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 September 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 November
9, 2001 was 72,776,166 shares.
Page 1 of 15
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, September 30,
--------- ---------
2000 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 78,397 $ 89,731
Marketable securities 265,206 388,797
Other current assets 23,422 18,168
--------- ---------
Total current assets 367,025 496,696
Property and equipment:
Land - 6,782
Building and leasehold improvements 2,356 51,940
Machinery and equipment 6,503 14,609
Furniture and fixtures 409 2,032
Construction in progress 20,000 2,457
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29,268 77,820
Less accumulated depreciation and amortization (5,837) (9,077)
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23,431 68,743
Investment in Genmab 77,468 72,615
Investment in IDM 48,199 48,199
Investments in, and advances to, other affiliates and partners 7,634 19,584
Segregated cash 22,068 1,300
Other assets 12,555 20,550
--------- ---------
Total assets $ 558,380 $ 727,687
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,463 $ 2,135
Accrued liabilities 5,945 8,908
Deferred contract revenue - current 29,810 25,574
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Total current liabilities 37,218 36,617
Deferred contract revenue - long-term 15,326 2,683
Deferred income taxes 20,274 18,766
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 73,980,966 shares issued and 72,775,966
shares outstanding at September 30, 2001 738 740
Capital in excess of par value 569,410 570,316
Treasury stock, at cost 1,205,000 shares (3,031) (3,031)
Deferred compensation 2,234 2,439
Accumulated other comprehensive income 39,313 42,335
Accumulated deficit (123,102) (118,178)
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Total shareholders' equity 485,562 494,621
--------- ---------
Total liabilities and shareholders' equity $ 558,380 $ 727,687
========= =========
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)
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
2000 2001 2000 2001
------------ ------------ ------------ ------------
Revenues:
Sales $ 150 $ 879 $ 37 $ 623
Contract and license revenues 10,133 24,797 5,362 9,170
Contract and license revenues from Genmab 633 2,913 275 1,663
------------ ------------ ------------ ------------
Total revenues 10,916 28,589 5,674 11,456
Costs and expenses:
Cost of sales 83 495 29 361
Research and development 22,780 23,714 5,520 11,158
General and administrative 12,115 11,801 6,210 4,690
------------ ------------ ------------ ------------
Total costs and expenses 34,978 36,010 11,759 16,209
------------ ------------ ------------ ------------
Operating loss (24,062) (7,421) (6,085) (4,753)
Equity in net income (loss) of affiliate 393 (3,714) 551 (1,955)
Interest and dividend income 15,403 18,885 6,845 6,423
Interest expense (3) (2,376) (1) (2,249)
------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes (8,269) 5,374 1,310 (2,534)
Provision for income taxes 4,365 450 4,065 150
------------ ------------ ------------ ------------
Net income (loss) $ (12,634) $ 4,924 $ (2,755) $ (2,684)
============ ============ ============ ============
Basic net income (loss) per share $ (0.18) $ 0.07 $ (0.04) $ (0.04)
============ ============ ============ ============
Diluted net income (loss) per share $ (0.18) $ 0.07 $ (0.04) $ (0.04)
============ ============ ============ ============
Weighted average number of common
shares outstanding during the
year - basic 70,845,871 73,914,692 73,194,686 73,947,275
============ ============ ============ ============
- diluted 70,845,871 75,425,409 73,194,686 73,947,275
============ ============ ============ ============
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 Nine Months Ended
September 30,
-------------
2000 2001
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Operating activities:
Net income (loss) $ (12,634) $ 4,924
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 562 2,470
Amortization 309 1,113
Stock options to employees 3,117 205
Stock options and warrants to non-employees 5,237 15
Non cash revenue - IDM - (15,175)
Non cash revenue - Genmab - (1,333)
Equity in net (income) loss of Genmab (393) 3,714
Provision for income taxes 3,914 -
Changes in operating assets and liabilities, net of acquisition:
Other current assets (11,801) 1,303
Trade accounts payable 77 672
Accrued liabilities (544) 3,482
Deferred contract revenue (3,338) (1,571)
--------- ---------
Net cash used in operating activities (15,494) (181)
Investing activities:
Purchase of property and equipment (2,158) (48,552)
Decrease in other assets 601 -
Increase in investments and advances to affiliates and partners (27,565) (10,750)
Decrease (increase) in segregated cash (20,603) 20,768
Purchase of marketable securities (294,431) (169,500)
Sales of marketable securities 14,845 50,069
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Net cash used in investing activities (329,311) (157,965)
Financing activities:
Cash received from sales of securities, net 398,799 394
Proceeds from sale of convertible subordinated notes, net - 169,105
Principal payments under debt obligations (24) (19)
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Net cash provided by financing activities 398,775 169,480
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Net increase in cash and cash equivalents 53,970 11,334
Cash and cash equivalents at beginning of period 14,366 78,397
--------- ---------
Cash and cash equivalents at end of period $ 68,336 $ 89,731
========= =========
See notes to these unaudited consolidated financial statements.
