SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
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 Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 707 State Road, Princeton, New Jersey | 08540 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s Telephone Number, Including Area Code: (609) 430-2880
Indicate by check x 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 ¨
Indicate by check x whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of common stock, $.01 par value, outstanding as of April 30, 2004 was 79,103,639 shares.
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| December 31, 2003 |
March 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 72,998 | $ | 55,231 | ||||
| Marketable securities |
285,460 | 274,808 | ||||||
| Segregated cash |
5,617 | 6,245 | ||||||
| Prepaid expenses and other current assets |
6,244 | 5,465 | ||||||
| Total current assets |
370,319 | 341,749 | ||||||
| Property, buildings and equipment: |
||||||||
| Land |
6,624 | 6,624 | ||||||
| Buildings and leasehold improvements |
74,764 | 75,066 | ||||||
| Machinery and equipment |
37,006 | 38,195 | ||||||
| Furniture and fixtures |
4,081 | 4,085 | ||||||
| Construction in progress |
4,384 | 3,780 | ||||||
| 126,859 | 127,750 | |||||||
| Less accumulated depreciation and amortization |
(31,494 | ) | (34,814 | ) | ||||
| 95,365 | 92,936 | |||||||
| Investments in Genmab |
10,976 | 6,768 | ||||||
| Investments in IDM |
48,199 | 48,199 | ||||||
| Investments in, and advances to, other partners |
11,182 | 11,082 | ||||||
| Segregated cash |
11,579 | 10,354 | ||||||
| Other assets |
10,106 | 8,994 | ||||||
| Total assets |
$ | 557,726 | $ | 520,082 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Trade accounts payable |
$ | 2,197 | $ | 2,028 | ||||
| Accrued liabilities |
13,878 | 9,154 | ||||||
| Deferred contract revenue – current |
3,807 | 3,501 | ||||||
| Total current liabilities |
19,882 | 14,683 | ||||||
| Deferred contract revenue – long-term |
661 | 607 | ||||||
| Other long-term liabilities |
3,172 | 3,184 | ||||||
| Convertible senior notes |
125,000 | 146,986 | ||||||
| Convertible subordinated notes |
175,000 | 142,000 | ||||||
| Commitments and contingencies |
— | — | ||||||
| Shareholders’ equity: |
||||||||
| Preferred stock, $1.00 par value, 2,000,000 shares authorized; |
— | — | ||||||
| Common stock, $.01 par value; 200,000,000 shares authorized; |
795 | 795 | ||||||
| Capital in excess of par value |
639,784 | 650,080 | ||||||
| Treasury stock, at cost 493,516 shares in 2003 and 418,047 shares in 2004 |
(1,242 | ) | (1,051 | ) | ||||
| Deferred compensation |
994 | 855 | ||||||
| Accumulated other comprehensive income |
6,560 | 5,783 | ||||||
| Accumulated deficit |
(412,880 | ) | (443,840 | ) | ||||
| Total shareholders' equity |
234,011 | 212,622 | ||||||
| Total liabilities and shareholders’ equity |
$ | 557,726 | $ | 520,082 | ||||
See notes to these unaudited consolidated financial statements.
2
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Sales |
$ | 25 | $ | — | ||||
| Contract and license revenues |
2,174 | 1,106 | ||||||
| Sales, contract and license revenues from Genmab |
1,765 | 823 | ||||||
| Total revenues |
3,964 | 1,929 | ||||||
| Costs and expenses: |
||||||||
| Cost of sales |
3 | — | ||||||
| Research and development |
23,526 | 22,988 | ||||||
| General and administrative |
5,684 | 5,808 | ||||||
| Total costs and expenses |
29,213 | 28,796 | ||||||
| Operating loss |
(25,249 | ) | (26,867 | ) | ||||
| Equity in net loss of affiliate |
(3,754 | ) | (4,766 | ) | ||||
| Interest and other income |
2,632 | 3,988 | ||||||
| Additional payments related to asset acquisitions |
(86 | ) | — | |||||
| Interest expense |
(2,308 | ) | (3,635 | ) | ||||
| Gain on extinguishment of debt |
— | 326 | ||||||
| Pre tax loss |
(28,765 | ) | (30,954 | ) | ||||
| Provision for income taxes |
28 | 6 | ||||||
| Loss before cumulative effect of change in accounting principle |
(28,793 | ) | (30,960 | ) | ||||
| Cumulative effect of change in accounting principle |
(830 | ) | — | |||||
| Net loss |
$ | (29,623 | ) | $ | (30,960 | ) | ||
| Basic and diluted net loss per share: |
||||||||
| Loss before cumulative effect of change in accounting principle |
$ | (0.37 | ) | $ | (0.39 | ) | ||
| Cumulative effect of change in accounting principle |
(0.01 | ) | — | |||||
| Net loss |
$ | (0.38 | ) | $ | (0.39 | ) | ||
| Weighted average number of common shares outstanding – basic and diluted |
77,953 | 79,505 | ||||||
See notes to these unaudited consolidated financial statements.
