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 June 30, 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 August
3, 2001 was 72,740,966 shares.
Page 1 of 19
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, June 30,
------------------ ------------------
2000 2001
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 78,397 $ 195,262
Marketable securities 265,206 295,603
Other current assets 23,422 13,607
------------------ ------------------
Total current assets 367,025 504,472
Property and equipment:
Land - 6,782
Building and leasehold improvements 2,356 45,404
Machinery and equipment 6,503 11,466
Furniture and fixtures 409 1,958
Construction in progress 20,000 237
------------------ ------------------
29,268 65,847
Less accumulated depreciation and amortization (5,837) (7,793)
------------------ ------------------
23,431 58,054
Investment in Genmab 77,468 69,010
Investment in IDM 48,199 48,199
Investments in, and advances to, other affiliates and partners 7,634 18,060
Segregated cash 22,068 1,300
Other assets 12,555 20,620
------------------ ------------------
Total assets $ 558,380 $ 719,715
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable $ 1,463 $ 1,284
Accrued liabilities 5,945 4,166
Deferred contract revenue - current 29,810 25,590
------------------ ------------------
Total current liabilities 37,218 31,040
Deferred contract revenue - long-term 15,326 7,210
Deferred income taxes 20,274 19,559
Convertible subordinated notes - 175,000
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 73,944,466 shares issued and 72,739,466
shares outstanding at June 30, 2001 738 739
Capital in excess of par value 569,410 570,170
Treasury stock, at cost 1,205,000 shares (3,031) (3,031)
Deferred compensation 2,234 2,371
Accumulated other comprehensive income 39,313 32,151
Accumulated deficit (123,102) (115,494)
------------------ ------------------
Total shareholders' equity 485,562 486,906
------------------ ------------------
Total liabilities and shareholders' equity $ 558,380 $ 719,715
================== ==================
See notes to these unaudited consolidated financial statements.
Page 2 of 19
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
Six Months Ended
June 30, June 30,
2000 2001
------------------- -----------------
Revenues:
Sales $ 113 $ 256
Contract and license revenues 4,771 15,627
Contract and license revenues from Genmab 358 1,250
------------------- -----------------
Total revenues 5,242 17,133
Costs and expenses:
Cost of sales 54 134
Research and development 17,260 12,556
General and administrative 5,905 7,111
------------------- -----------------
Total costs and expenses 23,219 19,801
------------------- -----------------
Operating loss (17,977) (2,668)
Equity in net loss of affiliate (158) (1,759)
Interest and dividend income 8,558 12,462
Interest expense (2) (127)
------------------- -----------------
Income (loss) before provision for income taxes (9,579) 7,908
Provision for income taxes 300 300
------------------- -----------------
Net income (loss) $ (9,879) $ 7,608
=================== =================
Basic net income (loss) per share ($0.14) $0.10
=================== =================
Diluted net income (loss) per share ($0.14) $0.10
=================== =================
Weighted average number of common
shares outstanding during the
year - basic 69,658,558 73,898,130
=================== =================
- diluted 69,658,558 75,540,130
=================== =================
Three Months Ended
June 30, June 30,
2000 2001
------------------- -----------------
Revenues:
Sales 2 $ 58 $ 190
Contract and license revenues 2,743 7,523
Contract and license revenues from Genmab 308 500
------------------- -----------------
Total revenues 3,109 8,213
Costs and expenses:
Cost of sales 27 106
Research and development 11,901 4,496
General and administrative 3,018 3,509
------------------ ----------------
Total costs and expenses 14,946 8,111
------------------ ----------------
Operating income (loss) (11,837) 102
Equity in net loss of affiliate (158) (1,182)
Interest and dividend income 6,592 5,691
Interest expense (1) (126)
------------------ ----------------
Income (loss) before provision for income taxes (5,404) 4,485
Provision for income taxes 150 150
------------------ ----------------
Net income (loss) $ (5,554) $ 4,335
================== ================
Basic net income (loss) per share ($0.08) $0.06
================== ================
Diluted net income (loss) per share ($0.08) $0.06
================== ================
Weighted average number of common
shares outstanding during the
year - basic 71,527,114 73,937,762
================== ================
- diluted 71,527,114 75,567,762
================== ================
Page 3 of 19
See notes to these unaudited consolidated financial statements.
