SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For quarter ended March 31, 2001 Commission File No. 0-19312
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MEDAREX, INC.
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(Exact name of registrant as specified in its charter.)
New Jersey 22-2822175
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
707 State Road #206, Princeton, New Jersey 08540
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 430-2880
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of common stock, $.01 par value, outstanding as of April
27, 2001 was 72,695,566 shares.
Page 1 of 15
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, March 31,
--------------- ----------------
2000 2001
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 78,397 $ 128,714
Marketable securities 265,206 194,153
Other current assets 23,422 16,481
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Total current assets 367,025 339,348
Property and equipment:
Land - 3,398
Building and leasehold improvements 2,356 22,958
Machinery and equipment 6,503 8,364
Furniture and fixtures 409 689
Construction in progress 20,000 10,858
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29,268 46,267
Less accumulated depreciation and amortization (5,837) (6,755)
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23,431 39,512
Investment in Genmab 77,468 72,760
Investment in IDM 48,199 48,199
Investments in, and advances to, other affiliates and partners 7,634 14,060
Segregated cash 22,068 22,342
Other assets 12,555 14,973
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Total assets $ 558,380 $ 551,194
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable $ 1,463 $ 1,306
Accrued liabilities 5,945 4,306
Deferred contract revenue - current 29,810 27,564
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Total current liabilities 37,218 33,176
Deferred contract revenue - long-term 15,326 12,580
Deferred income taxes and other long-term obligations 20,274 20,040
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; 200,000,000 shares authorized;
73,802,666 shares issued and 72,597,666 outstanding
at December 31, 2000 and 73,884,416 shares issued and 72,679,416
shares outstanding at March 31, 2001 738 739
Capital in excess of par value 569,410 569,586
Treasury stock, at cost 1,205,000 shares (3,031) (3,031)
Deferred compensation 2,234 2,302
Accumulated other comprehensive income 39,313 35,631
Accumulated deficit (123,102) (119,829)
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Total shareholders' equity 485,562 485,398
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Total liabilities and shareholders' equity $ 558,380 $ 551,194
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See notes to these unaudited consolidated financial statements.
Page 2 of 15
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
Three Months Ended
March 31, March 31,
2000 2001
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Revenues:
Sales $ 55 $ 66
Contract and license revenues 2,028 8,104
Contract and license revenues from Genmab 50 750
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Total revenues 2,133 8,920
Costs and expenses:
Cost of sales 27 28
Research and development 5,359 8,060
General and administrative 2,887 3,602
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Total costs and expenses 8,273 11,690
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Operating loss (6,140) (2,770)
Equity in net loss of affiliate - (577)
Interest and dividend income 1,966 6,771
Interest expense (1) (1)
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Income (loss) before provision for income taxes (4,175) 3,423
Provision for income taxes 150 150
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Net income (loss) $ (4,325) $ 3,273
============ ============
Basic net income (loss) per share ($0.06) $0.04
============ ============
Diluted net income (loss) per share ($0.06) $0.04
============ ============
Weighted average number of common
shares outstanding during the
year - basic 67,790,002 73,858,058
============ ============
- diluted 67,790,002 75,828,156
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See notes to these unaudited consolidated financial statements.
Page 3 of 15
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months Ended
March 31,
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2000 2001
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Operating activities:
Net income (loss) $ (4,325) $ 3,273
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 191 695
Amortization 180 234
Stock options to employees 111 68
Stock options and warrants to non-employees 818 (57)
Non cash revenue - IDM - (5,058)
Non cash revenue - Genmab - (500)
Equity in net loss of Genmab - 577
Changes in operating assets and liabilities, net of acquisition:
Other current assets 1,268 4,278
Trade accounts payable (119) (157)
Accrued liabilities (2,734) (1,633)
Deferred contract revenue (674) (634)
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Net cash provided by (used in) operating activities (5,284) 1,086
Investing activities:
Purchase of property and equipment (217) (16,999)
Decrease in other assets 151 -
Decrease (increase) in investments and advances to affiliates and partners 1 (5,226)
Increase in segregated cash - (274)
Sales of marketable securities 3,384 71,502
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Net cash provided by investing activities 3,319 49,003
Financing activities:
Cash received from sales of securities, net 391,161 234
Principal payments under debt obligations (10) (6)
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Net cash provided by financing activities 391,151 228
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Net increase in cash and cash equivalents 389,186 50,317
Cash and cash equivalents at beginning of period 14,366 78,397
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Cash and cash equivalents at end of period $403,552 $ 128,714
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Supplemental disclosures of cash flow information Cash paid during period for:
Income taxes $ - $ -
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Interest $ 1 $ 1
============= =============
See notes to these unaudited consolidated financial statements.