3
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| For the Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Operating activities: |
||||||||
| Net income (loss) |
$ | (29,623 | ) | $ | (30,960 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
| Cumulative effect of change in accounting principle |
830 | — | ||||||
| Depreciation |
2,588 | 2,883 | ||||||
| Amortization |
812 | 1,155 | ||||||
| Stock options and awards |
139 | 126 | ||||||
| Non-cash revenue – Genmab |
— | (500 | ) | |||||
| Equity in net loss of Genmab |
3,754 | 4,766 | ||||||
| Impairment loss on investments in partners |
— | 316 | ||||||
| Gain on exchange of convertible debt |
— | (326 | ) | |||||
| Gain on sale of equity securities |
— | (1,664 | ) | |||||
| Changes in operating assets and liabilities |
||||||||
| Other current assets |
1,959 | 791 | ||||||
| Trade accounts payable |
283 | (169 | ) | |||||
| Accrued liabilities |
(5,802 | ) | (4,021 | ) | ||||
| Deferred contract revenue |
502 | 140 | ||||||
| Net cash used in operating activities |
(24,558 | ) | (27,463 | ) | ||||
| Investing activities: |
||||||||
| Purchase of property and equipment |
(1,947 | ) | (1,545 | ) | ||||
| Increase in investments and advances to affiliates and partners |
(1,000 | ) | — | |||||
| Decrease (increase) in segregated cash |
— | 597 | ||||||
| Sales of marketable securities |
40,044 | 10,765 | ||||||
| Net cash provided by investing activities |
37,097 | 9,817 | ||||||
| Financing activities: |
||||||||
| Cash received from sales of securities, net |
— | 67 | ||||||
| Capitalized debt exchange costs |
— | (149 | ) | |||||
| Principal payments under debt obligations |
(113 | ) | (39 | ) | ||||
| Net cash used in financing activities |
(113 | ) | (121 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
12,426 | (17,767 | ) | |||||
| Cash and cash equivalents at beginning of period |
61,812 | 72,998 | ||||||
| Cash and cash equivalents at end of period |
$ | 74,238 | $ | 55,231 | ||||
| Supplemental disclosures of cash flow information |
||||||||
| Cash paid during period for: |
||||||||
| Income taxes |
$ | — | $ | — | ||||
| Interest |
$ | 3,944 | $ | 3,107 | ||||
See notes to these unaudited consolidated financial statements.
4
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, unless otherwise indicated, except per share data)
| 1. | Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared from the books and records of Medarex, Inc. and Subsidiaries (the “Company”) in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they 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. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.
Net Loss per Share
Basic and diluted net loss per share are calculated in accordance with the Financial Accounting Standards Board (“FASB”) SFAS No. 128, Earnings per Share. Basic net loss per share is based upon the number of weighted average shares of common stock outstanding. Diluted net loss 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 month periods ended March 31, 2003 and 2004, all potentially dilutive securities have been excluded from the computation of diluted net loss per share, as their effect is antidilutive.
Marketable Securities and Long-Term Non-Marketable Investments
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. Under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these investments are classified as available-for-sale and are reported at fair value on the Company’s consolidated balance sheet. Unrealized holding gains and losses are reported within accumulated other comprehensive income as a separate component of shareholders’ equity. Under the Company’s accounting policy, a decline in the fair value of marketable securities is deemed to be “other than temporary” and such marketable securities are generally considered to be impaired if their fair value is less than the Company’s cost basis for more than six months, or some other period in light of the particular facts and circumstances surrounding the investment. 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 as a new cost basis and the amount of the write-down is included in earnings as an impairment charge.
In addition, the Company has investments in several of its partners whose securities are not publicly traded. Because these securities are not publicly traded, the Company values 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, the Company records an impairment charge when it believes an investment has experienced a decline in value that is considered to be other than temporary.
5
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company recorded impairment charges of $0 and $0.2 million related to investments in partners whose securities are publicly traded for the three month periods ended March 31, 2003 and 2004, respectively. In addition, the Company recorded impairment charges of $0 and $0.1 million in partners whose securities are privately held for the three month periods ended March 31, 2003 and 2004, respectively. Such impairment charges are included with “Interest and other income” in the Company’s statement of operations for the three month period ended March 31, 2004.
Stock Based Compensation
The Company accounts for its stock option plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net loss, as all options granted under the Company’s stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
| Three Months Ended March 31 |
||||||||
| 2003 |
2004 |
|||||||
| Net loss, as reported |
$ | (29,623 | ) | $ | (30,960 | ) | ||
| Add: Non-cash employee compensation |
139 | 51 | ||||||
| Deduct: Total stock-based employee compensation expense determined under fair value method |
(2,482 | ) | (3,185 | ) | ||||
| Pro forma net loss |
$ | (31,966 | ) | $ | (34,094 | ) | ||
| Loss per share: |
||||||||
| Basic and diluted, as reported |
$ | (0.38 | ) | $ | (0.39 | ) | ||