval of the product.
After FDA approval to market under an NDA or BLA, the FDA may require Phase IV
post-marketing studies to be performed as a condition of approval.
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.
We and our collaborative partners also will be subject to widely varying
foreign regulations governing clinical trials and pharmaceutical sales which
may be different from those of the FDA. Whether or not FDA approval has been
obtained, a separate approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
product marketing 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. We intend, to the extent possible, to rely on foreign licensees to
obtain regulatory approval for marketing products employing our technology in
foreign countries. In addition, under current law, there are significant
restrictions on the export of products not approved by the FDA depending on
the country involved and the status of the product in that country.
Regulatory approval to market a biologic or a new drug ordinarily takes
three to six years or more 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 review,
how long it takes us to respond to the FDA questions, 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, only one product employing our fully human antibody technology,
MDX-CD4, has entered into Phase I clinical trials. This product is designed
for the treatment of rheumatoid arthritis. No products employing our human
antibody technology have been approved by the FDA for sale.
Treatment IND Status. Treatment protocols and INDs for products employing
our technology may also be submitted. The FDA may allow treatment 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 investigational
products to desperately ill patients before FDA approval for marketing begins.
We or our collaborative partners may be able to recover some of the costs of
production, manufacture, research, development and handling prior to market
approval if patients are allowed to be charged 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.
Drug and Biologics for Serious or Life-Threatening Illnesses. The Federal
Food, Drug and Cosmetic Act and FDA regulations provide certain mechanisms for
the accelerated approval of products intended to treat 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. Certain products employing our
human antibody technology might qualify for this accelerated regulatory
procedure although we cannot assure you that the FDA
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will agree. Notwithstanding the foregoing, approval may be denied by the FDA
or additional Phase III studies may be required. The FDA may also require our
agreement to perform post-approval Phase IV studies as a condition of such
early approval.
Patents, Trademarks, Trade Secrets and Licenses
Proprietary protection for our products, processes and know-how is
important to our business. Our policy is to file patent applications to
protect technology, inventions, and improvements that we consider important to
the development of our business. We also rely upon trade secrets, know-how and
continuing technological innovation to develop and maintain our competitive
position. We plan to aggressively prosecute and defend our patents and
proprietary technology.
Currently, we hold 10 issued patents and allowed patent applications in the
United States, and 16 issued patents in foreign countries including Europe,
Japan, Korea, Canada and Australia, among others, covering aspects of our
HuMAb-Mouse technology and products. These patents, almost all of which are in
the same patent family, include the transgene, the transgenic mouse, methods
of obtaining high affinity antibodies, and composition of matter claims for
high affinity antibodies, among others. These patents have expiration dates
beginning 2011. We also have more than 25 related pending U.S. and foreign
patent applications covering aspects of our HuMAb-Mouse technology and
products. Additionally, we hold exclusive and non-exclusive licenses to
various pertinent technologies relating to our HuMAb-Mouse technology. For
example, these technologies include microinjection of transgene DNA,
homologous recombination, chomosome transfer, yeast artificial chromosome
transgene technology and other relevant technologies. We also hold an
exclusive license from The University of California covering aspects of our
anti-CTLA-4 human monoclonal antibody product.
In addition to patent coverage for our HuMAb-Mouse technology, we currently
hold 21 patents and allowed patent applications in the United States, and 26
patents in foreign countries including Europe, Japan, Korea, Canada and
Australia among others, covering aspects of our bispecific molecule technology
and bispecific products. These patents have expiration dates from 2007-2016.
In addition, we have more than 75 pending U.S. and foreign patent applications
also covering aspects of our bispecific molecule technology and bispecific
products. In particular, we hold United States and European patents covering
our trigger antibody which binds to the type I human receptor molecule, as
well as bispecific molecules which incorporate the trigger antibody. We also
hold exclusive and non-exclusive licenses to technologies owned by third
parties relating to certain aspects of our bispecific and human monoclonal
antibody technologies. For example, we hold a license from Merck KGaA for its
anti-EGFr antibody used in the production of MDX-447, a bispecific antibody
directed against the EGF receptor, and a license from Chiron Corporation for
its anti-HER-2/neu antibody used in the production of MDX-210, a bispecific
antibody directed against the HER-2/neu receptor.
In addition, we also hold registered trademarks on our corporate name
Medarex(R) and on the term Putting the Immune System to Work(R) in the United
States and Europe and have made applications for the registration of these
marks in Canada.
Competition
We face competition in several different forms. First, our human antibody
development activities currently face competition from one principal
competitor and from other technologies. The actual products being developed by
our collaborators or by us also face actual and potential competition.
We face competition from many companies that provide the services of
generating murine, humanized or human monoclonal antibodies. Our principal
competitor for our human antibody technology is Abgenix. As a result of the
cross licensing agreement, Abgenix offers to potential partners the use of its
transgenic mice known as XenoMice(TM), that, according to Abgenix, are capable
of generating fully human monoclonal antibodies. Numerous companies have
expertise in the realm of humanization technology, such as Genentech, Protein
Design Labs, and with phage display technology, such as Cambridge Antibody
Technology, Dyax Corp. and MorphoSys.
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The development of biotechnology and pharmaceutical products is a highly
competitive business subject to rapid technological change. We know of several
pharmaceutical and biotechnology companies conducting research or development
on monoclonal antibodies and related fields. Some of these companies are
pursuing product development efforts for the same disease areas as we or our
partners are pursuing.
Other technologies can also be applied to the treatment of the diseases
that we or our corporate partners are pursuing. For example, immunoconjugates,
monoclonal antibodies linked to toxins or radioactive isotypes, 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, or 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. In particular, we are
aware that Genentech, Inc. has developed a monoclonal antibody-based product
that targets HER-2 that may be competitive with MDX-210. We are also aware
that ImClone Systems, Inc. has published reports indicating that it is
developing monoclonal antibody-based products targeting EGFr that may be
competitive with MDX-447. ITP is currently being treated with WinRhoSDF(TM)
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, IDEC Pharmaceuticals, SmithKline Beecham and others.
Significant competitors in the development and marketing of ophthalmic
pharmaceuticals include companies such as: Alcon Laboratories, Inc. (a
division of Nestle, S.A.), Allergan Inc., Merck & Co., Novartis Vision
Ophthalmics (a division of Novartis), Chiron Vision (a division of Bausch &
Lomb, Inc.), and Pharmacia & Upjohn, Inc., along with other smaller companies.
With respect to the prevention of secondary cataracts, we are not aware of
any commercial competitor with a competing product on the market. Prizm
Pharmaceuticals, Inc., has announced plans to develop a macromolecular
protein-toxin conjugate. Prizm has been informed that if it commercializes
such conjugate, it would infringe certain of our patent rights. Pharmacia &
Upjohn, Inc. has a research-stage project related to the reduction of
secondary cataracts. Efforts of other competitors with respect to secondary
cataracts have been primarily directed toward enhanced surgical techniques,
alternative intraocular lens designs and certain pharmacologic approaches.
Employees
As of December 31, 1999, we employed 93 persons, of whom 15 hold Ph.D.
degrees and 23 hold other advanced degrees. Approximately 68 employees are
engaged in research and development activities. There are 19 employees
involved in business development, intellectual property, finance and other
administrative functions. None of our employees is covered by a collective
bargaining agreement. We have entered into employment contracts and consulting
agreements with certain of our executive officers and directors.
Our success will depend in large part upon our ability to attract and
retain employees. We face competition for employees from other companies,
research and academic institutions, government agencies and other
organizations. We believe we maintain good relations with our employees.
Legal Proceedings
In the ordinary course of our business, we are at times subject to various
legal proceedings. We do not believe that any of our current legal
proceedings, individually or in the aggregate, will have a material adverse
effect on our operations or financial condition.
