<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D. C.  20549

                                   FORM 10-K

                ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 1996        Commission File No. 0-19312
                          -----------------                            -------


                                 MEDAREX, INC.
                                 -------------
            (Exact name of registrant as specified in its charter)

New Jersey                                                   22-2822175
----------                                                   ----------
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                               Identification No.)


1545 Route 22 East, Annandale, New Jersey          08801-0953
-----------------------------------------          ----------
(Address of principal executive offices)           (Zip Code)


Registrant's telephone number, including area code:    (908) 713-6001
                                                       --------------

Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:
 
     Title of each class            Name of each exchange on which registered
     -------------------            -----------------------------------------

Common Stock ($0.01 par value)      The Nasdaq Stock Market under symbol MEDX
Redeemable Warrants to purchase     The Nasdaq Stock Market under symbol MEDXW
  Common Stock                         


                                    

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                           Yes [X]          No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

                                    [X]                         

As of December 31, 1996, the registrant had outstanding 17,592,992 shares of
Common Stock, $0.01 par value ("Common Stock"), which is registrant's only class
of Common Stock.

The aggregate market value of registrant's Common Stock held by non-affiliates
based on the closing price of $8.75 per share on March 10, 1997 was
approximately $141,341,000.

                      DOCUMENTS INCORPORATED BY REFERENCE
 (Specific pages incorporated are identified under the applicable item herein)

Portions of the registrant's definitive Proxy Statement for the annual meeting
of stockholders to be held on May 15, 1997 (the "Proxy Statement") are
incorporated by reference in Part III of this Report.  Other documents
incorporated by reference in this report are listed in the Exhibit Index.
<PAGE>
 
                                    PART I
                                        

     This Annual Report for Medarex, Inc. ("Medarex" or the "Company") contains
forward-looking statements which involve risk and uncertainties.  The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" as well as those discussed elsewhere in this document.  Actual events
or results may differ materially from those discussed in this Annual Report.

ITEM 1.  BUSINESS

GENERAL

     Medarex, Inc. ("Medarex" or the "Company") is a biotechnology company
developing therapeutic products for cancer, AIDS and other life-threatening
diseases based on proprietary technology in the field of immunology.  Medarex's
products are designed either to enhance and direct a specific immune response or
to block or diminish an undesirable immunological activity.  The Company's broad
technology platform has led to several products now in clinical trials and to
three strategic alliances and has the potential to provide the foundation for
new products and new strategic alliances in various therapeutic areas.  At
present, the Company has six products in twelve human clinical trials for the
treatment of breast cancer, prostate cancer, head and neck cancer and a variety
of other solid tumor cancers, leukemia, AIDS and certain autoimmune conditions.
The Company is developing three of its products through strategic alliances with
Novartis Inc., of Basel Switzerland (Novartis), Merck KGaA, of Darmstadt,
Germany (E. Merck) and Centeon, L.L.C., of King of Prussia, Pennsylvania
(Centeon).

     The Company's principal products under development are bispecific; that is,
they are designed to attach to both disease targets and immune system killer
cells simultaneously.  This dual binding ability is essentially a target-trigger
combination in which one portion of the Bispecific binds to a Trigger molecule
on killer cells and the other targets and binds to the tumor cell or infectious
agent (a "pathogen") to be eliminated.  After joining the killer cell and the
tumor cell or pathogen, the Bispecific triggers the killer cell's destruction of
the target.  Based on early clinical trial results, management believes that its
Bispecifics have the potential to cause the destruction of tumors and pathogens
that ordinarily might escape detection by the body's immune system.  See "Risk
Factors."

     The Trigger portion of the Company's Bispecific products may be linked to a
variety of different targeting mechanisms, such as recombinant proteins, single
chain antibodies and antibody fragments.  For this reason, the Company believes
that its Bispecifics may be designed for the treatment of a wide range of
cancers, viruses, bacteria and parasites.  The Company has patented the Trigger
molecule and has obtained licenses to a number of targeting mechanisms.

     In April 1996, the Company entered into a strategic alliance with Centeon
for the development of MDX-33 for the treatment of autoimmune hematological
disorders.  Pursuant to the collaboration, Centeon has licensed MDX-33, the
Company's monoclonal antibody therapeutic used in down-regulating parts of the
immune system, on a worldwide basis for diseases like Idiopathic
Thrombocytopenia Purpura (ITP).  MDX-33 is currently in Phase I clinical trials.
In May 1995, the Company entered into a strategic alliance with Novartis
pursuant to which Novartis obtained a worldwide exclusive license to MDX-210,
the Company's Bispecific therapeutic for tumors that overexpress an antigen
known as HER-2.  These tumors include a significant number of breast, ovarian,
prostate and other tumors.  MDX-210 is currently in Phase II clinical trials.
In 1994, the Company entered into a collaborative arrangement with E. Merck
pursuant to which the Company is developing MDX-447 for the treatment of cancers
that overexpress the epidermal growth factor receptor ("EGF-R").  Cancers in
which EGF-R is overexpressed include head and neck, breast, brain, non-small
cell lung and bladder tumors.  MDX-447 is currently in Phase I/II clinical
trials.  Medarex is currently in discussions with biotechnology and
pharmaceutical companies and academic institutions to establish collaborations
for the creation and development of additional Bispecific products.
<PAGE>
 
     The Company believes that its Bispecific products may also act as
therapeutic vaccines.  In addition to destroying the target cells, they may
stimulate the patient's own immune system to generate a further active immune
response leading to the production of specific antibodies and killer cells that
may cause on-going destruction of the tumor or pathogen.  Research programs are
also underway to develop Bispecific products as tumor vaccines.  See "Risk
Factors."

     On February 28, 1997, Medarex acquired Houston Biotechnology Incorporated
("Houston") pursuant to an Agreement and Plan of Merger entered into on December
18, 1996 (the "Merger Agreement").  Under the terms of the Merger Agreement,
Medarex issued 1,026,245 shares of its common stock in exchange for the
5,638,707 outstanding shares of common stock of Houston.  In accordance with the
terms of the Merger Agreement, Houston became a wholly-owned subsidiary of
Medarex.  

     Houston is developing monoclonal and other biopharmaceutical products to
prevent secondary cataracts and to treat glaucoma, disorders that impair or
destroy human vision. In December 1995, Houston entered into a strategic
alliance with Santen Pharmaceutical Co., Ltd. ("Santen") for the development of
MDX-RA to prevent the formation of secondary cataract. Pursuant to the
collaboration, Santen has obtained the exclusive marketing rights of MDX-RA in
Japan. MDX-RA is currently in Phase II clinical trials.

TECHNOLOGY OVERVIEW

     One of the body's natural defenses against disease is the creation of
antibodies by the immune system. Based on immune responses over one's lifetime
either to infections or vaccinations, adults typically have a large number of
antibodies (exceeding 10 to the 20th power) present in their bodies. These
antibodies are proteins that seek out, recognize and bind to a particular site
on cells, viruses and other organisms (each, an "antigen") in a highly specific
manner, one that can be likened to a key fitting into a lock. Each antibody
detects and binds to a particular antigen. It is this specificity that makes
antibodies potentially useful in various therapeutic applications.

     A monoclonal antibody is a type of antibody produced from a single cell
known as a hybridoma.  The growth of a hybridoma allows the continuous
production of a single type of monoclonal antibody over an indefinite period of
time.  All antibodies produced by the same hybridoma are identical; they bind to
the same antigen in exactly the same way.  The advent of monoclonal antibodies
in 1975 created interest among scientists and physicians who believed that this
new development could be used to treat cancer and other illnesses by directing
therapy to tumor cells as well as viruses, bacteria and parasites.  Since that
time, scientists have attempted to design therapeutic products based upon
monoclonal antibodies, and researchers have produced a number of these
monoclonal antibodies that bind to tumors or pathogens.  The results of numerous
clinical trials, however, have demonstrated that simply injecting monoclonal
antibodies into the bloodstream of cancer patients has not often had meaningful
therapeutic effects.

     To create a therapeutic effect, an antibody must not only attach itself to
a tumor cell or pathogen but must also stimulate a response by other components
of the immune system to kill the tumor cell or pathogen. Typically, this occurs
when the antibodies attract the attention of killer cells - white blood cells
such as macrophages, monocytes and neutrophils (collectively, "macrophages").
Macrophages are natural immune cells of the body whose normal role is the
elimination of foreign pathogens such as viruses and bacteria.  To signal a
macrophage to kill a particular target, an antibody must not only attach to its
target, but must also bind to a trigger molecule on the surface of the
macrophage.  This trigger molecule is known as an Fc receptor.  Fc receptors are
involved in clearance of antibody bound pathogens and target cells.  Three
different classes of human Fc receptors which bind human immunoglobulin (IgG)
have been defined, utilizing antibody subtypes that are specific for each.  The
type I Fc receptor is highly expressed on monocytes and macrophages and binds
IgG with high affinity.  The type I Fc receptor is the only Fc receptor that
binds IgG and has been demonstrated to mediate killing of tumor cell targets in
vitro by all cells on which it is found in the body.  Throughout this document,
the use of the word "Fc receptor" refers only to the type I Fc receptor.  It is
only when the antibody binds simultaneously both to its target and to an Fc
receptor on a macrophage that the macrophage responds by destroying the target.
<PAGE>
 
     The Fc receptor is found on large numbers of killer cells such as
macrophages and monocytes and can be activated on neutrophils and dendritic
cells.  The Fc receptor is a trigger molecule that can initiate an immunological
chain reaction leading to various activities, including specific target cell
killing, phagocytosis, release of cytokines and antigen presentation.  These
activities involve not only the Fc receptor-bearing killer cells, but also
through their actions, helper T cells, cytotoxic (killer) T cells, B cells and
antibody production.  Phagocytosis involves internalizing the pathogen and
breaking it down into fragments, which are then transported to the surface of
the killer cell and "presented" to helper T cells and B cells.  This process,
known as antigen presentation, can lead to the production of cytotoxic T cells
and antibodies specific to the pathogen.  Conventional vaccines typically employ
this process to induce protective immunity against a wide variety of diseases.

     The Company believes that few monoclonal antibody-based therapeutics have
succeeded in linking a tumor or pathogen to the Fc receptors in a way that has a
clinically significant therapeutic effect in patients. Only one antibody at a
time can bind at the normal binding site of an Fc receptor, and normally all Fc
receptors are fully occupied by circulating antibodies (most of which are not
attached to any pathogen).  Monoclonal antibodies that are given to a patient
for the treatment of a disease, whether the treatment is designed for cancer, an
infectious disease or an autoimmune condition, must therefore compete with the
vast number of normal antibodies present in the body, many of which are capable
of attaching themselves to a triggering Fc receptor.  The Company believes that
this "antibody-blockade" has impeded monoclonal antibodies from being
therapeutically effective.  The Company also believes that it is difficult to
inject patients with enough antibodies to overcome the effects of antibody-
blockade.  Furthermore, many of the monoclonal antibodies that have been used
for therapy are rapidly cleared from the body because they appear as foreign
substances to the immune system, and thus have only a short time in which to
attach to Fc receptors.  Finally many of the earliest murine (i.e., mouse
derived) monoclonals interacted poorly, if at all, with human Fc receptors.
Human and humanized antibodies were designed to overcome the deficiencies of
murine antibodies.  They are capable of binding to and triggering Fc receptors,
but that binding may be inefficient because the monoclonals must compete with
the antibody-blockade.  Accordingly, even these human and humanized antibodies
have not often demonstrated an ability to mediate a potent immunological
cascade.

MEDAREX'S TECHNOLOGY

     Medarex's Bispecifics typically consist of two antibody fragments, each of
which is specific for a different site, that are fused into one "bispecific"
antibody.  The "Trigger" fragment, which is a humanized antibody fragment
proprietary to Medarex, is specific for the Fc receptor, and consequently is
capable of binding to and triggering a macrophage.  The "target" fragment, which
is licensed to Medarex by a third party, is specific for a particular antigen on
a tumor cell or pathogen, depending on the target fragment utilized.  The
Company's Bispecifics, therefore, are designed to bind to a specific type of
tumor cell or pathogen and to a killer cell, triggering the destruction by the
killer cell of the target.

     Based on early clinical trial results, the Company believes that its
Bispecific technology differs from conventional antibody technology in that it
involves an approach that circumvents the antibody-blockade.  Medarex's
Bispecific products can attach directly to Fc receptors without competition from
natural antibodies because they bind at a site that is separate from the normal
binding site.  Data from clinical trials has shown that a large percentage of
the patient's monocytes can be "armed" with thousands of Bispecifics within
minutes after the infusion of a few milligrams of the product.  When the
targeting component of the Bispecific binds to a tumor or pathogen, the killer
cell may be triggered to destroy the target and to commence the process of
antigen presentation.  The Bispecific products may thus combine the potential
for cell killing (cytotoxicity) with antigen presentation (vaccinating the
patients against their own disease).  By their potential ability to combine
targeted cell killing with antigen presentation, Bispecifics are designed to be
more efficient than monoclonal antibodies and to have a more comprehensive and
enduring effect than other therapeutic agents designed only to destroy tumor
cells or pathogens.

     The Company believes its anti-tumor therapeutic products may also be
employed as therapeutic vaccines.  Based on clinical trial results, management
believes that these products may cause the presentation of tumor-associated
antigens that are different from the originally targeted antigen.  This same
approach may be employed in developing therapeutic vaccines for infectious
diseases, and it may also be used to induce the
<PAGE>
 
presentation of antigens that are normally difficult to present when
conventional adjuvants are used. See "Risk Factors."

     In addition to Bispecific products, the Company's other primary approaches
to fighting disease include:  first,  targeting cells to be killed by activating
the complement cascade.  This approach is currently being used in clinical
trials to treat acute myeloid leukemia ("AML") patients.  In general, the
complement system consists of a series of protein factors and enzymes that can
be activated in a cascade to attack antibody-coated targets; and second, the
Company's MDX-33 product works by diminishing the triggering function on various
immune system killer cells, potentially eliminating harmful autoimmune activity.

     Houston's lead product, which is in Phase II clinical trials, is an
immunotoxin used to prevent secondary cataracts.  This immunotoxin, known as
4197X-RA ("MDX-RA"), is a monoclonal antibody linked to a cellular toxin which
is injected into the eye during primary cataract surgery after the insertion of
a new intraocular lens.  The immunotoxin is used to destroy residual lens
epithelial cells, which, if left to grow, could cause opacification of the new
intraocular lens ultimately resulting in the need for secondary cataract
surgery.   A Phase I/II placebo-controlled clinical trial has been completed
which demonstrated MDX-RA inhibits the development of opacification of new
intraocular lenses following primary cataract surgery caused by the overgrowth
of residual lens epithelial cells.

MARKET OVERVIEW

     CANCER.  The Company has targeted the following cancer indications for
treatment with its therapeutic products.

     Breast Cancer.  The American Cancer Society (the "ACS") estimated that
approximately 184,300 new cases of breast cancer would be diagnosed in the
United States in 1996./1/  Current treatments have extended the five-year
survival rate for localized breast cancer to 96%.  If the breast cancer has
spread regionally, however, the five-year survival rate is 75% and for persons
with distant metastases, the five-year survival rate is 20%, according to the
ACS.

     Ovarian Cancer.  The ACS estimated that approximately 26,700 new cases of
ovarian cancer would be diagnosed in the United States in 1996.  Current
treatments include surgical removal of one or both ovaries, the uterus and the
fallopian tubes as well as radiation and drug therapy.  According to the ACS,
ovarian cancer is the leading cause of death for cancers of the female
reproductive system, and the overall five-year survival rate is 44%.

     Prostate Cancer.  The ACS estimated that approximately 317,100 new cases of
prostate cancer would be diagnosed in the United States in 1996.  Current
treatment options include surgery, radiation and/or hormones and anti-cancer
drugs.  Prostate cancer is the second leading cause of cancer death in men,
resulting in an estimated 41,400 deaths in 1996 in the United States.

     Colon Cancer.  The ACS estimated that approximately 133,500 new cases of
colon cancer would be diagnosed in the United States in 1996.  Five-year
survival, if detected early, is 91%.  After the cancer has spread locally, the
survival rate decreases to 63%, and patients with distant metastases have less
that a 7% chance of survival.

     Gastric, Lung, Head and Neck, Kidney and Bladder Cancer.  The ACS estimated
that approximately 22,800 new cases of gastric cancer, 177,000 of lung cancer
(of which non-small cell lung cancer is a subset), 41,090 of head and neck
cancers, 30,600 of kidney cancers and 52,900 of bladder cancers would be
diagnosed in the United States in 1996.

----------------------

/1/      Source: "American Cancer Society Facts and Figures-1996."
<PAGE>
 
     Melanoma, Glioma and Neuroblastoma.  The ACS estimated that approximately
38,300 new cases of melanoma and approximately 17,900 new cases of glioma and
neuroblastoma would be diagnosed in the United States in 1996.  Melanoma is the
most fatal form of skin cancer and glioma and neuroblastoma are forms of cancer
affecting the brain and nervous system.

