Filed Pursuant to Rule 424(b)(5)
Registration No. 333-52696
Prospectus Supplement to Prospectus dated December 22, 2000.
356,706 Shares
Medarex, Inc.
Common Stock
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Medarex is offering 356,706 shares of its common stock all of which
will be issued directly to Corixa Corporation in exchange for certain assets of
Corixa.
The number of shares to be issued and delivered to Corixa will be
determined by dividing $3,500,000, an amount representing one-sixth of
$21,000,000, the value of the assets we will acquire from Corixa, by $9.812, the
average of the closing sales prices of our common stock for each of the five
trading days commencing on May 15, 2002 and ending on May 21, 2002.
Our common stock is quoted on the Nasdaq National Market under the
symbol "MEDX." The last reported sale price for the common stock on May 22, 2002
was $9.50 per share.
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Investing in our common stock involves certain risks. See "Risk
Factors" beginning on page S-9 of this prospectus supplement to read about
important factors you should consider before investing in our common stock.
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-------------------------
The shares of common stock offered hereby are being issued directly to
Corixa on the date hereof. No discounts, commissions, concessions or other
compensation has been paid to any underwriter, broker, dealer or agent in
connection with the offering.
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Prospectus Supplement dated May 23, 2002
FORWARD-LOOKING STATEMENTS
This prospectus supplement includes or incorporates by reference
forward-looking statements, including those identified by the words "believes,"
"anticipates," "expects" and similar expressions. Medarex has based these
forward-looking statements on its current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions, including among other things:
. uncertainties relating to the technological approach;
. history of operating losses and anticipation of future losses;
. uncertainty of product development, need for additional capital and
uncertainty of change;
. uncertainty of patent and propriety rights;
. management of growth, and risks of acquiring new technologies;
. uncertainties related to clinical trials;
. government regulation and uncertainty of obtaining regulatory
approval;
. dependence on key personnel;
. dependence on research collaborators and scientific advisors;
. uncertainty of health care reform measures; and
. third-party reimbursement and risk of product liability.
Medarex undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in the prospectus supplement, the accompanying
prospectus and in the incorporated documents might not occur.
-------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. Medarex
has not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. Medarex is not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus is accurate as of the date on the
front cover of each such prospectus only. The business, financial condition,
results of operations and prospects of Medarex may have changed since such
dates.
-------------------------
Medarex(R) and HuMAb-Mouse(R) are registered U.S. trademarks of
Medarex, Inc. UltiMAb(TM), UltiMAb Human Antibody Development SystemSM,
KM-Mouse(TM) and Trans-Phage Technology(TM) are trademarks or service marks of
Medarex, Inc. All other company names, trademarks and service marks included
herein are trademarks, registered trademarks, service marks or trade names of
their respective owners.
S-2
THE COMPANY
We are a biopharmaceutical company focused on the discovery and
development of human antibody-based therapeutic products. Our UltiMAb Human
Antibody Development SystemSM enables us to rapidly create and develop
therapeutic products for a wide range of potential diseases, including cancer,
inflammation, auto-immune disease and other life-threatening and debilitating
diseases.
We believe that antibodies are proven candidates for therapeutic
products. To date, the United States Food and Drug Administration, or FDA, has
approved eleven antibody-based therapeutic products for sale in the United
States. During the past three years, these products generated aggregate
worldwide sales in excess of $6 billion, with sales doubling from 1999 to 2001.
We intend to participate in this market, and to this end, are developing an
expanding pipeline of therapeutic antibody products developed through the use of
our proprietary UltiMAb(TM) technology. Multiple therapeutic products generated
using our technology are in various stages of human clinical trials, including
several of which we are developing using our own resources and others where we
have licensed our technology to our partners for their use in the development of
their products. We and our partners also have a number of product candidates in
preclinical development.
As of May 15, 2002, 41 pharmaceutical and biotechnology companies have
partnered with us to jointly develop and commercialize products or have
otherwise acquired rights to use our proprietary technology in their development
of new therapeutic products. These companies include 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 that provide for the sharing of product
development costs, revenues, expenses and profits.
In addition to our UltiMAb Human Antibody Development System, we have
considerable experience in preclinical and clinical development as well as in
manufacturing antibodies for clinical trials. Our existing manufacturing
facility in Annandale, New Jersey currently has the capacity to produce up to
approximately 10 kilograms of monoclonal antibodies per year for clinical
development purposes, and we are implementing a strategy that contemplates
increased developmental capacity and large-scale clinical production. We have
assembled a team of experienced scientific, production, clinical and regulatory
personnel to facilitate the discovery, development and commercialization of
antibody-based products for us and for our partners. We intend to add sales and
marketing and additional manufacturing capabilities as needed.
Our goal is to be a leader in the discovery and development of human
antibody-based therapeutics for the treatment of cancer and other
life-threatening and debilitating diseases. To this end, we have implemented a
business strategy involving the expansion and diversification of our product
pipeline and partnerships and an increase in our resources to develop,
manufacture and commercialize products. We intend to capitalize on the value of
our own human antibody products by developing them through late stage clinical
trials and/or regulatory approval. We believe this will allow us to retain
substantial commercial rights or profit sharing opportunities with regard to
these products. In addition, we are enhancing and expanding our partnerships,
which provides us the opportunity to participate in the development of
substantially more product candidates than we could develop using only our own
resources. We believe our business strategy will allow us to capitalize on our
broad range of product development capabilities thereby maximizing the value of
our business.
S-3
RECENT DEVELOPMENTS
On May 23, 2002, we and our subsidiary, Medarex Belgium, S.A., entered
into an Asset Purchase Agreement with Corixa, Coulter Pharmaceutical, Inc. a
wholly owned subsidiary of Corixa and Corixa Belgium S.A., a subsidiary of
Corixa. Corixa, Coulter Pharmaceutical and Corixa Belgium are hereinafter
collectively referred to as Corixa. Under the terms of the Asset Purchase
Agreement, we acquired certain selected assets and related business operations
of Corixa, including certain preclinical product candidates and programs related
to the research and development of therapeutic products for the treatment of
autoimmune diseases, cancer and infectious diseases. As part of this
transaction, we also acquired all intellectual property, know-how, data,
contracts, equipment and materials owned or licensed by Corixa related to such
product candidates and programs, as well as all research and development
activities, regulatory approval processes and permits, manufacturing, marketing
and distribution activities, and the conduct of clinical trials with respect
thereto. In addition, we agreed to sublease approximately 30,000 square feet of
laboratory and office space at Corixa's South San Francisco, California
facility. We also assumed certain additional liabilities and agreed to retain
approximately 30 Corixa employees related to such product candidates and
programs.
We acquired the assets for an aggregate purchase price consisting of
(1) six equal monthly installments of $3,500,000, payable in cash, or at our
election, in shares of our common stock (the first payment was made at the
closing of the acquisition and the remaining five payments are to be made each
month thereafter), and (2) $2.5 million in cash for certain equipment and
laboratory supplies. We will also reimburse Corixa for certain expenses it
incurred in connection with the transferred business operations. If we decide to
make a monthly installment payment in shares of our common stock, the number of
shares of common stock subject to issuance each month in connection with each
installment payment will be determined by dividing (x) $3,500,000 by (y) the
average of the closing sales prices of our common stock for each of the trading
days during the five-trading-day period ending two trading days prior to the
applicable date of issuance as publicly reported on Nasdaq. In the event that,
during any month during the six-month period following the closing of the
transaction, Corixa sells all of the shares of our common stock delivered as
payment for the preceding monthly installment and the proceeds of such sale are
less than $3,500,000, we must pay the difference to Corixa in cash. If such sale
proceeds are greater than $3,500,000, Corixa must pay us an amount equal to 50%
of any such excess in cash. In the event that, during any month during the
six-month period, Corixa does not sell all of the shares of our common stock
delivered as payment of the preceding monthly installment, then there will be no
such adjustments. In addition, Corixa may receive additional consideration in
cash or, at our election, in shares of common stock, based upon certain
contingencies. If we are required to make any contingent payment to Corixa and
we decide to make such payment in shares of our common stock, then the number of
shares subject to issuance in connection with the contingent payment will be
determined by dividing the applicable contingent amount by the average of the
closing sales prices of our common stock for each of the trading days during the
five trading day period ending two trading days prior to the applicable date of
issuance of such shares as reported on Nasdaq.
All shares of our common stock issued as payment of the purchase price
will be fully registered and freely tradable, provided, however, that Corixa has
agreed that it will not sell more than 50% of the total number of shares
constituting a monthly installment payment in any five-trading-day period.