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MANAGEMENT
Executive Officers And Directors
Set forth below is certain information concerning our executive officers
and directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Irwin Lerner, M.B.A. ................ 69 Chairman of the Board
Donald L. Drakeman, J.D., Ph.D. ..... 46 President and Chief Executive
Officer, Director
Michael A. Appelbaum, J.D., C.P.A. .. 54 Executive Vice President-Finance and
Administration, Secretary,
Treasurer and Chief Financial
Officer-Director
Lisa N. Drakeman, Ph.D. ............. 46 Senior Vice President-Business
Development
Yashwant M. Deo, Ph.D. .............. 46 Senior Vice President-Operations,
Research and Development and
Regulation Compliance
Randall T. Curnow, M.D. ............. 57 Senior Vice President and Chief
Medical Officer
Nils Lonberg, Ph.D. ................. 43 Senior Vice President-Scientific
Director-GenPharm
Julius A. Vida, Ph.D. ............... 71 Director
Frederick B. Craves, Ph.D. .......... 54 Director
Michael W. Fanger, Ph.D. ............ 59 Director
W. Leigh Thompson, M.D., Ph.D........ 61 Director
Charles R. Schaller.................. 63 Director
Robert Iggulden...................... 58 Director
</TABLE>
Irwin Lerner. Mr. Lerner has been a Director since September 8, 1995. On
May 19, 1997, Mr. Lerner became Chairman of the Board of Directors. Mr. Lerner
served as the Chairman of the Board of Directors of Sequanna Therapeutics,
Inc., a publicly-traded biotechnology company, from May 1995 until January
1998. Mr. Lerner served as Chairman of the Board of Directors and of the
Executive Committee of Hoffmann-La Roche, Inc., a pharmaceutical and health
care company, from January 1993 until his retirement in September 1993, and
also served as President and Chief Executive Officer from 1980 through
December 1992. Mr. Lerner served for 12 years on the Board of the
Pharmaceutical Manufacturers' Association, where he chaired the Association's
FDA Issues Committee. Mr. Lerner received a B.S. and an M.B.A. from Rutgers
University. He is currently Distinguished Executive-in-Residence at Rutgers
University Graduate School of Management. Mr. Lerner is also a Director of
Public Service Enterprise Group Incorporated, a publicly-traded diversified
public utility holding company, Humana Inc., a publicly-traded health care
company, as well as Covance, Inc., a publicly-traded contract research
organization and V.I. Technologies, Inc., publicly-traded biotechnology
companies.
Donald L. Drakeman, Ph.D. Dr. Drakeman has been our President, Chief
Executive Officer and a Director since our inception in 1987. Dr. Drakeman
also serves as Chairman of the Board and Chief Executive Officer of our
wholly-owned subsidiary, GenPharm. Dr. Drakeman graduated from Dartmouth
College and holds a law degree from Columbia University, where he was a Harlan
Fiske Stone scholar, and a Ph.D. in the humanities from Princeton University,
where he has served as a member of the faculty.
Michael A. Appelbaum. Mr. Appelbaum has been a Director since April 3,
1991. Mr. Appelbaum is our Executive Vice President-Finance and
Administration, Secretary, Treasurer and Chief Financial Officer.
Mr. Appelbaum is also the President and Chief Operating Officer of our wholly-
owned subsidiary, GenPharm. Mr. Appelbaum joined us on a full-time basis on
July 29, 1991. Mr. Appelbaum, who has been employed as a certified public
accountant with Ernst & Young LLP, is also an attorney. He graduated from
Fairleigh Dickinson University and Suffolk University School of Law.
Julius A. Vida, Ph.D. Dr. Vida has been a Director since February 9, 1994.
Since 1993, Dr. Vida has been a self-employed pharmaceutical consultant with
VIDA International Pharmaceutical Consultants, Inc. From 1975 until his
retirement in 1993, Dr. Vida held various positions at Bristol-Myers Squibb
and its predecessors. From
49
<PAGE>
1991 until 1993, Dr. Vida was Vice President, Business Development, Licensing
and Strategic Planning, and from 1985 until 1991, he was Vice President,
Licensing. Dr. Vida graduated from Pazmany Peter University, Budapest,
Hungary, holds an M.S. and a Ph.D. in Organic Chemistry from Carnegie
Institute of Technology, was a Postdoctoral Fellow at Harvard University, and
holds an M.B.A. from Columbia University. Dr. Vida is also a Director of
Biomatrix, Inc., Supergen, Inc., and Orphan Medical, Inc., publicly-traded
biotechnology companies.
Frederick B. Craves, Ph.D. Dr. Craves has been a Director since August 4,
1998. In June 1997, Dr. Craves founded Bay City Capital Management LLC, a
merchant bank providing advisory services and investing in life science
companies, and has served as Chairman and Managing Director since that
company's inception. In November 1996, Dr. Craves founded the Craves Group
LLC, and in January 1994, Dr. Craves co-founded Burrill & Craves, each an
investment company. Dr. Craves is Chairman of the Board and acting Chief
Executive Officer of Epoch Pharmaceuticals, Chairman of the Board of NeoRx
Corporation and is a Director of Incyte Pharmaceuticals, Inc., publicly-traded
biotechnology companies. Dr. Craves holds a Ph.D. degree in Pharmacology and
Experimental Toxicology from the University of California San Francisco
Medical Center.
Michael W. Fanger, Ph.D. Dr. Fanger has been a Director and Chairman of our
Scientific Advisory Board since our inception in 1987 and was our Secretary
from May 18, 1990 until April 3, 1991. Dr. Fanger has been Chairman of the
Department of Microbiology at Dartmouth Medical School since July 1992 and a
Professor of Microbiology and Medicine since 1981. Dr. Fanger is a graduate of
Wabash College and received a Ph.D. degree in Biochemistry from Yale
University.
Dr. W. Leigh Thompson, Jr. Dr. Thompson has been a Director since April 12,
1996. Dr. Thompson is currently the President and Chief Executive Officer of
Profound Quality Resources Ltd., consultants to the health care industry.
During 1994, Dr. Thompson served as the Chief Scientific Officer of Eli Lilly
and Company. From 1982 until 1994, Dr. Thompson held various management
positions with Lilly Research Laboratories, a subsidiary of Eli Lilly and
Company, including Executive Director, Clinical Investigation and Regulatory
Affairs from 1982 until 1986, Vice President from 1986 until 1988, Group Vice
President from 1988 until 1993 and Executive Vice President from 1993 until
1994 in charge of all of that company's pharmaceutical and animal health
research except process chemistry. Dr. Thompson was also a Professor of
Medicine at Indiana University from 1984 to 1995. Dr. Thompson received a B.S.
from the College of Charleston, M.S. and Ph. D. in Pharmacology from the
Medical University of South Carolina and an M.D. from The Johns Hopkins
University. Dr. Thompson is a director of BAS, Inc., DepoMed, Inc., Ophidian
Pharmaceuticals, Inc., Orphan Medical, Inc. and DNX/Chrysalis, Inc., publicly-
traded biotechnology companies.
Charles R. Schaller. Mr. Schaller has been a Director since our inception
in 1987, and was Chairman of our Board of Directors until May 1997. Since
1989, Mr. Schaller has been a chemical industry management consultant and is
currently a Director and the Secretary of Astro Power, Inc., a publicly-traded
company engaged in the commercialization of silicon film solar cells. Mr.
Schaller holds a bachelor's degree in engineering from Yale University and is
a graduate of the program in management development at Harvard Business
School.
Robert Iggulden. Mr. Iggulden has been a Director since May 1996. Mr.
Iggulden has been the Chairman and Managing Director of Openview Limited, an
English venture capital firm, since 1990. Mr. Iggulden is also a member of the
investment review team of Rothschild Asset Management Limited.
Lisa N. Drakeman, Ph.D. Dr. Drakeman is our Senior Vice President-Business
Development. Dr. Drakeman joined us in 1989 on a part-time basis and on a
full-time basis in 1991. Dr. Drakeman is also Chief Executive Officer of
Genmab. Dr. Drakeman graduated from Mount Holyoke College, received an M.A.
degree from Rutgers University, and a Ph.D. in the humanities from Princeton
University.
Dr. Randall T. Curnow. Dr. Curnow is our Senior Vice President and Chief
Medical Officer. Dr. Curnow joined us on May 20, 1996. Prior to joining us,
Dr. Curnow held several positions at Glaxo, Inc., including as Vice President,
Health Science Affairs from September 1993 until September 1995 and Vice
President,
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<PAGE>
Regulatory Affairs from December 1990 until September 1993. Dr. Curnow
received both his B.S. degree and M.D. degree from the University of Nebraska.