     Leukemia.  AML is a cancer affecting certain white blood cells. The ACS
estimated that approximately 12,800 AML patients would be diagnosed in the
United States in 1996.  The disease spreads rapidly and median survival with
conventional therapy is approximately one year.

     INFECTIOUS AND AUTOIMMUNE DISEASES.  The Company has targeted the following
infectious and autoimmune diseases for treatment with its therapeutic products.

     AIDS.  The number of positively diagnosed cases of AIDS and infection by
the virus that causes AIDS, HIV, has increased significantly since the disease
was first identified in 1981.  According to the Centers for Disease Control and
Prevention ("CDC"), as of June 30, 1996 there had been 548,102 AIDS cases in the
United States. The CDC estimates that as of June 30, 1996 approximately 343,000
people had died of AIDS and related syndromes in the United States.  In
addition, the World Health Organization estimated the number of persons
worldwide living with HIV/AIDS at the end of 1996 to be 22,800,000.

     Idiopathic Thrombocytopenia Purpura.  ITP is an autoimmune condition in
which a patient's platelets are destroyed by the patient's own immune system.
According to Department of Health and Human Services, there were approximately
150,000 primary, secondary and other unspecified thrombocytopenias in the United
States in 1992.

     OTHER.  Secondary cataracts.  Secondary cataracts are the result of lens
epithelial cells growing over and opacifying an intraocular lens implanted
during primary cataract surgery.  The American Academy of Ophthalmology
estimates that there were approximately 1,450,000 primary cataract surgeries
reimbursed by Medicare and approximately 630,000 secondary cataract surgeries
reimbursed by Medicare in the United States during 1995.
<PAGE>
 
COMPANY'S PRODUCTS

     The following table outlines the Company's products and current development
status.

<TABLE>
<CAPTION>
          Product              Indications            Development Status        Commercial Rights              
---------------------------  ----------------      -----------------------   -----------------------
<S>                          <C>                   <C>                       <C>            
CANCER PRODUCTS                                                                             
MDX-210                      Breast, ovarian,          Phase II              Novartis - Worldwide     
                             prostate, renal cell,                                              
                             colon                                                              
MDX-447                      Head and neck            Phase I/II             Medarex - U.S.     
                                                                             E. Merck - Europe                      
                                                                             Medarex/E. Merck - all other areas   
MDX-220                      Colon and prostate      Pre-clinical            Medarex         
MDX-260                      Melanoma and            Pre-clinical            Medarex         
                             glioma                                                        
MDX-11                       Leukemia - in vivo        Phase II              Medarex         
MDX-22                       Leukemia - bone           Phase II              Medarex            
                             marrow purging                                                     
Tumor Vaccines               Various tumors          Research                Medarex         
                                                                                                
INFECTIOUS DISEASES                                                                             
MDX-240                      AIDS                     Phase I/II             Medarex         
Anti-fungal bispecific       Candida                Pre-clinical             Medarex         
antibody                                                                                       
                                                                                                
AUTOIMMUNE DISEASES                                                                             
MDX-33                       ITP                       Phase I               Centeon         

OTHER                                                                                           
MDX-RA                       Prevention of             Phase II              Medarex - worldwide except                
                             secondary cataracts                             Japan         
                                                                             Santen - Japan 
</TABLE>

    BISPECIFIC CANCER PRODUCTS. Each of the Company's Bispecific therapeutic
products for cancer targets a different antigen. MDX-210, MDX-447, MDX-220 and
MDX-260 are all antigen-specific products and may be useful in the treatment of
the various forms of cancer in which their specific antigen targets are highly
expressed.

    MDX-210: HER-2 Overexpressing Tumors. The Company is developing MDX-210, a
Bispecific product designed to treat tumors that overexpress the antigen HER-2.
MDX-210 combines the Company's proprietary Trigger antibody fragment with a
targeting antibody fragment specific for the HER-2 antigen. Researchers have
discovered that HER-2 is overexpressed in breast, ovarian, prostate, colon and
other cancers, and, with respect to breast cancer, is generally associated with
poor prognosis for survival. In May 1995, the Company entered into a
collaborative agreement with Novartis providing for the development and
commercialization of MDX-210. Pursuant to this collaboration, the Company has
granted Novartis worldwide marketing rights. The targeting component used in
this product is licensed to the Company by Chiron Corporation. In October 1993,
the Company was granted orphan drug designation for MDX-210 for the treatment of
ovarian cancer.
<PAGE>
 
    During 1994, a Phase I/II clinical trial for MDX-210 was completed at
Dartmouth Medical School ("Dartmouth Medical") pursuant to an investigator-
sponsored IND application. These results indicated that MDX-210 was well
tolerated, had bound to macrophages in vivo, had induced an immune response at
all dose levels as measured by the binding of MDX-210 to white blood cells and
the release of biologically significant quantities of cytokines and had induced
certain tumor shrinkage or other clinical responses in two of the ten patients
with measurable tumors. Based on the results of this early clinical trial, the
Company launched the six additional Phase I/II MDX-210 trials alone or in
combination with cytokines.

    In the fourth quarter of 1996, the following three Phase II clinical trials
    of MDX-210 were launched.

    The Queen Elizabeth Hospital, Birmingham, UK and Hammersmith Hospital,
    London, UK--two multi-dose studies in combination with GM-CSF, one in
    prostate cancer and one in renal cell carcinoma.

    The Karolinska Hospital, Stockholm, Sweden--a multi-dose study in
    combination with GM-CSF in patients with colorectal cancer.

    The Company's MDX-210 Bispecific currently undergoing clinical trials
consists of a humanized Trigger component and a murine target component.

    MDX-447: Head and Neck and other EGF-R Expressing Cancers. The Company is
developing a Bispecific product known as MDX-447 for the treatment of cancers
that overexpress the antigen EGF-R. This development project is being conducted
pursuant to a collaborative arrangement with E. Merck. MDX-447 is designed to
induce tumor cell killing by simultaneously binding to a protein known as EGF-R
found on the surface of various types of tumors and to Fc receptors on
macrophages and other white blood cells. The Trigger and target components of
MDX-447 are both humanized. EGF-R has been found to be over-expressed in a
significant percentage of head and neck, breast, brain, non-small cell lung and
bladder tumors. The EGF-R targeting component was contributed to the
collaboration by E. Merck.

    A Phase I/II clinical trial of MDX-447 to treat cancers that overexpress 
EGF-R, particularly head and neck cancers, commenced in 1995 at the Memorial
Sloan-Kettering Cancer Center.

    MDX-220: Colon and Prostate. The Company is developing a Bispecific
therapeutic product, designated MDX-220, that targets TAG-72, an antigen found
on colon, prostate and certain other tumors. The targeting component for this
product, known as CC-49, has been licensed from the National Cancer Institute.

    MDX-260: Melanoma and Glioma. The Company is developing a Bispecific
therapeutic product, designated MDX-260, that targets GD-2, an antigen found on
melanomas, gliomas and neuroblastomas. The targeting component for this product
has been licensed from researchers at the University of Vaudrois in Switzerland.
Initial pre-clinical studies were completed at the Institut Curie in Paris,
France.

    OTHER CANCER PRODUCTS. The Company is also developing therapeutic products
which activate the complement cascade, which consists of a series of protein
factors and enzymes that can attack certain diseased cells, as well as tumor
vaccines.

    MDX-11 and MDX-22: Leukemia. Medarex is developing two therapeutic products,
designated MDX-11 and MDX-22, for the treatment of AML, a usually fatal form of
cancer. Some cancers, including AML, spread to the bone marrow and become
extremely difficult to treat successfully. The bone marrow is the tissue in the
body responsible for regenerating the cells of the immune system. If the marrow
is subjected to high doses of conventional therapies such as chemotherapy or
radiation, the marrow's vital stem cells, necessary for immune cell
regeneration, will often be eliminated, and the patient may suffer a life-
threatening immune deficiency. Yet, if the cancer cells in the bone marrow are
left untreated, the cancer is likely to recur.

    MDX-11 is a therapeutic product for AML that specifically binds to leukemia
cells and is designed to cause their destruction by triggering the body's
natural complement system, a cascade of serum proteins that results in cell
destruction. In a multi-center Phase I/II trial of 16 patients suffering form
advanced or secondary AML, MDX-11 was generally well tolerated. In addition,
results from the clinical study demonstrated that 
<PAGE>
 
treatment with MDX-11 alone caused the destruction of an average of 90% of
circulating leukemia cells in half of the patients. Phase II clinical trials of
MDX-11 commenced during 1994. In 1991, the Company was granted an orphan drug
designation for MDX-11 for the treatment of AML.

    MDX-22, the Company's other AML product, is intended to be used as an ex
vivo therapy during bone marrow transplants. This product has been tested in
clinical trials under an investigator-sponsored IND at Dartmouth Medical and
other institutions since 1983. The treatment involves removing a patient's own
bone marrow and purging it of cancer cells by exposing the bone marrow to MDX-
22. After the patient has received high levels of conventional chemotherapy and,
in certain circumstances, radiation therapy, the purged bone marrow is returned
in an effort to re-establish the patient's immune system. The use of the
patient's own marrow eliminates the difficulty of finding an appropriately
matched donor and the complications frequently associated with use of donated
marrow, such as graft-versus-host disease. Phase II clinical trials of MDX-22
are in progress. The results from the first 138 patients indicated a significant
improvement in the proportion of patients surviving long-term when compared to
conventional chemotherapeutic regimens in the absence of bone marrow
transplantation. In 1990 the Company was granted orphan drug designation for 
MDX-22 for the treatment of AML.

    Tumor Vaccines. Results of recent clinical trials have suggested that
Medarex's Bispecifics have stimulated antigen presentation and an endogenous
anti-tumor response in some of the patients. Recent studies in transgenic mice
that express the human Fc receptor have also shown that antigen presentation via
the Fc receptor can induce an immune response to the antigen. Several tumor-
associated antigens have been identified, and the Company is now making
genetically constructed Bispecific fusion proteins which may be employed as
therapeutic vaccines for cancer patients.

    INFECTIOUS AND AUTOIMMUNE DISEASE PRODUCTS. The Company is developing two
products for the treatment of certain infectious and autoimmune diseases.

    MDX-240: AIDS.  The Company is developing a Bispecific product, designated
MDX-240, for the treatment of AIDS. HIV is the virus that infects blood cells
that have a receptor known as CD4 on their surfaces, and it appears that this
infection is responsible for the onset of AIDS. Antiviral materials currently
approved by the FDA for the treatment of AIDS seek to inhibit viral activity or
related symptoms of the disease, but to date they have not been shown to be as
clinically effective in eliminating HIV or HIV-infected cells as many
researchers had hoped.

    MDX-240 is composed of the Company's Trigger molecule linked to a targeting
component that binds to HIV. The targeting component is a human antibody to a
portion of the virus known as GP-41. This product is designed to direct
macrophages to neutralize HIV as well as HIV-infected cells in the body. In
vitro studies suggest that macrophages may be able to neutralize HIV when HIV is
targeted for interaction with Fc receptors through Bispecifics. Such studies
have been conducted by scientists at the Company and at Dartmouth Medical as
well as by a team of scientists affiliated with the Institut Pasteur in Paris,
France. In 1996, the Company reported on a twelve patient Phase I/II clinical
trial of MDX-240 conducted in France and Belgium. In this trial, MDX-240 was
well tolerated and provoked a transient increase in CD4 positive T-cell counts
in one third of the patients. In the remaining patients, CD4 positive T-cell
counts remained stable, and viral levels remained stable in all patients.
                                        
    Anti-Fungal Bispecific Antibody: Candida. The Company is developing a
therapeutic product for the treatment of candidiasis, which is a broad range of
clinically important fungal infections caused by Candida. The product will be
composed of the Company's Trigger molecule and targeting antibody to candida.

    MDX-33: Idiopathic Thrombocytopenia Purpura. The Company is developing a
product, designated MDX-33, for the treatment of ITP, an autoimmune condition in
which patients' platelets are destroyed by their own immune systems.
Conventional treatment includes steroids, removal of the spleen and high doses
of intravenous IgG. The Company believes that intravenous IgG creates an
antibody blockade by overwhelming the Fc receptors with extremely large
quantities of antibodies, thus minimizing the effects of the auto-antibodies.
    
<PAGE>
 
    MDX-33 may diminish the ability of various killer cells to phagocytose and
destroy platelets by binding to Fc receptors in such a way as to temporarily
remove many of the Fc receptors from the surface of the macrophage, potentially
diminishing the autoimmune activity. By reducing the number of Fc receptors, 
MDX-33 is designed to achieve the same therapeutic result as provided by large
quantities of intravenous IgG, and might eliminate or reduce the need for the
human blood-derived products in the treatment of ITP. Pre-clinical studies of
MDX-33 are currently being conducted by the Company. The Company is developing
MDX-33 in collaboration with Centeon for autoimmune hematological disorders. A
Phase I trial with MDX-33 in ITP commenced in 1996.

    OPHTHALMOLOGICAL PRODUCTS. Houston's lead product, MDX-RA, is a monoclonal
antibody conjugated to a toxin known as ricin. This product, which is in Phase
II clinical trials, is used during primary cataract surgery to prevent the
occurrence of secondary cataracts. A Phase I/II placebo-controlled clinical
trial has been completed which demonstrated MDX-RA inhibits the development of
opacification of new intraocular lenses following primary cataract surgery
caused by the overgrowth of residual lens epithelial cells. In addition to MDX-
RA, Houston is also developing other products including a product for the
treatment of open-angle glaucoma. The glaucoma product and its other products in
the Houston portfolio other than MDX-RA are in the preclinical or research and
development stage.

    In December 1995, Houston entered into a strategic allicance with Santen for
the development of MDX-RA.  Pursuant to the collaboration, Santen has obtained 
the exclusive marketing rights of MDX-RA in Japan.  MDX-RA is currently in Phase
II clinical trials.

    Currently, the Company does not have any products in Phase III clinical
trials and none of the Company's products has been approved by the FDA for
marketing. Any such products will have to satisfy various FDA requirements,
including but not limited to FDA approval prior to their commercial
distribution. Such approval may take two to four years or more following
submission of the requisite marketing application, if it is complete, and may
never be obtained. See "Risk Factors."

    The Company has experienced operating losses in each year since its
inception and expects its operating losses to increase at an accelerated rate
over the next several years as the Company expands and accelerates its clinical
trials and product development efforts. See "Risk Factors."

CORPORATE COLLABORATIONS
                                        
    Medarex is actively pursuing the establishment of strategic alliances with
established in 1994 with E. Merck, a second was established in 1995 with
Novartis, a third was established in 1996 with Centeon and a fourth was added in
the first quarter of 1997 with Santen in connection with the acquisition of
Houston. See "Risk Factors."

    Merck KGaA. Under the terms of the E. Merck collaboration (the
"Collaboration"), E. Merck's EGF-R targeting mechanism is being combined with
the Company's Trigger mechanism to form MDX-447, a Bispecific product being
developed for the treatment of head, neck and other EGF-R overexpressing
cancers. In 1994, E. Merck purchased 450,000 shares of Common Stock at $7.00 per
share for an aggregate purchase price of $3.15 million in lieu of research and
development funding. E. Merck may also provide up to $1.25 million to fund
further clinical trials. Upon the achievement of certain milestones, E. Merck
may provide the Company with up to $25 million (the "Additional Funding") to
fund Phase III clinical trials. E. Merck has the option, upon the commencement
of the Additional Funding, to purchase 1.0 million shares of the Company's
Common Stock at a price of $12.50 per share for an aggregate purchase price of
$12.5 million to satisfy half of its Additional Funding obligation. E. Merck has
certain additional rights to purchase the Company's Common Stock at a price of
$15.00 per share to obtain an ownership interest of up to 10% of the Company's
Common Stock on a fully diluted basis. After E. Merck's funding of $29 million
of the Collaboration, the parties will share future development costs equally.
There can be no assurance that the applicable milestones will be achieved or
that additional funding will be received from E. Merck. See "Risk Factors."

    The Company has the exclusive commercialization rights in the United States,
subject to royalties payable to E. Merck, for the EGF-R Bispecific and any other
Bispecific developed by this Collaboration. E. Merck has exclusive
commercialization rights in Europe, subject to royalties payable to the Company,
and the two companies jointly hold commercialization rights for the rest of the
world. In addition to the EGF-R Bispecific, other products covered by the
Collaboration are a Bispecific for the treatment of other tumors employing a
different E. 
<PAGE>
 
Merck targeting molecule and proprietary Bispecific technology developed by E.
Merck capable of triggering the killing of tumors by T cells. The Collaboration
does not cover any other of the Company's products.