S-4
THE OFFERING
Common Stock Offered 356,706
Common Stock to be outstanding after the 73,359,367
offering
Use of Proceeds We will not receive any cash proceeds from the
issuance of the shares of our common stock pursuant
to this offering. We will only receive certain
assets from Corixa, including intellectual
property, know-how, data, contracts and materials
owned or licensed by Corixa related to certain
product candidates and programs.
Nasdaq National Market Symbol MEDX
Unless otherwise stated herein, all information contained in this
prospectus supplement relating to the number of outstanding shares of our common
stock excludes:
. 6,954,131 shares of common stock issuable upon exercise of
outstanding options having a weighted average exercise price of
$17.23 per share;
. 4,565,400 shares of common stock reserved for issuance under our
existing stock option plans;
. 500,000 shares of common stock reserved for issuance under our new
2002 Employee Stock Purchase Plan;
. 6,067,961 shares of common stock reserved for issuance upon
conversion of $175,000,000 aggregate principal amount of our 4.50%
Convertible Subordinated Notes due 2006; and
. 1,091,355 shares of common stock held in treasury.
In addition, the information contained in this prospectus supplement
does not include shares of our common stock which we may be required to issue
pursuant to certain contractual obligations and shares we may issue under a
shelf registration statement on Form S-3 we have filed under the Securities Act
relating to the sale of up to $321.5 million of our securities, all as more
fully described herein under the section entitled "Risk Factors."
S-5
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial
information. The selected consolidated financial information for each of the
years in the five-year period ended December 31, 2001 and at December 31 of each
of those years has been derived from our audited consolidated financial
statements. The financial information set forth below for all other periods
presented has been derived from unaudited consolidated financial information,
which we believe presents fairly such consolidated information in conformity
with generally accepted accounting principles. You should read the selected
consolidated financial information in conjunction with our consolidated
financial statements and the notes thereto and the other financial information
incorporated by reference herein.
For the Three Months Ended
For the Year Ended December 31, March 31,
------------------------------- ----------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(in thousands, except share and per share data) (unaudited) (unaudited)
(Restated)
Statement of Operations Data:
Revenues:
Sales $ 221 $ 1,349 $ 1,079 $ 264 $ 191 $ 66 $ 100
Contract and license revenues 3,011 5,443 8,593 19,619 37,140 8,104 7,613
Sales, contract and license revenues
from Genmab -- -- 252 2,574 4,973 750 3,058
Total revenues 3,232 6,792 9,924 22,457 42,304 8,920 10,771
-------- -------- -------- -------- ------- -------- ---------
Costs and expenses:
Cost of sales 150 1,218 709 1,189 642 28 1,477
Research and development 14,100 23,122 19,929 33,942 38,626 8,060 17,254
General and administrative 3,644 5,065 8,036 18,142 19,344 3,602 5,418
Stock bonus to GenPharm employees 2,275 -- -- -- -- -- --
Acquisition of in-process technology 40,316 -- -- -- -- -- --
-------- -------- -------- -------- ------- -------- ---------
Total costs and expenses 60,485 29,405 28,674 53,273 58,612 11,690 24,149
-------- -------- -------- -------- ------- -------- ---------
Operating loss (57,254) (22,613) (18,750) (30,816) (16,308) (2,770) (13,378)
Equity in net loss of affiliate -- -- -- (353) (7,334) (577) (3,589)
Interest and dividend income 1,903 1,956 1,205 21,158 24,728 6,771 4,946
Impairment loss on investments -- -- -- -- -- -- (1,600)
Interest expense (27) (1,539) (8) (3) (4,615) (1) (2,218)
Gain on disposition of Genmab stock -- -- -- -- 1,442 -- --
-------- -------- -------- -------- ------- -------- ---------
Loss before provision (benefit)
for income taxes (55,377) (22,196) (17,553) (10,014) (2,087) 3,423 (15,839)
Provision (benefit) for income taxes -- 341 (522) (13,075) 600 150 --
-------- -------- -------- -------- ------- -------- ---------
Net income (loss) $(55,377) $(22,537) $(17,031) $ 3,061 $(2,687) 3,273 (15,839)
======== ======== ======== ======== ======= ======== =========
Basic net income (loss) per share(1) $ (1.47) $ (0.44) $ (0.27) $ 0.04 $ (0.04) $ 0.04 $ (0.21)
-------- -------- -------- -------- ------- -------- ---------
Diluted net income (loss) per share(1) $ (1.47) $ (0.44) $ (0.27) $ 0.04 $ (0.04) $ 0.04 $ (0.21)
-------- -------- -------- -------- ------- -------- ---------
Weighted average common shares
outstanding(1)
--basic 37,742 50,780 63,840 71,532 73,937 73,858 74,011
--diluted 37,742 50,780 63,840 73,232 73,937 75,828 74,011
December 31, March 31,
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
(in thousands) (unaudited)
(Restated)
Balance Sheet Data:
Cash, cash equivalents and marketable
securities $28,444 $34,664 $30,147 $343,603 $466,952 $428,030
Working capital 1,647 29,581 22,382 329,807 447,326 423,673
Total assets 48,695 42,235 40,482 558,107 720,427 683,717
Long term obligations 107 62 23 -- 175,000 175,000
Cash dividends declared per common share -- -- -- -- -- --
Accumulated deficit (86,869) (109,405) (126,436) (123,375) (126,062) (141,901)
Total shareholders' equity 5,681 35,229 22,299 485,289 482,562 463,374
--------------
(1) Computed on the basis described in Note 2 to the Consolidated Financial
Statements.
S-6
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the Nasdaq National Market under the
symbol "MEDX." The following table sets forth the high and low sale prices per
share of our common stock, as reported on the Nasdaq National Market, during the
periods indicated.
Common Stock Price*
-------------------
High Low
---- ---
Year ended December 31, 2000
First Quarter $ 103.00 $ 14.19
Second Quarter $ 44.44 $ 16.63
Third Quarter $ 59.94 $ 35.69
Fourth Quarter $ 75.00 $ 30.06
Year ended December 31, 2001
First Quarter $ 42.50 $ 12.06
Second Quarter $ 32.25 $ 11.75
Third Quarter $ 24.47 $ 11.91
Fourth Quarter $ 25.05 $ 14.25
Year ended December 31, 2002
First Quarter $ 18.34 $ 13.31
Second Quarter (through May 22) $ 16.83 $ 7.80
* All prices have been adjusted to reflect a two-for-one stock split as of
September 27, 2000.
The number of shares of our common stock outstanding as of May 15, 2002
was 73,002,661. As of April 5, 2002, the record date for our last annual meeting
of shareholders held on May 22, 2002, there were approximately 433 record
holders of common stock (which includes individual holders) and approximately
23,650 beneficial shareholders of our common stock.
We currently expect to retain our future earnings, if any, for use in
the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
DIVIDEND POLICY
We have never declared or paid cash dividends. We do not anticipate
declaring or paying cash dividends in the foreseeable future. Instead, we will
reclaim our earnings, if any, for the future operation and expansion of our
business.
S-7
CAPITALIZATION
The following table shows our total current assets, total assets, total
current liabilities and capitalization at March 31, 2002 (i) on an actual basis
and (ii) on an as adjusted basis giving effect to this offering. You should also
refer to our consolidated financial statements and the related notes
incorporated by reference herein.
March 31, 2002
--------------------------------------
Actual As Adjusted/(1)/
------ -----------
(Dollars in thousands)
(Unaudited)
Current assets:
Cash and cash equivalents $ 50,010 47,510
Marketable securities 378,020 378,020
Other current assets 24,109 24,109
--------- ---------
Total current assets 452,139 449,639
--------- ---------
Total assets 683,717 683,362
========= =========
Total current liabilities 28,466 45,966
Deferred contract revenue - long term 1,195 1,195
Deferred income taxes and other long term obligations 15,682 15,682
4.50% Convertible Subordinated Notes due 2006 175,000 175,000
Shareholders' equity
Preferred stock, $1.00 par value, 2,000 shares
authorized; none issued and outstanding -- --
Common stock, $.01 par value; 200,000,000
shares authorized; 74,017,416 shares
issued and 72,926,061 shares outstanding
actual and 74,374,122 issued and 73,282,767
outstanding as adjusted/(2)/ 740 744
Capital in excess of par value 570,736 574,232
Treasury stock, at cost, 1,091,355 shares (2,745) (2,745)
Deferred compensation 1,768 1,768
Accumulated other comprehensive income 34,776 34,776
Accumulated deficit (141,901) (163,256)
--------- ---------
Total shareholders' equity 463,374 445,519
--------- ---------
Total liabilities and shareholders' equity 683,717 683,362
========= =========
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(1) The "As Adjusted" column reflects: (i) the issuance of 356,706 shares of
our common stock, valued at $3,500,000, representing one-sixth of the
$21,000,000 purchase price; (ii) an accrual of $17,500,000, representing
the remaining purchase price which will be paid to Corixa in five
remaining installments of $3,500,000 each, which, at our option, may be
paid in either cash or in shares of our common stock; (iii) the estimated
write-off of the entire $21,000,000 purchase price as in-process research
and development; and (iv) the payment of $2,500,000 in cash for certain
equipment and laboratory supplies of which approximately $2,145,000 will
be capitalized and the remaining $355,000 will be expensed. The allocation
of the $21,000,000 purchase price is subject to an independent third party
valuation (to be performed) and is, therefore, subject to change. The "As
Adjusted" column does not reflect any consideration to be paid based upon
certain contingencies and does not reflect any adjustments related to
possible cash payments or cash receipts arising from the sale proceeds by
Corixa as described under the section herein entitled "Recent
Developments."