Yashwant M. Deo, Ph.D. Dr. Deo is our Senior Vice President-Operations,
Research and Development and Regulatory Compliance. Dr. Deo joined us on July
15, 1993. Dr. Deo served as Vice President of Process Development from June
1992 until July 1993 and as Director of Cell Culture R&D at Centocor from July
1988 until June 1992. Dr. Deo received his Bachelor of Science degree from the
University of Poona (India), Master of Science degree from G.B. Pant
University (India) and Ph.D. degree in Fermentation Technology from the
University of Calgary (Canada), where he was an I.W. Killam Scholar.
Nils Lonberg, Ph.D. Dr. Lonberg is the Senior Vice President-Scientific
Director of our wholly-owned subsidiary, GenPharm. Dr. Lonberg joined GenPharm
in 1990 as a Senior Scientist and was promoted to Director, Molecular Biology
in 1994. Prior to joining GenPharm, Dr. Lonberg was a Post-Doctoral Fellow at
Memorial Sloan-Kettering Cancer Center in Manhattan. He received his Ph.D. in
Biochemistry and Molecular Biology from Harvard University in 1985.
Dr. Donald L. Drakeman and Dr. Lisa N. Drakeman are husband and wife. There
are no other family relationships among any of our directors or executive
officers.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of February 29, 2000, the number of
shares and percentage of our common stock held by (i) each person who owns of
record or who is known by us to "beneficially own" more than 5% of our common
stock, (ii) each of our executive officers and directors, and (iii) all of our
officers and directors as a group. As of February 29, 2000, we had 32,668,395
shares of common stock issued and outstanding.
"Beneficial ownership" is broadly defined by the SEC to mean more than
ownership in the usual sense. So, for example, a person "beneficially" owns
our common stock not only if he or she holds it directly, but also if he or
she indirectly, through a relationship, a position as a director or trustee,
or a contract or understanding, has, or shares, the power to vote the stock,
or to sell it, or if he or she has the right to acquire it within 60 days.
<TABLE>
<CAPTION>
Percent Owned
-----------------
Amount and
Nature of
Beneficial Prior to After
Officers, Directors and Principal Shareholders Ownership(1) Offering Offering
---------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
BCC Acquisition I LLC (2)...................... 4,176,673 12.6% 12.0%
c/o Bay City Capital
750 Battery Street, Suite 600
San Francisco, CA 94111
Donald L. Drakeman (3)......................... 928,128 2.8% 2.6%
Michael Fanger (4)............................. 523,637 1.6% 1.5%
Michael A. Appelbaum (5)....................... 174,432 * *
Yashwant M. Deo (6)............................ 192,400 * *
Charles R. Schaller (7)........................ 166,636 * *
Lisa Drakeman (8).............................. 928,128 2.8% 2.6%
Fred B. Craves (9)............................. 173,390 * *
Randall T. Curnow (10)......................... 145,000 * *
Nils Lonberg (11).............................. 165,553 * *
Irwin Lerner (12).............................. 135,000 * *
Julius A. Vida (13)............................ 71,768 * *
W. Leigh Thompson, Jr. (14).................... 53,000 * *
Robert Iggulden (15)........................... 53,000 * *
All officers and directors as a group (13
persons) (16)................................. 2,781,944 8.0% 7.6%
</TABLE>
- --------
* Less than 1%.
(1) The persons named in the table above have sole voting and investment
power with respect to all shares of our common stock shown as
beneficially owned by them subject to community property laws where
applicable and the information contained in this table and these notes.
(2) Includes 454,796 shares issuable pursuant to immediately exercisable
warrants.
(3) Includes 15,000 shares held by Dr. Donald L. Drakeman's wife, Dr. Lisa N.
Drakeman, 154,000 shares issuable pursuant to immediately exercisable
options held by Dr. Lisa N. Drakeman, and 15,536 shares held in trusts
for the benefit of Cynthia and Amy Drakeman. Dr. Lisa N. Drakeman is the
trustee of such trusts. Also includes 333,000 shares issuable pursuant to
immediately exercisable options and 391,067 phantom stock units.
(4) Includes 30,000 shares issuable pursuant to immediately exercisable
options and 80,000 shares held by Dr. Fanger's wife. Also includes
102,917 phantom stock units.
(5) Includes 152,000 shares issuable pursuant to immediately exercisable
options and 20,582 phantom stock units.
(6) Represents 192,400 shares issuable pursuant to immediately exercisable
options.
(7) Includes 106,300 shares issuable pursuant to immediately exercisable
options and 14,211 phantom stock units.
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<PAGE>
(8) Includes 19,525 shares, 333,000 shares issuable pursuant to immediately
exercisable options and 391,067 phantom stock units held by Dr. Donald L.
Drakeman, Dr. Lisa N. Drakeman's husband. Includes 15,536 shares held in
trust for the benefit of Cynthia and Amy Drakeman, Dr. Drakeman's minor
children. Dr. Lisa N. Drakeman is the trustee of such trusts. Includes
154,000 shares issuable pursuant to immediately exercisable options.
(9) Includes 109,954 shares held by BCC Acquisition I LLC and 13,436 shares
issuable pursuant to immediately exercisable warrants held by BCC
Acquisition I LLC. Includes 50,000 shares issuable pursuant to
immediately exercisable options.
(10) Represents 145,000 shares issuable pursuant to immediately exercisable
options.
(11) Includes 137,000 shares issuable pursuant to immediately exercisable
options.
(12) Includes 120,000 shares issuable pursuant to immediately exercisable
options.
(13) Includes 67,500 shares issuable pursuant to immediately exercisable
options. Also, includes 103 shares held by Dr. Vida's son and 1,165
shares held by Dr. Vida's wife.
(14) Represents 53,000 shares issuable pursuant to immediately exercisable
options.
(15) Represents 53,000 shares issuable pursuant to immediately exercisable
options.
(16) Includes 1,606,636 shares issuable pursuant to immediately exercisable
options and warrants and 528,777 phantom stock units.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our restated certificate of incorporation authorizes the issuance of up to
40,000,000 shares of common stock, $.01 par value per share, and authorizes
the issuance of up to 2,000,000 shares of preferred stock, $1.00 par value per
share, the rights and preferences of which may be established from time to
time by the Board of Directors. As of February 29, 2000, 32,668,395 shares of
common stock were issued and outstanding. At our annual meeting of
shareholders to be held in May 2000, we intend to seek approval from our
shareholders for an amendment to our restated certificate of incorporation to
increase the number of authorized shares of capital stock to 110,000,000,
consisting of 100,000,000 shares of common stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $1.00 per share. In
addition, we intend to seek approval from our shareholders of a new stock
option plan providing for the issuance of options to purchase up to 1,000,000
shares of our common stock.
Common Stock
Each share of common stock entitles the holder thereof to one vote on all
matters submitted to a vote of the shareholders. Since the holders of common
stock do not have cumulative voting rights, holders of more than 50% of the
outstanding shares can elect all of our directors and holders of the remaining
shares by themselves cannot elect any directors. The holders of common stock
do not have preemptive rights or rights to convert their common stock into
other securities. Holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of our liquidation, dissolution or winding
up, holders of common stock have the right to a ratable portion of the assets
remaining after payment of liabilities. All shares of common stock outstanding
and to be outstanding upon completion of this offering are and will be fully
paid and non-assessable.
Preferred Stock
Our authorized preferred stock consists of 2,000,000 shares, par value
$1.00 per share. Our restated certificate of incorporation grants the Board of
Directors the authority to issue by resolution shares of preferred stock in
one or more series and to fix the number of shares constituting any such
series, the voting powers, if any, designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, including the rate or rates at which, and
the other terms and conditions on which, dividends shall be payable; whether
and on what terms the shares constituting any series shall be redeemable,
subject to sinking fund provisions, or convertible or exchangeable; and the
liquidation preferences, if any, of such series, without any further vote or
action by the stockholders. For example, the Board of Directors is authorized
to issue a series of preferred stock that would have the right to vote,
separately or with any other series of preferred stock, on any proposed
amendment to our restated certificate of incorporation, or any other proposed
corporate action, including business combinations and other transactions. The
Board of Directors currently does not contemplate the issuance of any
preferred stock and is not aware of any pending or proposed transactions that
would be affected by such issuance.