Page 4 of 15
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 nine months and the three months ended September
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 nine months and three months ended September 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 nine months
and three months ended September 30, 2000 and 2001 is as follows:
Nine Months Ended Three Months Ended
September 30 September 30
----------------------- -----------------------
2000 2001 2000 2001
-------- -------- -------- --------
Basic:
Net income (loss) $(12,634) $ 4,924 $ (2,755) $ (2,684)
Weighted average shares outstanding 70,846 73,915 73,195 73,947
-------- -------- -------- --------
Basic net income (loss) per share $ (0.18) $ 0.07 $ (0.04) $ (0.04)
======== ======== ======== ========
Page 5 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
2. Net Income (Loss) per Share (con't)
Nine Months Ended Three Months Ended
September 30 September 30
----------------------- -----------------------
2000 2001 2000 2001
-------- -------- -------- --------
Diluted:
Net income (loss) $(12,634) $ 4,924 $ (2,755) $ (2,684)
Weighted average shares outstanding 70,846 75,915 73,195 73,947
Net effect of dilutive securities:
Stock options-- -- 1,510 -- --
-------- -------- -------- --------
Total adjusted weighted-average shares 70,846 75,425 73,195 73,947
======== ======== ======== ========
Diluted net income (loss) per share $ (0.18) $ 0.07 $ (0.04) $ (0.04)
======== ======== ======== ========
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 within accumulated other comprehensive income which is 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 on an annual basis 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. We are not currently subject to any such legal
proceedings.
Page 6 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
5. Licensing, Research and Development Agreements
In August 2001, the Company and Aventa Biosciences Corporation ("Aventa")
entered into a collaboration to jointly develop and commercialize fully human
antibody therapeutic products to targets identified by Aventa and the Company.
The Company plans to generate antibodies to these targets using its fully human
antibody technology. The Company and Aventa expect to share costs and
responsibilities leading to the anticipated commercialization of antibody
products, including costs and responsibilities related to preclinical and
clinical development and marketing efforts. In November 2001, Aventa changed its
name to Ambit Biosciences Corporation.
In August 2001, the Company entered into an agreement with Genesto A/S
("Genesto") to develop fully human antibodies to multiple disease targets
identified by Genesto. Genesto 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 Genesto.
In September 2001, the Company and Incyte Genomics, Inc. ("Incyte") entered
into a collaboration to jointly develop and commercialize fully human antibody
therapeutic products. The Company and Incyte expect to share costs and
responsibilities leading to the anticipated commercialization of antibody
products, including costs and responsibilities related to preclinical and
clinical development and marketing efforts.
6. Investment in Genmab
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 nine and three month
periods ended September 30, 2001 the value of the Company's investment in Genmab
was adjusted to reflect the Company's share of Genmab's loss ($3,714) and
($1,955), respectively, and an unrealized gain (loss) of ($1,139) and $5,560,
respectively, related to foreign exchange translation. Such foreign exchange
translation adjustments are included within accumulated other comprehensive
income in the Company's September 30, 2001 balance sheet.