(2) Unless otherwise stated herein, all information contained in this
prospectus supplement relating to the number of outstanding shares of our
common stock excludes:
. 6,954,131 shares of common stock issuable upon exercise of outstanding
options having a weighted average exercise price of $17.23 per share;
. 4,565,400 shares of common stock reserved for issuance under our
existing stock option plans;
. 500,000 shares of common stock reserved for issuance under our new 2002
Employee Stock Purchase Plan;
. 6,067,961 shares of common stock reserved for issuance upon conversion
of $175,000,000 aggregate principal amount of our 4.50% Convertible
Subordinated Notes due 2006; and
. 1,091,355 shares of common stock held in treasury.
In addition, the information contained in this prospectus supplement does
not include shares of our common stock which we may be required to issue
pursuant to certain contractual obligations and shares we may issue under
a shelf registration statement on Form S-3 we have filed under the
Securities Act relating to the sale of up to $321.5 million of our
securities, all as more fully described herein under the section herein
entitled "Risk Factors."
S-8
RISK FACTORS
This prospectus supplement contains forward-looking statements within
the meaning of Sections 27A and 21E of the Securities Exchange Act of 1934, as
amended, including statements regarding our expectations, beliefs, intentions,
or strategies regarding the future. Forward-looking statements include, without
limitation, statements in "Risk Factors" and elsewhere in this prospectus
supplement regarding, among other things, uncertainties relating to our
technology; history of operating losses and anticipation of future losses;
uncertainty of product development; need for additional capital and uncertainty
of change; uncertainty of patent and proprietary rights; management of growth,
and risks of acquiring new technologies; uncertainties related to clinical
trials; government regulation and uncertainty of obtaining regulatory approval;
dependence on key personnel; dependence on research collaborators and scientific
advisors; uncertainty of health care reform measures and third-party
reimbursement and risk of product liability. All forward-looking statements
included in this prospectus supplement are based on information available to us,
as of the date hereof, and we do not assume any obligation to update any such
forward-looking statements. Our actual results may differ materially from the
results discussed in the forward-looking statements. Among the factors that
could cause actual results to differ materially are the factors detailed in
"Risk Factors" below. Accordingly, in addition to the other information in this
prospectus supplement, the following factors should be considered carefully.
References to our products, business, financial results or financial condition
should be considered to refer to us and our subsidiaries unless the context
otherwise requires.
Our product candidates are in early stages of development.
Our human antibody technology is a new approach to the generation of
antibody-based therapeutic products. Product candidates employing our human
antibody technology are in early stages of development. Only a limited number of
fully human antibody product candidates employing our human antibody technology
have been generated pursuant to our collaborations. Investigational New Drug
Applications, or INDs, have been submitted to the United States Food and Drug
Administration, or FDA, for only a subset of these candidates, and clinical
trials have not yet commenced for all of these candidates. Only one of these
product candidates has reached the Phase III clinical trial stage. In addition,
we are not aware of any commercialized fully human monoclonal antibody
therapeutic products that have been generated from any technologies similar to
ours. Product candidates employing our human antibody technology may not advance
beyond the early stages of product development or demonstrate clinical safety
and effectiveness.
Our human antibody technology may not generate antibodies against all
the antigens to which it is exposed in an efficient and timely manner, if at
all. If our human antibody technology fails to generate antibody product
candidates, or if we or our partners do not succeed in the development of
products employing our antibody technology, those product candidates may not be
approved or commercialized and our business will suffer.
Our products are still under development, and no revenues have been generated
from their sale.
We have entered into corporate partnerships with a number of companies
and are seeking additional alliances that will support the costs of developing
our portfolio of antibody-based product candidates. The success of these
products is dependent upon the efforts of our corporate partners in developing
these products in the future. Neither we nor our corporate partners know if any
of these products will be effective.
Successful development of our products is uncertain.
Our development of current and future product candidates is subject to
the risks of failure inherent in the development of new pharmaceutical products
and products based on new technologies. These risks include:
. delays in product development, clinical testing or manufacturing;
S-9
. unplanned expenditures in product development, clinical testing or
manufacturing;
. failure in clinical trials or failure to receive regulatory
approvals;
. emergence of superior or equivalent products;
. inability to manufacture on our own, or through others, product
candidates on a commercial scale;
. inability to market products due to third-party proprietary rights;
. election by our collaborative partners not to pursue product
development;
. failure by our collaborative partners to develop products
successfully; and
. failure to achieve market acceptance.
Because of these risks, our research and development efforts or those
of our licensing partners may not result in any commercially viable products. To
date, our licensing partners' right to obtain a commercial product license has
been exercised for only 19 product candidates. If a significant portion of these
development efforts is not successfully completed, required regulatory approvals
are not obtained or any approved products are not commercially successful, our
business, financial condition and results of operations may be materially
harmed.
Because we and our collaborative partners have not begun commercial
sales of our products, our revenue and profit potential are unproven and our
limited operating history makes it difficult for an investor to evaluate our
business and prospects. Our technology may not result in any meaningful benefits
to our current or potential collaborative partners. Further, due to our limited
operating history, we have difficulty accurately forecasting our revenue. Our
business and prospects should be considered in light of the heightened risks and
unexpected expenses and problems we may face as a company in an early stage of
development in a new and rapidly evolving industry.
We have incurred large operating losses and these losses may continue.
We have incurred large operating losses and these losses may continue.
In particular, as of March 31, 2002, we had an accumulated deficit of
approximately $141.9 million. Our losses have resulted principally from: o
research and development costs relating to the development of our technology and
antibody product candidates;
. costs associated with the establishment of our new laboratory and
manufacturing facilities and manufacturing of products; and
. general and administrative costs relating to our operations.
We intend to continue to make significant investments in:
. research and development;
. preclinical testing and clinical trials;
. establishing new collaborations;
. investing in new technologies; and
. expanding of our manufacturing and production capabilities.
We do not know when or if we or our partners will complete any pending
or future product development efforts, receive regulatory approval or
successfully commercialize any approved products.
S-10
We may continue to incur substantial operating losses even if our revenues
increase. As a result, we cannot predict the extent of future losses or the time
required for us to achieve profitability, if at all.
Our operating results may vary significantly from period-to-period.
Our future revenues and operating results are expected to vary
significantly from period-to-period due to a number of factors. Many of these
factors are outside of our control. These factors include:
. the timing of the commencement, completion or termination of
collaborative agreements;
. the introduction of new products and services by us, our
collaborative partners or our competitors;
. delays in preclinical testing and clinical trials;
. changes in regulatory requirements for clinical trials;
. costs and expenses associated with preclinical testing and clinical
trials;
. the timing of regulatory approvals, if any;
. sales and marketing expenses; and
. the amount and timing of operating costs and capital expenditures
relating to the expansion of our business operations and facilities.
Period-to-period comparisons of our results of operations may not be
relied upon as an indication of future performance.
It is possible that in some future periods, our operating results may
be below expectations of analysts and investors. If this happens, the price of
our common stock may decrease.
Clinical trials required for our product candidates are expensive and
time-consuming and their outcome is uncertain.