Page 4 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
1. Organization and Basis of Presentation
The unaudited consolidated financial statements have been prepared from the
books and records of Medarex, Inc. and Subsidiaries (the "Company") in
accordance with the instruction to Form 10-Q and, accordingly, do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Interim results are not necessarily
indicative of the results that may be expected for the year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 2000.
2. Net Income (Loss) per Share
Basic and diluted earnings per share are calculated in accordance with the
Financial Accounting Standards Board ("FASB") SFAS No. 128, Earnings per Share.
Basic earnings per share is based upon the number of weighted average shares of
common stock outstanding. Diluted earnings per share are based upon the
weighted average number of shares of common stock and dilutive potential shares
of common stock outstanding. Potential shares of common stock are outstanding
stock options, which are included under the treasury stock method for the three
month period ended March 31, 2001. For the three months ended March 31, 2000,
potentially dilutive securities have been excluded from the computation, as
their effect is antidilutive.
The computation of basic and diluted earnings per share for the three
months-ended March 31, 2000 and 2001 is as follows:
2000 2001
Numerator:
Net income (loss) ($4,325) $3,273
Denominator:
Denominator for basic net income (loss) per share -
Weighted average shares 67,790,002 73,858,058
Effect of dilutive securities:
Stock options ---- 1,970,098
Denominator for diluted net income (loss) per share -
adjusted weighted-average shares 67,790,002 75,828,156
Basic net income (loss) per share ($0.06) $0.04
Diluted net income (loss) per share ($0.06) $0.04
Page 5 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
3. Marketable Securities
Marketable securities consist of fixed income investments with a maturity
of greater than three months and other highly liquid investments that can be
readily purchased or sold using established markets. Such securities, which are
classified as available-for-sale, are carried at market with unrealized gains
and losses reported as a separate component of shareholders' equity.
4. Contingencies
The Company has a contingent commitment to pay $1,000 to Essex Chemical
Corporation ("Essex") without interest in installments equal to 20% of net after
tax earnings of the Company in future years. The Company's contingent
commitment, as amended, to pay up to $1,000 out of future earnings may be
satisfied, at the Company's option, through the payment of cash or shares of the
Company's Common Stock having a fair market value equal to the amount owed,
provided that such shares are registered with the Securities and Exchange
Commission. At December 31, 2000 the Company had accrued $667 related to this
liability.
In the ordinary course of our business, the Company is at times subject to
various legal proceedings. The Company does not believe that any of our current
legal proceedings, individually or in the aggregate, will have a material
adverse effect on its operations or financial condition.
5. Licensing, Research and Development Agreements
In January 2001, the Company entered into an agreement with B. Twelve, Inc.
("B. Twelve") to develop fully human antibodies to several cancer related
targets identified by B. Twelve's technology. B. Twelve expects to develop and
commercialize human antibody products resulting from this agreement. The
Company could receive license fees and milestone payments as well as royalties
on commercial sales of products resulting from the Company's agreement with B.
Twelve. In addition, the Company received 400,000 shares of B. Twelve common
stock valued at $1,200. B. Twelve will apply the value of the shares received by
the Company against certain license fees and milestone payments.