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six Months Ended
June 30,
--------
2000 2001
---- ----
Operating activities:
Net income (loss) $ (9,879) $ 7,608
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 390 1,459
Amortization 189 534
Stock options to employees 1,402 137
Stock options and warrants to non-employees 1,351 (41)
Non cash revenue - IDM - (10,116)
Non cash revenue - Genmab - (1,000)
Equity in net loss of Genmab 158 1,759
Changes in operating assets and liabilities, net of acquisition:
Other current assets (2,369) 6,537
Trade accounts payable (316) (179)
Accrued liabilities (1,554) (1,266)
Deferred contract revenue (1,744) (2,420)
---------------- -----------------
Net cash provided by (used in) operating activities (12,372) 3,012
Investing activities:
Purchase of property and equipment (953) (36,579)
Decrease in other assets 300 300
Increase in investments and advances to affiliates and partners (17,999) (9,226)
Decrease (increase) in segregated cash (20,143) 20,768
Purchase of marketable securities (212,437) (169,500)
Sales of marketable securities 7,073 138,639
---------------- -----------------
Net cash used in investing activities (244,159) (55,598)
Financing activities:
Cash received from sales of securities, net 391,407 303
Proceeds from sale of convertible subordinated notes, net - 169,161
Principal payments under debt obligations (16) (13)
---------------- -----------------
Net cash provided by financing activities 391,391 169,451
---------------- -----------------
Net increase in cash and cash equivalents 134,860 116,865
Cash and cash equivalents at beginning of period 14,366 78,397
---------------- -----------------
Cash and cash equivalents at end of period $149,226 $ 195,262
================ =================
Supplemental disclosures of cash flow information Cash paid during period for:
Income taxes $ - $ -
================ =================
Interest $ 2 $ 1
================ =================
See notes to these unaudited consolidated financial statements.
Page 4 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
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 instructions 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 (EPS). Basic earnings per share is based upon the number of weighted
average shares of common stock outstanding. Diluted earnings per share is based
upon the weighted average number of shares of common stock and dilutive
potential shares of common stock outstanding. Potential shares of common stock
result from the assumed exercise of outstanding stock options, which are
included under the treasury stock method. For the six months and three months
ended June 30, 2001 the effect of the conversion of the subordinated notes has
been excluded from the computation of diluted income per share as its effect is
antidilutive. For the six months and three months ended June 30, 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 and six months ended June 30, 2000 and 2001 is as follows:
Six Months Ended Three Months Ended
June 30 June 30
--------------------------------- --------------------------------
2000 2001 2000 2001
---- ---- ---- ----
Basic:
Net income (loss) $ (9,879) $ 7,608 $ (5,554) $ 4,335
Weighted average shares outstanding 69,659 73,898 71,527 73,938
------------- ----------- ----------- ------------
Basic net income (loss) per share $ (0.14) $ 0.10 $ (0.08) $ 0.06
============= =========== =========== ============
Page 5 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
2. Net Income (Loss) per Share (con't)
Diluted:
Net income (loss) $ (9,879) $ 7,608 $ (5,554) $ 4,335
Weighted average shares outstanding 69,659 73,898 71,527 73,938
Net effect of dilutive securities:
Stock options-- -- 1,642 -- 1,630
------------ ------------ ------------ ------------
Total adjusted weighted-average shares
69,659 75,540 71,527 75,568
============ ============ ============ ============
Diluted net income (loss) per share $ $ $ $
(0.14) 0.10 (0.08) 0.06
============ ============ ============= =============
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.
Page 6 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
5. Public Offering of Convertible Subordinated Notes
On June 26, 2001, the Company completed a public offering of $175,000
of 4.5% Convertible Subordinated Notes due 2006. The notes are convertible into
shares of common stock at a ratio of 34.6789 per each $1,000 principal amount of
the notes ($28.84 per share), subject to adjustment, and mature in July 2006.
The Company received net proceeds from the public offering of approximately
$169,000. The cost of issuance of the notes of approximately $5,800 have been
deferred and are being amortized over the term of the related notes. These costs
will be reflected as interest expense.