The testing of product candidates employing our human antibody
technology must demonstrate that they are safe and effective for use in humans
through preclinical testing and clinical trials in order to be approved for
commercial sale. For biological products, safety, purity and potency must also
be demonstrated. Conducting clinical trials is a lengthy, time-consuming and
expensive process. The length of time may vary substantially according to the
type, complexity, novelty and intended use of the product candidate, and often
can be several years or more. Delays associated with products for which we are
directly conducting preclinical or clinical trials may cause us to incur
additional operating expenses. Moreover, we will continue to be subject to the
preclinical testing and clinical trials of certain product candidates conducted
by our licensees and collaborative partners over which we have no control. The
commencement and rate of completion of clinical trials may be delayed by many
factors, including:
. the inability to manufacture sufficient quantities of qualified
materials under current good manufacturing practices, or cGMPs, for
use in clinical trials;
. slower than expected rates of patient recruitment;
. the inability to adequately observe patients after treatment;
. changes in regulatory requirements for clinical trials;
. the lack of effectiveness during the clinical trials;
. unforeseen safety issues; and
. government or regulatory delays.
S-11
Even if we obtain positive results from preclinical or clinical trials,
we may not achieve the same success in future trials. Clinical trials may not
demonstrate statistically sufficient safety and effectiveness to obtain the
requisite regulatory approvals for product candidates employing our human
antibody technology. The failure of clinical trials to demonstrate safety and
effectiveness for our desired indications could harm the development of that
product candidate as well as other product candidates, and our business and
results of operations will suffer.
Success in early clinical trials may not be indicative of results obtained in
later trials.
Results of our early clinical trials and those of our partners' using
our human antibody technology are based on a limited number of patients and may,
upon review, be revised or negated by authorities or by later stage clinical
results. Historically, the results from preclinical testing and early clinical
trials have often not been predictive of results obtained in later clinical
trials. A number of new drugs and biologics have shown promising results in
clinical trials, but subsequently failed to establish sufficient safety and
effectiveness data to obtain necessary regulatory approvals. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. In addition, regulatory
delays or rejections may be encountered as a result of many factors, including
changes in regulatory policy during the period of product development.
Product candidates employing our antibody technology may fail to gain market
acceptance.
Even if clinical trials demonstrate the safety and efficacy of products
developed by us or our corporate partners using our technology and all
regulatory approvals have been obtained, product candidates employing our
antibody technology may not gain market acceptance among physicians, patients,
third-party payors and the medical community. For example, the current delivery
systems for antibody-based therapeutic products are intravenous and subcutaneous
injection, which are generally less well received by patients than tablets or
capsule delivery. The degree of market acceptance of any product candidates
employing our technology will depend on a number of factors, including:
. establishment and demonstration of clinical efficacy, potency and
safety, especially as compared to conventional treatments;
. cost-effectiveness;
. alternative treatment methods;
. reimbursement policies of government and third-party payors; and
. marketing and distribution support for our product candidates.
In addition, many of our activities involve genetic engineering in
animals and animal testing. These types of activities have been the subject of
controversy and adverse publicity. Animal rights groups and various other
organizations and individuals have attempted to stop genetic engineering
activities and animal testing by lobbying for legislation and regulation in
these areas.
If products employing our technology do not achieve significant market
acceptance, our business will suffer.
The successful commercialization of our antibody products will depend on
obtaining coverage and reimbursement for use of these products from third-party
payors.
Sales of pharmaceutical products largely depend on the reimbursement of
patients' medical expenses by government health care programs and private health
insurers. Without the financial support of the governments or third-party
payors, the market for products employing our human antibody technology will be
limited. These third-party payors are increasingly challenging the price and
examining the cost effectiveness of medical products and services. In addition,
significant uncertainty exists as to the reimbursement status of newly approved
healthcare products. We may need to conduct post-marketing
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studies in order to demonstrate the cost-effectiveness of our products. Such
studies may require us to provide a significant amount of resources. Our project
candidates may not be considered cost-effective. Third-party payors may not
reimburse sales of products employing our human antibody technology, or enable
us or our corporate partners to sell them at profitable prices.
Third-party payors control health care costs by limiting both coverage
and the level of reimbursement for new health care products. In the future, the
United States government may institute price controls and further limits on
Medicare and Medicaid spending. Internationally, medical reimbursement systems
vary with differing degrees of regulation. Pricing controls and reimbursement
limitations could affect the payments we receive from sales of products
employing our human antibody technology. These variations could harm our ability
and the ability of our corporate partners to sell products employing our human
antibody technology in commercially acceptable quantities at profitable prices.
We have limited manufacturing capabilities.
To be successful, our therapeutic products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. While we believe our current facilities are adequate for the
limited production of product candidates for clinical trials, our facilities are
not yet adequate to produce sufficient quantities of any products for commercial
sale.
We are in the early stages of planning the expansion our own
manufacturing of additional products for our clinical trials and products for
commercial sale, in compliance with cGMPs. Construction schedules for a
commercial-scale manufacturing facility may take longer than expected, and the
planned and actual construction costs of building and qualifying the facility
for regulatory compliance may be higher than expected. The process of
manufacturing antibody products is complex. We have no experience in the
commercial-scale manufacturing of any antibody products. It may take a
substantial period of time to begin producing antibodies in compliance with FDA
and other regulations governing the facility and the manufacturing process. Our
manufacturing operations will be subject to ongoing, periodic scheduled and
unannounced inspections by the FDA and state agencies to ensure compliance with
cGMP and other regulations. If we are unable to establish and maintain a
manufacturing facility or secure third party manufacturing capacity within our
planned time and cost parameters, the development and sales of our products and
our financial performance may be materially harmed.
We may also encounter problems with the following:
. production yields;
. quality control and assurance;
. shortages of qualified personnel;
. compliance with FDA regulations;
. production costs; and
. development of advanced manufacturing techniques and process
controls.
We are aware of only a limited number of companies on a worldwide basis
that operate manufacturing facilities in which our product candidates can be
manufactured under cGMP regulations, a requirement for all pharmaceutical
products. It would take a substantial period of time for a contract facility
that has not been producing antibodies to begin producing antibodies under cGMP
regulations. We cannot make assurances that we will be able to contract with any
of these companies on acceptable terms or in a timely manner, if at all.
In addition, we and any third-party manufacturer will be required to
register manufacturing facilities with the FDA and other regulatory authorities.
The facilities will be subject to inspections confirming compliance with cGMP or
other regulations. If we or any of our third-party manufacturers fail to
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maintain regulatory compliance, our business, financial condition and results of
operations may be materially harmed and the FDA can impose regulatory sanctions.
We have no sales or marketing experience.
We currently have no sales, marketing or distribution capabilities. We
may need to enter into arrangements with third parties to market and sell
certain of our products. We may not be able to enter into marketing and sales
arrangements with others on acceptable terms, if at all. To the extent that we
enter into marketing and sales arrangements with other companies, our revenues,
if any, will depend on the efforts of others. These efforts may not be
successful. We may choose to market some of our products directly through a
sales and marketing force. In order to do this, we will have to develop a sales
and marketing staff and establish distribution capability. Developing a sales
and marketing force would be expensive and time-consuming and could delay any
product launch. If we choose to market any of our products directly but are
unable to successfully implement a marketing and sales force, our business and
operating results will be harmed.
We are, in part, dependent on our collaborative and licensing partners to
support our business and to develop products employing our human antibody
technology.
We depend on our collaborative and licensing partners to support our
business and to develop products employing our antibody technology. We
currently, or in the future may, rely on our collaborative and licensing
partners to: o access proprietary antigens for the development of product
candidates;
. access skills and information that we do not possess;
. fund our research and development activities;
. manufacture products;
. fund and conduct preclinical testing and clinical trials;
. seek and obtain regulatory approvals for product candidates; and
. commercialize and market future products.
Our dependence on our collaborative and licensing partners subjects us
to a number of risks, including:
. our collaborative and licensing partners have significant
discretion whether to pursue planned activities;
. we cannot control the quantity and nature of the resources our
collaborative and licensing partners may devote to product
candidates;
. our collaborators may not develop products employing our antibody
technology as expected; and
. business combinations or significant changes in a collaborative
and licensing partner's business strategy may adversely affect
that partner's willingness or ability to continue to pursue these
product candidates.
If we do not realize the contemplated benefits from our collaborators,
our business will suffer. Our existing collaborative and licensing partnerships
may not be completed or may be terminated, and we may not be able to establish
additional collaborative or licensing partnerships.
We have entered into binding letters of intent or memoranda of
understanding with Eos Biotechnology, Inc., Genmab A/S, Kirin Brewery Co., Ltd.,
Immusol, Inc., Athersys, Inc., and Regeneron
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Pharmaceuticals, Inc. These binding letters of intent or memoranda of
understanding include the principal terms of these transactions, which will be
incorporated into definitive agreements. By their terms, these letters of intent
and memoranda of understanding will remain in full force and effect and the
parties will operate in accordance with their terms until such time as
definitive agreements are executed. If we are unable to agree on the terms of a
definitive agreement with respect to one or more of these partners, our business
may be harmed.