    Novartis Inc.. The terms of the Novartis collaboration provides for the
joint development of MDX-210 by the two companies. Medarex is primarily
responsible for Phase II clinical trials; thereafter, Novartis is primarily
responsible for Phase III clinical trials, regulatory approvals and commercial
launch. Under the terms of the arrangement, on June 28, 1995, the Company sold
899,888 shares of Common Stock to Novartis for an aggregate purchase price of
$4,000,000. The Company also granted Novartis worldwide exclusive rights to MDX-
210 subject to Novartis' election to purchase additional equity in the amount of
$4,000,000, make milestone and research and development payments of up to $31
million and pay royalties on product sales. In such event, Novartis would be
responsible for all Phase III clinical trial and market launch costs of MDX-210.
The Company has certain rights with respect to the manufacture of the product.
There can be no assurances that additional funding will be received from
Novartis. See "Risk Factors."

    Centeon L.L.C.. On April 26, 1996, the Company announced a collaborative
arrangement with Centeon L.L.C. to jointly develop MDX-33, a humanized
monoclonal antibody for the treatment of a variety of autoimmune hematological
disorders. Under the terms of the agreement, Centeon will finance product
development through Phase II clinical trials up to a maximum of $20 million.
Upon successful completion of previous clinical trials, Centeon will also fund
Phase III clinical, regulatory approvals and commercial launch costs. In
addition, Centeon paid Medarex a $1 million up-front fee and will pay
approximately $1 million in research and development funding for manufacturing
improvements. Subject to the terms of the agreement, Centeon will pay Medarex
approximately $10 million for the achievement of specific milestones. Upon
commercialization, Centeon will have exclusive worldwide marketing rights to 
MDX-33 for autoimmune hematological disorders, and Medarex will be entitled to
royalty payments and may also manufacture the product for Centeon. There can be
no assurance that the additional funding will be received from Centeon. See
"Risk Factors."

    Santen Pharmaceutical Co., Ltd.. Effective December 29, 1995, Houston and
Santen entered into a Codevelopment and License Agreement (the "Santen License")
covering the marketing in Japan of MDX-RA. To maintain exclusive marketing
rights, Santen is required to provide $7,750,000 over the next six years to
support Houston's development of MDX-RA. Houston received $250,000 in November
1995 from Santen under an Option Agreement related to the Santen License, and
the payment schedule for the $7,750,000 is as follows: $750,000 in five
installments through April 1996; $250,000 quarterly for 1996 through 2001, and
$1 million within 60 days of delivery of an interim report on the refined
product safety study or within 30 days of enrollment of the first patient in
U.S. Phase III trials, at Santen's option. Santen may elect not to make any
payment, but in such event, the license may be made non-exclusive or terminated
by Houston. Santen is obligated to seek regulatory approval for the product in
Japan and is responsible for the development cost associated with these
efforts. Upon the commencement of commercial sales by Santen in Japan, Santen
will pay Houston earned royalties based on net sales. Commencing six months
after approval of MDX-RA by Japanese regulatory authorities, Santen is required
to pay minimum royalties. Houston retains all marketing rights and Santen is
required to purchase MDX-RA from Houston. Amounts paid by Santen to Houston,
except those amounts related to the purchase of MDX-RA, are subject to a 10%
withholding tax imposed by the Japanese government. Houston receives U.S. income
tax credits equal to the amounts withheld, but Houston is not currently able to
utilize such credits. There can be no assurances that additional financing will
be received from Santen. See "Risk Factors."

RESEARCH AND DEVELOPMENT

    The Company focuses its research and development efforts on designing and
developing its core technology and related products. The Company spent
$5,905,043, $6,442,159 and $7,596,273 during the years ended December 31, 1994,
1995 and 1996, respectively, on activities relating to the development of new
products, services or techniques or the improvement of existing products,
services or techniques. Three percent (3%) of 1994 research and development
costs were funded by E. Merck. Twelve percent (12%) of 1995 research and
development costs were funded by E. Merck and ten percent (10%) was funded by
Novartis. Fifteen percent (15%) of 1996 research and development costs were
funded by Centeon and six percent (6%) was funded by Novartis. See "Risk
Factors."
<PAGE>
 
    Research Collaboration. The Company has obtained from Dartmouth Medical the
exclusive worldwide rights (on a royalty-free basis) to the Trigger component of
its Bispecific products. The Company also actively pursues opportunities to
evaluate and possibly acquire from other companies and academic institutions
targeting mechanisms that may be used in Bispecific therapeutic products.

    The Company has a license agreement with Chiron Corporation pursuant to
which the Company obtained a license to two targeting molecules to HER-2
expressing tumors. The Company's obligation to pay royalties expires on the 10th
anniversary of the first sale of licensed products thereunder. Additional
targeting molecules have been licensed to the Company and others are currently
under evaluation.

    In addition, under the terms of a certain Financing Agreement dated December
1, 1993 ("Financing Agreement") and amended on January 17, 1995 and further
amended on December 19, 1996, by and among the Company, Immuno-Designed
Molecules, S.A. ("IDM"), a biotechnology company based in France, and G. Musuri
S.A., an investment and consulting company based in Spain, the Company has
acquired an option to purchase the exclusive United States rights to a cellular
therapy known as macrophage activated killer cells (MAK/TM/) when used in
conjunction with Bispecifics or other protein-based targeting devices (Targeted
Immuno-therapy) from IDM.

    MAK technology is designed to increase the therapeutic capacity of a
patient's own white blood cells. MAKs have numerous potential applications,
including possible use as cancer therapeutics in conjunction with the Company's
Bispecifics.

    MAK therapy was well-tolerated in Phase I clinical trials conducted by IDM
in Europe for the treatment of cancer and is currently being used in a Phase II
trial in Europe for the treatment of cancer. IDM is currently developing
additional protocols for Phase II clinical trials to be conducted in Europe.

    Under the terms of the amended option agreement, Medarex's option will not
expire until three months after the receipt of final data from two separate
clinical trials one of which Medarex will fund up to $200,000 and the second of
which Medarex and IDM will jointly fund. The trials will be conducted utilizing
the combination of MAK and Bispecifics. The Company can exercise its option for
$600,000. The Company has also appointed a representative to the IDM Board of
Directors.

    Payment of the option fee may be made at the Company's option in cash or by
the delivery of the Company's registered Common Stock having a fair market value
equal to the amount of the option fee or any combination thereof and will be
made in six equal monthly installments following the exercise of the option by
the Company. The Company is also required to pay to IDM royalties on the sales
of any of the Company's products based on the IDM technology.

    Medarex Europe B.V. ("Medarex Europe"), a wholly-owned subsidiary of the
Company, has established an alliance with Utrecht University, the largest
research university in the Netherlands. New research will be conducted with
Medarex's core technology and will expand into related areas of immunotherapy.

-------------------------------------
  /2/ MAK/(TM)/ is a trademark of IDM.
<PAGE>
 
MARKETING, MANUFACTURING AND FACILITIES

    The Company's products fall into two groups: those intended to be marketed
and sold by the Company and those expected to be marketed by licensees or
distributors. The Company currently intends to market its products for EGF-R
expressing cancers in the United States. The advanced stages of these diseases
are treated primarily at Comprehensive Cancer Centers, 21 institutions
specifically recognized by the National Cancer Institute with an especially
broad approach to the treatment of cancer. The Company believes that a small
sales force can successfully introduce and detail these products in this
concentrated marketplace. Currently, the Company has no such sales force. The
Company intends to develop its internal sales capacity as its first products
progress toward commercialization. See "Risk Factors."

    Medarex acknowledges that the successful manufacturing and marketing of some
of its products is beyond the capabilities of all but the largest pharmaceutical
organizations. For this reason, the Company plans to license to major
pharmaceutical companies individual products serving very large markets or those
that will be widely distributed geographically, if the products are approved by
the FDA. The Company's MDX-210, which has been licensed to Novartis, MDX-33,
which has been licensed to Centeon, and MDX-240 products are likely to fall into
this category.

    The Company's product licensing strategy is to require its licensees to fund
the Company's later stage development work on the licensed products. In addition
to receiving royalties on sales, the Company may retain manufacturing and co-
marketing or co-promotion rights to these products.

    The Company has leased approximately 45,000 square feet of laboratory,
clinical trial production and office space in a modern facility on a research
campus in Annandale, New Jersey, that was developed by Exxon Research and
Engineering Company as its corporate research headquarters. Management believes
that this facility is well suited for clinical-grade production of its products
as it has in place most utilities required for clinical-grade production,
including a production unit designed to meet cGMP standards. The initial term of
the lease expires on October 15, 1998 with an option to renew for on additional
five-year period, except as to a 7,000 square foot portion of the premises
housing the Company's corporate offices, the lease for which is terminable upon
60 days notice. The minimum annual lease commitment ranges between approximately
$1,200,000 to $1,600,000, and the aggregate future minimum lease commitment as
of December 31, 1996 over the remainder of the initial lease term was
approximately $2,780,150.

    Additionally, as a result of the Houston acquisition, on February 28, 1997
the Company assumed the lease of Houston's facilities located in The Woodlands,
Texas. The lease expires on February 28, 1999 and includes approximately 20,000
square feet of space, including approximately 16,000 square feet of research and
development laboratories and manufacturing facilities. Houston subleases
approximately 7,000 square feet of this space to another company.

    The Company is currently producing materials for its clinical trials in its
existing facilities. However, the Company does not currently have the capability
to manufacture its products under development in commercial quantities and has
no experience in commercial-scale manufacturing.

    In 1994 and 1995, 35% and 45%, respectively, of the Company's total revenues
were derived from E. Merck. Such revenues were derived from a collaborative
arrangement with E. Merck dated March 30, 1994, pursuant to which the Company
sold 450,000 shares of Common Stock to E. Merck at $7.00 per share, for an
aggregate purchase price of $3,150,000. The sale of Common Stock was in lieu of
research and development funding. The purchase price represented a premium of
approximately $1,000,000 over the then fair market value of the Company's Common
Stock. This premium represents consideration paid for clinical trial and
research activities performed by the Company and has been amortized into income
as the clinical trial and research activities were performed. At December 31,
1994, $200,000 was recognized as contract revenues and in 1995 $800,000 was
recognized contract revenue. In 1995 and 1996, respectively, 37% and 25% of the
Company's total revenues were derived from Novartis. This revenue was the result
of an arrangement made on June 28, 1995 where the Company sold 899,888 shares of
Common Stock to Novartis at $4.445 per share, for an aggregate purchase price of
$4,000,000. The purchase price represented a premium of approximately $1,140,000
over the then fair market value of the Company's Common Stock. This premium
represents consideration paid fo r 
<PAGE>
 
research activities performed by the Company and is amortized into income as
the clinical trial and research activities are performed. As of December 31,
1995, $666,667 had been recognized as contract revenues and $476,191 was
recognized as contract revenue in 1996. In 1996, 61% of the Company's total
revenue was derived from Centeon. Such revenues were derived from a
collaborative arrangement with Centeon dated April 26, 1996. Included in revenue
was $1,150,000 representing an up-front payment of $1,000,000 and $150,000 of
research and development payments.

    No other single source accounted for more than 10% of the Company's total
revenues for 1994, 1995 and 1996. See "Risk Factors."

RESEARCH REAGENT PRODUCTS

    Since 1988, the Company has sold certain of its research reagents to
universities, hospitals and research institutes for use in laboratory research.
These research products are sold through advertisements in scientific journals
and through distributors. The Company plans to continue these sales of research
reagents as an adjunct to its continuing emphasis on its research and
development of therapeutic products.

COMPETITION

    The areas of product development on which the Company has focused are
intensely competitive. The Company's competitors include major pharmaceutical
and chemical companies, specialized biotechnology firms, universities and
research institutions. In addition, many specialized biotechnology firms have
formed collaborations with large, established companies to support research,
development and commercialization of products that may be competitive with those
of the Company. Medarex depends upon its proprietary core technology, including
its patented Trigger molecule, to compete in the therapeutic product market. The
Company's competitive position also depends on its ability to attract and retain
qualified personnel, develop effective proprietary products, implement
production and marketing plans, obtain patent protection and secure sufficient
capital resources.

    Technologies other than those involving Bispecifics can also be applied to
the treatment of the diseases that the Company's products are designed to treat.
For example, immunoconjugates, monoclonal antibodies linked to toxins or
radioactive isotopes, are being developed by others. In addition, the
application of recombinant DNA technology to develop potential products
consisting of proteins (cytokines) that occur normally in the body in small
amounts has been underway for some time. Included in this group are Interleukin-
2, interferons alpha, beta and gamma, tumor necrosis factor, colony stimulating
factors and a number of other biological response modifiers.

    Continuing development of conventional chemotherapies and other drugs by
large pharmaceutical companies carries with it the potential for discovery of an
agent active against various solid tumor cancers, HIV, AML, ITP and secondary
cataracts, the markets upon which the Company has focused. The development of
new treatment methods, whether based on monoclonal antibodies or on other
technologies, could render the Company's technology and products under
development uncompetitive or obsolete. In particular, the Company is aware that
Genentech, Inc. and Chiron Corporation have published reports indicating that
they are developing monoclonal antibody-based products targeting HER-2 that may
be competitive with MDX-210. The Company is also aware that ImClone Systems,
Inc. has published reports indicating that it is developing monoclonal antibody-
based products targeting EGF-R that may be competitive with MDX-447. ITP is
currently being treated with WinRho sold by NABI, IVIgG and steroids all of
which have limited success.

    Significant competitors in the development and marketing of ophthalmic
pharmaceuticals include companies such as: Alcon Laboratories, Inc. (a division
of Nestle, S.A.), Allergen Inc., Merck & Co., Novartis Vision Ophthalmics (a
division of Novartis), Chiron Vision (a division of Chiron Corporation),
Pharmacia & Upjohn, Inc., along with other smaller companies.

    With respect to the prevention of secondary cataract, the Company is not
aware of any commercial competitor with a competing product on the market. Prizm
Pharmaceuticals, Inc. ("Prizm") has announced plans to develop a macromolecular
protein-toxin conjugate (fibroblast growth factor-asporin conjugate. Prizm
<PAGE>
 
has been informed that if they commercialize such conjugate, it would infringe
certain of Houston's patent rights. Pharmacia & Upjohn, Inc. has a research-
stage project related to the reduction of secondary cataract. Efforts of other
competitors with respect to secondary cataract have been primarily directed
toward enhanced surgical techniques, alternative intraocular lens designs and
certain pharmacologic approaches. However, there can be no assurance that
methods of preventing primary cataract or that other methods of preventing
secondary cataract will not be developed, or that such methods would not prove
to be more cost effective than MDX-RA. See "Risk Factors."

                PATENTS, TRADEMARKS, TRADE SECRETS AND LICENSES

    General. Proprietary protection for the Company's products, processes and
know-how is important to the Company's business. The Company's policy is to file
patent applications to protect technology, inventions, and improvements that are
considered important to the development of its business. The Company also relies
upon trade secrets, know-how, and continuing technological innovation to develop
and maintain its competitive position. The Company plans to aggressively
prosecute and defend its patents and proprietary technology. The Company has
obtained patents from the United States patent office, the European patent
office and the patent offices of Australia, Canada, New Zealand and Israel,
covering the Company's Bispecific products. The opposition period for the
granted European patent, in general, expired on January 5, 1996. These patents
have expiration dates from 2007 - 2010. Additional patent applications are
pending throughout the world.

    The Company is prosecuting its applications with the United States Patent
and Trademark Office, but the Company does not know whether any of its
applications will result in the issuance of any patents or trademarks or, if any
patents are issued, whether any issued patent or trademark will provide
significant proprietary protection or will be circumvented or invalidated. The
Company intends to file additional patent and trademark applications, when
appropriate, relating to improvements in its technologies and other specific
products.

    The patent positions of biopharmaceutical and biotechnology firms, including
Medarex, are generally uncertain and involve complex legal and factual
questions. No assurance can be given regarding the breadth or enforceability of
claims allowed in these types of patents.

    Competitors or potential competitors have filed applications for, or have
been issued, patents and may obtain additional patents and proprietary rights
relating to materials or processes competitive with those of the Company.
Accordingly, there can be no assurance that the Company's patent applications
will result in patents being issued or that, if issued, the patents will afford
protection against competitors with similar technology; nor can there be any
assurance that others will not obtain patents which the Company would need to
license or circumvent.

    The Company also relies upon unpatented trade secrets, and no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its rights to its unpatented trade secrets.