The authorization of undesignated preferred stock makes it possible for the
Board of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
our company. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management of our company.
The amendment of any of these provisions would require approval by holders of
at least 66 2/3% of the outstanding common stock.
Warrants
As of February 29, 2000, a total of 454,796 shares of common stock were
issuable upon exercise of outstanding warrants. The warrants, all of which are
currently exercisable, have an exercise price of $10.00 per
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<PAGE>
share expiring in 2006. The warrants have standard anti-dilution provisions
including adjustments for stock splits, reverse stock splits, stock dividends
and capital reorganizations and include cashless exercise provisions.
Registration Rights
A holder of 123,001 shares of our common stock has both piggyback and
demand registration rights. We have received a waiver of this holder's
piggyback registration rights with respect to this offering and an agreement
from this holder to refrain from selling these shares for a period of 90 days
after the date of this prospectus without the written consent of the
underwriters. In consideration of such waiver and agreement, we have agreed to
register these shares for resale by this holder upon the expiration of this 90
day period. In addition, a holder of 900,340 shares of our common stock has
piggyback registration rights. This holder has informed us that a portion of
these shares have been sold. We have received a waiver of this holder's
piggyback registration rights with respect to this offering and an agreement
from this holder to refrain from selling any additional shares for a period of
approximately 21 days after the date of this prospectus without the written
consent of the underwriters. Absent any contractual restrictions, the holder
of demand registration rights can exercise such rights at any time and the
holder of piggyback registration rights can exercise such rights in connection
with most equity offerings. By exercising such registration rights, subject to
some limitations, the holder of such rights could cause these shares to be
registered and sold in the public market. Such sales, or the perception that
these sales could occur, may have an adverse effect on the market price of our
common stock and could impair our ability to raise capital through an offering
of equity securities.
Certain Special Charter and By-Law Provisions
Our restated certificate of incorporation and by-laws contain certain
provisions that may delay, defer or prevent a change in control. Specifically,
the Board of Directors is classified. Directors are elected for three year
terms with only one class of board members elected each year. In addition, the
by-laws provide that special meetings of shareholders may be called only by
the President, the Chief Executive Officer, the Chairman of the Board of
Directors or the Board of Directors.
Furthermore, our restated certificate of incorporation, as amended,
incorporates all of the provisions of the New Jersey Shareholders Protection
Act (the "New Jersey Act"), which provides that resident New Jersey
corporations may not engage in certain Business Combinations with any
Interested Stockholder (as such terms are defined therein) for a period of
five years following the date that such Interested Stockholder became the
owner, directly or indirectly, of 10% or more of the voting power of our
company, unless (i) such transaction is approved by our Board of Directors
prior to the acquisition date, or (ii) the holders of two-thirds (66 2/3%) of
our voting stock, excluding the shares of the Interested Stockholder, approve
such transaction. The New Jersey Act also precludes the purchase by us (except
as hereinafter noted) at a premium over market of any of our voting stock from
an Interested Stockholder who has owned such securities for less than five
years. Notwithstanding the foregoing, such a purchase would be permitted if
the same offer were made to all other holders of the same kind of securities,
or the transaction were approved by the holders of 66 2/3% of our outstanding
voting stock excluding the shares of any Interested Stockholder, or the Board
of Directors approved such a transaction prior to such Interested
Stockholder's acquisition date. Our restated certificate of incorporation, as
amended, does not provide for any additional anti-takeover protections other
than those set forth in the New Jersey Act.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company, Two Broadway, New York, New York 10004.
55
<PAGE>
UNDERWRITERS
Under the terms and conditions contained in an underwriting agreement, the
underwriters named below, for whom Morgan Stanley & Co. Incorporated,
Hambrecht & Quist LLC, Dain Rauscher Incorporated and Warburg Dillon Read LLC,
are acting as representatives, have severally agreed to purchase, and we have
agreed, severally, to sell to them, the respective number of shares of common
stock set forth opposite the names of the underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Hambrecht & Quist LLC...........................................
Dain Rauscher Incorporated......................................
Warburg Dillon Read LLC.........................................
---------
Total....................................................... 1,750,000
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered in this offering are
subject to the approval of various legal matters by their counsel and to other
delineated conditions. The underwriters are obligated to take and pay for all
of the shares of common stock offered in this offering, other than those
covered by the underwriters' over-allotment option described below, if any
shares are taken. However, the underwriters are not required to take or pay
for the shares covered by the underwriters' overallotment described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to dealers at a price that represents a
concession not in excess of $ a share under the public offering
price. Any underwriter may allow, and the dealers may reallow, a concession
not in excess of $ a share to other underwriters or to certain dealers.
After the initial offering of the shares of common stock, the offering price
and other selling terms may from time to time be varied by the representatives
of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 262,500
additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, made in connection with the offering of
the shares of common stock offered in this prospectus. To the extent such
option is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of common stock as the number set forth next to such
underwriter's name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriters' over-allotment option is exercised in
full, the total price to public would be $ , the total
underwriters' discounts and commission would be $ and total proceeds to us
would be $ and $ , respectively.
We estimate expenses payable by us in connection with this offering, other
than the estimated underwriting discounts and commissions referred to above,
will be approximately $ .
We, our directors and executive officers, as well as certain of our
stockholders holding an aggregate of 4,176,673 shares have each agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the underwriters, during the period ending 90 days after the date of
this prospectus, he, she or it will not, subject to limited exceptions,
directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
56
<PAGE>
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock
(whether such shares or any such securities are then owned by such
person or are thereafter acquired directly from us); or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or
. the issuance by us of additional options to purchase shares of common
stock under our existing stock option plans, provided that those options
are not exercisable during the 90-day lock-up period.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
the previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of common stock
above independent market levels. The underwriters are not required to engage
in these activities, and may end any of these activities at any time.
The underwriters and dealers may engage in passive market making
transactions in the common stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the common stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the common stock during a specified two month prior period,
or 200 shares, whichever is greater. A passive market maker must identify
passive market making bids as such or maintain the market price of the common
stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon for us
by Satterlee Stephens Burke & Burke LLP, New York, New York. Dwight A. Kinsey,
Esq., a partner of Satterlee Stephens Burke & Burke LLP owns 3,000 shares of
our common stock. Mr. Kinsey also holds options to purchase 30,000 shares of
our common stock which he received for services rendered as our Assistant
Secretary. No other partner or associate of the firm owns shares or holds
options to purchase any of our shares. Certain legal matters in connection
with the offering will be passed upon for the underwriters by Morgan, Lewis &
Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1999, and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our consolidated financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT MEDAREX
A registration statement on Form S-3 with respect to the shares offered
hereby (together with any amendments, exhibits and schedules thereto) has been
filed with the Securities and Exchange Commission under the Securities Act.
This prospectus does not contain all of the information contained in such
registration statement on Form S-3, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. For further information with respect to Medarex and the shares
offered hereby, reference is made to the registration statement on Form S-3.
Statements contained in this prospectus regarding the contents of any contract
or any other documents are not necessarily complete and, in each instance,
reference is hereby made to the copy of such contract or document filed as an
exhibit to the registration statement on Form S-3. The registration statement
may be inspected without charge at the Securities and Exchange Commission's
principal office in Washington D.C., and copies of all or any part thereof may
be obtained from the Public Reference Section, Securities and Exchange
Commission, Washington D.C., 20549, upon payment of prescribed fees.
We also file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information we file at the
Securities and Exchange Commission public reference rooms located at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661 and 7 World Trade Center,
Suite 1300, New York, NY 10048.
Please call the Securities and Exchange commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
58
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference information into this
prospectus, which means that we can disclose important information to you by
referring you to another document we have filed with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in the
prospectus. This prospectus incorporates by reference the documents set forth
below that have previously been filed with the SEC. These documents contain
important information about us and our financial condition.
<TABLE>
<CAPTION>
Our SEC Filings Period
--------------- ------
<C> <S>
Annual Report on Form 10-K Year ended December 31, 1999.
Quarterly Reports on Form 10-Q For the quarters ended March 31, June 30
and September 30, 1999.