Our partners generally have the right to terminate our partnerships at
any time. Lengthy negotiations with potential new partners or disagreements
between us and our partners may lead to delays or termination in the research,
development or commercialization of product candidates. If we are not able to
establish additional collaboration or licensing partnerships on terms that are
favorable to us or if a significant number of our existing corporate
partnerships are terminated and we cannot replace them, we may be required to
increase our internal product development and commercialization efforts. This
would likely:
. limit the number of product candidates that we will be able to
develop and commercialize;
. significantly increase our need for capital; and
. place additional strain on management's time.
Any of the above may harm our business.
Our goals and/or strategy may conflict with those of our collaborative or
licensing partners.
We may have goals and/or strategies that may conflict with those of our
partners that could adversely affect our business. For example, our
collaborative or licensing partners may pursue alternative technologies,
including those of our competitors. Disputes may arise with respect to the
ownership of rights to any technology or products developed with any licensing
or collaborative partner. If our partners pursue alternative technologies or
fail to develop or commercialize successfully any product candidate to which
they have obtained rights from us, our business will suffer.
We have a significant minority interest in two entities. There may be conflicts
of interest between us and these entities.
We currently have an equity interest of approximately 33% in Genmab,
which intends to develop and commercialize a portfolio of fully human antibodies
derived from our human antibody technology. In addition, we have an equity
position in Immuno-Designed Molecules S.A., or IDM, of approximately 6%. In the
event that we exercise certain warrants held by us to purchase convertible or
redeemable bonds of IDM and such bonds are converted or redeemed, our equity
position in IDM would be approximately 29%, based on the shares currently
outstanding. These warrants are exercisable between September 2002 and September
2010, and such bonds may be converted or redeemed within six months of such
exercise. Each of IDM and Genmab intends to develop and commercialize a
portfolio of antibody-based products.
Due to the size of our interest in Genmab, we are currently required to
account for our equity interest in Genmab under the equity method of accounting,
which provides that we must include a portion of Genmab's income and losses
equal to our percentage equity interest in Genmab in our consolidated financial
statements. For the years ended December 31, 1999, 2000 and 2001, our share of
Genmab's losses were $0, $353,000 and $7,334,000 respectively. For the three
month period ended March 31, 2002, our share of Genmab's net loss was
$3,589,000. Genmab has stated that it anticipates that it will incur substantial
losses as it expands its research and product development efforts. As Genmab's
losses continue to increase, the aggregate amount of such losses we must include
in our consolidated financial statements will also increase.
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We are dependent on our key personnel.
We are highly dependent on the members of our scientific and management
staff. If we are not able to retain any of these persons, our business may
suffer. In particular, we depend on the services of Donald L. Drakeman, our
President and Chief Executive Officer, and Nils Lonberg, Ph.D., Senior Vice
President and Scientific Director. For us to pursue product development,
marketing and commercialization plans, we will need to hire additional qualified
scientific personnel to perform research and development. We will also need to
hire personnel with expertise in clinical testing, government regulation,
manufacturing, marketing and finance. We may not be able to attract and retain
personnel on acceptable terms, given the competition for such personnel among
biotechnology, pharmaceutical and healthcare companies, universities and
non-profit research institutions. If we are not able to attract and retain
qualified personnel, our business will suffer.
We depend on patents and proprietary rights.
Our success depends in part on our ability to:
. protect trade secrets;
. operate without infringing upon the proprietary rights of others;
and
. apply for, obtain, protect and enforce patents.
We will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets. We
protect our proprietary position by filing United States and foreign patent
applications related to our proprietary technology, inventions and improvements
that are important to the development of our business. While a number of patents
have been issued in the United States and Europe relating to our human antibody
technology, we may not be able to obtain patent protection in other countries.
Our pending patent applications, those we may file in the future, or those we
may license from third parties, may not result in patents being issued. The
patent position of biotechnology companies involves complex legal and factual
questions and, therefore, enforceability cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or license from third parties may not provide sufficient
protection against competitors. Also, patent rights may not provide us with
proprietary protection or competitive advantages against competitors with
similar technology. Furthermore, others may independently develop similar
technologies or duplicate any technology that we have developed. The laws of
foreign countries may not protect our intellectual property rights to the same
extent as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary
know-how. We seek protection, in part, through confidentiality and proprietary
information agreements. These agreements may not provide protection or adequate
remedies for our human antibody technology in the event of unauthorized use or
disclosure of confidential and proprietary information, or breach of these
agreements. Furthermore, our trade secrets may otherwise become known to, or be
independently developed by, our competitors.
Our commercial success depends significantly on our ability to operate
without infringing the patents and other proprietary rights of third parties. In
the event that our technologies may infringe on the patents or violate other
proprietary rights of third parties, we and our corporate partners may be
prevented from pursuing product development, manufacturing or commercialization.
Such a result would harm our business.
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The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property disputes are costly and
time-consuming to pursue and their outcome is uncertain.
If we become involved in any litigation, interference or other judicial
or administrative proceedings, we will incur substantial expense and the efforts
of our technical and management personnel will be diverted. An adverse
determination may subject us to significant liabilities or require us to seek
licenses that may not be available from third parties on commercially favorable
terms, if at all. Therefore, we and our collaborative partners may be restricted
or prevented from manufacturing and selling products employing our human
antibody technology, which would harm our business.
Even though we have received patents pertaining to the HuMAb-Mouse
technology, this does not mean that we and our permitted licensees of
HuMAb-Mouse technology will have exclusive rights to antibodies against all
targets that are made using this technology, or that we or our licensees will
have the right to make, develop, use or sell such antibodies.
Our patents covering the HuMAb-Mouse technology include patents that
cover particular human monoclonal antibodies. These patents do not cover all
human antibodies.
Our patents may not protect against the importation of products, such
as antibodies, made using HuMAb-Mouse technology.
Moreover, other parties could have blocking patent rights to products
made using HuMAb-Mouse technology, such as antibodies, and their production and
uses, either because of a proprietary position covering the antibody or the
antibody's target. For example, we are aware of certain United States and
European patents held by third parties relating to particular targets for their
human monoclonal antibodies, to human monoclonal antibodies against various
targets and biospecific products, and the manufacture and use of such products.
In particular, we are aware of certain United States and foreign patents owned
by a third party that pertain to monoclonal antibodies against CTLA-4 and their
uses. We are also aware of certain United States and foreign patents held by
third parties relating to particular anti-CD4 antibodies, anti-EGFr antibodies,
anti-PSMA antibodies, and anti-heparanase antibodies.
We are also aware of a United States patent owned by Genentech relating
to the production of recombinant antibodies in host cells. We currently produce
certain of our products and our partners' products using recombinant antibodies
from host cells and may choose to produce additional products in this manner. If
any of our antibody products are produced in the manner claimed in this patent,
then we may need to obtain a license, should one be available. If we are unable
to obtain a license on commercially reasonable terms, we may be impaired from
making recombinant antibodies using Genentech's techniques. In addition to the
Genentech patent, we are also aware of certain United States patents held by
third parties relating to antibody expression in particular types of host cells
which may be relevant to our future manufacturing techniques.
If our antibody products (or those antibody products of our partners
using our human antibody technology) or their commercial use or production meet
all of the requirements of any of the claims of the aforementioned patents, or
patents which may issue from the aforementioned patent applications, then we or
our partners may need a license to one or more of these patents. Further, we are
aware of a number of other third party patent applications which, if granted,
with claims as currently drafted, may cover our and our partners' current or
planned activities. We seek to obtain licenses to such patents when, in our
judgment, such licenses are needed. If any licenses are required, there can be
no assurance that we will be able to obtain any such license on commercially
favorable terms, if at all, and if these licenses are not obtained, we might be
prevented from using certain of our technologies for the generation of our
recombinant human antibody products. Our failure to obtain a license to any
technology that we may require may have a material adverse effect on our
business, financial condition and results of operations. We cannot assure you
that our products and/or actions in developing or selling its recombinant human
antibody products will not infringe such patents.
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In general, our patent protection may not prevent others from
developing competitive products using our technology or other technologies.
Similarly, others may obtain patents that could limit our ability and the
ability of our licensees to use, import, manufacture, market or sell products or
impair our competitive position and the competitive position of our licensees.