    Medarex typically requires its employees, consultants, outside scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of employment or consulting relationships with the
Company. These agreements provide that all confidential information developed or
made known to the individual during the course of the relationship is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets in the event of
unauthorized use or disclosure of such information.
<PAGE>
 
    Agreements with the Trustees of Dartmouth College ("Dartmouth"). Pursuant to
a joint venture agreement with Dartmouth ("the Joint Venture"), the Company was
formed to develop and commercialize certain technology originally developed over
several years by the Company's founders and other scientists at Dartmouth
Medical School ("Dartmouth Medical"). Under the Joint Venture, the Company holds
the rights to this technology together with any modifications or improvements to
this technology made either by the Company or at Dartmouth Medical. The Company
also has several agreements with Dartmouth which provide Medarex with rights to
numerous Trigger and targeting mechanisms. The duration of these agreements with
Dartmouth is perpetual. In particular, the Company has received from Dartmouth
assignments of several Trigger mechanisms as well as certain targeting
mechanisms for AML and other tumors. In return for the rights granted by
Dartmouth to the Company in 1987, Dartmouth received 420,000 shares of Common
Stock.

REGULATORY ISSUES

    General.  The production and marketing of the Company's products and its
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous federal
regulation and, to the lesser extent, state regulation. The Federal Food, Drug
and Cosmetic Act, as amended, and the regulations promulgated thereunder, and
other federal and state statutes, and regulations govern, among other things,
the testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of the Company's products. Product
development and approval within this regulatory scheme, if successful, will take
a number of years and involve the expenditure of substantial resources. See
"Risk Factors."

    The Company's products and activities in the United States are regulated by
the FDA in accordance with the Federal Food, Drug and Cosmetic Act, the Public
Health Service Act, and other laws. The standard process required by the FDA
before a therapeutic drug or biological agent may be marketed in the United
States includes (i) preclinical laboratory and animal tests; (ii) submission to
the FDA of an application for an IND, which must become effective before human
clinical trails may commence; (iii) preliminary human clinical studies to
evaluate the drug and its manner of use; and (iv) adequate and well-controlled
human clinical trials to establish the safety and effectiveness of the drug
(and, in the case of a biologic, its potency as well) for its intended
indication. If the product is regulated as a drug, the FDA Center for Drug
Evaluation and Review ("CDER") will require the submission and approval of a New
Drug Application ("NDA"). If the product is regulated as a biologic, the FDA
Center for Biologics Evaluation and Research ("CBER") will require the
submission and approval, depending on the type of biologic, of either a Biologic
License Application ("BLA"), for "specified products" like monoclonal
antibodies, or both a Product License Application ("PLA") and Establishment
License Application ("ELA"), for biologics which do not fall within the
definition of "specified products," before commercial marketing may begin. As
part of the NDA or BLA (or PLA/ELA) processes, the manufacturer is required to
accumulate, and submit to the FDA for review and approval, a significant amount
of data concerning the safety and effectiveness (and, in the case of a biologic,
potency) from laboratory/animal testing and clinical studies, manufacturing,
product stability and other studies. Each domestic biopharmaceutical
manufacturing establishment must also be registered with the FDA. Although the
Company believes that its products will fall within the "specified" category and
be licensed through a BLA, there can be no assurance that FDA will not require
the Company to file a PLA/ELA for these products, which would take more time and
resources to complete.

    In the case of certain types of biological products which are outside the
"specified" product category (e.g., vaccines), in addition to obtaining FDA
approval of the PLA, the manufacturer must obtain approval of an ELA. A PLA and
an ELA are submitted, reviewed and approved together and are issued by the FDA
only to the same party. In order to hold an approved PLA and ELA for a biologic
product, the Company must perform at least a significant portion of the
manufacturing process, and any PLA and ELA the Company obtains will only cover
the portion of the manufacturing process actually performed by the Company or
under its direct control. Therefore, any other companies performing any
significant portion of the manufacturing of the Company's biologic products,
such as tissue culture, purification or radiolabeling, must also obtain a
separate PLA or ELA for the portion of the manufacturing process 
<PAGE>
 
they directly perform. If other companies will be responsible for any
significant portion of the manufacturing process for the Company's products, the
Company's ability to manufacture and market such products will be dependent on
those companies' ability to obtain and maintain a PLA and ELA for the portion of
the manufacturing process they perform. Furthermore, the Company's ability to
continue to manufacture and market such products will be dependent on those
companies' continuing ability to perform the parts of the manufacturing process
for which they are responsible. There can be no assurance that the Company, or
any other companies involved in the manufacture of the Company's products, will
be able to obtain or maintain the necessary FDA approvals or capacity to supply
and manufacture such products. If these other companies fail to obtain the
necessary FDA approvals, then the Company will have to find new companies to
perform these functions, as well as possibly perform new clinical studies with
the final products manufactured by these new companies.

    In the case of certain types of biological products classified as
"specified" products, which require a BLA, the material submitted to FDA
includes information on the manufacturing establishment and process, but not to
the same extent and detail as required under an ELA. Whereas under the PLA/ELA
process, each significant participant in the manufacturing process must hold a
separate ELA, under the BLA requirements, each biological product can be covered
under a single BLA which lists all contract manufacturing locations. Under a BLA
the Company, as the applicant, is responsible for compliance with the applicable
product and establishment standards by all of its contract manufacturers. There
can be no assurance that the Company will be able to obtain or maintain the
necessary FDA approvals or capacity to supply and manufacture such products, or
be able to ensure compliance by all of its contract manufacturers.

    Domestic manufacturing establishments are subject to inspections by the FDA
and by other federal agencies and by state and local agencies, and must comply
with cGMP regulations as appropriate for production. If violations of applicable
requirements are noted by the FDA during an inspection, distribution of clinical
materials for investigational use or production lots for commercial use may be
halted and, possibly, other sanctions imposed. Parenteral monoclonal antibody
products are currently considered biologics and, therefore, are subject to
regulation by the Center for Biologics Evaluation and Research within the FDA.
Commercial marketing of the Company's products may occur only after approval of
NDAs, BLAs or PLAs/ELAs following the submission of a complete application. The
NDA, BLA, or PLA/ELA internal review process frequently takes two to four years
to complete, or longer. There can be no assurance of FDA approval at the end of
such time, or ever. The FDA may require the Company to perform additional
studies to gain approval which may take several years to complete. See "Risk
Factors."

    Under the Prescription Drug User Fee Act, the Company must pay FDA certain
fees for reviewing the BLA, PLA/ELA, or NDA, for each commercial manufacturing
establishment it controls, and for each product it manufactures. These fees can
be significant; the NDA, BLA, or PLA/ELA review fee can exceed $200,000,
although certain deferrals, waivers and reductions may be available. While user
fees can be significant, they are not a significant expense in the overall cost
of product development and the regulatory process. In addition, under that law
and FDA regulations, each NDA, BLA, or PLA/ELA submitted for FDA approval is
reviewed usually within the 45 to 60 days following submission of the
application for administrative completeness and reviewability. FDA can refuse to
file any NDA, BLA, or PLA/ELA that it deems incomplete or not easily reviewable.
If FDA refuses to file an application, FDA will retain 25% percent of the user
fee as a penalty. The Company may then resubmit the application, after
incorporating the additional information or changes demanded by FDA, or request
that the application be filed for substantive review over protest. In either
case, the Company will be required to pay a new NDA, BLA, or PLA/ELA review fee.
There can be no assurances that any application submitted by the Company will be
filed by FDA, and if filed will be approved. See "Risk Factors."

    Moreover, the Company is, or may become, subject to various federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous substances, including radioactive
materials and infectious disease agents used in conjunction with the Company's
research work.

    Certain issues that have potential impact on future marketing of Medarex
products are summarized in the following paragraphs.

    Research, Development and the Clinical Trials Process. The production of
therapeutic products generally involves research, development and human clinical
trials.
<PAGE>
 
    Research refers to the discovery or identification of potential product
candidates, initial work on new applications of technology and other associated
discovery research.

    Development involves the further evaluation of biological functions, testing
in pre-clinical models, improvement of laboratory scale production methods, and
the performance of other work necessary to optimize product performance prior to
the commencement of clinical testing in humans.

    Before a therapeutic product may be sold in the United States and other
countries, clinical trials of the product must be conducted and the results
submitted to the appropriate regulatory agencies for approval. In the United
States, these clinical trial programs generally involve a three-phase process.
Typically, Phase I studies are conducted in healthy volunteers or, on occasion,
in patients afflicted with the target disease, to determine the early side
effect profile and the pattern of drug distribution and metabolism. In Phase II,
studies are conducted in groups of patients afflicted with the target disease to
determine preliminary efficacy, optimal dosages and expanded evidence of the
safety profile. In Phase III, large-scale clinical trials are conducted in
patients with the target disease to provide sufficient data for the statistical
proof of efficacy and safety required by federal regulatory agencies. Such Phase
III trials must be well-controlled, and success of such trials often depends on
the ability of the Company to ensure the required level of control is
maintained. Maintenance of such control is very difficult, and there can be no
assurance that the Company will be able to do so. The clinical trial process may
take three to six years or more to complete and there can be no assurance that
the data collected will demonstrate the product to be safe or effective, or will
support FDA approval of the product.

    In the case of drugs for cancer and certain other diseases, the initial
human testing may be done in patients rather than in healthy volunteers. Because
these patients are already afflicted with the target disease, it is possible
that such studies will provide results traditionally obtained in Phase II
studies. These studies are referred to as "Phase I/II" studies. Notwithstanding
the foregoing, even if patients are used in initial human testing and a "Phase
I/II" study carried out, the sponsor is still responsible for obtaining all the
data usually obtained in both Phase I and Phase II studies.

    The Company also will be subject to widely varying foreign regulations
governing clinical trials and pharmaceutical sales. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in these countries. The approval process varies from
country to country and the time may be longer or shorter than that required for
FDA approval. The Company intends, to the extent possible, to rely on foreign
licensees to obtain regulatory approval for marketing the Company's products in
foreign countries. There is no assurance that such approvals will be obtained.
In addition, under current law, there are significant restrictions on the export
of products not approved by the FDA. There can be no assurance that the Company
will be able to obtain the approvals necessary to export its products to other
countries for commercial distribution.

    Regulatory approval to market a biologic or a new drug often takes a number
of years and involves the expenditure of substantial resources. Approval time
also depends on a number of factors, including the severity of the disease in
question, the availability of alternative treatments and the risks and benefits
demonstrated in the clinical trials.

    Currently, the Company does not have any products in Phase III clinical
trials and none of Company's products have been approved by the FDA for sale.
Any such products will be subject to the requisite regulatory requirements prior
to their commercial sale, which may take two to four years or more and may never
be obtained.

    The Company has experienced operating losses in each year since its
inception and expects its operating losses to increase at an accelerating rate
over the next several years as the Company expands and accelerates its clinical
trials and product development efforts. See "Risk Factors."

    Orphan Drug Designation. The Orphan Drug Act provides incentives to
manufacturers to undertake development and marketing of products to treat
relatively rare diseases or conditions. Biological products 
<PAGE>
 
targeted for affected patients populations in the United States of fewer than
200,000 persons may be eligible for orphan drug designations. Medarex seeks
orphan drug designation for all qualified products as they enter clinical
trials. The FDA granted requests for orphan drug designation for MDX-22 and for
MDX-11 for the treatment of AML in 1990 and 1991, respectively. A request for
orphan drug designation for MDX-210 for the treatment of ovarian cancer was
granted in October 1993. There can be no assurance that orphan drug designation
will be accorded to other products developed by the Company. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory process. However, the Orphan Drug Act offers, among other things, the
opportunity to receive funding for qualified clinical trials via a grant
approval process. The sponsor who obtains the first marketing approval for a
designated orphan drug for a given indication is eligible to receive seven years
of United States marketing exclusivity subject to certain limitations. There can
be no assurance that the Company will obtain marketing approval for any of its
orphan drug products. There can be no assurance that the benefits of the
existing statute will remain in effect, or that the Company will be able to
maintain exclusivity for its products, if obtained at all. There also can be no
assurances with respect to the scope of the Company's orphan exclusivity, if
any, or that the Company's BLA, PLA and ELA, or NDA, if any, will not be
precluded from approval by the orphan exclusivity held by another entity. See
"Risk Factors."

    Treatment IND Status. The Company may also file treatment protocols under
provisions of the IND regulation as revised in 1987. This regulatory framework
applies to products for patients with serious or life-threatening diseases. The
purpose of these regulations is to facilitate the availability of new products
to desperately ill patients before general marketing begins. Medarex may thereby
be able to recover some of the costs of production manufacture, research,
development and handling prior to market approval. Notwithstanding the
foregoing, there are specific conditions which must be met before a sponsor may
charge reimbursement costs for an IND product, including notifying the FDA in
writing in advance. The FDA may notify the sponsor that it is no authorized to
charge for the products. No assurance can be given that the Company will be able
to recover any of its costs prior to market approval.

    Drug and Biologics for Serious Or Life-Threatening Illnesses. FDA
regulations provide certain mechanisms for an accelerated or conditional
approval for products intended for treating serious or life-threatening
conditions, which have been studied for safety and effectiveness, and which
provide a meaningful benefit over existing therapies. The procedures permit
early consultation and commitment from the FDA regarding pre-clinical and
clinical studies necessary to gain marketing approval. Provisions of this
regulatory framework also permit in certain cases PLAs to be approved on the
basis of Phase II clinical study results, thus accelerating the normal approval
process. The Company believes that its products might qualify for this
regulatory procedure although there can be no assurance the FDA will agree.
Notwithstanding the foregoing, approval may be denied by the FDA or Phase III
studies may be required. The FDA may also seek the Company's agreement to
perform post-approval Phase IV studies, as a condition of such early approval.

EMPLOYEES

    As of December 31, 1996, the Company had 46 full-time employees, 46% of whom
hold advanced degrees. None of the Company's employees is covered by collective
bargaining agreements. The Company has entered into employment contracts with
certain of its executive officers. The Company considers relations with its
employees to be satisfactory. In the next 12 months, the Company anticipates
hiring up to ten additional employees skilled in clinical testing, regulatory
processes and manufacturing.

RISK FACTORS

    This Annual Report contains forward-looking statements which involve risks
and uncertainties.  The Company's actual results may differ significantly from
the results discussed on the forward-looking statements.  Factors that might
cause such a difference include, but are not limited to, those discussed in this
section as well as those discussed elsewhere in this Annual Report.

    EARLY STAGE OF PRODUCT DEVELOPMENT. The Company's therapeutic products are
under development and no revenues have been generated from the sale thereof.  In
addition, the Company has generated only minimal revenues from the sales or
licensing of its research products.  As of the date of this Annual Report, 
<PAGE>
 
the Company does not have any products in Phase III clinical trials and none of
the products under development by the Company has been approved by the FDA for
sale. If the Company's products in preclinical studies advance to the clinical
stage, there can be no assurance that any positive therapeutic effects of these
products will be demonstrated in clinical trials or that toxic side effects will
not occur. With respect to those products which the Company currently has in
various phases of clinical studies, there can be no assurance that these
products will prove to be effective or that significant toxic side effects will
not occur negating the therapeutic utility, if any, of the product. Furthermore,
any products which are successfully developed will be subject to various FDA
regulatory requirements including, but not limited to, FDA approval prior to
their commercial distribution. Such approval may take two to four years or more
following submission of the requisite marketing application, if it is complete,
and may never be obtained. Generally, only a small percentage of new therapeutic
products developed in the laboratory is eventually approved by the FDA for
commercial sale. No assurance can be given that the Company will succeed in the
development and marketing of any therapeutic products.
 
     HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT.  The Company has
experienced operating losses in each year since its inception and, as of
December 31, 1996, had an accumulated deficit of $31,491,263. The Company
expects its operating losses to increase at an accelerating rate over the next
several years as the Company expands and accelerates its clinical trials and
product development efforts.  In prior years, a significant portion of the
Company's revenues was generated from collaborative development agreements.  The
Company currently has four such revenue-producing agreements, and its operating
results may be adversely affected if it does not meet certain milestones
required by such agreements.  No assurance can be given that the Company will be
able to meet such milestones.  The Company's ability to achieve a profitable
level of operations is dependent in large part on obtaining regulatory approvals
for its products, entering into agreements for product development and
commercialization and making the transition to a manufacturing and marketing
company.  There can be no assurance that the Company will ever achieve product
approvals or a profitable level of operations.

     ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL FUNDING.  The
operation of the Company's business requires substantial capital resources.  It
is anticipated that the Company's current sources of liquidity will be
sufficient to meet the capital requirements of the Company for a period of at
least 24 months from the date of this Annual Report.  The acceleration of the
development of the Company's products will result in an increase in the rate at
which the Company uses capital and in the Company's rate of losses.  During such
period and thereafter, the Company will continue to spend substantial funds to
complete research and development of its products.  The Company is likely to
require additional funds for these purposes.  If additional funds are raised
through the issuance of equity, further dilution to stockholders may result.
The Company has no established bank lines of credit or other arrangements
through which it can obtain financing.  No assurance can be given that
additional funds will be available for the Company to finance its development on
acceptable terms, if at all.  If adequate funds are not available from
operations or additional sources of financing, the Company's business will be
materially adversely affected.