Current Reports on Form 8-K Filed on February 27, 1999, March 1, 1999,
March 5, 1999, August 11, 1999, January 26,
2000, and February 14, 2000.
Current Report on Form 8K/A Filed on March 1, 2000.
Registration Statement on Form 8-A Filed May 25, 1991, setting forth a
description for our common stock (including
any amendments or reports filed for the
purpose of updating such description).
</TABLE>
We incorporate by reference in this prospectus additional documents that we
may file with the SEC between the date the registration statement was
initially filed and the date of termination of the offering. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on
related subjects in our 10-K, 10-Q and 8-K reports to the Securities and
Exchange Commission. Also note that we provide a cautionary discussion of
risks and uncertainties relevant to our business in the "Risk Factors" section
of this prospectus. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors besides
those listed here could also adversely affect us. This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.
You can obtain any of the documents incorporated by reference through us,
the SEC or the SEC's world wide web site described above. Documents that we
incorporate by reference are available without charge, excluding all exhibits
unless specifically incorporated by reference as an exhibit to this
prospectus. You may obtain documents incorporated in this prospectus by
requesting them in writing or by telephone at the following address:
MEDAREX, INC.
707 State Road #206
Princeton, New Jersey 08540
Attention: Secretary
(609) 430-2880
59
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999........................ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1998
and 1999........................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1997, 1998 and 1999................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998
and 1999........................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE>
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, 1998 and 1999 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1998 and 1999 and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 10, 2000
F-2
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 4,411 $ 14,366
Marketable securities.................................. 30,253 15,781
Trade accounts receivable, less allowance for doubtful
accounts of $5 ....................................... 16 16
Inventory.............................................. 49 33
Prepaid expenses and other current assets.............. 1,796 4,346
--------- ---------
Total current assets................................. 36,525 34,542
Property and equipment:
Machinery and equipment................................ 4,439 5,061
Furniture and fixtures................................. 282 336
Leasehold improvements................................. 2,321 2,310
--------- ---------
7,042 7,707
Less accumulated depreciation and amortization......... (3,703) (4,633)
--------- ---------
3,339 3,074
Investments in, and advances to affiliates............. 561 499
Segregated cash........................................ 1,300 1,300
Patents rights and other assets........................ 510 1,067
--------- ---------
Total assets......................................... $ 42,235 $ 40,482
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................. $ 394 $ 620
Accrued liabilities.................................... 4,867 5,133
Deferred contract revenue--current..................... 1,683 6,407
--------- ---------
Total current liabilities............................ 6,944 12,160
Deferred contract revenue--long-term..................... -- 6,000
Other long-term obligations.............................. 62 23
Commitments and contingencies............................
Shareholders' 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, 31,507,186 shares issued and outstanding
at December 31, 1998 and 32,714,942 shares issued and
32,112,442 shares outstanding at December 31, 1999.... 315 327
Capital in excess of par value......................... 144,252 149,032
Treasury stock, at cost 0 and 602,500 shares,
respectively.......................................... -- (3,031)
Deferred compensation.................................. -- 2,970
Accumulated other comprehensive income (loss).......... 67 (563)
Accumulated deficit.................................... (109,405) (126,436)
--------- ---------
Total shareholders' equity........................... 35,229 22,299
--------- ---------
Total liabilities and shareholders' equity........... $ 42,235 $ 40,482
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Sales...................................... $ 221 $ 1,349 $ 1,079
Grants, contract and license revenues...... 3,011 5,443 8,845
---------- ---------- ----------
Total revenues......................... 3,232 6,792 9,924
Costs and expenses:
Cost of sales............................ 150 1,218 709
Research and development................. 14,100 23,122 19,929
General and administrative............... 3,644 5,065 8,036
Bonus to GenPharm International, Inc.
employees............................... 2,275 -- --
Acquisitions of in-process technology.... 40,316 -- --
---------- ---------- ----------
Operating loss......................... (57,253) (22,613) (18,750)
Interest and dividend income............... 1,903 1,956 1,205
Interest expense........................... (27) (1,539) (8)
---------- ---------- ----------
Loss before provision (benefit) for
income taxes.......................... (55,377) (22,196) (17,553)
Provision (benefit) for income taxes....... -- 341 (522)
---------- ---------- ----------
Net loss............................... $ (55,377) $ (22,537) $ (17,031)
========== ========== ==========
Basic and diluted net loss per share....... $ (2.93) $ (0.89) $ (0.53)
========== ========== ==========
Weighted average number of common shares
outstanding during the year--basic and
diluted................................... 18,871,000 25,390,000 31,920,000
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------- Capital Accumulated ---------------
in
Number excess other Number Total
of of par comprehensive Accumulated of Deferred shareholders'
shares Amount value income (loss) deficit shares Amount Compensation equity
---------- ------ -------- ------------- ----------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 a portion
of the proceeds 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-
employes 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 a portion
of the proceeds 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
---------- ---- -------- ----- --------- ------- ------- ------ -------
Issuance of common
stock for exercise of
options and grant of
restricted shares.... 453,665 5 3,698 3,703
Issuance of common
stock in private
placements........... 123,001 1 899 900
Exercise of warrants.. 28,590 128 128
Issuance of common
stock for Executive
Deferred Compensation
Plan................. 602,500 6 55 602,500 $(3,031) $2,970 --
Net loss.............. (17,031) (17,031)
Other comprehensive
income unrealized
loss on securities... (630) (630)
-------
Comprehensive loss... (17,661)
---------- ---- -------- ----- --------- ------- ------- ------ -------
Balance at December
31, 1999............. 32,714,942 $327 $149,032 $(563) $(126,436) 602,500 $(3,031) $2,970 $22,299
========== ==== ======== ===== ========= ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss.................................. $ (55,377) $ (22,537) $ (17,031)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................ 538 698 696
Amortization............................ 225 475 352
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 employees................ -- -- 2,279
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 acquisition:
Trade accounts receivable, net............ (2) 9 --
Inventory................................. 3 (5) 16
Prepaid expenses and other current
assets................................... 156 (788) (1,950)
Trade accounts payable.................... (311) 12 226
Accrued liabilities....................... 215 (1,079) 278
Deferred contract revenue................. -- 1,683 9,524
---------- ---------- ----------
Net cash used in operating activities... (11,894) (12,577) (5,610)
Investing activities:
Purchase of property and equipment........ (1,957) (1,611) (740)
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) decrease in advances to
affiliates............................... -- (46) 62
Proceeds from sale of equipment........... 5 -- --
Decrease (increase) in segregated cash
and other assets......................... 952 (985) --
Purchase of marketable securities......... -- (37,628) (4,000)
Sales of marketable securities............ 9,507 28,975 17,842
---------- ---------- ----------
Net cash provided by investing
activities............................. 13,554 3,705 13,164
Financing activities:
Cash received from sales of stock, net.... 192 6,770 2,452
Increase in other long term obligations... 15 -- --
Principal payments under debt
obligations.............................. (102) (210) (51)
---------- ---------- ----------
Net cash provided by financing
activities............................. 105 6,560 2,401
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents............................ 1,765 (2,312) 9,955
Cash and cash equivalents at beginning of
period................................... 4,958 6,723 4,411
---------- ---------- ----------
Cash and cash equivalents at end of
period................................... $ 6,723 $ 4,411 $ 14,366
========== ========== ==========
Supplemental disclosures of cash flow
information
Cash paid during period for:
Income taxes............................ $ -- $ 1,009 $ --
========== ========== ==========
Interest................................ $ 19 $ 18 $ 8
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
(Dollars in thousands, except 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, 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 14);
and GenPharm International, Inc. ("GenPharm") which was acquired on October
21, 1997 (See Note 14). The Company's therapeutic products are currently under
development and will need the 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 accumulated other comprehensive income (loss),
which is a separate component of shareholders' equity. These unrealized gains
and losses are considered temporary.
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.
Revenue related to collaborative research with the Company's corporate
partners is recognized as research services are performed over the related
funding periods for each contract. Under these agreements, the
F-7
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
Company is required to perform research and development activities as
specified in each respective agreement. Deferred revenue may result when the
Company does not expend the required level of effort during a specific period
in comparison to funds received under the respective contracts or when funds
received are refundable under certain circumstances. Milestone and royalty
payments, if any, are recognized pursuant to collaborative agreements upon the
achievement of specified milestones.