In January 2001, the Company, Eli Lilly and Company ("Lilly") and Biosite
Diagnostics Incorporated ("Biosite") entered into an agreement whereby the
Company's initial collaboration with Lilly to develop fully human antibodies to
multiple disease targets identified by Lilly, which was entered into in November
2000, was expanded to allow Lilly to utilize Trans-Phage TechnologySM through
the Company's collaboration with Biosite. Lilly expects to develop and
commercialize any human antibody products resulting from this agreement. The
Company could receive license fees and milestone payments as well as royalties
on commercial sales of products resulting from its agreement with Lilly.
Page 6 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
5. Research and Development Agreements (continued)
In January 2001, the Company entered into an agreement with Novo Nordisk,
A/S ("Novo Nordisk") to develop fully human antibodies to multiple disease
targets identified by Novo Nordisk. Novo Nordisk expects to develop and
commercialize any human antibody products resulting from this agreement. The
Company received certain upfront payments and could receive milestone payments
as well as royalties on commercial sales of products resulting from its
agreement with Novo Nordisk.
In February 2001, the Company, Eos Biotechnology, Inc. ("Eos") and Biosite
entered into an agreement whereby the Company's initial collaboration with Eos
to develop fully human antibodies to multiple disease targets identified by Eos,
which was entered into in August 1999, was expanded to allow Eos to utilize
Trans-Phage TechnologySM through the Company's collaboration with Biosite. Eos
expects to develop and commercialize any human antibody products resulting from
this agreement. The Company could receive license fees and milestone payments
as well as royalties on commercial sales of products resulting from its
agreement with Eos.
In February 2001, the Company entered into a collaboration with Seattle
Genetics, Inc. ("Seattle Genetics") to jointly develop and commercialize fully
human antibody therapeutic products to specific cancer targets identified by
Seattle Genetics. The Company plans to generate antibodies to the Seattle
Genetics targets using its fully human antibody technology. The Company and
Seattle Genetics expect to share costs and responsibilities leading to the
anticipated commercialization of therapeutic products, including preclinical and
clinical development and marketing efforts. In addition, the Company purchased
$2,000 of common stock directly from Seattle Genetics in a private placement
concurrent with Seattle Genetics' initial public offering in March 2001.
In February 2001, the Company entered into a binding memorandum of
understanding with Immusol, Inc. ("Immusol") to jointly develop and
commercialize fully human antibody therapeutic products to targets discovered by
Immusol's Inverse Genomics(TM) technology platform. The Company plans to
generate antibodies to the Immusol targets using its fully human antibody
technology. The Company and Immusol expect to share costs and responsibilities
leading to the anticipated commercialization of therapeutic products, including
preclinical and clinical development and marketing efforts. In addition, the
Company made a $5,000 equity investment in Immusol.
In March 2001, the Company entered into an agreement with Schering-Plough
Corporation ("Schering-Plough") to develop fully human antibodies to multiple
disease targets identified by Schering-Plough. Schering-Plough expects to
develop and commercialize any human antibody products resulting from this
agreement. The Company could receive license fees, milestone payments and
royalties on commercial sales of products resulting from its agreement with
Schering-Plough.
Page 7 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
6. Investments Accounted for Under the Equity Method
In 1999, the Company acquired a 44% ownership interest in Genmab A/S, a
Danish biotechnology company ("Genmab"). In June 2000, Genmab completed a
private placement in which the Company invested $18,000 in Genmab in order to
maintain its approximate 44% ownership interest. In August 2000, the Company
acquired an additional 1% of Genmab's capital stock in exchange for certain
rights to the Company's fully human antibody technology. This increased the
Company's ownership interest to approximately 45%. As a result of Genmab's
initial public offering completed in October 2000, the Company's equity interest
in Genmab was reduced to approximately 33%. During the quarter ended March 31,
2001 the value of the Company's investment in Genmab was adjusted to reflect the
Company's share of Genmab's loss for the same period ($577) and an unrealized
loss of ($4,131) related to foreign exchange translation. This unrealized loss
is included as other comprehensive income in the Company's March 31, 2001
balance sheet.