The Company will pay interest on the notes on January 1 and July 1 of
each year. The first interest payment will be made on January 1, 2002 and will
carry with it an interest payment of $23.125 per $1,000 principal amount of
notes due to the additional five days of interest that has been accrued based on
the closing date of June 26, 2001. Interest payable per $1,000 principal amount
of notes for each subsequent interest period will be $22.50. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Company may redeem the notes in whole or in part, at its option, at
any time prior to July 1, 2004, at a redemption price equal to 100% of the
principal amount of the notes to be redeemed plus accrued and unpaid interest to
the redemption date, if the closing price of its common stock has exceeded 150%
of the conversion price for at least 20 trading days in the consecutive 30-day
trading period ending on the trading day prior to the date the Company mails the
notice of redemption.
If the Company redeems the notes under these circumstances, it will
make an additional "make whole" payment on the redeemed notes equal to $135 per
$1,000 principal amount of the notes, minus the amount of any interest actually
paid or accrued and unpaid on the notes prior to the date the Company mails the
notice of redemption. The Company may make these "make whole" payments, at its
option, either in cash or, subject to the satisfaction of the conditions of the
indenture, in shares of its common stock or a combination of cash and common
stock.
Payments made in common stock will be valued at 95% of the average of
the closing sales prices of the Company's common stock for the five consecutive
trading days immediately preceding the third trading day prior to the redemption
date.
On and after July 1, 2004, the Company may redeem the notes, in whole
or in part, at its option, at the redemption prices specified below. The
redemption price, expressed as a percentage of principal amount, is as follows
for the 12-month periods beginning on July 1 of the following years:
Redemption Price
Year -----
2004........................................................................................101.8%
2005........................................................................................100.9%
Page 7 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
5. Public Offering of Convertible Subordinated Notes (con't)
In each case the Company will also pay accrued interest to the
redemption date.
The holders of the notes have the option, subject to certain
conditions, to require the Company to repurchase any notes held by such holders
in the event of a "change in control", as defined in the indenture, at a price
equal to 100% of the principal amount of the notes plus accrued interest to the
date of repurchase. The Company may pay the repurchase price in cash or, at the
Company's option, in shares of its common stock. Payments made in shares of the
Company's common stock will be valued at 95% of the average of the closing sales
prices of the Company's common stock for the five trading days immediately
preceding the third trading day prior to the repurchase date.
6. Licensing, Research and Development Agreements
In April 2001, the Company, Genmab A/S ("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 Biotechnology, Inc. ("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 the Company's 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, the initial $5,000 payment plus interest earned of $279
was returned to the Company in April 2001, and has been recorded in the second
quarter 2001 Consolidated Statement of Operations as a $5,000 reduction in
research and development expenses, and the interest received was recorded as
interest income.
Page 8 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
6. Licensing, Research and Development Agreements (con't.)
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 interest earned thereon
of $1,042 has been included as cash and cash equivalents in the Company's June
30, 2001 balance sheet. 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 and Northwest Biotherapeutics, Inc.
("NWBio") entered into a collaboration 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 several 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 as part of this collaboration, an
additional investment of $3,500 in NWBio in the event NWBio completes an initial
public offering on or before April 24, 2002 and satisfies certain additional
conditions.
In April 2001, the Company and Neuro Therapeutics, Inc. ("Neuro
Therapeutics") entered into a collaboration 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 the Company's 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.
In May 2001, the Company entered into an agreement with NovImmune SA
("NovImmune") to develop fully human antibodies to multiple disease targets
identified by NovImmune. NovImmune 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 NovImmune.
Page 9 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
6. Licensing, Research and Development Agreements (con't)
In May 2001, the Company and Sangamo Biosciences, Inc. ("Sangamo")
entered into a collaboration to jointly develop and commercialize fully human
antibody therapeutic products to targets identified by Sangamo using Sangamo's
Universal Gene Recognition(TM) Technology. The Company plans to generate
antibodies to the Sangamo targets using the Company's fully human antibody
technology. The Company and Sangamo expect to share costs and responsibilities
leading to the anticipated commercialization of therapeutic products, including
costs and responsibilities related to preclinical and clinical development and
marketing efforts.
