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, 2002 Commission File No. 0-19312
MEDAREX, INC.
(Exact name of registrant as specified in its charter.)
New Jersey 22-2822175
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
707 State Road, 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 May 1,
2002 was 73,002,661
Page 1 of 18
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, March 31,
2001 2002
------------- ---------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 31,269 $ 50,010
Marketable securities 435,683 378,020
Other current assets 24,860 24,109
---------- -----------
Total current assets 491,812 452,139
Property and equipment:
Land 6,788 6,788
Building and leasehold improvements 56,080 61,492
Machinery and equipment 16,188 18,160
Furniture and fixtures 2,819 2,948
Construction in progress 7,767 9,349
---------- -----------
89,642 98,737
Less accumulated depreciation and amortization (9,782) (11,541)
---------- -----------
79,860 87,196
Investments in Genmab 65,501 61,325
Investments in IDM 48,199 48,199
Investments in, and advances to, other affiliates and partners 14,384 14,384
Segregated cash 1,300 1,300
Other assets 19,371 19,174
---------- -----------
Total assets $ 720,427 $ 683,717
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable $ 3,139 $ 1,836
Accrued liabilities 21,485 13,813
Deferred contract revenue - current 19,862 12,817
---------- ----------
Total current liabilities 44,486 28,466
Deferred contract revenue - long-term 1,597 1,195
Deferred income taxes and other long-term obligations 16,782 15,682
Convertible subordinated notes 175,000 175,000
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;
74,005,466 shares issued and 72,876,240 outstanding
at December 31, 2001 and 74,017,416 shares issued and 72,926,061
shares outstanding at March 31, 2002 740 740
Capital in excess of par value 570,655 570,736
Treasury stock, at cost 1,129,226 shares in 2001 and 1,091,355 shares in 2002 (2,840) (2,745)
Deferred compensation 2,188 1,768
Accumulated other comprehensive income 37,881 34,776
Accumulated deficit (126,062) (141,901)
---------- ----------
Total shareholders' equity 482,562 463,374
---------- ----------
Total liabilities and shareholders' equity $ 720,427 $ 683,717
========== ==========
See notes to these unaudited consolidated financial statements.
Page 2 of 18
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
-----------------------
March 31, March 31,
2001 2002
-------- --------
Sales $ 66 $ 100
Contract and license revenues 8,104 7,613
Sales, contract and license revenues from Genmab (includes
sales of $2,308 to Genmab in 2002) 750 3,058
-------- --------
Total revenues 8,920 10,771
Costs and expenses:
Cost of sales ($1,438 from sales to Genmab in 2002) 28 1,477
Research and development 8,060 17,254
General and administrative 3,602 5,418
-------- --------
Total costs and expenses 11,690 24,149
-------- --------
Operating loss (2,770) (13,378)
Equity in net loss of affiliate (577) (3,589)
Interest income 6,771 4,946
Impairment loss on investment - (1,600)
Interest expense (1) (2,218)
-------- --------
Income (loss) before provision for income taxes 3,423 (15,839)
Provision for income taxes 150 -
-------- --------
Net income (loss) $ 3,273 $(15,839)
======== ========
Basic net income (loss) per share $0.04 ($0.21)
======== ========
Diluted net income (loss) per share $0.04 ($0.21)
======== ========
Weighted average number of common
shares outstanding
- basic 73,858 74,011
======== ========
- diluted 75,828 74,011
======== ========
See notes to these unaudited consolidated financial statements.
Page 3 of 18
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months Ended
March 31,
-------------------------------
2001 2002
--------- ---------
Operating activities:
Net income (loss) $ 3,273 $ (15,839)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 695 1,586
Amortization 234 478
Stock options and awards to employees 68 61
Stock options and warrants to non-employees (57) (8)
Non cash revenue - IDM (5,058) (5,058)
Non cash revenue - Genmab (500) -
Equity in net loss of Genmab 577 3,589
Impairment loss on investments - 1,600
Changes in operating assets and liabilities:
Other current assets 4,278 (566)
Trade accounts payable (157) (1,303)
Accrued liabilities (1,633) (4,551)
Deferred contract revenue (634) (2,389)
--------- ---------
Net cash provided by (used in) operating activities 1,086 (22,400)
Investing activities:
Purchase of property and equipment (16,999) (12,431)
Increase in investments and advances to affiliates and partners (5,226) -
Increase in segregated cash (274) -
Purchase of marketable securities - (2,500)
Sales of marketable securities 71,502 56,044
--------- ---------
Net cash provided by investing activities 49,003 41,113
Financing activities:
Cash received from sales of securities, net 234 28
Principal payments under debt obligations (6) -
--------- ---------
Net cash provided by financing activities 228 28
--------- ---------
Net increase in cash and cash equivalents 50,317 18,741
Cash and cash equivalents at beginning of period 78,397 31,269
--------- ---------
Cash and cash equivalents at end of period $ 128,714 $ 50,010
========= =========
Supplemental disclosures of cash flow information
Cash paid during period for:
Interest $ 1 $ 4,047
========= =========
See notes to these unaudited consolidated financial statements.