Summary financial information for Genmab as of the quarter ended March 31,
2001 is as follows (unaudited):
Net Sales $ --
Gross profit --
Net loss (1,752)
7. Comprehensive Income (Loss)
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components. The adoption of SFAS 130 had no impact on the Company's results
of operations or shareholders' equity. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which prior to adoption
were reported separately in shareholders' equity to be included in other
comprehensive income.
The components of comprehensive income (loss) for the three periods ended
March 31, are as follows:
Three months ended March 31,
2000 2001
---- ----
Net Income (loss) $ (4,325) $ 3,273
Unrealized gain on securities 61 449
Unrealized loss on foreign exchange -- (4,131)
---------------------------
Total comprehensive income (loss) $ (4,264) $ (409)
Page 8 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
8. 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
three months ended March 31, 2000 and 2001 is as follows:
Three months ended March 31,
Customer 2000 2001
-------- ---- ----
IDM S.A. -- 57%
Kirin Brewery Co., Ltd. 70% 17%
No other single customer accounted for more than 10% of the Company's total
revenues for the three months ended March 31, 2000 and 2001, respectively.
9. Subsequent Events
In April 2001, the Company, Genmab and Glaucus Proteomics B.V. ("Glaucus")
entered into a collaboration to jointly develop and commercialize fully human
antibody therapeutic products to multiple disease targets identified by Glaucus.
Genmab plans to generate antibodies to the Glaucus targets using the Company's
fully human antibody technology. The Company expects to contribute resources to
the collaboration and expects to share certain costs and commercial rights
associated with the collaboration.
In April 2001, the Company and Eos entered into a new binding letter of
intent which superseded the terms of their Applied Genomics collaboration which
was originally established in February 2000. The collaboration is now
structured to more closely resemble the Applied Genomics collaborations that the
Company entered into with other partners during 2000 and 2001. This
restructured agreement allows the Company and Eos to jointly develop and
commercialize fully human monoclonal therapeutic products to multiple disease
targets identified by Eos. The Company plans to generate antibodies to the Eos
targets using its fully human antibody technology. The Company and Eos expect
to share costs and responsibilities leading to the anticipated commercialization
of therapeutic products, including preclinical and clinical development and
marketing efforts. The Company has agreed to transfer certain of its rights and
responsibilities to develop and commercialize collaboration products outside
North America to Genmab. In exchange, Genmab will be responsible for a portion
of the development and marketing costs associated with the collaboration that
would otherwise be borne by the Company. Under the prior letter of intent, Eos
had been responsible for all costs of developing the products through Phase IIa
clinical trials, and the Company had agreed to provide funding to Eos of
$25,000, $5,000 of which was paid to Eos in 2000 and $20,000 of which was
deposited into an escrow account in 2000 and was classified as segregated cash
on the Company's balance sheet. As a result of the restructured agreement,
Page 9 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
9. Subsequent Events (continued)
$5,000 plus interest was returned to the Company in April 2001, and will be
recorded in the second quarter 2001 Consolidated Statement of Operations as a
$5,000 reduction in research and development expenses, and the interest received
will be recorded as interest income. In addition, the $20,000 that had been
deposited into a third-party escrow account and carried on the Company's balance
sheet as segregated cash was released from such escrow account and the $20,000
plus earned interest will be included as cash and cash equivalents in the
Company's balance sheet for the second quarter of 2001. In addition, the $75,000
of credits that Eos would have been able to use against license fees, milestone
payments and royalties that the Company may otherwise have received under its
August 1999 collaboration with Eos has been eliminated from the restructured
collaboration.
In April 2001, the Company entered into a collaboration with Northwest
Biotherapeutics, Inc. ("NWBio") to jointly develop and commercialize fully human
antibody therapeutic products to specific cancer targets identified by NWBio.
The Company plans to generate antibodies to the NWBio targets using its fully
human antibody technology. NWBio will initially contribute four cancer-related
targets to the collaboration, and will contribute four additional targets to the
collaboration over the next four years. The Company and NWBio expect to share
costs and responsibilities leading to the anticipated commercialization of
therapeutic products, including preclinical and clinical development and
marketing efforts. In addition, the Company made a $4,000 equity investment in
NWBio, and has committed to make an additional investment of $3,500 in NWBio in
the event NWBio completes an initial public offering during the next year and
satisfies certain additional conditions.