In June 2001, the Company and Epicyte Pharmaceutical Inc. ("Epicyte")
entered into a collaboration to jointly develop and commercialize fully human
antibody therapeutic products to targets identified by Epicyte or the Company.
The Company plans to generate antibodies to these targets using its fully human
antibody technology. The Company and Epicyte expect to share costs and
responsibilities leading to the anticipated commercialization of therapeutic
products, including costs and responsibilities related to preclinical and
clinical development and marketing efforts.
In June 2001, the Company and Genmab entered into a collaboration to
jointly develop and commercialize a fully human antibody therapeutic product for
inflammation. The Company and Genmab expect to share costs and responsibilities
leading to the anticipated commercialization of therapeutic products, including
costs and responsibilities related to preclinical and clinical development and
marketing efforts. The Company and Genmab expect to share equally in
commercialization rights and royalties in all countries outside of Asia, while
the Company will retain commercialization rights, royalties and development and
commercialization responsibilities in Asia.
In June 2001, the Company, Genmab and deCODE genetics, Inc. ("deCODE")
entered into a collaboration to jointly develop and commercialize fully human
antibody therapeutic products to multiple disease targets identified by deCODE.
Genmab plans to generate antibodies to the deCODE 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 June 2001, the Company entered into an agreement with Human Genome
Sciences, Inc. ("HGSI") to develop fully human antibodies to multiple disease
targets identified by HGSI. HGSI 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 HGSI.
Page 10 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
7. 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 three and six months
period ended June 30, 2001 the value of the Company's investment in Genmab was
adjusted to reflect the Company's share of Genmab's loss ($1,182) and ($1,759),
respectively, and an unrealized loss of ($2,568) and $(6,699), respectively,
related to foreign exchange translation. This unrealized loss is included as
accumulated other comprehensive income in the Company's June 30, 2001 balance
sheet.
Summary financial information for Genmab for the three and six months
ended June 30, 2001 is as follows (unaudited):
Six Months ended Three Months ended June
June 30, 2001 30, 2001
--------------------------- -------------------------
Net sales $ -- $ --
Gross profit -- --
Net loss (5,335) (3,583)
8. Comprehensive Income (Loss)
The components of comprehensive income (loss) for the three and six
months period ended June 30, are as follows (unaudited):
Six months ended June Three months ended
30 June 30
------------------------ -------------------------
2000 2001 2000 2001
---- ---- ---- ----
Net income (loss) $ (9,879) $ 7,608 $ (5,554) $ 4,335
Unrealized gain (loss) on securities 1,677 (463) 2,179 (912)
Unrealized gain (loss) on foreign exchange -- (6,699) -- (2,568)
---------- --------- ---------- ----------
Total comprehensive income (loss) $ (8,202) $ 446 $ (3,375) $ 855
========== ========= ========== ==========
Page 11 of 19
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
9. Segment Information
The Company is an integrated monoclonal antibody-based company with
antibody discovery, development and manufacturing capabilities. The operations
of the Company and its wholly owned subsidiaries constitute one business
segment.
Revenue from customers representing 10% or more of total revenues for
the three and six months ended June 30, 2000 and 2001 is as follows:
Six months ended June 30, Three months ended June 30,
Customer 2000 2001 2000 2001
-------- ---- ---- ---- ----
IDM S.A. -- 59% -- 62%
Kirin Brewery Co., Ltd. 57% 18% 48% 18%
Genmab A/S 7% 7% 10% 6%
No other single customer accounted for more than 10% of the Company's
total revenues for the three and six months ended June 30, 2000 and 2001,
respectively.
Page 12 of 19
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 $490,865 in cash, cash equivalents and marketable securities and
$1,300 in a segregated cash account as of June 30, 2001 compared to $343,603 and
$22,068, respectively, as of December 31, 2000. Cash, cash equivalents and
marketable securities include the net proceeds we received from our public
offering completed on June 26, 2001 of 4.50% convertible subordinated notes due
2006, of approximately $169,000, as well as the release from escrow of $20,000
in connection with the restructuring of the collaboration with Eos completed in
April 2001. This $20,000 was previously recorded in segregated cash. Operating
activities provided $3,012 of cash for the six-month period ended June 30, 2001.