Page 4 of 18
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars 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 accounting principles generally
accepted in the United States 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, 2001.
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 three months ended March 31, 2002, 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.
The computation of basic and diluted earnings per share for three months
ended March 31, 2001 and 2002 is as follows:
Three Months Ended
March 31
---------------------------
2001 2002
----------- ----------
Basic:
Net income (loss) $ 3,273 $ (15,839)
Weighted average shares outstanding 73,858,000 74,011,000
----------- -----------
Basic net income (loss) per share $ 0.04 $ (0.21)
=========== ===========
Page 5 of 18
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
2. Net Income (Loss) per Share (con't)
Three Months Ended
March 31
-----------------------
2001 2002
--------- ---------
Diluted:
Net income (loss) $ 3,273 $ (15,839)
Weighted average shares outstanding 73,858,000 74,011,000
Net effect of dilutive securities:
Stock options- 1,970,000 --
----------- -----------
Total adjusted weighted-average shares 75,828,000 74,011,000
=========== ===========
Diluted net income (loss) per share $ 0.04 $ (0.21)
=========== ===========
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 other comprehensive income as a separate component of
shareholders' equity. If a decline in the fair value of a marketable security
below the Company's cost basis is determined to be other than temporary, such
marketable security is written down to its estimated fair value with a charge to
current earnings. In the first quarter of 2002 the Company recorded a $1,600
impairment charge related to its investment in Oxford GlycoSciences Plc, whose
decline in value was determined to be other than temporary.
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. The Company has accrued $667 related to this liability during 2000
which remains outstanding at March 31, 2002.
In the ordinary course of our business, the Company is 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.
Page 6 of 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
5. Licensing, Research and Development Agreements
In January 2002, Sangamo BioSciences, Inc. ("Sangamo"), a privately held
biotechnology company, and the Company announced a collaboration under which the
parties expect to use Sangamo's zinc finger DNA binding protein (ZFP) gene
regulation technology platform to increase the expression of antibodies in
mammalian cell lines. Under the terms of the agreement, the Company will provide
research funding to Sangamo over a two year period, and the parties plan to
collaborate to create cell lines with the ability to express antibodies at
enhanced levels. The Company will have a non-exclusive license to use these
novel cell lines to manufacture antibody products. Sangamo will be entitled to
potential milestone payments and royalties on any sales of such products.
In January 2002, the Company entered into a collaboration with Tularik,
Inc. ("Tularik"), a publicly traded biotechnology company, to jointly develop
and commercialize fully human antibody therapeutic products to specific cancer
targets identified by Tularik. The Company plans to generate antibodies to the
Tularik targets using its fully human antibody technology. Tularik will
contribute three cancer-related targets to the collaboration. The Company and
Tularik each expect to assume certain costs and responsibilities leading to the
anticipated commercialization of therapeutic products, including preclinical and
clinical development and marketing efforts. In addition, the Company made an
equity investment in Tularik. The Company expensed a premium of $2,500 for the
purchase of Tularik common stock in the quarter ended March 31, 2002, which
represented technology access rights and was part of the collaboration.
In January 2002, the Company and Scil Biomedicals GmbH ("Scil"), a
privately held biotechnology company, terminated their collaboration related to
the development of MDX-210 and MDX-RA for all applications. In the first quarter
of 2002, the Company recognized $958 in contract revenue associated with the
termination of the collaboration. The Company has no remaining obligations to
Scil.