In April 2001, the Company entered into a collaboration with Neuro
Therapeutics, Inc. ("Neuro Therapeutics") to jointly develop and commercialize
fully human antibody therapeutic products to multiple disease targets identified
by Neuro Therapeutics. The Company plans to generate antibodies to the Neuro
Therapeutics targets using its fully human antibody technology. The Company and
Neuro Therapeutics expect to share costs and responsibilities leading to the
anticipated commercialization of therapeutic products, including preclinical and
clinical development and marketing efforts.
Page 10 of 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
our projections, estimates, expectations or beliefs concerning among other
things, financial items that relate to management's future plans or objectives
or to our future economic and financial performance. Forward-looking statements
involve known and unknown risks and uncertainties and are indicated by words
such as "anticipates", "expects", "intends", "believes", "plans", "could" and
similar words and phrases. These risks and uncertainties include, but are not
limited to, our early stage of product development, history of operating losses
and accumulated deficit, additional financing requirements and access to capital
funding, dependence on strategic alliances, government regulation of the
biopharmaceutical industry and other risks that may be detailed from time to
time in our periodic reports and registration statements filed with the
Securities and Exchange Commission.
Liquidity and Capital Resources
We have financed our operations since inception through the sale of our
securities in public and private placements, sales of our products for research
purposes and technology transfer and license fees.
We had $322,867 in cash, cash equivalents and marketable securities and
$22,342 in a segregated cash account as of March 31, 2001. Operating activities
provided $1,086 of cash for the three-month period ended March 31, 2001.
On November 3, 2000, we acquired the Milpitas, California facility that we
had previously leased in for approximately $14,600. This property is
approximately 57,000 square feet of laboratory and office space. As of March 31,
2001, we spent approximately $7,000 and expect to spend an additional $1,000 on
building modifications and equipping the Milpitas facility. In January 2001, we
purchased a facility in Greenwich, New Jersey for approximately $9,200. The
Greenwich facility is situated on approximately 106 acres of land and currently
contains approximately 165,000 square feet of laboratory and office space. We
intend to modify and expand the Greenwich facility to increase our capacity to
provide materials for clinical trials for our future products under development
through our collaborations and alliances. As of March 31, 2001, we spent
approximately $10,000 on the Greenwich facility and expect to spend an
additional $20,000 on building modifications and equipping the Greenwich
facility. We currently do not have the capacity to manufacture our products
under development in large commercial quantities and have no experience in
commercial-scale manufacturing.
At March 31, 2001 the aggregate future minimum lease commitments over the
remainder of the lease terms are approximately $5,823. As of March 31, 2001, we
have commitments for approximately $22,000 of capital expenditures.
Our current sources of liquidity are our cash, cash equivalents and
marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of our products for research and
contract and licensing revenues. As we utilize our cash, the interest earned
will be reduced. We believe that under existing operating plans our current
sources of liquidity will be sufficient to meet anticipated cash requirements
for the next twenty-four months.
Page 11 of 15
Upon exhaustion of our current cash reserves, our continued operations will
depend on our ability to raise additional funds through equity or debt financing
and/or enter into licensing or joint development agreements, including
collaborative research and development arrangements with large pharmaceutical
companies pursuant to which certain costs associated with the regulatory
approval process for certain of our products would be borne by the licensees or
joint developers. We may not be able to successfully complete such sales or
financing activities.
Results of Operations
Three months ended March 31, 2000 and 2001
Revenue for the three-month period ended March 31, 2001 increased by
$6,787, a 318% increase from the three-month period ended March 31, 2000. The
increase relates principally to $5,858 of contract and license revenues from
IDM, S.A.
Cost of sales for the three months ended March 31, 2001 remained comparable
to the three months ended March 31, 2000.