On November 3, 2000, we acquired the Milpitas, California facility that
we had previously leased for approximately $14,600. This property is
approximately 57,000 square feet of laboratory and office space. As of June 30,
2001, we spent approximately $9,000 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 140 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 June 30, 2001, we have completed
the initial phase of the Greenwich Facility and expended approximately $27,000.
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. With the addition of these two facilities and
our increase in collaboration agreements, our number of employees has increased
from 113 on June 30, 2000 to 212 on June 30, 2001.
Page 13 of 19
We have leased approximately 43,000 square feet of laboratory, clinical
trial production and office space in a facility located in Annandale, New
Jersey. The term of the lease expires on September 30, 2003, subject to renewal
for an additional five years.
In January 1998, we entered into a four-year lease for approximately
10,000 square feet in a facility located in San Jose, California. This space
includes an animal facility, research and development laboratories and
administrative offices.
In September 1999, we entered into a lease for approximately 6,000
square feet of administrative office space in a modern facility located in
Princeton, New Jersey. In 2000 this lease space was increased to a total of
approximately 20,000 square feet and the lease was extended to expire on March
31, 2006. This facility serves as our general corporate headquarters.
At June 30, 2001 the aggregate future minimum lease commitments over
the remainder of the lease terms for all of our facilities are approximately
$4,576. As of June 30, 2001, we have commitments for approximately $21,000 of
capital expenditures relating to our facilities.
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.
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 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
Six months ended June 30, 2000 and 2001
Revenue for the six-month period ended June 30, 2001 increased by
$11,891, a 227% increase from the six-month period ended June 30, 2000. The
increase relates principally to $10,116 of contract and license revenues from
IDM, S.A. and $892 of contract and license revenues from Genmab.
Cost of sales increased by $80 during the six-month period ended June
30, 2001, a 148% increase as compared to the six-month period ended June 30,
2000. The increase, primarily, reflects the production cost of MDX-CD4 that was
sold to Genmab in the second quarter.
Research and development expenses decreased $4,704 during the six-month
period ended June 30, 2001, a 27% decrease from the six-month period ended June
30, 2000. The decrease is principally due to a one-time refund in April 2001 of
a $5,000 May 2000 payment to Eos Biotechnology, Inc. as part of a new binding
letter of intent for the restructuring of the applied genomics collaboration
that was originally established in February 2000, partially offset by higher
personnel costs and depreciation expense. Research and development costs are
expected to increase at an accelerated rate as our products progress through the
regulatory approval process.
Page 14 of 19
General and administrative expenses increased by $1,206 for the six-
month period ended June 30, 2001, a 20% increase from the six-month period ended
June 30, 2000. The increase is primarily attributable to heightened legal and
personnel costs incurred in connection with the expansion of our business
activities. The increase was partially offset by lower shareholder relation
expenses, which in 2000 included non-cash charges related to warrants issued to
consultants. 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 increased by $1,601, for the six-month
period ended June 30, 2001, a 1,014% increase from the six-month period ended
June 30, 2000. The increased loss reflects our share of Genmab's loss for the
full six month period in 2001 and for our share of Genmab's loss in 2000
beginning in May when we made an additional $18,000 investment in Genmab. 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 $3,904 for the six-month
period ended June 30, 2001, a 46% increase from the six-month period ended June
30, 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 commons stock.
Three months ended June 30, 2000 and 2001
Revenue for the three-month period ended June 30, 2001 increased by
$5,104, a 164% increase from the three-month period ended June 30, 2000. The
increase relates principally to $5,058 of contract and license revenues from
IDM.
Cost of sales increased by $79 during the three-month period ended June
30, 2001, a 293% increase from the three-month period ended June 30, 2000. The
increase primarily reflects the production cost of MDX-CD4 that was sold to
Genmab.