6. Investments 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%. In December 2001, 88,600 shares of
Page 7 of 18
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
the Company's Genmab stock were awarded as a bonus to the President and Chief
Executive Officer of the Company, further reducing the Company's ownership
percentage in Genmab to approximately 32.6%. During the three month periods
ended March 31, 2001 and 2002 the value of the Company's investment in Genmab
was adjusted to reflect the Company's share of Genmab's loss ($577) and
($3,589), respectively, and an unrealized loss of $(4,131) and $(587),
respectively, related to foreign exchange translation. Such foreign exchange
translation adjustments are included within accumulated other comprehensive
income in the Company's March 31, 2002 balance sheet.
Summary financial information for Genmab is as follows as of and for the
three months ended March 31, 2001 and 2002:
2001 2002
------- -------
Current Assets........................ $ 211,758 $ 181,311
Non Current Assets.................... 17,661 21,454
Current Liabilities................... 4,630 8,308
Non Current Liabilities............... 5,068 3,553
Net Sales............................. -- --
Gross Profit.......................... -- --
Net Loss.............................. (1,752) (11,019)
7. Comprehensive Income (Loss)
The components of comprehensive income (loss) for three month periods ended
March 31, are as follows (unaudited):
Three months ended
March 31
------------------------
2001 2002
-------- --------
Net income (loss) $ 3,273 $(15,839)
Unrealized gain (loss) on securities 449 (2,519)
Unrealized loss on foreign exchange (4,131) (587)
-------- --------
Total comprehensive loss $ (409) $(18,945)
======== ========
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, 2001 and 2002 is as follows:
Three months ended
March 31,
-----------------------
2001 2002
------ -------
Customer
--------
IDM S.A. 57% 47%
Genmab A/S 8% 28%
Kirin Brewery Co., Ltd 17% 0%
Page 8 of 18
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
No other single customer accounted for more than 10% of the Company's total
revenues for the three months ended March 31, 2001 and 2002, respectively.
9. Subsequent Event
In April 2002, the Company and Aventis Behring, L.L.C. entered into a
Termination Agreement whereby the parties agreed to terminate the Development
and License Agreement between the Company and Aventis which was originally
entered into in April 1996 regarding the development and commercialization of
MDX-33. Neither the Company nor Aventis has any remaining material obligations
to the other under the Development and License Agreement or any other agreement.
Page 9 of 18
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.
Dollars reported in thousands, except per share data.
Basis of Financial Statement Presentation
We are a biopharmaceutical company focused on the discovery and development
of human antibody-based therapeutic products using our proprietary technology
platform, the UltiMAb Human Antibody Development System. This unique combination
of human antibody technologies enables us to rapidly create and develop high
affinity, fully human antibodies to a wide range of potential disease targets
for therapeutic antibody products, including products for the treatment and/or
diagnosis of cancer, inflammation, auto-immune and other life-threatening and
debilitating diseases.
Through our 1997 acquisition of GenPharm International, Inc. and our
collaboration with Kirin Brewery Co. Ltd., we expanded our business to include
both our HuMAb-Mouse and Kirin's TC Mouse technologies. In December 2000 we
unveiled the KM-Mouse, a unique crossbred mouse developed in partnership with
Kirin, as the newest addition to our UltiMAb Human Antibody Development System.
With the UltiMAb platform, we have assembled a unique family of human antibody
technologies for creating the entire spectrum of high-affinity, fully human
antibodies. We intend to leverage our product development capabilities with
those of our partners, while also gaining access to novel therapeutic targets
and complementary development, sales and marketing infrastructure. As of March
31, 2002, 41 pharmaceutical and biotechnology companies have partnered with us
to jointly develop and commercialize products or have otherwise acquired the
rights to use our proprietary technology in their development of new products,
including industry leaders such as Amgen, Inc., Centocor, Inc. (a subsidiary of
Johnson & Johnson), Eli Lilly & Company, Human Genome Sciences, Inc., Immunex
Corporation, Novartis Pharma AG, Novo Nordisk A/S, and Schering AG. Some of
these are licensing partnerships, providing us with licensing fees, milestone
payments and royalty payments; others are collaborative partnerships and provide
for the sharing of product development costs, revenues, expenses and profits
associated with products sold commercially.
Our licensing partners typically obtain licenses to one or more of our
antibody generating technologies which allow these partners to develop and
commercialize antibody-based products. We could receive license fees, milestones
and royalties in connection with each of these products. Under these licenses,
there is usually an initial period during which our corporate partner may elect
to enter into a research license for antibodies to a particular designated
target. Subsequently, our licensing partner may elect to obtain a commercial
license for monoclonal antibodies to a particular target. As of March 31, 2002,
21 of our total partnerships were licensing partnerships, and we expect to
continue adding additional licensing partnerships in the future.