Research and development expenses increased by $2,701 for the three-month
period ended March 31, 2001, a 50% increase from the three-month period ended
March 31, 2000. The increase is principally due to higher personnel costs,
research funding payments, depreciation expenses and patent expenses. 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 by $715 for the three-month
period ended March 31, 2001, a 25% increase from the three-month period ended
March 31, 2000. The increase is primarily attributable to heightened personnel
costs and legal expenses associated with the increasing number of partnering
agreements. This increase was partially offset by lower shareholders relation
expenses, which in 2000 included non-cash charges related to the exercise of
warrants issued to consultants of $691. General and administrative expenses are
expected to increase in the future as our products are developed and we expand
our business activities.
Equity in net loss of affiliate of $577 reflects our share of the loss
incurred by Genmab during the three-month period ended March 31, 2000. Genmab
is an affiliated company and is accounted for using the equity method. We
expect equity in net loss of affiliates to increase in the near future due to
the Genmab's investments in research and development to develop its own product
pipeline
Interest and dividend income increased by $4,805 for the three-month period
ended March 31, 2001, a 244% increase from the three-month period ended March
31, 2000. The increase reflects interest earned on higher average cash balances
resulting from the proceeds received from the March 2000 follow-on public
offering of our common stock.
Page 12 of 15
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
We do not use derivative financial instruments in our operations or
investment portfolio. However, we regularly invest excess operating cash in
deposits with major financial institutions, money market funds, notes issued by
the U.S. Government, as well as fixed income investments and U.S. bond funds
both of which can be readily purchased or sold using established markets. We
believe that the market risk arising from our holdings of these financial
instruments is minimal. We do not have exposure to market risks associated with
changes in interest rates, as we have no variable interest rate debt
outstanding. We do not believe we have any material exposure to market risks
associated with interest rates.
The Company may be exposed to exchange conversion differences in
translating the foreign results from operations of its investment in Genmab to
U.S. dollars. Depending upon the strengthening or weakening of the U.S. dollar,
the conversion difference could be significant to the Company's recording of
Genmab's "equity in net loss of affiliate." Foreign exchange translation gains
or losses have been and will continue to be recorded within "other comprehensive
income" in the equity section of the Company's balance sheet.
Page 13 of 15
Part II - Other Information
Item 1. 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.
On May 24, 2000, Lexicon Genetics Incorporated filed a complaint against
Deltagen, Inc. in U.S. District Court for the District of Delaware alleging that
Deltagen is willfully infringing the claims of United States Patent No.
5,789,215, under which Lexicon holds an exclusive license in the relevant field
from our wholly-owned subsidiary GenPharm International, Inc. This patent covers
certain methods of engineering the animal genome, including methods for the
production of knockout mice.
On October 31, 2000, Lexicon amended its complaint to add GenPharm, as the
licensor of the patent, as a plaintiff. On November 14, 2000, Deltagen filed an
answer to Lexicon's amended complaint which included counterclaims against
Lexicon and, for the first time, counterclaims against GenPharm. In its
counterclaims, Deltagen is seeking declaratory relief that the patent is
invalid, unenforceable and not infringed. In addition, Deltagen asserted
counterclaims against both Lexicon and GenPharm under the antitrust laws.
Deltagen is seeking, among other relief, an award of monetary damages against
Lexicon and GenPharm in an unspecified amount. Any damages for violations of the
antitrust laws would be trebled.
The litigation against GenPharm is in the very early stages and we cannot
predict its outcome or any possible financial losses that we may incur as a
result of the litigation. Such losses, if any, could have a material effect on
our operating results. We believe that the litigation against GenPharm is
without merit and intend to defend the action vigorously. Furthermore, because
we do not use the technology that is the subject of the litigation in any
material way in our business as currently conducted, we do not believe that a
judgment in favor of Deltagen would have a material adverse effect on the
conduct of our business.
Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K: none
(b) Exhibits: None
Page 14 of 15
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDAREX, INC.
-------------
(Registrant)
Date: May 8, 2001 By /s/ Christian S. Schade
-----------------------
Christian S. Schade
Senior Vice President
Finance & Administration
(Principal Financial and
Accounting Officer)
Page 15 of 15