Research and development expenses decreased by $7,405 for the
three-month period ended June 30, 2001, a 62% decrease from the three-month
period ended June 30, 2000. The decrease is principally due to a one-time refund
in April 2001 of a $5,000 May 2000 payment to Eos Biotechnology, as part of a
new binding letter of intent for the restructuring of the applied genomics
collaboration that was originally established in February 2000. This was
partially offset by higher depreciation, supplies and personnel costs.
General and administrative expenses increased by $491 for the
three-month period ended June 30, 2001, a 16% increase from the three-month
period ended June 30, 2000. The increase is primarily attributable to higher
legal and travel 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 warrants issued to
consultants.
Equity in net loss of affiliate increased $1,024 for the three-month
period ended June 30, 2001, a 648% increase from the three-month period ended
June 30, 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.
Page 15 of 19
Interest and dividend income decreased by $901 for the three-month
period ended June 30, 2001, a 14% decrease from the three-month period ended
June 30, 2000. The decrease reflects interest earned on lower average cash
balances for the quarter and prior to the impact of proceeds received from the
June 26, 2001 public offering of our 4.50% convertible subordinated notes due
2006.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and intangible assets deemed to have
infinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company is currently
reviewing the impact of these Statements and will apply the new rules for
goodwill and other intangible assets beginning in the first quarter of 2002.
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 "accumulated other
comprehensive income" in the equity section of the Company's balance sheet.
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.
Page 16 of 19
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 23, 2001, the
Shareholders of the Company elected three Class III Directors each to serve for
a term to expire in 2004 and one Class I Director to serve for a term to expire
in 2003. The Shareholders also voted to approve the Company's 2001 Stock Option
Plan. In addition, the Shareholders voted to confirm the appointment of Ernst &
Young LLP as independent auditors for the 2001 fiscal year. Out of the
72,677,416 eligible votes, 50,022,482 were cast at the meeting either by proxies
solicited in accordance with Section 14 of the Securities Exchange Act of 1934,
as amended, and the resolutions set forth there under, or by securities holders
voting in person. There were 22,677,416 broker non-votes which are not included
in the following table as they were not treated as being present at the meeting.
In the case of directors, abstentions are treated as votes withheld and are
included in the table. The tabulation of votes for each nominee is set forth
under Item No. 1 below, the adoption of the Company's 2001 Stock Option Plan is
set forth under Item No. 2 below and the appointment of Ernst & Young LLP as
independent auditors for the 2001 fiscal year is set forth in Item No. 3 below:
Item No. 1
-----------
Nominees for Directors
----------------------
Directors - Class III Votes For Votes Withheld
--------------------- --------- --------------
Irwin Lerner 49,816,070 206,412
Dr. Julius A. Vida 49,815,570 206,912
Dr. W. Leigh Thompson, Jr. 49,868,703 153,779
Directors - Class I
-------------------
Dr. Ronald J. Saldarini 49,865,379 157,103
The following persons are incumbent directors whose terms of office
continue after the Annual Meeting:
Class II Terms Expiring in 2002 Class I Terms Expiring in 2003
------------------------------- ------------------------------
Michael A. Appelbaum Charles R. Schaller
Dr. Michael W. Fanger Dr. Donald L. Drakeman
Dr. Frederick B. Craves
Item No. 2
----------
Approval of the 2001 Stock Option Plan:
FOR AGAINST ABSTAIN
--- ------- -------
46,407,639 3,540,751 74,092
Item No. 3
----------
Appointment of Ernst & Young LLP as Independent Auditors for the 2001
fiscal year:
FOR AGAINST ABSTAIN
--- ------- -------
49,938,667 66,373 17,442
Page 17 of 19
Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K:
Form 8-K on May 25, 2001, relating to the adoption of a shareholder
rights plan, as set forth in the Form of Rights Agreement.
Form 8-K on June 26, 2001, relating to the issuance of $175,000
principal amount of the 4.50% Convertible Subordinated Notes due 2006,
convertible into shares of Common Stock, $0.01 par value per share of
the Company.
(b) Exhibits: None
Page 18 of 19
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: August 9, 2001 By /s/ Christian S. Schade
-----------------------
Christian S. Schade
Senior Vice President
Finance &
Administration
(Principal Financial
and Accounting
Officer)
Page 19 of 19