     DEPENDENCE ON STRATEGIC ALLIANCES. The Company has entered into strategic
alliances relating to the research and development and sales, marketing and co-
promotion of several of the Company's potential products.  Under these
arrangements, the Company has granted to its corporate partners license rights
in and to certain of the Company's potential products in exchange for the
payment of license fees and commitments for additional funding in the form of
additional equity purchases, research and development payments and milestone
fees.  Most of these payments are subject to the Company's achieving certain
milestones or to the satisfaction of the Company's collaborators with testing
results of the related product.  In particular, the Company has entered into
strategic alliances with Novartis, E. Merck and Centeon to develop and market
the Company's MDX-210, MDX-447 and MDX-33, respectively.  The  Company relies on
the payments made under these strategic alliances to further the development of
these products and its operating results may be adversely affected if it is
unable to meet certain milestones required by such agreement.  Should these
arrangements be terminated, the Company may be required to seek additional
funding from other sources in order to develop and market these products.  If
such funding is not available, its research and product development efforts
would be adversely affected.  No assurance can be given that additional funds
will be available on acceptable terms, if at all.  If adequate funds are not
available, the Company's business will be materially adversely affected.
<PAGE>
 
     In addition, the Company granted to its collaborative partners certain
rights to commercialize the products covered by these collaborative agreements.
In some cases, the Company is relying on its collaborative partners to conduct
clinical trials, to compile and analyze the data received from such trials, to
obtain regulatory approvals and, if approved, to manufacture and market these
licensed products.

     Suspension or termination of certain of the Company's current collaborative
research agreements could have a material adverse effect on the Company's
operations and could significantly delay the development of the affected
products. Continued funding and participation by collaborative partners will
depend not only on the timely achievement of research and development objectives
by the Company and the successful achievement of clinical trial goals, neither
of which can be assured, but also on each collaborative partner's own financial,
competitive, marketing and strategic considerations. Such considerations
include, among other things, the commitment of management of the collaborative
partners to the continued development of the licensed products, the
relationships among the individuals responsible for the implementation and
maintenance of the collaborative efforts, the relative advantages of alternative
products being marketed or developed by the collaborators or by others,
including their relative patent and proprietary technology positions, and their
ability to manufacture potential products successfully.

     In addition, certain collaborative partners have developed and may be
developing competitive products that may result in delay or a relatively smaller
resource commitment to product launch and support efforts than might otherwise
be obtained if the potentially competitive product were not under development or
being marketed.

     GOVERNMENT REGULATION. The research and development activities of the
Company as well as the investigation, manufacture, labeling, distribution,
marketing and sale of therapeutic products are subject to extensive and rigorous
regulation, including pre-market approval, by the FDA and other state and
foreign agencies.  The process of obtaining FDA approval is costly and time-
consuming, and there can be no assurance that any product that the Company may
develop will be deemed to be safe and effective by the FDA and granted marketing
approval.  Even if marketing approvals are obtained, a product and its
manufacturer are subject to continuing review, and later discovery of previously
unknown problems with a product or its manufacturer may result in the imposition
of restrictions on or actions against the product or its manufacturer, including
withdrawal of products from the market and other enforcement actions.  Delays in
obtaining regulatory approvals may adversely affect the marketing of any
products developed by the Company and the ability of the Company to receive
product revenues and royalties.  In light of the limited regulatory history of
bispecific therapeutics based on the Company's technology, there can be no
assurance that regulatory approvals for the Company's products will be obtained
without lengthy delays, if at all.  In addition, the Company cannot predict the
extent to which changes to existing governmental regulations might have an
adverse effect on the Company.  In 1990 and 1991, the Company received orphan
drug designations for MDX-22 and MDX-11, respectively, for the treatment of AML.
In October 1993, the Company received an orphan drug designation for MDX-210 for
the treatment of ovarian cancer.  There can be no assurance that the Company
will ever receive FDA approval to market these products, or that the Company
will be the first sponsor to receive FDA approval to market these products and
thus receive orphan drug marketing exclusivity or that its rights to market MDX-
22, MDX-11, or MDX-210 will not be preempted by orphan exclusivity held by
another company.

     GOVERNMENTAL REFORMS.  Health care reform is an area of increasing national
and international attention and a priority of many elected officials.  Several
proposals to modify the current health care system in the United States to
improve access and control costs are currently being considered by both federal
and state governments.  Any such reform measures could adversely affect the
amount of reimbursement available from governmental or private payers or could
affect the ability to set prices for newly approved therapeutic products.
Similar proposals are being considered by governmental officials in other
significant pharmaceutical markets, including Europe.  It is uncertain what
proposals will be adopted or what actions governmental or private payers for
health care goods and services may take in response to proposed or actual
legislation in the United States or other important markets.  The Company cannot
predict the outcome of heath care reform proposals or the effect any such
reforms may have on the Company's business.  Any such proposals, if adopted,
could have a material adverse effect on the Company.
<PAGE>
 
     NO ASSURANCE OF ADEQUATE REIMBURSEMENT.  The success of the Company's
products in the United States and other significant markets will depend in part
upon the extent to which a consumer will be able to obtain reimbursement for the
cost of such products from government health administration authorities, private
health insurers and other organizations.  Uncertainty exists as to the
reimbursement status of any newly approved therapeutic product.  There also can
be no assurance that adequate third party reimbursement by private insurers will
be available for such products.  Even if approved for marketing, there can be no
assurance that patients will have sufficient resources to pay for the therapy or
that governmental or private payers will provide reimbursement for such therapy.
There can be no assurance that the Company's products will be considered cost-
effective, that reimbursement will be available or, if available, that the
payer's reimbursement policies will not adversely affect the Company's ability
to sell its products on a profitable basis.

     TECHNOLOGICAL CHANGE AND COMPETITION.  The biotechnology industry is
subject to rapid and significant technological change.  Competitors of the
Company engaged in all areas of biotechnology in the United States and abroad
are numerous and include, among others, major pharmaceutical and chemical
companies, specialized biotechnology firms, universities and other research
institutions.  There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than any
which are being developed by the Company or which would render the Company's
technology and products obsolete or non-competitive.  Many of these competitors
have substantially greater financial and technical resources and production and
marketing capabilities than the Company.  In addition, many of the Company's
competitors have significantly greater experience than the Company in
undertaking preclinical testing and clinical trials of new or improved
therapeutic products and obtaining FDA and other regulatory approvals of
products for use in health care.  Accordingly, the Company's competitors may
succeed in obtaining FDA approval for products more rapidly than the Company.

     PATENTS AND PROPRIETARY RIGHTS.  Certain of the processes by which the
Company is able to produce its products are proprietary; some of these
technologies are legally owned by the Company and some are legally owned by
others and licensed, either on an exclusive or a non-exclusive basis, to the
Company.  The Company believes that patent protection of materials or processes
it develops and any products that may result from the Company's and licensors'
research and development efforts are important to the possible commercialization
of the Company's products.  The patent position of biotechnology firms generally
is highly uncertain and involves complex legal and factual questions.  To date,
no consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. Accordingly, there can be no assurance that patent
applications relating to the Company's products or technology will result in
patents being issued or that, if issued, the patents will afford protection
against competitors with similar technology.  It is possible that patents issued
to the Company will be successfully challenged.  In addition, companies that
obtain patents claiming products or processes that are necessary for or useful
to the development of the Company's products or otherwise covering aspects of
the Company's technology can bring legal actions against the Company claiming
infringement.  Litigations to establish the validity of patents, to defend
against infringement claims or to assert infringement claims against others, if
required, can be lengthy and expensive.  There can be no assurance that the
Company will have the financial resources necessary to enforce any patent rights
it may hold. The Company may be required to obtain licenses from others to
develop, manufacture or market its products.  There can be no assurance that the
Company will be able to obtain such licenses on commercially reasonable terms or
that the patents underlying the licenses will be valid and enforceable.

     The Company also relies upon unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information or techniques or otherwise gain access to the
Company's proprietary technology or disclose such technology or that the Company
can meaningfully protect its rights in such unpatented proprietary technology.

     The Company attempts and will continue to attempt to protect its
proprietary materials and processes by relying on trade secret laws and
nondisclosure and confidentiality agreements and exclusive licensing
arrangements with its employees and certain other persons who have access to its
proprietary materials or processes or who have licensing or research
arrangements exclusive to the Company, including 
<PAGE>
 
the Company's Scientific Founders (as defined herein). Despite these
protections, no assurance can be given that others will not independently
develop or obtain access to such materials or processes or that the Company's
competitive position will not be adversely affected thereby. The Company does
not have confidentiality agreements with the Company's Scientific Advisors (as
defined herein). To the extent members of the Company's Scientific Advisory
Board have consulting arrangements with or are employed by a competitor of the
Company, the Company could be materially adversely affected by the disclosure of
the Company's confidential information by such Scientific Advisors.

     POSSIBLE VOLATILITY OF SECURITIES PRICES. There has been significant
volatility in the market prices of securities of biotechnology companies,
including those of the Company.  Various factors and events, including
announcements by the Company or its competitors concerning testing results, the
achievement of or failure to achieve certain milestones, patents, regulatory
approvals, proprietary rights, arrangements with collaborative partners,
technological innovations or new commercial products, as well as public concern
about the safety of biotechnology in general, may have a significant impact on
the Company's business.  The trading prices of the Company's securities are
subject to wide fluctuations in response to these factors, as well as to the
sale or attempted sale of a large amount of Common Stock into the market.

     MANUFACTURING AND MARKETING. The Company has not yet commercially
introduced any products, except for sales of research products to scientists.
To be successful, the Company's therapeutic products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs.  While the Company believes its current facilities are
adequate for the production of its proposed products for clinical trials, such
facilities are not yet adequate for the production of any products for
commercial sale.  In order to manufacture its products for such purposes, the
Company will have to enhance its existing facilities and obtain requisite
consents or acquire new facilities, which will require additional funds and
approval by the FDA and other regulatory agencies.  The Company has no
experience in large-scale manufacturing, and no assurance can be given that the
Company will be able to make the transition to commercial production
successfully or achieve profitability.  Although the Company intends to market
certain of its products through a direct sales force, if and when regulatory
approval is obtained, it currently has no marketing or sales staff.  To the
extent that the Company determines not to, or is unable to, arrange third party
distribution for its products, significant additional expenditures, management
resources and time will be required to develop a sales force.  There can be no
assurance that the Company will be able to establish such a sales force or be
successful in gaining market acceptance for its products.

     PRODUCT LIABILITY.  The clinical investigation, marketing and sale of human
health care products entail an inherent risk of allegations of product
liability, and there can be no assurance that product liability claims will not
be asserted against the Company.  The Company currently has product liability
insurance coverage in the amount of $5,000,000 for use of its investigational
products during human clinical studies.  The Company expects to seek to obtain
product liability insurance if and when its products are commercialized;
however, there can be no assurance that adequate insurance coverage will be
available at acceptable costs, if at all, or that a product liability claim
would not materially adversely affect the business or financial condition of the
Company.  Some media centers will not participate in FDA-approved clinical
studies unless a company has adequate product liability insurance.

     DEPENDENCE ON KEY PERSONNEL AND ATTRACTION OF KEY EMPLOYEES AND
CONSULTANTS.  The Company's success is dependent on certain key management and
scientific personnel.  Competition for qualified employees among biotechnology
companies is intense, and the loss of key personnel, or the inability to attract
and retain the additional highly skilled employees required for the expansion of
the Company's activities, could adversely affect its business.  In the near
future, the Company will also need to hire additional personnel skilled in the
clinical testing and regulatory process as it develops products with commercial
potential.  There can be no assurance that the Company will be able to attract
or retain such personnel.  The Company has obtained insurance on the lives of
each of Donald L. Drakeman, President and Chief Executive Officer, and Michael
A. Appelbaum, Senior Vice President - Finance and Administration, Secretary,
Treasurer and Chief Financial Officer, of which the Company is the sole
beneficiary in the amount of $2,000,000 for Dr. Drakeman and $1,000,000 for Mr.
Appelbaum.  Dr. Drakeman and Mr. Appelbaum are subject to certain restrictions
set forth in their respective employment agreements.  The Company has
experienced and expects to continue to experience a period of significant growth
in the number of new 
<PAGE>
 
employees necessary to support the Company's business operations. The Company's
need to manage growth effectively will also require it to continue to implement
and improve its operational, financial and management information systems and to
train, motivate and manage its employees. The Company's failure to manage growth
effectively would have a material adverse effect on the Company's results of
operations and its ability to execute business strategy.

    The Company has obtained a substantial amount of its technology from
Dartmouth, and Dartmouth currently maintains an equity interest in the Company.
Drs.  Michael W. Fanger and Paul M. Guyre, two of the Company's principal
founders (who, together with Dr. Edward D. Ball, formerly of Dartmouth Medical
and now a faculty member at the University of Pittsburgh Medical School, are the
Company's "Scientific Founders"), are members of the faculty of Dartmouth
Medical.

    CONFLICTS OF INTEREST. The Company relies on members of its Scientific
Advisory Board (the "Scientific Advisors"), which includes distinguished
scientists with a wide range of experience in the research and development of
biopharmaceutical products, to assist the Company in formulating its research
and development strategy. All of the members of the Scientific Advisory Board
are employed other than by the Company and may have commitments to or consulting
or advisory contracts with other entities that may limit their availability to
the Company.

ITEM 2. PROPERTIES

    The Company has leased approximately 45,000 square feet of laboratory,
clinical trial production and office space in a modern facility on a research
campus in Annandale, New Jersey, that was developed by Exxon Research and
Engineering Company as its corporate research headquarters. Management believes
that this facility is well suited for clinical-grade production of Bispecific
and monoclonal antibodies as it has in place most utilities required for
clinical-grade production of such antibodies, including a production unit
designed to meet cGMP standards. By leasing this facility and spending modestly
to adapt it, management believes that the Company has preserved a considerable
amount of capital that might otherwise have been used to build a
biopharmaceutical production facility. In October 1994, the Company moved its
executive offices to Annandale, New Jersey, where all of its operations are now
located.  The initial term of the lease expires on October 15, 1998 with the
option to renew for one additional five year period. The minimum annual lease
commitment ranges between approximately $1,200,000 to $1,600,000, and the
aggregate future minimum lease commitment over the remainder of the initial
lease term is approximately $2,800,000.

    Additionally, as a result of the Houston acquisition, on February 28, 1997
the Company assumed the lease of Houston's facilities located in The Woodlands,
Texas.  The lease expires on February 28, 1999 and includes approximately 20,000
square feet of space, including approximately 16,000 square feet of research and
development laboratories and manufacturing facilities.  Houston subleases
approximately 7,000 square feet of this space to another company.

    The Company is currently producing materials for its clinical trials in its
existing facilities.

ITEM 3. LEGAL PROCEEDINGS

    There are no legal proceedings pending against the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    There were no matters submitted to a vote of security holders during the
last quarter of the fiscal year ended December 31, 1996 through the solicitation
of proxies or otherwise.
<PAGE>
 
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


     The Company's Common Stock and Redeemable Warrants are traded in the over-
the-counter market and included in the Nasdaq National Market under the symbols
MEDX and MEDXW, respectively.  On March 10, 1997 there were approximately 340
holders of record (which includes individual holders) and as of the last
Shareholders' meeting, there were over 4,240 beneficial shareholders of the
Company's Common Stock.

     The following table sets forth for the periods indicated the high and low
sales prices for the Common Stock and Redeemable Warrants for the fiscal years
ended December 31, 1995 and 1996 as reported by the Nasdaq National Market.
 
Fiscal Year       Common Stock   Redeemable Warrants*
-----------       ------------   --------------------
 
1995               High    Low        High       Low
----               ----    ---        ----       ---
First Quarter     $ 4.13  $2.38      $1.19      $0.69
Second Quarter    $ 6.50  $2.75      $1.88      $0.69
Third Quarter     $ 7.63  $5.13      $2.19      $1.06
Fourth Quarter    $ 7.50  $5.38      $2.19      $1.19
 
1996               High    Low        High       Low
----               ----    ---        ----       --- 
First Quarter     $ 8.00  $5.75      $2.25      $1.13
Second Quarter    $12.25  $6.25      $8.25      $3.50
Third Quarter     $ 9.00  $5.38
Fourth Quarter    $ 9.00  $6.25
 

    The Board of Directors will review the Company's dividend policy from time
to time to determine the feasibility and desirability of paying dividends, after
giving consideration to the Company's earnings, financial condition, capital
requirements and other factors as the Board of Directors deems relevant. The
Company has not paid any dividends on its Common Stock and does not anticipate
paying dividends in the foreseeable future.  The Company intends to retain any
earnings to finance its growth.