Non-refundable up-front payments received in connection with research and
development collaboration agreements are deferred and recognized on a
straight-line basis over the relevant periods in the agreement, generally the
research term.
Research and Development
Research and development costs are expensed as incurred.
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
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, 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
1997, 1998 and 1999 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 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.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS 133 requires the Company to
measure all derivatives at fair value and to recognize them in the balance
sheet as an asset or liability, depending on Medarex's rights or obligations
under the applicable derivative contract. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. As the Company does
not currently engage in derivatives or hedging transactions, SFAS 133 is not
expected to have an impact on the Company's consolidated results of
operations, financial position or cash flows.
F-8
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
3. Available for Sale Investments
Available for sale investments consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
------------------------------ -----------------------------
Unrealized Estimated Unrealized Estimated
Cost Gain (Loss) Fair Value Cost (Loss) Fair Value
------- ----------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Money market funds
(included in cash and
cash equivalents)...... $ 533 $ -- $ 533 $ 1,241 $ -- $ 1,241
US Treasury
Obligations............ 15,951 (21) 15,930 6,824 (278) 6,546
US Corporate Debt
Securities............. 14,184 88 14,272 9,520 (285) 9,235
US Stock Funds.......... 51 -- 51 -- -- --
------- ----- ------- ------- ----- -------
$30,719 $ 67 $30,786 $17,585 $(563) $17,022
======= ===== ======= ======= ===== =======
</TABLE>
The Company's available for sale investments have the following maturities
at December 31, 1999:
<TABLE>
<S> <C>
Due in one year or less.............................................. $6,229
Due after one year, less than five years............................. 4,580
Due after five years................................................. 6,213
</TABLE>
4. Leases
The Company leases laboratory, production and office space in New Jersey
and California. These leases expire on various dates between December 2001 and
November 2004. The Company incurred rent expense of $2,063 in 1997, $2,096 in
1998 and $2,768 in 1999.
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>
2000.................................................................. $1,900
2001.................................................................. 1,900
2002.................................................................. 1,530
2003.................................................................. 1,288
2004.................................................................. 287
Remainder............................................................. --
------
$6,905
======
</TABLE>
F-9
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
5. Taxes
Income tax expense is determined using the liability method.
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Year ended
December 31
-----------------
1997 1998 1999
---- ---- -------
<S> <C> <C> <C>
Federal
Current................................................. $-- $341 $ --
Deferred................................................ -- -- --
---- ---- -------
Total federal........................................... -- 341 --
State
Current................................................. -- -- (522)
Deferred................................................ -- -- --
---- ---- -------
Total state............................................. -- -- (522)
Foreign
Current................................................. -- -- 1,200
Deferred................................................ -- -- (1,200)
---- ---- -------
Total foreign........................................... -- -- --
---- ---- -------
Total................................................. $-- $341 $ (522)
==== ==== =======
</TABLE>
The current state tax benefit in 1999 includes $1,434 attributable to the
Company's sale of certain state net operating loss and credit carryforwards.
The current and deferred foreign tax provisions for 1999 relate to foreign
withholding tax on deferred revenue.
A reconciliation of the provision (benefit) for income taxes and the amount
computed by applying the federal income rate of 34% to income before provision
(benefit) for income tax is as follows:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Computed at statutory rate...................... $(18,828) $(7,547) $(5,968)
State income taxes, net of federal tax effect... -- -- (338)
Loss of foreign subsidiary...................... 206 217 346
Permanent items related to the acquisition of
subsidiaries, the write off of technology and
investment in foreign joint venture............ 12,545 -- 2,550
Other........................................... 8 346 33
Federal deferred tax valuation reserve.......... 6,069 7,325 2,855
-------- ------- -------
$ -- $ 341 $ (522)
======== ======= =======
</TABLE>
F-10
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
The components of net deferred tax consist of the following as of December
31:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 26,732 $ 24,796
Foreign withholding tax................................ -- 1,200
R&D capitalized for tax purposes....................... 4,148 4,148
Deferred revenue....................................... -- 4,793
Research credits....................................... 3,435 2,912
Other.................................................. 112 199
-------- --------
34,427 38,048
Deferred tax asset valuation reserve................... (34,427) (36,369)
-------- --------
-- 1,679
-------- --------
Net deferred tax liabilities--other...................... -- 479
-------- --------
Net deferred tax assets.................................. $ -- $ 1,200
======== ========
</TABLE>
At December 31, 1999, the Company had federal net operating loss ("NOL")
carryforwards of approximately $58,931. 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 ($9,642) and
2018 ($17,128). 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, 1997 or 1998. 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, 1997 or 1998 the Company has not determined the
amount of the potential limitation. Any such material limitation could have a
significant impact on the Company's ability to use its NOL carryforwards.
The Company had federal research tax credit carryforwards at December 31,
1999 of approximately $1,676 which expire between 2005 and 2019. If an
ownership change under Section 382 occurred during 1996, 1997 or 1998 the use
of these carryforwards also would be subject to limitation.
At December 31, 1999, the Company has state NOL and research credit
carryforwards of approximately $47,936 and $786, respectively, that expire
between 2002 and 2006.
As a result of the acquisition of HBI (See Note 14), the Company had
additional federal NOL carryforwards at December 31, 1999 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.
F-11
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
6. Balance Sheet Detail
Prepaid expenses and other current assets consist of the following as of
December 31:
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Payroll taxes receivable--employees.......................... $ -- $1,889
Other........................................................ 1,796 2,457
------- ------
$ 1,796 $4,346
======= ======
</TABLE>
Accrued liabilities consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Accrued compensation.......................................... $1,009 $1,220
Accrued payroll taxes......................................... 2 1,911
Accrued taxes................................................. -- 912
Accrued clinical trials expense............................... 981 287
Accrued professional fees..................................... 263 376
Accrued rent.................................................. 23 18
Accrued license fees.......................................... 1,540 --
Accrued acquisition........................................... 334 --
Other......................................................... 715 409
------ ------
$4,867 $5,133
====== ======
</TABLE>
7. Shareholders' 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 14). 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 stockholders 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 stockholders ($19,290) by issuing
3,829,315 shares of Common Stock, valued at $5.04 per share.
F-12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
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. In November 1999, Novartis made a $1,000 equity purchase of
123,001 shares of the Company's common stock. This payment represents the
second disbursement by Novartis pursuant to a license agreement for the rights
to use the HuMAb-Mouse technology. Of this amount, $900 is included in equity
and $100 is being amortized into contract revenue as Novartis evaluates
additional HuMAb-Mouse targets.
8. Stock Options
The Company has ten (10) 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 1997 HBI
acquisition, outstanding HBI options were converted to 187,471 Medarex
options. At December 31, 1999, a total of 7,275 shares were available for
future grants under the Plans.
In accordance with the terms of the Company's 1999 Stock Option Plan, on
November 1, 1999, five of the Company's employees were granted a total of
100,200 shares of restricted common stock. Under the terms of each restricted
stock agreement, the shares of restricted stock could not be sold, assigned,
pledged or transferred until the date on which the last reported sales price
of the Company's common stock as reported on the Nasdaq Stock Market equaled
or exceeded $17.00 per share for any 10 trading days out of any 20 consecutive
trading days. The Company's common stock closed at or above $17.00 per share
10 days between December 3, 1999 and December 17, 1999, therefore the
restriction on these shares lapsed on December 17, 1999 on which date the
closing price was $22.75 per share. The Company has recorded compensation
expense of $2,279 in its statement of operations for the year ended December
31, 1999 related to these restricted stock grants.