Summary financial information for Genmab for the nine and three months
ended September 30, 2001 is as follows (unaudited):
Nine Months ended Three Months ended
September 30, 2001 September 30, 2001
------------------ ------------------
Net sales $ -- $ --
Gross profit -- --
Net loss (11,262) (5,486)
Page 7 of 15
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
7. Comprehensive Income (Loss)
The components of comprehensive income (loss) for the nine and three month
periods ended September 30, are as follows (unaudited):
Nine months ended Three months ended
September 30 September 30
----------------------------- -----------------------------
2000 2001 2000 2001
-------- -------- -------- --------
Net income (loss) $(12,634) $ 4,924 $ (2,755) $ (2,684)
Unrealized gain on securities 2,367 4,161 690 4,624
Unrealized gain (loss) on foreign exchange -- (1,139) -- 5,560
-------- -------- -------- --------
Total comprehensive income (loss) $(10,267) $ 7,946 $ (2,065) $ 7,500
======== ======== ======== ========
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
nine and three months ended September 30, 2000 and 2001 is as follows:
Nine months ended Three months ended
September 30 September 30
------------------- -------------------
Customer 2000 2001 2000 2001
-------- ---- ---- ---- ----
IDM S.A 8% 53% 15% 45%
Kirin Brewery Co., Ltd. 41% 16% 26% 13%
Genmab A/S 7% 13% 8% 20%
Scil Biomedicals GmbH 20% 3% 35% 2%
No other single customer accounted for more than 10% of the Company's total
revenues for the nine and three months ended September 30, 2000 and 2001,
respectively.
9. Subsequent Events
In October 2001, the Company and m-phasys, Inc. ("m-phasys") entered into a
collaboration to jointly develop and commercialize fully human antibody
therapeutic products to multiple disease targets identified by m-phasys. The
Company plans to generate antibodies to these targets using its fully human
antibody technology. The Company and m-phasys expect to share costs and
responsibilities leading to the anticipated commercialization of antibody
products, including costs and responsibilities related to preclinical and
clinical development and marketing efforts.
Page 8 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 $478,528 in cash, cash equivalents and marketable securities and
$1,300 in a segregated cash account as of September 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
Biotechnology, Inc. completed in April 2001. This $20,000 was previously
recorded in segregated cash. Operating activities used $181 of cash for the
nine-month period ended September 30, 2001.
On November 3, 2000, we acquired the Milpitas, California facility for
approximately $14,600. We had previously leased this facility. This property
contains approximately 57,000 square feet of laboratory and office space. As of
September 30, 2001, we spent approximately $10,400 and expect to spend an
additional $500 on building modifications and equipping the Milpitas facility
this year. 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 September 30, 2001, we completed the initial phase of the Greenwich
Facility and started phase two. To date, we have expended approximately $30,800
on the building and land. 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 123 on September 30, 2000 to 238 on September 30, 2001.
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.
Page 9 of 15
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 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 September 30, 2001 the aggregate future minimum lease commitments over
the remainder of the lease terms for all of our facilities are approximately
$5,386. As of September 30, 2001, we have commitments for approximately $23,000
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
Nine months ended September 30, 2000 and 2001
Revenue increased by $17,673 during the nine-month period ended September
30, 2001, a 162% increase from the nine-month period ended September 30, 2000.
The increase relates principally to $14,400 of contract and license revenues
from IDM, S.A. and $2,113 of contract and license revenues from Genmab A/S.
Cost of sales increased by $413 during the nine-month period ended
September 30, 2001, a 498% increase as compared to the nine-month period ended
September 30, 2000. The increase, primarily, reflects the production cost of
MDX-CD4 that was sold to Genmab in the second and third quarters of 2001.
Research and development expenses increased by $934 during the nine-month
period ended September 30, 2001, a 4% increase from the nine-month period ended
September 30, 2000. The increase is principally due to higher personnel costs,
supplies and depreciation expense, partially offset by a one-time refund in
April 2001 of a $5,000 May 2000 payment to Eos as part of a new binding letter
of intent for the restructuring of the applied genomics collaboration that was
originally established in February 2000. Research and development costs are
expected to increase at an accelerated rate as our products progress through the
regulatory approval process.
Page 10 of 15
General and administrative expenses decreased by $314 during the nine-month
period ended September 30, 2001, a 3% decrease from the nine-month period ended
September 30, 2000. The decrease is primarily attributable to lower consulting
and shareholder relation expenses, which in 2000 included non-cash charges
related to warrants issued to consultants. The decrease was partially offset by
heightened legal and travel costs incurred in connection with the expansion of
our business activities. 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 $4,107 during the nine-month
period ended September 30, 2001, a 1,045% increase from the nine-month period
ended September 30, 2000. The increased loss reflects our share of Genmab's loss
for the full nine-month period in 2001 and for our share of Genmab's income 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 Genmab to increase in the near future due to the
Genmab's additional investments in research and development to develop its own
product pipeline.