* The Redeemable Warrants expired on June 19, 1996
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,           
                                          -----------------------------------------------------
                                             1992       1993       1994       1995       1996  
                                          ---------  ---------  ---------  ---------  ---------
<S>                                       <C>        <C>        <C>        <C>        <C> 
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
     Sales..............................  $   365    $    406   $   378    $   312    $   255
   Contract and license revenues........       --          --       200      1,467      1,626
                                          --------   --------   --------   --------   --------
     Total revenues.....................      365         406       578      1,778      1,881
Costs and expenses:
  Cost of sales.........................       66          82        91        123        132
  Research and development..............    2,531       3,797     5,905      6,442      7,596
  General and administrative............    2,165       2,361     2,154      2,275      2,558
                                          --------    --------  --------   --------   --------
     Total costs and expenses...........    4,761       6,240     8,150      8,840     10,286
        Operating loss..................   (4,396)     (5,834)   (7,573)    (7,062)    (8,405)
     Interest and dividend income.......      399         419       337        553      1,537
                                          --------    --------  --------   --------   --------
        Net loss........................  $(3,997)    $(5,415)  $(7,236)   $(6,509)   $(6,868)
                                          ========    ========  ========   ========   ========
Net loss per share(1)...................   $(0.79)     $(0.86)   $(1.00)    $(0.69)    $(0.45)
Weighted average common shares..........                                                      
 outstanding(1)                             5,049       6,304     7,269      9,457     15,289 
 <CAPTION> 

                                                               DECEMBER 31,

                                            1992       1993       1994       1995        1996
                                          --------   --------   --------   --------   --------
                                                            (IN THOUSANDS)
<S>                                       <C>        <C>        <C>        <C>        <C> 
BALANCE SHEET DATA:
Cash, cash equivalents and marketable                                                     
 securities.............................  $15,938    $ 9,687    $ 9,434    $15,729    $31,463 
Working capital.........................   15,918      8,330      8,017     14,549     31,259
Total assets............................   16,943     12,640     13,017     19,240     36,044
Long-term obligations                          --         78         60         40        110
Cash dividends declared per common share       --         --         --         --         --
Accumulated deficit.....................   (5,462)   (10,877)   (18,113)   (24,623)   (31,491)
Total stockholders' equity..............   16,603     10,943     11,097     17,375     34,648
</TABLE>
__________

(1)  Computed on the basis described for net loss per share in Note 2 to the
     Consolidated Financial Statements.
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
     

     The Company is primarily engaged in research and development.  Through
March, 1996, the Company was in the development stage.  The Company has started
receiving and expects to receive revenue from research and development
agreements.  As a result, the Company is no longer considered to be in the
development stage.  Included in accumulated deficit is $26,308,655 accumulated
during the development stage.

RESULTS OF OPERATIONS

Years ended December 31, 1994, 1995 and 1996

     The Company's total revenues in 1994 were derived primarily from research
reagent sales.  Revenues for 1995 and 1996 were principally derived from
contract and licensing activities.  Total revenues in 1995 of $1,778,400
increased 208% over 1994 revenues, representing a $1,266,667 increase in
contract and license revenues from collaborative arrangements with Merck KGaA of
Darmstadt, Germany ("E. Merck") and Novartis Inc. of Basel, Switzerland
("Novartis") offset, in part, by a $65,787 decrease in research reagent sales,
attributable to lower sales volume.  Total revenues in 1996 of $1,881,408,
including contract and license revenues of $1,150,000 from Centeon L.L.C.
("Centeon"), a Delaware limited liability company formed through a joint venture
of Hoechst AG and Rhone-Poulenc Rorer, Inc. and $476,191 from Novartis,
increased 6% over 1995 revenues.

     The Company's cost of sales increased by $32,184 in 1995, a 35% increase
from 1994 to 1995 and $8,155 in 1996, a 7% increase over 1995.  These increases
were principally due to increased rent and personnel costs in 1995 and an
increase in freight expense in 1996.

     Research and development expenses increased by $537,116 in 1995, a 9%
increase from 1994 to 1995.  This increase was principally due to activity
associated with human clinical trials resulting in higher personnel costs,
clinical trial expenses, patent expenses and depreciation expenses.  Research
and development  expenses increased $1,154,114 in 1996, a 18% increase from 1995
to 1996.  The 1996 increase is principally due to activity associated with human
clinical trials in the Company's two lead oncology bispecific products, MDX-210
and MDX-447.  Research and development costs are expected to increase at an
accelerated rate as the Company's products progress through the regulatory
approval process. See "Risk Factors." 

     General and administrative expenses in 1995 increased by $120,699, a 6%
increase from 1994, reflecting increased rent expense and personnel costs,
partially offset by lower legal and consulting expenses.  General and
administrative expenses increased $283,704 in 1996, a 12% increase over 1995.
In 1996, additional personnel costs and bank fees, partially offset by lower
rent expense and consulting fees, contributed to this increase.  These expenses
are expected to increase significantly as the Company's products are developed
and it expands its operations. See "Risk Factors." 

     Interest and dividend income in 1995 increased by $215,902, a 64% increase
from 1994 reflecting an increase in the Company's average cash balance resulting
from financing activities, its product development collaboration with Novartis
and higher interest rates.  Interest and dividend income increased by $983,782
in 1996, a 178% increase from the same period in 1995, reflecting a higher
average cash balance, primarily as the result of proceeds received from the
exercise of the Company's public Redeemable Warrants pursuant to a Warrant
Reduction Offer (as defined herein) which was completed on May 15, 1996.

     The Company does not believe that inflation has had a material impact on
its results of operations.

     In October 1995 the FASB issued Statement No. 123, Accounting for Stock-
Based Compensation, which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees.  The Company has adopted the disclosure-only
provisions of FASB 123 for stock based compensation to employees but applies
Opinion 25 and related interpretations in accounting for its plans.
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its operations since inception primarily through
private placements and public sales of its securities, contract and license
revenues and research product sales.  Through December 31, 1996, the Company
raised $66,036,762 from sales of securities.

     The Company had $15,728,695 and $31,463,334 in cash, cash equivalents and
marketable securities as of December 31, 1995 and 1996, respectively.  Operating
activities consumed $6,772,038, $6,233,272 and $7,342,371 of cash for the years
ended December 31, 1994, 1995 and 1996, respectively.

     Through December 31, 1996, the Company had invested $3,097,308 in property
and equipment.

     The Company has incurred and will continue to incur significant costs in
the area of research and development, including pre-clinical and clinical
trials, as its products develop.  Administrative costs are also expected to
increase with the increase of administrative activities and the creation of a
marketing organization.  The Company expects its operating losses to increase at
an accelerated rate over the next several years as the Company expands its
clinical trials and product development efforts. See "Risk Factors." 

     In connection with the merger of Essex Medical Products ("EMP") and
Medarex, Medarex issued promissory notes to Essex Chemical Corporation ("Essex")
in the principal amount of $100,000 and committed to pay 20% of the Company's
net after-tax income until a total of $1,000,000 has been paid, contingent upon
the occurrence of certain events.  At the Company's option, this contingent
obligation may be satisfied by the payment of shares of the Company's Common
Stock having a fair market value equal to the amount owed, provided such shares
are registered for sale with the Securities and Exchange Commission.  Amounts up
to $1,000,000 will be payable to Essex, based solely on the earnings of the
Company, by March 31 of each year, to the extent of 20% of net after-tax
earnings of the Company realized during the preceding fiscal year.  On June 6,
1991, the Company repaid the $100,000 of notes, plus accrued interest to Essex.

     On July 1, 1994, the Company sold 1,000,000 shares of Common Stock in a
public offering for $3.75 per share, and on July 15, 1994, the Company sold an
additional 150,000 shares of Common Stock for $3.75 pursuant to the
underwriter's exercise of its over-allotment option in the aforementioned public
offering.  The Company realized net proceeds in the public offering of
approximately $3,200,000.

     Pursuant to a collaborative arrangement with E. Merck dated March 30, 1994,
the Company received $3,150,000 on August 16, 1994, for the purchase of 450,000
shares of Common Stock at $7.00 per share in lieu of certain research and
development funding.  The purchase price represented a premium of approximately
$1,000,000 over the then fair market value of the Company's Common Stock.  This
premium represents consideration paid for clinical trial and research activities
performed by the Company and was amortized into income as the clinical trial and
research activities were performed.  At December 31, 1994, $200,000 was
recognized as contract revenues and $800,000 was included in the balance sheet
as deferred contract revenue and subsequently recognized as revenue in 1995.

     On October 10, 1994, the Company sold, through a private placement, 600,000
shares of Common Stock for $3.85 per share resulting in net proceeds to the
Company of approximately $2,000,000.

     On May 17, 1995, the Company announced a collaborative arrangement with
Novartis.  Under the terms of the arrangement, on June 28, 1995, the Company
sold 899,888 shares of Common Stock to Novartis at $4.445 per share, for an
aggregate purchase price of $4,000,000.  The purchase price represented a
premium of approximately $1,140,000 over the then fair market value of the
Company's Common Stock.  This premium represents consideration paid for research
activities performed by the Company and was amortized into income as the
clinical trial and research activities were performed.  As of December 31, 1995,
$666,667 had been recognized as contract revenues and $476,191 was included in
the balance sheet as deferred contract revenue and subsequently recognized as
revenue in 1996.
<PAGE>
 
     On November 8, 1995, the Company sold 2,190,000 shares of Common Stock in a
placement to selected institutional investors for $5.00 per share.  The Company
realized net proceeds of approximately $9,650,000.

     On April 18, 1996, the Company commenced its offer to reduce temporarily
the exercise price of each of its Redeemable Warrants from $6.17 to $5.55 per
Redeemable Warrant (the "Warrant Reduction Offer").  Pursuant to the Warrant
Reduction Offer, which was completed on May 15, 1996, the holders of 3,882,022
Redeemable Warrants (approximately 97% of the maximum number of Redeemable
Warrants that could have been exercised) exercised their warrants to purchase
approximately 4,534,202 shares of Common Stock, resulting in proceeds of
$21,545,222 to the Company before deducting expenses incurred in connection with
the offering.  Including exercises prior and subsequent to the Warrant Reduction
Offer, warrantholders purchased approximately 5,031,910 shares of Common Stock
resulting in total gross proceeds to the Company of approximately $24,174,401
from the exercise of the Redeemable Warrants.

     On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Centeon to develop and market MDX-33.  This
collaboration provides for the joint development of MDX-33 by the Company and
Centeon.  Subject to the terms of the arrangement, the Company is primarily
responsible for product development, clinical testing through Phase II trials
and the manufacture of all product used in clinical trials.  Centeon will be
primarily responsible for the payment of all expenses associated with Phase I
and Phase II clinical trials of MDX-33 to be conducted by the Company, up to a
maximum of $20,000,000.  If such trials are successfully completed, Centeon will
be primarily responsible for Phase III clinical trials, regulatory approvals,
product commercialization and the costs associated therewith.  In addition,
under the terms of the arrangement, Centeon paid to the Company an up-front fee
of $1,000,000 which is included in contract and license revenue and will pay
research and development funding of $900,000 over three years.  Centeon may also
provide the Company with up to $10,000,000 of additional funding upon the
achievement of certain milestones. See "Risk Factors." 
 
     Under the terms of the arrangement, Centeon has an option (the "Option") to
purchase shares of Common Stock of the Company, in an amount equal to
$2,000,000, at a premium over the market price for the Common Stock on the
Nasdaq National Market for the three day period commencing one business day
prior to the Company's public announcement that certain milestones have been
achieved. If such milestones have been achieved and Centeon does not elect to
exercise the Option, then Centeon will be required to pay $2,000,000 to the
Company.

     At December 31, 1996 the Company has federal tax net operating loss (NOL)
carryforwards of approximately $31,840,000, approximately $370,000 of which is
restricted due to an "ownership" change during 1989 under Section 382 of the
Internal Revenue Code. Approximately $31,470,000 of the NOL is unrestricted and
expires in 2004 ($394,000), 2006 ($863,000), 2007 ($3,985,000), 2008
($5,533,000), 2009 ($7,592,000), 2010 ($6,395,000) and 2011 ($6,708,000). The
Company has not performed a detailed analysis to determine whether another
ownership change under Section 382 occurred during 1996, but believes that such
a change may have occurred during 1996. The result of an ownership change would
be to restrict use of approximately $27,000,000 of the NOL carryforwards to an
annual limitation of approximately $4,000,000. The Company believes that this
restriction would allow substantially all of the carryforwards to be used before
expiration. At December 31, 1996 the Company has provided a valuation reserve to
fully offset the benefit of its net operating loss carryforwards. See Note 4.

  The Company has leased approximately 45,000 square feet of laboratory,
clinical trial production and office space in a modern facility on a research
campus in Annandale, New Jersey, that was developed by Exxon Research and
Engineering Company as its corporate research headquarters. Management believes
that this facility is well suited for clinical-grade production of Bispecific
and monoclonal antibodies as it has in place most utilities required for
clinical-grade production of such antibodies, including a production unit
designed to meet cGMP standards. By leasing this facility and spending modestly
to adapt it, management believes that the Company has preserved a considerable
amount of capital that might otherwise have been used to build a
biopharmaceutical production facility. The initial term of the lease is five
years and three months with the option to renew for one additional five year
period. The minimum annual lease 
<PAGE>
 
commitment ranges between approximately $1,200,000 to $1,600,000, and the
aggregate future minimum lease commitment over the remainder of the initial
lease term is approximately $2,800,000.See "Risk Factors." 

     The Company is currently producing materials for its clinical trials in its
existing facilities.

     The Company has obtained a bank letter of credit pursuant to the
requirements of its lease.  This letter of credit in the amount of $1,260,000,
which expires on September 30, 1998, is fully cash collateralized.

     On December 18, 1996, the Company signed a definitive merger agreement with
Houston Biotechnology Incorporated ("Houston").  Under the terms of the
agreement, the Company acquired all of the outstanding stock of Houston in
exchange for 1,026,245 shares of the Company's Common Stock.  The transaction
closed on February 28, 1997.  It is anticipated that a significant portion of
the purchase price will be written off as in-process technology.  Houston's lead
product, MDX-RA, is a monoclonal antibody conjugated to a toxin known as ricin.
This product, which is in Phase II clinical trials, is used during primary
cataract surgery to prevent the occurrence of secondary cataracts.  In addition
to MDX-RA, Houston is also developing other products including a product for the
treatment of open-angle glaucoma.  The glaucoma product and the other products
in the Houston portfolio other than MDX-RA are in the preclinical or research
and development stage.

     To date, the Company's sources of cash have been the proceeds from the sale
of its securities through public and private placements, sales of it products
for research purposes and technology transfer and license fees.

     The Company's current sources of liquidity are its cash, cash equivalents
and marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of its products for research and
contract and licensing revenues. Management believes that under existing
operating plans its current sources of liquidity will be sufficient to meet
anticipated cash requirements for at least the next 24 months. See "Risk
Factors."

     Upon exhaustion of its current cash reserves, the Company's continued
operations will depend on its ability to raise additional funds through equity
or debt financing and/or enter into licensing or joint development agreements,
including collaborative research and development arrangements with large
pharmaceutical companies pursuant to which certain costs associated with the
regulatory approval process for certain of its products would be borne by the
licensees or joint developers.  There can be no assurance that these sales or
financing activities will be successful. See "Risk Factors." 
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                        REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Shareholders
Medarex, Inc.

  We have audited the accompanying consolidated balance sheets of Medarex, Inc.
and Subsidiary as of December 31, 1995 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996.  These financial statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Medarex, Inc. and
Subsidiary at December 31, 1995 and 1996 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.