F-13
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
A summary of the Company's stock option activity and related information
for the years ended December 31, 1997, 1998 and 1999 follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------- ------------------- --------------------
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................ 1,808,600 $3.62 2,634,452 $4.20 2,790,927 $4.17
Granted............... 861,671 5.44 218,425 3.53 949,450 6.29
Exercised............. (32,469) (4.47) (29,850) (1.27) (1,056,165) (2.11)
Canceled.............. (3,350) (9.20) (32,100) (5.15) (93,580) (5.83)
--------- --------- ----------
Outstanding at end of
year................... 2,634,452 4.20 2,790,927 4.17 2,590,632 5.73
========= ========= ==========
Exercisable at end of
year................... 1,953,522 2,576,602 1,641,182
========= ========= ==========
Weighted average fair
value of
options granted during
the year............... $2.31 $2.14 $4.68
</TABLE>
Stock options outstanding at December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Range of Outstanding Options at Remaining Weighted Average
Exercise Price December 31, 1999 Contractual Life Exercise Price
-------------- ---------------------- ---------------- ----------------
<S> <C> <C> <C>
$1.00 to $4.00 250,750 8.83 $ 3.20
$4.00 to $6.44 1,053,025 7.13 $ 4.96
$6.44 to $7.18 878,350 9.03 $ 6.79
$3.09 to $54.95 82,757 5.33 $10.15
$7.20 to $11.19 325,750 6.26 $ 8.24
---------
2,590,632
=========
</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>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss--as reported......................... $(55,377) $(22,537) $(17,031)
Net loss--pro-forma........................... $(56,821) $(23,945) $(18,388)
Loss per share--as reported................... $ (2.93) $ (.89) $ (.53)
Loss per share--pro-forma..................... $ (3.01) $ (.94) $ (.58)
</TABLE>
F-14
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
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>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield.............................. 0% 0% 0%
Expected stock price volatility...................... 59.0% 68.8% 99.8%
Risk-free interest rate.............................. 5.8% 4.6% 5.5%
Expected life of options............................. 5 years 5 years 5 years
</TABLE>
9. Executive Deferred Compensation Plan
Effective March 31, 1999 the Company instituted an executive deferred
compensation plan to permit certain individuals to defer the gain on the
exercise of stock options to a specified future period. In June 1999, six
individuals deferred the gain on the exercise of options to purchase 602,500
shares of the Company's common stock which is included as treasury stock in
the Company's December 31, 1999 consolidated balance sheet. The Company's
executive deferred compensation plan does not permit diversification and must
be settled by the delivery of 590,521 shares of the Company's stock on
September 7, 2002. Accordingly, changes in the fair value of the amount owed
to the individuals are not recognized.
10. Warrants
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. In 1999, 28,590 warrants were exercised and
71,410 warrants expired on June 30, 1999.
On February 28, 1997, the Company completed its acquisition of HBI (see
note 14). 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. These warrants expired on June 30, 1998.
On October 21, 1997, the Company acquired GenPharm (see note 14). 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. These warrants expired on June 30, 1999.
On August 4, 1998, certain of the former GenPharm stockholders 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.
11. Research and Development Agreements
On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Aventis Behring, a Delaware limited liability
company formed through a joint venture of Hoechst AG and Rhne-Poulenc Rorer,
Inc., to develop and market MDX-33. This collaboration provides for the joint
development of MDX-33 by the Company and Aventis Behring. 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 products used in clinical trials. Aventis Behring will be primarily
responsible for the payment of all expenses
F-15
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
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, Aventis Behring 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, Aventis
Behring 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. Aventis Behring 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 Aventis
Behring. In 1998 and 1999 the Company recognized $1,339 and $353 in contract
revenue from Aventis Behring.
Under the terms of the arrangement, Aventis Behring 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 Aventis Behring does not elect to exercise the Option, then
Aventis Behring 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.
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 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 trial for
F-16
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
MDX-RA was suspended by the trial safety committee after 565 patients had been
treated. The reason for the suspension was the occurrence of serious adverse
events ("SAEs") 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. All payment obligations by
Santen have been suspended until completion of the Phase III clinical trials
of MDX-RA in the United States.
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
$138 for 1996 and thereafter, with the last payment due in March 1999. During
1997, 1998 and 1999, the Company paid a minimum fee of $115, $138 and $103,
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 agreement provides for benchmark payments on the achievement
of certain milestones and royalty payments on product sales. In 1999, the
Company received a $4,000 milestone payment from Centocor.
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, which was recognized in contract revenue in 1999, 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.
F-17
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
In May 1998, the Company entered into an antibody development agreement
with EluSys Therapeutics, a privately held biotechnology company. Under this
new research collaboration and license agreement, EluSys Therapeutics 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 EluSys Therapeutics. In addition, Medarex and EluSys
Therapeutics 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 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 $2,000 at a purchase price of $3.91 per share, a premium to
the market price on the day of the transaction. An additional $1,000 equity
investment will be made on the first anniversary of the agreement. A further
$3,000 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.
In December 1999, Medarex entered into a strategic alliance with Kirin
Brewery Co., Ltd., providing for the global commercialization of technology
for creating fully human monoclonal antibodies. Under the terms of this
alliance, Kirin paid Medarex $12,000 in up-front fees in December of 1999,
plus certain additional payments over the term of the alliance. The $12,000
will be recognized as revenue by the Company on a semi-annual basis during
2000 and 2001 as the required work is performed. In addition, Kirin was
designated as the exclusive distributor of the Company's HuMAb-Mouse
technology in Asia, and Medarex was designated as the exclusive distributor of
Kirin's Transchromosomic Mouse outside of Asia. In addition Medarex will
exchange broad licenses with Kirin, subject to milestone and royalty payments,
for in-house use of each other's technology for the development of human
antibody therapeutic products. Medarex will also initiate a research
collaboration
F-18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
with Kirin to develop a novel approach to the creation of fully human
antibodies by combining proprietary technologies.
The Company spent $14,100, $23,122 and $19,929 during the years ended
December 31, 1997, 1998 and 1999, respectively, on activities relating to
development of new products, services or techniques or the improvement of
existing products, services or techniques. In 1997, approximately 7% of the
Company's research and development was funded by Aventis Behring and in 1997
6% was funded by Santen. In 1998, 6% was funded by Aventis Behring, 4% by
Santen and 3% was funded by both Merck KGaA and Eisai. In 1999, 20% was funded
by Centocor, 15% by Merck KGaA and 3% was funded by Genmab.
12. Related Party Transactions
In March 1999, the Company and BankInvest Biomedical Development Venture
Fund formed Genmab, a new Danish company established to develop and
commercialize a portfolio of fully human antibodies derived from the Company's
HuMAb-Mouse technology.
Genmab received funding of approximately $7,500; BankInvest VF was the lead
investor with A/S Dansk Erhvevsinvestering and others as co-investors. The
Company elected to accept a 45% equity ownership stake in Genmab in place of
milestone payments and royalties. Genmab will focus primarily on developing
several products to treat inflammatory conditions, such as rheumatoid
arthritis and psoriasis, and has received licenses 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. Upon formation, the Company's Senior
Vice President of Business Development received approximately 2% of the equity
of Genmab. The Company recognized approximately $630 of revenue from Genmab
during 1999.
13. Commitments and contingences
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.
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.
14. Acquisitions
On February 28, 1997, the Company completed its acquisition of HBI, a
biotechnology company located in Houston, Texas. HBI is involved in the
development of monoclonal antibodies and other biopharmaceutical products to
prevent secondary cataracts and to treat glaucoma and other 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),
F-19
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
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. GenPharm is 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-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 stockholders 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 stockholders ($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.
The pro-forma unaudited results of operations for the year ended December
31, 1997, assuming the acquisitions of HBI and GenPharm took place on January
1, 1997, are as follows:
<TABLE>
<S> <C>
Total revenue..................................................... $ 5,977
Net loss.......................................................... (13,412)
Basic and diluted net loss per share.............................. $ (.61)
</TABLE>
The pro-forma information for the year ended December 31, 1997 does not
include cross license settlement income of $22,500, related litigation fees
and expenses of $4,727, the write-off of in-process technology of $40,316 and
$2,275 of stock bonus paid the GenPharm employees which are not expected to
recur in the future. The pro-forma unaudited financial results are not
necessarily indicative of the results of operations that would have occurred
had the HBI and GenPharm acquisitions taken place at the beginning of the
periods presented nor are they intended to be indicative of results that may
occur in the future.