We are not the exclusive owner of the technology underlying our
HuMAb-Mice. In March 1997, prior to our acquisition of GenPharm International,
Inc., GenPharm entered into a cross-license and settlement agreement with
Abgenix, Inc., Cell Genesys, Inc., Xenotech, L.P. and Japan Tobacco, Inc.,
pursuant to which Abgenix and these entities paid us and GenPharm a total of
approximately $38.6 million during 1997 and 1998. This payment was in exchange
for a non-exclusive license to certain patents, patent applications, third-party
licenses and inventions pertaining to the development and use of certain
transgenic rodents, including mice, that produce fully human antibodies that are
integral to our products and business. These patents, licenses and inventions
form the basis of our HuMAb-Mouse technology. Our business may suffer from the
competition of these entities or if any of these entities breach the
cross-license and settlement agreement.
We are not the exclusive owner of the technology underlying the TC
Mouse or the KM-Mouse. In December 1999, we entered into a binding letter of
intent with Kirin. Under the terms of this letter of intent, Kirin was
designated as the primary distributor of our HuMAb-Mouse technology in Asia, and
we were designated as the primary distributor of Kirin's TC Mouse outside of
Asia. However, Kirin has certain rights to distribute the TC Mouse and the
crossbred mouse throughout the world. We have exchanged broad licenses with
Kirin, subject to milestone and royalty payments, for use of each other's
technology for the development of human antibody therapeutic products. The
binding letter of intent with Kirin includes a license to certain patents,
patent applications, third-party licenses and inventions pertaining to the
development and use of the TC Mouse and the KM-Mouse. Our business may suffer
from the competition of Kirin.
We may face product liability claims related to the use or misuse of products
employing our antibody technology.
The administration of drugs to humans, in clinical trials or after
commercialization, may expose us to product liability claims. Consumers,
healthcare producers or persons selling products based on our technology may be
able to bring claims against us based on the use of our products in clinical
trials and the sale of products based on our technology. Product liability
claims may be expensive to defend and may result in large judgments against us.
In November 1998, we voluntarily suspended clinical trials for one of our
products after some patients experienced serious adverse events, or SAEs. As a
result of these SAEs, we have received a small number of claims, of which four
have resulted in lawsuits being filed. All of these lawsuits have been settled
for insubstantial amounts. We currently maintain liability insurance with
specified coverage limits. Although we believe these coverage limits are
adequate, we cannot be certain that the insurance policies will be sufficient to
cover all claims that may be made against us. Product liability insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms. Any claims against us, regardless of their merit, could harm
our business, financial condition and results of operations.
We face intense competition and rapid technological change.
The development of biotechnology and pharmaceutical products is a
highly competitive business subject to significant and rapid technological
change. We face competition in several different forms. First, our human
antibody development activities currently face competition from several
competitors and from other technologies. The actual products being developed by
our collaborators or by us also face actual and potential competition.
Developments by our competitors may render our human antibody technology
obsolete or non-competitive.
We are aware of several pharmaceutical and biotechnology companies
which are actively engaged in research and development in areas related to
antibody therapy. Some of these companies
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have commenced clinical trials of antibody products or have successfully
commercialized antibody products. Many of these companies are addressing the
same diseases and disease indications as we and our corporate partners. Also, we
compete with companies that offer antibody generation services to companies that
have antigens. These competitors have specific expertise or technology related
to antibody development. We compete directly with Abgenix, with respect to the
generation of fully human antibodies from transgenic mice. In addition, we have
entered into agreements with each of Kirin and Genmab, respectively, which grant
these companies licenses to our proprietary technology platform, enabling them
to compete with us in offering antibody generation and development services in
certain markets. Xenerex Biosciences and XTL Biopharmaceutical, Ltd. have
developed technology that, according to Xenerex and XTL, will allow them to
generate fully human monoclonal antibodies. Numerous additional companies are
developing therapeutic products comprising human antibody components.
Furthermore, several companies are developing, or have developed, technologies
that do not involve immunization of animals for creating synthetic antibodies
comprising human antibody sequence. For example, phage and yeast display
technology is being used by companies, such as Abbott Laboratories, Inc.,
Cambridge Antibody Technology Group plc, or CAT, Dyax Corp., Genetastic, Inc.
and MorphoSys AG to develop therapeutic products comprising human antibody
sequences. Companies such as Johnson & Johnson, Medimmune, Inc., Immunex, IDEC
Pharmaceuticals Corporation, Novartis, Genentech, Inc., Protein Design Labs,
Inc. and Wyeth have generated therapeutic products derived from recombinant DNA
that comprise human antibody components that are currently being marketed.
Other technologies can also be applied to the treatment of the diseases
that we or our corporate partners are pursuing. For example,
immunoconjugates--monoclonal antibodies linked to toxins or radioactive
isotypes--are being developed by others. In addition, the application of
recombinant DNA technology to develop potential products consisting of proteins
(such as growth factors, hormones, enzymes, receptor fragments and fusion
proteins, or cytokines) that do not occur normally in the body, or occur only in
small amounts, has been underway for some time. Included in this group are
interleukins such as IL-2 and IL-11, interferons alpha, beta and gamma, colony
stimulating factors such as G-CSF and GM-CSF, clotting factors, growth hormones,
erythropoeitin, DNAse, tPA, glucocerebrosidase, PDGF, and a number of other
biological response modifiers. Continuing development of conventional new
chemical entities and other drugs by large pharmaceutical companies carries with
it the potential for discovery of agents for treating disease indications also
targeted by drugs that we or our partners are developing.
Some of our competitors have received regulatory approval or are
developing or testing product candidates that compete directly with product
candidates employing our antibody technology. Many of these companies and
institutions, either alone or together with their corporate partners, have
substantially greater financial resources and larger research and development
staffs than we or some of our corporate partners do. In addition, many of these
competitors have significantly greater experience than we do in:
. developing products;
. undertaking preclinical testing and clinical trials;
. obtaining FDA and other regulatory approvals of products; and
. manufacturing and marketing products.
Accordingly, our competitors may obtain patent protection, receive FDA
approval or commercialize products before we or our corporate partners do. If we
or our corporate partners commence commercial product sales, we or our corporate
partners will be competing against companies with greater marketing and
manufacturing capabilities, areas in which we and certain of our corporate
partners have limited or no experience.
We also face intense competition from other pharmaceutical and
biotechnology companies to establish corporate partnerships, as well as
relationships with academic and research institutions, and to license
proprietary technology. These competitors, either alone or with their corporate
partners, may succeed in developing technologies or products that are more
effective than ours.
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If our operating losses are greater than anticipated, we may need substantial
additional funding. We may not be able to obtain sufficient funds to grow our
business or continue our operations.
We will continue to expend substantial resources for research and
development, including costs associated with developing our antibody technology
and conducting preclinical testing and clinical trials. Our future capital
requirements will depend on: o the size and complexity of research and
development programs;
. the scope and results of preclinical testing and clinical trials;
. the retention of existing and establishment of further corporate
partnerships, if any;
. continued scientific progress in our research and development
programs;
. the time and expense involved in seeking regulatory approvals;
. competing technological and market developments;
. the time and expense of filing and prosecuting patent
applications and enforcing patent claims; and
. the cost of establishing manufacturing capabilities, conducting
commercialization activities and arrangements and in-licensing
products.
We may be unable to raise sufficient funds to complete development of
any of our product candidates or to continue operations. As a result, we may
face delay, reduction or elimination of research and development programs or
preclinical or clinical trials, in which case our business will suffer.
We are subject to extensive and costly government regulation.
Product candidates employing our human antibody technology are subject
to extensive and rigorous domestic government regulation. The FDA regulates the
research, development, preclinical and clinical testing, manufacture, safety,
effectiveness, record-keeping, reporting, labeling, storage, approval,
advertising, promotion, sale, distribution, import, and export of
biopharmaceutical products. The FDA regulates human antibodies as biologics,
subject to a Biologic License Application, or BLA, under the Public Health
Services Act, as amended. If products employing our human antibody technology
are marketed abroad, they will also be subject to extensive regulation by
foreign governments. Government regulation substantially increases the cost of
researching, developing, manufacturing, and selling our products. The regulatory
review and approval process, which includes preclinical testing and clinical
trials of each product candidate, is lengthy, expensive and uncertain. We or our
corporate partners must obtain regulatory approval for each product we intend to
market, and the manufacturing facilities used for the products must be inspected
and meet legal requirements. Securing regulatory approval requires the
submission of extensive preclinical and clinical data and other supporting
information for each proposed therapeutic indication in order to establish the
product's safety, potency and efficacy for its intended uses. The approval
process takes many years, requires substantial resources, and may never lead to
the approval of a product. Failure to obtain regulatory approvals, or delays in
obtaining regulatory approvals may: o adversely affect the successful
commercialization of any drugs that we or our corporate partners develop;
. impose additional costs on us or our corporate partners;
. diminish any competitive advantages that we or our corporate
partners may attain; and
. adversely affect our receipt of revenues or royalties.