                                                Ernst & Young LLP


Princeton, New Jersey
February 6, 1997, except for
  Note 11 as to which the date is
  February 28, 1997
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                   December 31,
                                                           ----------------------------
                                                                1995          1996
---------------------------------------------------------------------------------------
                                     ASSETS
                                     ------
<S>                                                        <C>            <C>
Current assets:
 Cash and cash equivalents                                  $ 3,540,759    $ 4,958,065
 Marketable securities                                       12,187,936     26,505,269
 Trade accounts receivable, less allowance for doubtful
   accounts of $5,000                                            59,576         22,677
 Inventory                                                       49,494         46,232
 Prepaid expenses                                               383,126        245,787
 Other current assets                                           153,230        766,214
                                                           -------------   ------------
     Total current assets                                    16,374,121     32,544,244
 
Property and equipment:
 Machinery and equipment                                      1,941,348      2,374,996
 Furniture and fixtures                                         145,524        164,316
 Leasehold improvements                                         557,996        557,996
                                                           -------------   ------------
                                                              2,644,868      3,097,308

 Less accumulated depreciation and amortization              (1,399,221)    (1,866,470)
                                                           -------------   ------------
                                                              1,245,647      1,230,838

Investments in, and advances to affiliate                       324,484        414,777
Segregated cash                                               1,260,000      1,260,000
Patent rights                                                    35,791        594,223
                                                           -------------   ------------ 
   Total assets                                              $19,240,043    $36,044,082
                                                           =============   ============
<CAPTION> 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
<S>                                                        <C>            <C>                                               
Current liabilities:                                                                                                        
 Trade accounts payable                                      $   143,527   $    170,588                                    
 Accrued liabilities                                           1,205,408      1,114,598                                    
 Deferred contract revenue                                       476,191              -                                    
                                                           -------------   ------------   
   Total current liabilities                                   1,825,126      1,285,186                                     

Long-term obligations                                             39,833        110,404                                     
                                                                                                                           
Commitments                                                            -              -
                                                                                                                           
Stockholders' equity:                                                                                                      
 Preferred stock, $1.00 par value, 2,000,000 shares 
   authorized; none issued and outstanding                             -              -                     
 Common stock, $.01 par Value; 40,000,000 shares authorized;            
   11,858,626 and 17,592,992 shares issued and outstanding,                                                                
   respectively                                                  118,587        175,931     
 Capital in excess of par value                               41,814,203     65,947,081     
 Unrealized gain on securities                                    65,064         16,743                                    
 Accumulated deficit                                         (24,622,770)   (31,491,263)                                   
                                                           -------------   ------------                                    
   Total stockholders' equity                                 17,375,084     34,648,492                                    
                                                           -------------   ------------ 
   Total liabilities and stockholders' equity               $ 19,240,043   $ 36,044,082                                    
                                                           =============   ============ 
</TABLE>

                See notes to consolidated financial statements.
<PAGE>
 
                          MEDAREX, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
 
                                            For the Year Ended December 31,

                                          1994           1995          1996
                                     -----------    -----------    ----------- 
<S>                                  <C>            <C>            <C>
Sales..............................  $   377,520    $   311,733    $   255,217
Contract and license revenues......      200,000      1,466,667      1,626,191
                                     -----------    -----------    -----------
  Total revenues...................      577,520      1,778,400      1,881,408

Costs and expenses:
      Cost of sales................       91,237        123,421        131,576
      Research and development.....    5,905,043      6,442,159      7,596,273
      General and administrative...    2,154,193      2,274,892      2,558,596
                                     -----------    -----------    -----------
       Operating loss..............   (7,572,953)    (7,062,072)    (8,405,037)

Interest and dividend income.......      336,860        552,762      1,536,544
                                     -----------    -----------    -----------
    Net loss.......................  $(7,236,093)   $(6,509,310)   $(6,868,493)
                                     ===========    ===========    ===========
Net loss per share.................       $(1.00)        $(0.69)        $(0.45)
                                     ===========    ===========    ===========  
</TABLE>

                See notes to consolidated financial statements.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY 

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE> 
<CAPTION> 
                                     Common stock            Capital      Treasury stock      Unrealized                  Total
                                -----------------------                --------------------
                                 Number of                  in excess   Number of              gain on    Accumulated  stockholders'
                                  shares        Amount    of par value   shares     Amount    securities    deficit       equity
                                  ------        ------    ------------   ------     ------    ----------    -------       ------
<S>                              <C>           <C>        <C>           <C>        <C>        <C>         <C>          <C> 
Balance at January 1, 1994       6,372,008     $ 63,721   $21,756,662                                     $(10,877,367) $10,943,016
                                ----------------------------------------------------------------------------------------------------
Exercise of warrants                                           58,867                                                        58,867
                                                                                                                                   
Issuance of common stock in                                                                                                        
  pubic offering                 1,150,000       11,500     3,240,236                                                     3,251,736
Issuance of common stock in                                                                                                        
  private placements             1,050,000       10,500     4,067,953                                                     4,078,453
Issuance of common stock for                                                                                                       
  exercise of options              147,000        1,470        20,530                                                        22,000
Purchase of treasury stock                                                 5,270      (21,430)                              (21,430)
Retirement of treasury stock        (5,270)         (53)      (21,377)    (5,270)      21,430                                      
Net loss                                                                                                    (7,236,093)  (7,236,093)
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 1994     8,713,738     $ 87,138   $29,122,871                                     $(18,113,460) $11,096,549
                                ----------------------------------------------------------------------------------------------------

Issuance of common stock in                                                                                                        
  public offering                2,190,000       21,900     9,628,488                                                     9,650,388
Issuance of common stock in                                                                                                        
  private placements               899,888        8,999     2,839,644                                                     2,848,643
Issuance of common stock for                                                                                                       
  exercise of options and grant                                                                                                    
  of restricted shares              55,000          550       223,200                                                       223,750
Unrealized gain on securities                                                                  $ 65,064                      65,064
Net loss                                                                                                    (6,509,310)  (6,509,310)
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 1995    11,858,626     $118,587   $41,814,203                          $ 65,064   $(24,622,770) $17,375,084
                                ----------------------------------------------------------------------------------------------------
Issuance of common stock in                                                                                                        
  exchange for patent rights        70,000          700       607,012                                                       607,712
Issuance of common stock                                                                                                           
  for exercise of options           71,250          713       302,756                                                       303,469
Issuance of common stock for                                                                                                       
  exercise of warrants           5,593,116       55,931    23,223,110                                                    23,279,041
Unrealized loss on securities                                                                   (48,321)                    (48,321)
Net loss                                                                                                    (6,868,493)  (6,868,493)
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 1996    17,592,992     $175,931   $65,947,081                          $ 16,743   $(31,491,263) $34,648,492
                                ====================================================================================================
</TABLE> 
                                                                           
                See notes to consolidated financial statements.
<PAGE>
 
                          MEDAREX, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE> 
<CAPTION> 
                                                                          For the Years Ended December 31,

                                                                     1994                 1995             1996       
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>              <C> 
OPERATING ACTIVITIES:                                            
 Net loss                                                        $(7,236,093)         $(6,509,310)     $(6,868,493)    
 Adjustments to reconcile net loss to net cash                   
  from operating activities:                                     
    Depreciation                                                     280,808              373,125          360,837      
    Amortization                                                     123,099              140,176          160,480      
CHANGES IN OPERATING ASSETS AND LIABILITIES:                     
 (Increase) decrease in trade accounts receivable, net               (26,666)               8,368           36,899       
 (Increase) decrease in inventory                                    (26,079)              13,381            3,262       
 (Increase) in prepaid expenses and other                        
   current assets                                                   (127,612)            (223,818)        (475,645)       
 Increase (decrease) in trade accounts payable                      (300,805)             (62,841)          27,061        
 Increase (decrease) in accrued liabilities                         (258,690)             351,456         (110,581)       
 Increase (decrease) in deferred contract revenue                    800,000             (323,809)        (476,191)       
                                                                 ------------         ------------     ------------ 
    Net cash used in operating activities                         (6,772,038)          (6,233,272)      (7,342,371)       
                                                                                                                          
INVESTING ACTIVITIES:                                             
 Purchase of property and equipment                                 (489,377)            (239,828)        (342,280)        
 Increase in other assets                                            (80,001)                   -                -         
 Increase in investments in and advances to affiliate               (283,395)                   -          (90,293)        
 Purchase of marketable securities                                         -           (6,997,352)     (14,365,654)        
 Sale of marketable securities                                       464,800                    -                -         
                                                                 ------------         ------------     ------------  
    Net cash used in investing activities                           (387,973)          (7,237,180)     (14,798,227) 
                                                                  
FINANCING ACTIVITIES:                                             
 Cash received from sales of securities, net                        7,389,626          12,722,781       23,577,722            
 Principal payments under capital lease obligation                   (17,952)             (19,832)         (19,818)           
                                                                 ------------         ------------     ------------  
   Net cash provided by financing activities                       7,371,674           12,702,949       23,557,904            
                                                                 ------------         ------------     ------------  
   Net increase (decrease) in cash                                   211,663             (767,503)       1,417,306            
 Cash and cash equivalents at beginning of year                    4,096,599            4,308,262        3,540,759            
                                                                 ------------         ------------     ------------   
 Cash and cash equivalents at end of year                         $4,308,262           $3,540,759       $4,958,065            
                                                                 ============         ============     ============   
                                                                     
NON-CASH INVESTING AND FINANCING ACTIVITIES:                         
   Non-cash acquistion of patent rights                          $          -         $          -     $   612,500 
   Acquistion of equipment under financing                                   
    agreement                                                               -                    -         110,160             
                                                                 ------------         ------------     ------------   

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION 
 CASH PAID DURING PERIOD FOR:
  Income taxes                                                   $          -         $          -     $          -
                                                                 ============         ============     ============    
  Interest                                                       $    11,208          $     8,128      $     5,088     
                                                                 ============         ============     ============    
</TABLE> 

                See notes to consolidated financial statements.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995 and 1996


1.  Nature of Operations
    --------------------

          Medarex, Inc. ("Medarex" or the "Company"), incorporated in July 1987,
is a biotechnology company developing therapeutic products for cancer, AIDS and
other life-threatening diseases based on proprietary technology in the field of
immunology. The Company's wholly-owned subsidiary, Medarex Europe B.V., was
incorporated in the Netherlands on October 31, 1996. The Company's therapeutic
products are currently under development and will need approval of the FDA prior
to commercial distribution. The Company's operations constitute one business
segment. All significant intercompany transactions are eliminated in
consolidation .

          Through March 1996, the Company was in the development stage.  The
Company has started receiving and expects to continue to receive revenue from
research and development agreements (see Note 9).  As a result, the Company is
no longer considered to be in the development stage.  Included in accumulated
deficit is $26,308,655 accumulated during the development stage.

2.  Significant Accounting Policies
    -------------------------------

          Cash equivalents
          ----------------

          The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.  The Company invests its cash in
deposits with major financial institutions, money market funds and notes issued
by the U. S. government.

          Marketable securities
          ---------------------

          Marketable securities consist of fixed income investments with a
maturity of greater than three months which can be readily purchased or sold
using established markets.  Such securities, which are classified as available-
for-sale, are carried at market with unrealized gains and losses reported as a
separate component of stockholders' equity.

          Inventory
          ---------

          Inventory consists primarily of antibodies to be sold to the research
community and is stated at the lower of cost or market with cost determined on a
first-in, first-out basis.

          Property and equipment
          ----------------------

          Property and equipment is stated at cost.  Depreciation is provided
over five years using the straight-line method.  Leasehold improvements are
amortized over the estimated useful lives of the assets or the related lease
terms, whichever is shorter.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995 and 1996


          Long-Lived Assets
          -----------------

          In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.  Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of.  The Company adopted Statement 121
in 1995 and the effect of adoption was not material.

          Revenue recognition
          -------------------

          The Company sells antibodies primarily to research institutions in the
United States and overseas.  Revenue from these sales is recognized when the
products are shipped.  Research and development contract revenues are recognized
as the services are performed.  Amounts received in advance of services to be
performed are recorded as deferred revenue.

          Research and development
          ------------------------

          Research and development costs are expensed as incurred.

          Use of Estimates
          ----------------

          The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes.  Actual results could differ from those estimates.

          Stock Based Compensation
          ------------------------

          The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation. In accordance with the
provisions of SFAS No. 123, the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation expense for stock options granted at fair market
value.  Note 7 to the consolidated financial statements contains a summary of
the pro forma effects to reported net loss and loss per share for 1995 and 1996
as if the Company had elected to recognize compensation expense based on the
fair value of the options granted at grant date as prescribed by SFAS No. 123.

          Net loss per share
          ------------------

          The net loss per share is based upon the weighted average Common Stock
outstanding during each year.  Common Stock equivalents are not included as
their effect is antidilutive.  Shares used in computing loss per share were
7,269,438, 9,456,763 and 15,288,754 in 1994, 1995 and 1996, respectively.

          Reclassifications
          -----------------

          Certain December 31, 1994 and 1995 balances have been reclassified to
conform with the December 31, 1996 presentation.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995, and 1996


3.  Leases
    ------

          The Company leases laboratory, production and office space in
Annandale, New Jersey.  The initial term of this lease commencing on July 15,
1993 is for five years and three months.  The Company has an option to renew
this lease for an additional five-year term. The Company incurred rent expense
of $1,737,420 in 1994, $1,782,004 in 1995 and $1,819,533 in 1996.

          The Company has secured a bank letter of credit pursuant to the
requirements of its Annandale, New Jersey lease.  This letter of credit in the
amount of $1,260,000 is fully cash collateralized and the cash is categorized as
segregated cash in the balance sheet.

          Future minimum lease commitments are as follows:

                        1997            $1,551,712
                        1998            $1,228,438
                                        ----------
                                        $2,780,150
                                        ==========
 
4.  Taxes
 
        Income tax expense is determined using the liability method.
 
        The components of the net deferred tax asset consist of the following as
  of December 31:
 
                                                         1995            1996
                                                         ----            ----
                                                             
             Deferred tax assets:                            
              Research credit                    $    763,000    $    850,000
              Net operating loss carryforward      10,131,000      12,652,000
              Deferred tax asset                                               
               valuation reserve                  (10,894,000)    (13,502,000) 
                                                 ------------    ------------ 
             Net deferred tax asset                   ---             ---
                                                 ============    ============

          At December 31, 1996 the Company has federal tax net operating loss
(NOL) carryforwards of approximately $31,840,000, approximately $370,000 of
which is restricted due to an "ownership" change during 1989 under Section 382
of the Internal Revenue Code.  The remainder of the NOL carryforwards,
approximately $31,470,000, expire in 2004 ($394,000), 2006 ($863,000), 2007
($3,985,000), 2008 ($5,533,000), 2009 ($7,592,000), 2010 ($6,395,000) and 2011
($6,708,000).  The Company has not performed a detailed analysis to determine
whether another ownership change under Section 382 occurred during 1996, but
believes that such a change may have occurred during 1996.  The result of an
ownership change would be to restrict use of approximately $27,000,000 of the
NOL carryforwards to an annual limitation of approximately $4,000,000.  The
Company believes that this restriction would allow substantially all of the
carryforwards to be used before expiration.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995, and 1996


4.  Taxes (con't)
    -------------

          The Company has state NOL carryforwards of approximately $30,741,000
at December 31, 1996 which expire in 1998 ($875,000), 1999 ($3,997,000), 2000
($5,398,000), 2001 ($7,453,000), 2002 ($6,316,000) and 2003 ($6,702,000).

          The Company has research tax credit carryforwards of approximately
$650,000 which expire between 2005 and 2010. If an ownership change under
Section 382 occurred during 1996, the use of the carryforwards would be subject
to limitation.  The Company believes that this restriction would allow all of
the carryforwards to be used before expiration.  The Company also has a state
research credit carryforward of approximately $300,000 which expires in 2002.
In 1994, 1995 and 1996, the Company provided valuation reserves of $8,097,000,
$10,894,000 and $13,502,000, respectively, principally to offset the benefits of
net operating loss carryforwards at the end of those years.

5.  Accrued Liabilities
    -------------------

          Accrued liabilities consist of the following as of December 31:
 
                                             1995        1996
                                          ----------   ---------
             Accrued professional fees    $  233,799   $ 134,642
             Accrued compensation            345,839     477,202
             Accrued clinical trial          151,660     139,068
              expense
             Accrued rent                    126,657      80,600
             Other                           347,453     283,086
                                          ----------   ---------
                                          $1,205,408  $1,114,598
                                          ==========  ==========
6.  Stockholders' Equity
    --------------------

     On May 17, 1995, the Company announced a collaborative arrangement with
Novartis Inc. of Basel, Switzerland ("Novartis").  Under the terms of the
arrangement, on June 28, 1995, the Company sold 899,888 shares of Common Stock
to Novartis at $4.445 per share, for an aggregate purchase price of $4,000,000.
The purchase price represented a premium of approximately $1,140,000 over the
then fair market value of the Company's Common Stock.  This premium represents
consideration paid for research activities performed by the Company and was
amortized into income as the clinical trial and research activities were
performed.

     On November 8, 1995, the Company sold 2,190,000 shares of Common Stock in a
placement to selected institutional investors for $5.00 per share (the "1995
Placement").  The Company realized net proceeds of approximately $9,650,000.