Page 10 of 18
We are also pursuing an "Applied Genomics" strategy in order to gain access
to new target antigens as they are identified, while also sharing the risks and
rewards of the related antibody development and commercialization. To this end,
we have established a number of collaborative partnerships with leading
companies in the fields of genomics and proteomics to jointly develop and
commercialize human antibody products. Typically, our collaborator will provide
a target antigen, and we will generate antibodies against that antigen using our
UltiMAb Human Antibody Development System. We and our collaborators typically
agree to share equally costs of clinical development and manufacturing as well
as revenues, expenses and profits associated with the products. As of March 31,
2002, 20 of our total partnerships were collaborative partnerships, and we
expect to continue adding additional collaborations in the future.
Revenue--Our revenue is principally derived through licensing our human
antibody technology to pharmaceutical and biotechnology companies. The terms of
these agreements typically include potential license fees and a series of
milestone payments commencing upon initiation of clinical trials and continuing
through commercialization. These payments may total $7,000 to $10,000 per
product if the antibody receives approval from the FDA and equivalent foreign
agencies. We are also entitled to royalties on product sales. Additional revenue
is earned from the sales and, in some cases, manufacturing, of antibodies to
corporate partners and from government grants.
Research and Development Expenses--Research and development expenses
consist primarily of compensation expense, facilities, preclinical and clinical
trials and supply expense relating to antibody product development and to the
breeding, caring for and continued development of our HuMAb-Mouse and KM-Mouse,
as well as to the performance of contract services for our collaborative
partners.
General and Administrative Expenses--General and administrative expenses
consist primarily of compensation, facility, travel, legal fees and other
expenses relating to our general management, financial, administrative and
business development activities.
Critical Accounting Policies
The methods, estimates and judgments we use in applying our accounting
policies have a significant impact on the results we report in our consolidated
financial statements. We evaluate our estimates and judgments on an on-going
basis. We base our estimates on historical experience and on assumptions that we
believe to be reasonable under the circumstances. Our experience and assumptions
form the basis for our judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
vary from what we anticipate and different assumptions or estimates about the
future could change our reported results. We believe the accounting policies
that require our most difficult, subjective or complex judgments in the
preparation of our consolidated financial statements to be as follows:
Revenue Recognition
Historically, a significant portion of our revenue has been recognized
pursuant to collaboration and license agreements with our partners. Revenue is
recognized as research services are performed over the related funding periods
for each agreement. Deferred revenue may result when we do not expend the
required level of effort during a specific period in comparison to funds
received under the respective agreements or when funds received are refundable
under certain circumstances. Milestone and royalty payments are recognized as
Page 11 of 18
revenue upon achievement of specific milestones. Non-refundable upfront payments
received in connection with our collaborative partnerships are deferred and
recognized as revenue on a straight-line basis over the relevant periods of the
respective agreements.
Investments
All marketable securities are classified as available-for-sale securities
and are carried at fair value. Marketable securities will include those
securities of publicly traded debt and equity securities accounted for under the
cost method. These securities trade on listed exchanges; therefore, fair value
is readily available. These securities are also subject to an impairment charge
when we believe an investment has experienced a decline in value that is other
than temporary.
In addition, we make strategic investments in the equity of companies that
are privately held, and these securities are carried at original investment
cost. Because these securities are not listed on a financial exchange, we value
these investments by using information acquired from industry trends, the
management of these companies, financial statements, and other external sources.
Based on the information, acquired through these sources, we record an
investment impairment charge when we believe an investment has experienced a
decline in value that is other than temporary. Future adverse changes in market
conditions or adverse changes in operating results of underlying investments
that may not be reflected in an investment's current carrying value, may also
require an impairment charge in the future.
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 $428,030 in cash, cash equivalents and marketable securities at
March 31, 2002 compared to $466,952 at December 31, 2001. 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. Net cash used by operating activities for
the three months ended March 31, 2002 was approximately $22,400 compared with
net cash provided by our operating activities of $1,086 for the three months
ended March 31, 2001. The change was primarily due to our net loss for the 2002
period.