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Even if we are able to obtain regulatory approval for a particular
product, the approval may limit the indicated uses for the product, may
otherwise limit our ability to promote, sell, and distribute the product, may
require that we conduct costly post-marketing surveillance, and/or may require
that we conduct ongoing post-marketing studies. Material changes to an approved
product, such as, for example, manufacturing changes or revised labeling, may
require further regulatory review and approval. Once obtained, any approvals may
be withdrawn, including, for example, if there is a later discovery of
previously unknown problems with the product, such as a previously unknown
safety issue. If we, our corporate partners or our contract manufacturers fail
to comply with applicable regulatory requirements at any stage during the
regulatory process, such noncompliance could result in, among other things:
. delays in the approval of applications or supplements to approved
applications;
. refusal of a regulatory authority, including the FDA, to review
pending market approval applications or supplements to approved
applications;
. warning letters;
. fines;
. import and/or export restrictions;
. product recalls or seizures;
. injunctions;
. total or partial suspension of production;
. civil penalties;
. withdrawals of previously approved marketing applications or
licenses;
. recommendations by the FDA or other regulatory authorities
against governmental contracts; and
. criminal prosecutions.
In certain cases, we expect to rely on our corporate partners to file
INDs with the FDA and to direct the regulatory approval process for products
employing our human antibody technology. Our corporate partners may not be able
to conduct clinical testing or obtain necessary approvals from the FDA or other
regulatory authorities for their product candidates employing our human antibody
technology. If they fail to obtain required governmental approvals, our
corporate partners will be delayed or precluded from marketing these products.
As a result, commercial use of products employing our technology will not occur
and our business may be harmed.
We do not have, and may never obtain, the regulatory approvals we need to market
our product candidates.
To date, we have not applied for or received the regulatory approvals
required for the commercial sale of any of our products in the United States or
in any foreign jurisdiction. None of our product candidates has been determined
to be safe and effective, and we have not submitted a New Drug Application, or
NDA, or BLA, to the FDA or to any foreign regulatory authorities for any of our
product candidates. We have only limited experience in filing and pursuing
applications necessary to obtain regulatory approval, and none of our product
candidates may be approved for marketing.
Product candidates that appear promising in the early phases of
development, such as in early human clinical trials, may fail to reach the
market for a number of reasons, such as the product candidate did not
demonstrate acceptable clinical trial results even though it demonstrated
positive preclinical trial results; the product candidate was not effective in
treating the specified disease or condition; the product candidate had harmful
side effects on humans or presented unacceptable safety risks; the governing
regulatory authorities (such as FDA) denied approval to the product candidate
altogether or denied a
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commercially important indicated use; the product candidate was not economical
for us to manufacture; and/or the product candidate was not cost effective in
light of alternative therapies. We cannot guarantee that we will ever be able to
produce commercially successful products.
If we or our manufacturing partners do not obtain or maintain current Good
Manufacturing Practices, we may not be able to commercialize our product
candidates.
We will depend on our own manufacturing facilities and on those of our
corporate partners and other third parties to manufacture products employing our
human antibody technology. Before commercializing a new drug, manufacturers must
demonstrate compliance with the applicable cGMP regulations which include
quality control and quality assurance requirements as well as the maintenance of
extensive records and documentation. Manufacturing facilities are subject to
ongoing periodic inspection by the FDA and corresponding foreign and state
authorities, including unannounced inspections, and must be licensed before they
can be used in commercial manufacturing for products employing our technology.
In addition, cGMP requirements are constantly evolving, and new or different
requirements may apply in the future. We, our partners or third party contract
manufacturers may not be able to comply with the applicable regulations. After
regulatory approvals are obtained, the subsequent discovery of previously
unknown problems, or the failure to maintain compliance with existing or new
regulatory requirements, may result in restrictions on the marketing of a
product, withdrawal of the product from the market, seizures, the shutdown of
manufacturing facilities, injunctions, monetary fines and/or civil or criminal
sanctions.
Our operations involve hazardous materials and are subject to environmental
controls and regulations.
As a biopharmaceutical company, we are subject to environmental and
safety laws and regulations, including those governing the use of hazardous
materials. The cost of compliance with health and safety regulations is
substantial. Our business activities involve the controlled use of hazardous
materials and we cannot eliminate the risk of accidental contamination or injury
from these materials. In the event of an accident or environmental discharge, we
may be held liable for any resulting damages, which may exceed our financial
resources and may materially adversely affect our business, financial condition
and results of operations.
If our license agreements violate the competition provisions of the Treaty of
Rome, then some terms of our key agreements may be unenforceable.
Certain license agreements that we have entered into or may enter into
will grant or may grant exclusive worldwide licenses of patents, patent
applications and know-how, which are or may be arguably restrictive of
competition under Article 81(1) of the Treaty of Rome. Article 81(1) prohibits
agreements which restrict competition within the European Community and affect
trade between member states. We determine on an agreement-by-agreement basis
where an exemption from the application of Article 81(1) applies to the
agreement and, if it does not, whether to apply to the European Commission for
an individual exemption from the application of Article 81(1). If an exemption
is not applicable and we do not apply for, or are unsuccessful in obtaining, an
exemption from the European Commission, provisions of any license agreement
which are found to be restrictive of competition under Article 81(1), including
those relating to the exclusivity of rights, may be unenforceable and we could
lose the benefit of the rights granted under the provisions.
Our stock price may be volatile.
There has been significant volatility in the market prices of
biotechnology companies' securities. Various factors and events may have a
significant impact on the market price of our common stock. These factors
include:
. fluctuations in our operating results;
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. announcements of technological innovations or new commercial
therapeutic products by us or our competitors;
. published reports by securities analysts;
. progress with clinical trials;
. governmental regulation;
. developments in patent or other proprietary rights;
. developments in our relationship with collaborative partners;
. public concern as to the safety and effectiveness of our
products; and
. general market conditions.
The trading price of our common stock has been, and could continue to
be, subject to wide fluctuations in response to these or other factors,
including the sale or attempted sale of a large amount of our common stock into
the market. Broad market fluctuations may also adversely affect the market price
of our common stock.
We have obligations to issue shares of our common stock in the future, which may
have a dilutive effect on the shares of our common stock currently outstanding.
As of May 15, 2002, we have 6,954,131 shares of common stock reserved
for issuance pursuant to options, which have been granted under our stock option
plans having a weighted average exercise price of $17.23 per share. In addition,
as of that date, there are 1,057,549 shares reserved for issuance pursuant to a
deferred compensation plan. The shares reserved for the deferred compensation
plan will be issued on or after May 5, 2002 in various amounts over various
periods of time during the next five years. We have filed a registration
statement on Form S-8 covering those shares. Shares issued pursuant to this
plan, other than shares issued to affiliates, will be freely tradable in the
open market. Shares held by affiliates may be sold pursuant to the requirements
of Rule 144.
In addition, as of May 15, 2002, we have reserved 1,565,400 shares of
common stock for issuance pursuant to future grants of options under our stock
option plans. We have filed registration statements on Form S-8 covering those
shares. Shares issued under those plans, other than shares issued to affiliates,
will be freely tradable in the open market. On May 22, 2002 our shareholders
approved (i) the authorization of 3,000,000 new shares of our common stock for
additional awards to be granted under our 2001 Stock Option Plan; and (ii) the
authorization of 500,000 new shares of our common stock for issuance under our
new 2002 Employee Stock Purchase Plan. We have reserved these new shares for
issuance pursuant to our 2001 Stock Option Plan and our 2002 Employee Stock
Purchase Plan. We intend to file an amendment to the current registration
statement on Form S-8 covering the additional 3,000,000 new shares issuable upon
exercise of awards granted under the 2001 Stock Option Plan and a new
registration statement on Form S-8 covering the 500,000 shares issuable under
the 2002 Employee Stock Purchase Plan to register these additional shares.
Shares issued under the 2001 Stock Option Plan and the 2002 Employee Stock
Purchase Plan, other than shares issued to affiliates, will be freely tradable
on the open market.
The exercise of all or a portion of the outstanding options and
warrants may result in a significant increase in the number of shares of our
common stock that will be subject to trading on The Nasdaq National Market, or
Nasdaq, and the issuance and sale of the shares of our common stock upon the
exercise thereof may have an adverse effect on the price of our common stock.
As of May 15, 2002, we had 6,067,961 shares of common stock reserved
for issuance pursuant to the conversion of $175,000,000 aggregate principal
amount of our 4.50% Convertible Subordinated Notes due 2006. Holders of these
notes may convert their notes into shares of common stock at any time prior to
maturity or their redemption by us at a conversion rate of 34.6789 shares per
each $1,000 principal amount of notes, subject to adjustment.