F-20
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(Dollars in thousands, except share data)
15. 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, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Customer 1997 1998 1999
-------- ---- ---- ----
<S> <C> <C> <C>
Centocor..................................................... -- 6% 40%
Merck KGaA................................................... -- 24% 31%
Aventis Behring.............................................. 23% 20% 4%
Santen....................................................... 26% 13% --
Eisai........................................................ 12% 11% --
</TABLE>
No other single customer accounted for more than 10% of the Company's total
revenues for the years ended December 31, 1997, 1998 and 1999, respectively.
16. Subsequent Events
In January 2000, the Company entered into a non-binding letter of intent
with Immuno-Designed Molecules, S.A. ("IDM") relating to the development of
certain non-HuMab-Mouse antibody-based products. Under the terms of the letter
of intent, Medarex is required to pay IDM $2,000 upon the execution of a
definitive agreement. The Company has a 6% interest in IDM. This agreement
provides for the Company to obtain additional equity in IDM, or a comparable
interest in a new jointly owned entity, which will result in the Company
having a 43% aggregate equity interest in such entity. Medarex is also
required to purchase additional equity to fund up to an additional $5,000 in
the event IDM does not obtain additional financing of at least $7,000 by
December 31, 2000.
On February 10, 2000, the Company entered into a binding letter of intent
with Eos Biotechnology, Inc. ("Eos Biotechnology") for the establishment of a
strategic alliance to develop and commercialize genomics-derived antibody
therapeutics. Medarex will pay Eos Biotechnology $5,000 in cash by May 15,
2000, and has committed $20,000 which will be released to Eos Biotechnology
over time upon their achievement of certain milestones. In addition, Medarex
will have certain rights with respect to the manufacture of any product
developed by the alliance as well as the right to become the exclusive
licensee in Europe for certain products.The letter of intent will terminate by
May 14, 2000 should Medarex not obtain at least $50,000 of additional
financing.
F-21
<PAGE>
MEDAREX, INC.
<PAGE>
PART II
Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution
Expenses in connection with the issuance and distribution of the securities
being registered are set forth in the following table. All amounts except the
Securities and Exchange Commission registration fee, the National Association
of Securities Dealers filing fee and the Nasdaq National Market additional
listing fee are estimated.
<TABLE>
<CAPTION>
Expenses
----------
<S> <C>
Registration Fee--Securities and Exchange Commission................ $ 90,789
NASD filing fee..................................................... 30,500
Nasdaq National Market Additional Listing Application Fee........... 17,500
Transfer Agent Fees and Expenses.................................... 2,500
Accounting Fees and Expenses........................................ 200,000
Legal Fees and Expenses............................................. 300,000
Blue Sky Fees and Expenses.......................................... 5,000
Printing and Engraving.............................................. 250,000
Miscellaneous....................................................... 103,711
----------
Total........................................................... $1,000,000
==========
</TABLE>
The Company will bear all of the expenses of the registration of the
securities being offered.
Item 15. Indemnification of Directors and Officers
The Restated Certificate of Incorporation, as amended, and Article XIII of
the Registrant's Amended and Restated By-Laws provide for the indemnification
of its Officers and Directors under certain circumstances and are incorporated
herein by reference.
Section 14A:3-5 of The New Jersey Business Corporation Act (the "NJBCA")
empowers a New Jersey corporation to indemnify any person who is or was a
director, officer, employee or agent of the indemnifying corporation or of any
constituent corporation absorbed by the indemnifying corporation in a
consolidation or merger and any person who is or was a director, officer,
trustee, employee or agent of any other enterprise, serving as such at the
request of the indemnifying corporation, or of any such constituent
corporation, or legal representative of any such director, officer, trustee,
employee or agent (a "corporate agent"), against his expenses and liabilities
incurred in connection with any proceeding involving the corporate agent,
other than a proceeding by or in the right of the corporation, if (a) such
corporate agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and (b) with
respect to any criminal proceeding, such corporate agent had no reason to
believe that his conduct was unlawful. In addition, a corporation may
indemnify such corporate agent against his expenses in connection with any
preceding by or in the right of the corporation to procure a judgment in its
favor which involves such corporate agent by reason of his having been such
corporate agent, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation.
However, in such proceeding no indemnification shall be provided in respect of
any claim, issue or matter as to which such corporate agent shall have been
adjudged to be liable to the corporation, unless and only to the extent that
the Superior Court of the State of New Jersey or the court in which such
proceeding was brought shall determine upon application that despite the
adjudication of liability, but in view of all circumstances of the case, such
corporate agent is fairly and reasonably entitled to indemnity for such
expenses as the Superior Court or such other court shall deem proper.
Under the NJBCA a corporation shall indemnify a corporate agent against
expenses to the extent that such corporate agent has been successful on the
merits or otherwise in any proceeding referred to above or in defense of any
claim, issue or matter therein.
II-1
<PAGE>
The indemnification and advancement of expenses provided by or granted
pursuant to the NJBCA shall not exclude any other rights, including the right
to be indemnified against liabilities and expenses incurred in proceedings by
or in the right of the corporation, to which a corporate agent may be entitled
under a certificate of incorporation, by-law, agreement, vote of shareholders,
or otherwise; provided that no indemnification shall be made to or on behalf
of a corporate agent if a judgment or other final adjudication adverse to the
corporate agent establishes that his acts or omissions (a) were in breach of
his duty of loyalty to the corporation or its shareholders, (b) were not in
good faith or involved a knowing violation of law or (c) resulted in receipt
by the corporate agent of an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in that Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The Registrant maintains a standard form of officers' and directors'
liability insurance policy which provides coverage to the officers and
directors of the Registrant for certain liabilities, including certain
liabilities which may arise out of this Registration Statement.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
<C> <S>
/2/1.1 Form of Underwriting Agreement.
Certificate of Merger, dated June 15, 1989, including Plan of
/1/2.1 Merger.
/1/3.1 Restated Certificate of Incorporation of the Registrant, as amended.
/1/3.2 Amended and Restated By-laws of the Registrant.
/1/4.1 Form of Specimen of Common Stock Certificate.
Opinion of Satterlee Stephens Burke & Burke LLP re: legality of
/2/5.1 securities being registered.
23.1 Consent of Ernst & Young LLP.
Consent of Satterlee Stephens Burke & Burke LLP (included in their
23.2 opinion filed as Exhibit 5.1.)
/2/24.1 Power of Attorney.
</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/ Previously filed.
(b) Financial Statement Schedules
All schedules are omitted because of the absence of the conditions under
which they are required, or because the information called for is included in
the consolidated financial statements or notes thereto.
II-2
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities and Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
See Item 14, "Indemnification of Directors and Officers."
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Annandale, State of New Jersey, on this 1st day of March, 2000.
Medarex, Inc.
By: /s/ Irwin Lerner*
_____________________
Irwin Lerner
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Irwin Lerner* Chairman of the Board March 1, 2000
______________________________________
Irwin Lerner
/s/ Donald L. Drakeman President, Chief Executive March 1, 2000
______________________________________ Officer and Director
Donald L. Drakeman (Principal Executive
Officer)
/s/ Michael A. Appelbaum* Executive Vice President-- March 1, 2000
______________________________________ Finance and
Michael A. Appelbaum Administration,
Secretary, Treasurer,
Chief Financial Officer
and Director (Principal
Financial and Accounting
Officer)
/s/ Michael W. Fanger* Director March 1, 2000
______________________________________
Michael W. Fanger
/s/ Julius A. Vida* Director March 1, 2000
______________________________________
Julius A. Vida
/s/ Charles R. Schaller* Director March 1, 2000
______________________________________
Charles R. Schaller
/s/ W. Leigh Thompson, Jr.* Director March 1, 2000
______________________________________
W. Leigh Thompson, Jr.
/s/ Robert Iggulden* Director March 1, 2000
______________________________________
Robert Iggulden
/s/ Fred Craves* Director March 1, 2000
______________________________________
Fred Craves
</TABLE>
- ------------
*By: /s/ Donald L. Drakeman
_____________________
Donald L. Drakeman, as attorney-in-fact,
pursuant to Power of Attorney previously filed.
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
23.1 Consent of Independent Auditors
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 10, 2000, in Amendment No. 3 to the Registration Statement (Form S-3
No. 333-95565) and related Prospectus of Medarex, Inc. for the registration of
2,012,500 shares of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 29, 2000