Net cash provided by investing activities for the three months ended
March 31, 2002 was $41,113 compared to $49,003 for the three months ended March
31, 2001. The decrease in investing activities was primarily the result of a
decrease of $4,568 in the purchase of property and equipment, a decrease of
$5,226 in investment in affiliates and partners and a net decrease of $17,958
from purchases and sales of marketable securities.
In November 2000, we acquired our Milpitas, California facility for
approximately $14,600. We previously leased this facility. This property
contains approximately 57,000 square feet of laboratory and office space and, as
of March 31, 2002, we had expended (cumulatively) approximately $17,400 on
renovating this facility.
Page 12 of 18
In January 2001, we purchased a facility and adjacent land in Bloomsbury,
New Jersey for approximately $9,200. The Bloomsbury facility is situated on
approximately 106 acres of land and currently contains space for approximately
165,000 square feet of laboratory and office space. We currently are using
75,000 square feet as laboratory and office space. As of March 31, 2002, we have
completed the initial phase of the Bloomsbury facility and have expended
cumulatively approximately $55,300. For the balance of 2002, we expect to expand
our research facility in Milpitas and continue the expansion of laboratory and
development capacity in Bloomsbury and Annandale, New Jersey. We currently
expect the costs for this expansion to be up to approximately $60,000, but this
is subject to change.
Net cash provided by financing activities for the three months ended March
31, 2002 was $28 compared to $228 for the three months ended March 31, 2001. The
change in 2002 from 2001 was primarily the result of less options exercised by
employees during the first quarter of 2002. Proceeds from the exercise of
employee stock options will vary from period to period based upon, among other
factors, fluctuations in the market value of our stock relative to the exercise
price of such options.
Other Liquidity Matters. In connection with our merger with Essex
Medical Products in 1987, we issued promissory notes to Essex Chemical
Corporation in the principal amount of $100 and committed to pay 20% of our net
after-tax income until a total of $1,000 has been paid, contingent upon the
occurrence of certain events. On June 6, 1991, we repaid the $100 of notes, plus
accrued interest to Essex. As the result of our net income in 2000 we accrued
$667 payable to Essex, which remains accrued at March 31, 2002. At our option,
this obligation may be satisfied by the payment of shares of our common stock
having a fair market value equal to the amount owed, provided such shares are
registered for sale with the SEC.
In July 2000, we entered into an Agreement with and Immuno-Designed
Molecules S.A. or IDM whereby we licensed to IDM certain of our technologies in
exchange for equity units in IDM. As a result of this transaction, we realized a
gain from the transfer of technology of approximately $40,500 (based upon an
independent valuation). In accordance with Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, we will recognize this gain over a
24-month period as contract revenue. Accordingly, during the three months ended
March 31, 2002, we recognized $5,107 as contract revenue and as of that date
approximately $9,273 remains unrecognized and will be recorded as revenue during
the next two quarters of 2002.
Future Liquidity Resources. Our current sources of liquidity are 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 revenue. We believe that such sources of
liquidity will be sufficient to meet our operating, debt service, and capital
requirements for at least the next 24 months. However, we may require additional
financing within this time and may raise funds through public or private
financings, line of credit arrangements, collaborative relationships and/or
other methods.
Results of Operations
Three months ended March 31, 2001 and 2002
Revenue increased by $1,851, from $8,920 to $10,771, during the three-month
period ended March 31, 2002, a 21% increase as compared to the three-month
period ended March 31, 2001. The increase relates principally to $2,308 of sales
Page 13 of 18
revenues from Genmab A/S and $972 of contract and license revenues from Eli
Lilly & Company, partially offset by $1,500 in lower contract and license
revenues from Kirin Brewery Co., Ltd.
Cost of sales increased by $1,449, from $28 to $1,477, during the
three-month period ended March 31, 2002, a 5,175% increase as compared to the
three-month period ended March 31, 2001. The increase, primarily, reflects the
production cost of MDX-CD4 that was sold to Genmab in the first quarter of 2002.
Research and development expenses are largely comprised of personnel costs,
those expenses related to facilities for our clinical research, development and
clinical trial manufacturing efforts, third party research costs and supply
costs. Research and development expenses for our products in development
increased by $9,194 during the three-month period ended March 31, 2002, from
$8,060 to $17,254, a 114% increase as compared to the three-month period ended
March 31, 2001. The increases relate primarily to costs associated with the
following:
. Personnel costs for the three-month period ended March 31, 2002
increased by $2,838 or 107% as compared to the three-month period
ended March 31, 2001. The increase in staff is to support higher
levels of product development and clinical trial manufacturing
activities, the continued development of our UltiMAb system, and the
performance of contract services for our collaborative partners and
clinical activities. Included in the increase are salary, benefits,
payroll taxes and recruiting costs. We expect personnel costs to
increase further as we continue to increase our product development
activities and progress our products in clinical trials.