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Pursuant to our license agreement with Novartis, Novartis may purchase
$2,000,000 of our common stock at a price equal to one hundred and ten percent
of the average of the closing sales prices of our common stock on Nasdaq, on the
twenty consecutive days prior to the fifth anniversary (December 2003) of the
agreement. Additionally, on the sixth anniversary of the agreement, Novartis may
purchase $1,000,000 of our common stock at a price equal to one hundred and ten
percent of the average of the closing sales prices of such stock on the Nasdaq
on the twenty consecutive days prior to such anniversary.
Future sales of our common stock or other securities could cause the market
price of our common stock to decline.
As of May 15, 2002, we have 73,002,661 shares of common stock
outstanding, of which 2,280,704 are restricted securities as that term is
defined in Rule 144 under the Securities Act. Under certain circumstances, these
restricted securities may be sold without registration pursuant to such rule. We
are unable to predict the effect that sales made under Rule 144 or pursuant to
any registration may have on the market price of our common stock. The sale of a
significant number of additional securities, or even the possibility thereof,
may lower the market price of our common stock.
We have a filed registration statement on Form S-3 under the Securities
Act relating to 3,791,346 shares of common stock that may be offered by one of
our stockholders. These shares of common stock are freely tradable without
restriction or further registration under the Securities Act except for shares
held by our affiliates, which will be subject to resale limitations of Rule 144.
In addition, we have filed a shelf registration statement on Form S-3
under the Securities Act relating to the sale of up to $321.5 million of any of
the following securities:
. Debt Securities;
. Preferred Stock;
. Common Stock; or
. Warrants to Purchase Debt Securities, Preferred Stock or Common
Stock.
We have a significant amount of debt and may have insufficient cash to satisfy
our debt service obligations. In addition, the amount of our debt could impede
our operations and flexibility.
We have a significant amount of convertible debt and debt service
obligations, which, unless converted to common shares of the Company, will
mature in 2006. We may be unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments on our debt. Even if we are
able to meet our debt service obligations, the amount of debt we have could
adversely affect us in a number of ways, including by:
. limiting our ability to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes;
. limiting our flexibility in planning for, or reacting to, changes
in our business;
. placing us at a competitive disadvantage relative to our
competitors who have lower levels of debt;
. making us more vulnerable to a downturn in our business or the
economy generally; and
. requiring us to use a substantial portion of our cash to pay
principal and interest on our debt, instead of applying those
funds to other purposes such as working capital and capital
expenditures.
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Upon the occurrence of certain change of control events of our company, we are
required to offer to repurchase all of our debt, which may adversely affect our
business and the price of our common stock.
Upon the occurrence of certain change of control events of our company,
we are required to offer to repurchase all of our outstanding 4.50% Convertible
Subordinated Notes due 2006. As of April 30, 2002, $175,000,000 aggregate
principal amount of the notes was outstanding. We may pay the repurchase price
in cash or, at our option, in common stock. Such repurchase right may be
triggered at a time at which we do not have sufficient funds available to pay
the repurchase price in cash or determine that payment in cash is otherwise
inadvisable. In such event, the issuance of a significant number of additional
shares of common stock in payment of the repurchase price may lower the market
price of our common stock.
Our restated certificate of incorporation, by-laws, stockholder rights plan and
New Jersey law contain provisions that could delay or prevent an acquisition of
our company.
In May 2001, our board of directors adopted a stockholder rights plan.
The stockholder rights plan provides for a dividend of one preferred share
purchase right on each outstanding share of our common stock. Each right
entitles stockholders to buy 1/1000th of a share of our Series A junior
participating preferred stock at an exercise price of $150.00. Each right will
become exercisable following the tenth day after person or group announces an
acquisition of 20% or more of our common stock. We will be entitled to redeem
the rights at $0.001 per right at any time on or before the close of business on
the tenth day following acquisition by a person or group of 20% or more of our
common stock.
The stockholder rights plan and certain provisions of our restated
certificate of incorporation and amended and restated by-laws may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of us. This could
limit the price that certain investors might be willing to pay in the future for
our common stock.
The provisions of our restated certificate of incorporation and by-laws
include:
. a classified board of directors;
. a requirement that special meetings of shareholders be called
only by our board of directors, chairman of the board, chief
executive officer or president;
. advance notice requirements for shareholder proposals and
nominations;
. limitations on the ability of shareholders to amend, alter or
repeal our by-laws; and
. the authority of the board of directors to issue, without
shareholder approval, preferred stock with such terms as the
board of directors may determine.
We are also afforded the protections of the New Jersey Shareholders
Protection Act. This New Jersey statute contains provisions that impose
restrictions on shareholder action to acquire control of our company. The effect
of the provisions of our restated certificate of incorporation and by-laws and
New Jersey law may discourage third parties from acquiring control of our
company.
We do not intend to pay cash dividends on our common stock in the foreseeable
future.
We intend to retain any future earnings to finance the growth and
development of our business and we do not plan to pay cash dividends on our
common stock in the foreseeable future.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the shares
of our common stock pursuant to this offering. We will only receive certain
assets from Corixa, valued at $21 million, including intellectual property,
know-how, data, contracts and materials owned or licensed by Corixa related to
certain product candidates and properties. For a more detailed description of
this transaction see the section herein entitled "Recent Developments."
PLAN OF DISTRIBUTION
The shares of common stock offered hereby are being issued directly to
Corixa on the date of this prospectus supplement. No underwriters, agents,
brokers or dealers were involved in the distribution of the shares of common
stock offered hereby. No discounts, commissions, concessions or other
compensation was paid to any underwriter, agent, broker or dealer in connection
with the offering.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon
for us by Satterlee Stephens Burke & Burke LLP, New York, New York. Dwight A.
Kinsey, Esq., a partner of Satterlee Stephens Burke & Burke LLP, owns 6,000
shares of our common stock. Mr. Kinsey also hold options to purchase 40,000
shares of our common stock which he received for service rendered as our
Assistant Secretary. No other partner or associate of the firm owns shares or
holds options to purchase any of our shares having a fair market value either
individually or in the aggregate in excess of $50,000.
WHERE YOU CAN FIND MORE INFORMATION
A registration statement on Form S-3 (File No. 333-52696) with respect
to the shares offered hereby (together with any amendments, exhibits and
schedules thereto) has been filed with the SEC under the Securities Act. This
prospectus supplement does not contain all of the information contained in such
registration statement on Form S-3, certain portions of which have been omitted
pursuant to the rules and regulation of the SEC. For further information with
respect to us and the shares offered hereby, reference is made to the
registration statement on Form S-3. Statements contained in this prospectus
supplement regarding the contents of any contract or any other documents are not
necessarily complete and, in each instance, reference is hereby made to the copy
of such contract or document filed as an exhibit to the registration statement
on Form S-3. The registration statement may be inspected without charge at the
SEC's principal office in Washington D.C., and copies of all or any part thereof
may be obtained from the public reference facilities maintained by the SEC at
450 Fifth Street, NW, Judiciary Plaza, Washington D.C., 20549, upon payment of
prescribed fees.
We also file annual, quarterly and special reports, proxy statements
and other information with the SEC under the Exchange Act. The Exchange Act file
number for our SEC filings is 0-19312. You may read and copy any document we
file at the public reference facilities maintained by the SEC at 450 Fifth
Street, NW, Judiciary Plaza, Washington D.C., 20549:
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You may obtain information on the operation of the public reference
room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. We file
information electronically with the SEC. Our SEC filings are available from the
SEC's Internet site at http://www.sec.gov, which contains reports, proxy and
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information statements and other information regarding issuers that file
electronically. Our common stock is listed on the Nasdaq National Market under
the symbol "MEDX." You may read and copy our SEC filings and other information
at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the documents we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information in the documents incorporated
by reference is considered to be part of this prospectus supplement, and
information in the documents that we file later with the SEC will automatically
update and supersede information in this prospectus supplement. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 and 15(d) of the Exchange Act:
. Annual Report on Form 10-K for the year ended December 31, 2001
. Quarterly Report on Form 10-Q for the three months ended March
31, 2002
All documents filed by Medarex with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the termination of the offering of the notes shall hereby be deemed to be
incorporated by reference into this prospectus supplement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this prospectus supplement
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
or in the accompanying prospectus modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus supplement or
the accompanying prospectus.
We will furnish our stockholders with annual reports that contain
audited financial statements and quarterly reports for the first three quarters
of each year that contain unaudited interim financial information.
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