Interest and dividend income increased by $3,482 during the nine-month
period ended September 30, 2001, a 23% increase from the nine-month period ended
September 30, 2000. The increase reflects interest earned on higher average cash
balances as the result of proceeds received from the June 26, 2001 public
offering of our 4.50% convertible subordinated notes due in 2006.
Interest expense increased by $2,373 during the nine-month period ended
September 30, 2001, the increase from the nine-month period ended September 30,
2000 reflects accrued interest on the 4.50% convertible subordinated notes
issued on June 26, 2001 and due in 2006. Interest is due on January 1 and July 1
of each year beginning January 1, 2002.
Three months ended September 30, 2000 and 2001
Revenue increased by $5,782 during the three-month period ended September
30, 2001, a 102% increase from the three-month period ended September 30, 2000.
The increase relates principally to $4,284 of contract and license revenues from
IDM.
Cost of sales increased by $333 during the three-month period ended
September 30, 2001, a 1148% increase from the three-month period ended September
30, 2000. The increase primarily reflects the production cost of MDX-CD4 that
was sold to Genmab in September 2001.
Research and development expenses increased by $5,638 during the
three-month period ended September 30, 2001, a 102% increase from the
three-month period ended September 30, 2000. The increase is principally due
higher supplies, personnel costs and depreciation.
General and administrative expenses decreased by $1,520 during the
three-month period ended September 30, 2001, a 24% decrease from the three-month
period ended September 30, 2000. The decrease is primarily attributable to lower
consultant expenses, which in 2000 included non-cash charges related to warrants
issued to consultants. This decrease was partially offset by higher legal
expenses associated with the increasing number of partnering agreements.
Page 11 of 15
Equity in net loss of affiliate increased $2,506 during the three-month
period ended September 30, 2001, a 455% increase from the three-month period
ended September 30, 2000. Genmab is an affiliated company and is accounted for
using the equity method. The increase in loss primarily reflects increased
research and development expenditures at Genmab. We expect equity in net loss of
Genmab to increase in the near future due to the Genmab's additional investments
in research and development to develop its own product pipeline.
Interest and dividend income decreased by $422 during the three-month
period ended September 30, 2001, a 6% decrease from the three-month period ended
September 30, 2000. The decrease reflects lower interest rates for the quarter.
Interest expense increased by $2,248 during the three-month period ended
September 30, 2001, the increase from the three-month period ended September 30,
2000 reflects accrued interest on the 4.50% convertible subordinated notes
issued on June 26, 2001 and due in 2006. Interest is due on January 1 and July 1
of each year beginning January 1, 2002.
Page 12 of 15
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.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", effective for fiscal years beginning after December 15, 2001.
Statement No. 144 supersedes Statement No. 121 and identifies the methods to be
used in determining fair value. The Company is currently reviewing the impact of
Statement No. 144 and will be performing an analysis at a later date in
connection with the adoption of Statement No. 144 on January 1, 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.
We 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 our recording of our investment in Genmab.
Foreign exchange translation gains or losses have been and will continue to be
recorded within "accumulated other comprehensive income" in the equity section
of our 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 are not currently subject to any such legal proceedings.
On May 24, 2000, Lexicon Genetics Incorporated filed a complaint against
Deltagen, Inc. in U.S. District Court for the District of Delaware alleging that
Deltagen was 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.
Page 13 of 15
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 sought declaratory relief that the patent was invalid,
unenforceable and not infringed. In addition, Deltagen asserted counterclaims
against both Lexicon and GenPharm under the antitrust laws. Deltagen sought,
among other relief, an award of monetary damages against Lexicon and GenPharm in
an unspecified amount.
On September 24, 2001, the litigation against GenPharm was dismissed with
prejudice pursuant to a stipulation following a settlement of the underlying
dispute between Lexicon and Deltagen.
Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K: None
(b) Exhibits: None
Page 14 of 15
Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDAREX, INC.
-------------
(Registrant)
Date: November 13, 2001 By /s/ Christian S. Schade
-----------------------
Christian S. Schade
Senior Vice President
Finance & Administration
(Principal Financial and
Accounting Officer)
Page 15 of 15