. License and technology access fees for the three-month period ended
March 31, 2002 increased by $2,781 or 9,365% over the three-month
period ended March 31, 2001. In the first quarter of 2002 we paid a
premium of $2,500 representing technology access rights for the
purchase of Tularik, Inc. common stock as part of our collaboration
and license agreement which was charged to expense. We expect license
fees, including funds paid to certain partners, to increase in the
future.
. Research supply costs for the three-month period ended March 31, 2002
increased by $2,555 or 310% over the three-month period ended March
31, 2001. Included in these costs are materials and small equipment
associated with the development of our products. We expect these costs
to increase as we continue to expand our research and product
development activities.
. Facility costs for the three-month period ended March 31, 2002
increased by $1,317 or 75% over the three-month period ended March 31,
2001. The increase in 2002 primarily relates to the substantial
investments made in our three research and development facilities
during 2001 and the first quarter of 2002. Such expenditures included:
building and land improvements, machinery and lab equipment, furniture
and fixtures and other related costs. As a result, depreciation,
utilities, maintenance, property taxes and related expenses increased
for the three-month period ended March 31, 2002, as compared to the
same period in 2001. We expect facility costs to increase in future
periods as a result of our continued capital expansion plans.
We also expect expenses related to clinical trials to increase in the
future as we continue to develop our therapeutic product pipeline. As part of
our partnering strategy, a significant portion of the research and development
expenses incurred in connection with products using our technology is expected
to be borne by our partners. We believe this allows us to participate in the
research and development of substantially more potential product candidates
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than we could develop on our own if we bore the entire cost of development.
Products using our technology are currently in various stages of development
from preclinical to Phase III. The successful development of these product
candidates is dependent on many factors, including among other things, the
efforts of our partners, unforeseen delays in, or expenditures relating to,
preclinical development, clinical testing, manufacturing or regulatory approval,
failure to receive market acceptance, the emergence of competitive products and
the inability to produce or market our products due to third-party proprietary
rights.
General and administrative expenses include compensation and other expenses
related to finance and administrative personnel, legal services and business
development. General and administrative expenses for the three-month period
ended March 31, 2002, increased by $1,816, from $3,602 to $5,418, a 50% increase
as compared to the three-month period ended March 31, 2001. The increase is
primarily attributable to higher personnel costs, consulting and depreciation
expenses. 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 for the three-month period ended March 31,
2002, increased by $3,012, from $577 to $3,589, a 522% increase as compared to
the three-month period ended March 31, 2001. 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 publicly stated intention to
make additional investments in research and development to develop its own
product pipeline.
Interest income for the three-month period ended March 31, 2002, decreased
by $1,825, from $6,771 to $4,946 a 27% decrease as compared to the three-month
period ended March 31, 2001. The decrease reflects lower interest rates received
on our investments partially offset by our 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.
Impairment loss on investment of $1,600 during the three-month period ended
March 31, 2002 reflects a decline in the value of the investment made in the
capital stock of Oxford GlycoSciences Plc as part of our collaboration with
them. During the first quarter of 2002, the decline in the value of the
investment was determined to be "other than temporary."
Interest expense during the three-month period ended March 31, 2002
increased by $2,217 from $1 to 2,218. The increase as compared to the
three-month period ended March 31, 2001 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.
Recent Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board, or FASB, issued
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 Statement.
Other intangible assets will continue to be amortized over their useful lives.
The January 1, 2002 adoption of Statement No. 142 did not have any impact on our
consolidated financial position or results of operations as we currently have no
goodwill or intangible assets with indefinite useful lives.
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In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", 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
January 1, 2002 adoption of Statement No. 144 did not have any impact on our
consolidated financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
We do not currently 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 do not believe that any of our current legal proceedings,
individually or in the aggregate, will have a material adverse effect on our
operations or financial condition.
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Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K: None
(b) Exhibits: None
Page 17 of 18
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 10, 2002 By /s/ Christian S. Schade
-----------------------------
Christian S. Schade
Senior Vice President
Finance & Administration
(Principal Financial and
Accounting Officer)
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