     Upon exhaustion of its current cash reserves, the Company's continued
operations will depend on its ability to raise additional funds through equity
or debt financing and/or enter into licensing or joint development agreements,
including collaborative research and development arrangements with large
pharmaceutical companies.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995, and 1996


7.  Stock Options
    -------------

          The Company has seven Stock Option Plans -- the EMP Plan, the Amended
and Restated 1987 Stock Option Plan, the 1991 Stock Option Plan, the 1992 Stock
Option Plan, the 1994 Stock Option Plan, the 1995 Stock Option Plan, and the
1996 Stock Option Plan (the "Plans").  Under each of the 1991 and 1992 Plans the
Company may grant up to 250,000 shares of incentive or non qualified stock
options, stock appreciation rights, restricted stock or deferred stock to key
employees, directors or consultants.  Under the 1994 Plan, the Company may grant
up to 300,000 shares of incentive or non-qualified stock options, stock
appreciation rights, restricted stock or deferred stock to key employees,
directors or consultants.  Under the 1995 and 1996 Plans, the Company may grant
up to 350,000 shares of incentive or non-qualified stock options, stock
appreciation rights, restricted stock or deferred stock to key employees,
directors or consultants.  No further grants may be made under the EMP Plan, or
the 1987 Plan.  The purchase price of stock options under the Plans is
determined by the Stock Option Committee of the Board of Directors of the
Company (the "Committee") but cannot be less than 100% of the fair market value
of the stock on the date of grant.  The term is fixed by the Committee, but no
incentive stock option is exercisable after 10 years from the date of grant.

          During 1994, all holders of stock options with an exercise price in
excess of $4.25 were, pursuant to a resolution of the Board of Directors, given
an opportunity to have their stock options repriced at $4.25.  The election
required the vesting period on repriced options to recommence.  Options to
purchase 389,400 shares were repriced.

          A summary of the Company's stock option activity and related
information for the years ended December 31, 1995 and 1996 follows:

<TABLE>
<CAPTION>
                                       1995                       1996
                           -------------------------    ------------------------
                                            Weighted                   Weighted
                               Common        Average      Common       Average
                                Stock       Exercise       Stock       Exercise
                               Options        Price       Options       Price
                             ------------  ---------    ------------   --------
<S>                          <C>           <C>          <C>           <C>  
Outstanding at beginning       1,245,400   $      2.03    1,456,750   $     2.44
 of year
      Granted                    269,025          4.70      443,200         7.56
      Exercised                  (55,000)        (4.25)     (71,250)       (4.26)
      Canceled                    (2,675)        (4.34)     (20,100)       (3.60)
                             -----------                -----------
Outstanding at end of year     1,456,750          2.44    1,808,600         3.62
                             ===========                ===========
Exercisable at end of year     1,232,862                  1,613,759
                             ===========                ===========
Weighted average fair
 value of options granted                  
 during the year                           $      1.59                $     2.84
</TABLE>
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995, and 1996

 
      7.  Stock Options (con't)
          ---------------------

      Stock options outstanding at December 31, 1996 are summarized as follows:
 
                                              Weighted Average   
  Range of            Outstanding Options at     Remaining      Weighted Average
Exercise Price          December 31, 1996     Contractual Life   Exercise Price
--------------          -----------------     ----------------   --------------
$         0.10              403,000                 2.45            $  0.10
$0.10 to $2.86              276,150                 2.63            $  0.38
$4.25 to $9.25              183,500                 5.73            $  4.34
$4.25 to $6.06              191,250                 7.03            $  4.25
$4.25 to $6.81              296,250                 8.26            $  4.70
$5.31 to $8.31              350,000                 9.23            $  6.95
$6.06 to $10.63             108,450                 9.60            $  8.85
                          ---------                         
$0.10 to $10.63           1,808,600                 5.99            $  3.62
                          =========

          At December 31, 1996, a total of 244,300 shares were available for
future grants under the 1991, 1994 and 1996 Plans.

          The Company has adopted the disclosure-only provisions of SFAS No.
123,  Accounting for Stock-Based Compensation, but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its Plans.
If the Company had elected to recognize compensation expense based on fair value
of the options granted at grant date as prescribed by SFAS No. 123, net loss and
loss per share would have been reduced to the pro forma amounts indicated in the
table below.

                                           1995          1996 
                                           ----          ---- 
     
          Net loss - as reported        $(6,509,310)  $(6,868,493)
          Net loss - pro forma          $(6,857,366)  $(8,446,044)
          Loss per share - as reported       $(0.69)       $(0.45)
          Loss per share - pro forma         $(0.73)       $(0.55)

          The fair value of each option grant is estimated on the date of grant
using the Black Scholes option-pricing model with the following assumptions:


          Expected dividend yield               0%
          Expected stock price volatility       60.2%
          Risk-free interest rate               5.9%
          Expected life of options              5 yrs.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995, and 1996


8.  Warrants
    --------

          On April 18, 1996, the Company commenced its offer to reduce
temporarily the exercise price of each of its Redeemable Warrants which
had been issued pursuant to its initial public offering in June of 1991, the
("IPO") and as part of a series of private placements in December of 1992, the
("Placements"), from $6.17 to $5.55 per Redeemable Warrant (the "Warrant
Reduction Offer").  Pursuant to the Warrant Reduction Offer, which was completed
on May 15, 1996, the holders of 3,882,022 Redeemable Warrants (approximately 97%
of the maximum number of Redeemable Warrants that could have been exercised)
exercised their warrants to purchase approximately 4,534,202 shares of Common
Stock, resulting in proceeds of $21,545,222 to the Company before deducting
expenses incurred in connection with the offering.  Including exercises prior
and subsequent to the Warrant Reduction Offer, warrantholders purchased
approximately 5,031,910 shares of Common Stock resulting in total gross proceeds
to the Company of approximately $24,174,401 from the exercise of the Redeemable
Warrants.

          Certain warrants (the "Representative's Warrants") which had been
issued to an underwriter and placement agent pursuant to the IPO and the
Placements were initially exercisable at prices of $9.90, subsequently adjusted
to $7.20, per share of Common Stock for a period of four years from June 20,
1992.  The Representative's Warrants contain provisions for adjustment to the
exercise prices and the number and type of securities issuable upon the exercise
of the Representative's Warrants upon the occurrence of certain events including
the issuance of any Common Stock or other securities convertible into or
exercisable for Common Stock, or in the event of any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction.  

          On June 18, 1996 the Company extended the expiration date on the
356,767 outstanding Representative's Warrants from June 19, 1996 to December 19,
1997 and the exercise price was adjusted to a range of $0.63 to $2.68 per share
of Common Stock. In addition, the number of shares issuable upon the exercise of
the Representative's Warrants was ratcheted to 581,678. During 1996, holders of
Representative's Warrants purchased approximately 561,204 shares of Common Stock
resulting in total gross proceeds to the Company of approximately $352,428. As
of December 31, 1996, 20,474 Representative's Warrants convertible into 20,474
shares of Common Stock were outstanding.

          On July 1, 1994, pursuant to a secondary offering, the underwriter was
issued warrants ("New Warrants") to purchase 100,000 shares of Common Stock.
Under the terms of the New Warrants, each New Warrant holder is entitled to
purchase one share of Common Stock at a price of $4.50 per share commencing July
1, 1995 until June 30, 1999. The New Warrants contain provisions for adjustment
to the exercise prices and the number and type of securities issuable upon the
exercise of the New Warrants upon the occurrence of certain events including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction.  The New Warrants grant the holders thereof
certain demand and piggyback registration rights for the securities issuable
upon exercise thereof. As of December 31, 1996 100,000 New Warrants were 
outstanding.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995, and 1996


9.  Research and Development Agreements
    -----------------------------------

          On March 30, 1994, the Company entered into a letter of intent with
Merck KG&A of Darmstadt, Germany ("E. Merck"), pursuant to which the two
companies will develop Bispecific antibodies for the treatment of certain
cancers. The letter of intent provided for funding to the Company of at least
$2,750,000 during the period ending March 30, 1995, to conduct clinical trials
and additional research.

          On August 16, 1994, the Company and E. Merck agreed to the purchase by
E. Merck of 450,000 shares of Common Stock at $7.00 per share, for an aggregate
purchase price of $3,150,000, in lieu of the research and development funding
noted above.  The purchase price represented a premium of $1,000,000 over the
then fair market value of the Common Stock.  This premium represents
consideration paid for clinical trial and research activities to be performed by
the Company and was amortized into income as the clinical trial and research
activities were performed.  At December 31, 1994, $200,000 was recognized as
contract revenue and $800,000 was included in the balance sheet as deferred
contract revenue.  During 1995 the remaining $800,000 of deferred contract
revenue was amortized into income.  The letter of intent with E. Merck was
finalized and a formal agreement was signed on June 26, 1996.

          On May 17, 1995, the Company announced a collaborative arrangement
with Novartis.  Under the terms of the arrangement, on June 28, 1995, the
Company sold 899,888 shares of Common Stock to Novartis at $4.445 per share, for
an aggregate purchase price of $4,000,000.  The purchase price represented a
premium of approximately $1,140,000 over the then fair market value of the
Company's Common Stock.  This premium represents consideration paid for research
activities performed by the Company and was amortized into income as the
clinical trial and research activities were performed.  As of December 31, 1995,
$666,667 was recognized as contract revenues and $476,191 was included in the
balance sheet as deferred contract revenue.  During 1996, the remaining $476,191
of deferred contract revenues was amortized into income.

          On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Centeon, L.L.C. ("Centeon"), a Delware limited
liability company formed through a joint venture of Hoechst AG and Rhone-Poulenc
Rorer, Inc. to develop and market MDX-33. This collaboration provides for
the joint development of MDX-33 by the Company and Centeon. Subject to the terms
of the arrangement, the Company is primarily responsible for product
development, clinical testing through Phase II trials and the manufacture of all
product used in clinical trials. Centeon will be primarily responsible for the
payment of all expenses associated with Phase I and Phase II clinical trials of
MDX-33 to be conducted by the Company, up to a maximum of $20,000,000. If such
trials are successfully completed, Centeon will be primarily responsible for
Phase III clinical trials, regulatory approvals, product commercialization and
the costs associated therewith. In addition, under the terms of the arrangement,
Centeon paid to the Company an up-front fee of $1,000,000 which is included in
contract and license revenue and will pay research and development funding of
$900,000 over three years. Centeon may also provide the Company with up to
$10,000,000 of additional funding upon the achievement of certain milestones.
<PAGE>
 
                         MEDAREX, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended December 31, 1994, 1995, and 1996


9.  Research and Development Agreements (con't)
    -------------------------------------------

          Under the terms of the arrangement, Centeon has an option (the
"Option") to purchase shares of  Common Stock of the Company in an amount equal
to $2,000,000, at a premium over the market price for the Common Stock on the
Nasdaq National Market for the three day period commencing one business day
prior to the Company's public announcement that certain milestones have been
achieved, subject to a maximum of 20% of the shares of the Common Stock or
voting power outstanding prior to such issuance.  If such milestones have been
achieved and Centeon does not elect to exercise the Option, then Centeon will be
required to pay $2,000,000 to the Company.

          The Company spent $5,905,043, $6,442,159 and $7,596,273 during the
years ended December 31, 1994, 1995 and 1996, respectively, on activities
relating to development of new products, services or techniques or the
improvement of existing products, services or techniques. In 1994 and 1995,
approximately 3% and 12% of the Company's research and development was funded by
E. Merck, and in 1995 and 1996 approximately 10% and 6% was funded by Novartis
and in 1996, 15% was funded by Centeon.

10.  Commitments
     -----------

          The Company is a party to a number of license agreements which call
for royalties to be paid by the Company if and when the Company commercializes
products utilizing the licensed technology.

          The Company has a contingent commitment to pay $1,000,000 to Essex
Chemical Corporation ("Essex")  without interest in installments equal to 20% of
net after tax earnings of the Company in future years.  The Company's contingent
commitment, as amended, to pay up to $1,000,000 out of future earnings may be
satisfied, at the Company's option, through the payment of cash or shares of the
Company's Common Stock having a fair market value equal to the amount owed,
provided that such shares are registered with the Securities and Exchange
Commission.

11.  Subsequent Event
     ----------------

          On December 18, 1996, the Company entered into a definitive merger
agreement with Houston Biotechnology Incorporated ("Houston").  In the
acquisition, which closed on February 28, 1997, Medarex issued 1,026,245 shares
of its Common Stock in exchange for the 5,638,707 outstanding shares of
common stock of Houston. It is anticipated that a significant portion of the
purchase price will be written off as in-process technology.
 
          Houston is a Texas-based biotechnology company that is developing
monoclonal antibody and other biopharmaceutical products to prevent secondary
cataracts and to treat glaucoma, disorders that impair or destroy human vision.

          These 1996 financial statements, other than immaterial transaction
costs, do not reflect the impact of this acquisition.
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON ACCOUNTING AND
         FINANCIAL DISCLOSURES

         None.

PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 15, 1997, which will be filed on or before April 16, 1997, and is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

          The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 15, 1997, which will be filed on or before April 16, 1997, and is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 15, 1997, which will be filed on or before April 16, 1997 and is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The information required herein will be incorporated in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 15, 1997, which will be filed on or before April 16, 1997, and is
incorporated herein by reference.
<PAGE>
 
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 17, 1997.


                                    MEDAREX, INC.

                                    By:  /s/ Donald L. Drakeman
                                         ----------------------
                                         Donald L. Drakeman
                                         President and Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated and on the dates indicated.


PRINCIPAL EXECUTIVE OFFICER AND
DIRECTOR:                     
                                   /s/ Donald L. Drakeman     March 17, 1997
     Director, President and       ----------------------                   
     Chief Executive Officer       Donald L. Drakeman
 

                                    /s/ Michael A. Appelbaum  March 17, 1997
PRINCIPAL FINANCIAL OFFICER,        ------------------------
ACCOUNTING OFFICER AND DIRECTOR:    Michael A. Appelbaum
          Director, Sr. Vice President          
          and Chief Financial Officer
 
DIRECTORS:
 
/s/ Charles R. Schaller                 March 17, 1997
----------------------------------
     Charles R. Schaller
     Chairman of the Board
 
/s/ Michael W. Fanger                   March 17, 1997
----------------------------------
     Michael W. Fanger
 
/s/ Robert Iggulden                     March 17, 1997
----------------------------------
     Robert Iggulden
 
/s/ Irwin Lerner                        March 17, 1997
----------------------------------
     Irwin Lerner
 
/s/ Leigh Thompson                      March 17, 1997
----------------------------------
     Leigh Thompson
 
/s/ Julius A. Vida                      March 17, 1997
----------------------------------
     Julius A. Vida
<PAGE>
 
                                    PART IV
 
    ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
        ITEM NUMBER
        -----------
               (a).1.   Financial Statements
                        
                        Report of Independent Auditors.
                        
                        Consolidated Balance Sheets as of December 31,
                        1995 and 1996.
                        
                        Consolidated Statements of Operations for the
                        Years Ended December 31, 1994, 1995 and 1996.
                        
                        Consolidated Statements of Stockholders' Equity
                        for the Years Ended December 31, 1994, 1995 and
                        1996.
                        
                        Consolidated Statements of Cash Flows for the
                        Years Ended December 31, 1994, 1995 and 1996.
                        
                        Notes to Consolidated Financial Statements
                        
               (a).2.   Financial Statement Schedules
                        
                        All schedules for which provision is made in the
                        applicable accounting regulation of
                        the Securities and Exchange Commission are not
                        required under the related instructions
                        or are inapplicable and therefore have been
                        omitted.
                        
               (a).3.   Exhibits
                        
               2.1(1)   Certificate of Merger, dated June 15, 1989,
                        including Plan of Merger.
                        
               2.2(18)  Agreement and Plan of Merger among Medarex, Inc.,
                        Medarex Acquisition Corp.
                        and Houston Biotechnology Incorporated dated
                        December 18, 1996, together with
                        the exhibits thereto.
                        
               3.1(16)  Restated Certificate of Incorporation of the
                        Registrant.
                        
               3.2(1)   Amended and Restated By-laws of the Registrant.
                        
               4.1(1)   Form of Specimen of Common Stock Certificate.
                        
               4.2(19)  Form of Warrant Agreement between Houston
                        Biotechnology Incorporated and
                        Mellon Securities Trust Company.
                        
               4.3      Form of Specimen of Warrant Certificate (included
                        as Exhibit A to Warrant Agreement
                        filed as Exhibit 4.2).
                        
               10.1(4)  Lease of the Registrant's executive offices dated
                        August 1, 1992.
                        
               10.2(1)  Lease of the Registrant's laboratory facilities
                        (West Lebanon, New Hampshire).
                        
               10.3(1)  1991 Employee Stock Option Plan.
                        
               10.4(1)  Letter of Intent dated April 25, 1991 between
                        Lower Pyne Associates, L.P. and Medarex,
                        Inc.
 
<PAGE>
 
        ITEM NUMBER
        -----------
 
               10.5(1)  Joint Venture Agreement by and among Trustees of
                        Dartmouth College, Essex Medical
                        Products, Inc. and the Registrant, dated as of
                        July 15, 1987.
                        
               10.6(1)  Exclusive License Agreement by and between
                        Trustees of Dartmouth College and the
                        Registrant, dated July 15, 1987.
                        
               10.7(1)  Non-Exclusive License Agreement by and between
                        Trustees of Dartmouth College and the
                        Registrant, dated July 15, 1987.
                        
               10.8(1)  Assignment Agreement by and between the Registrant
                        and Michael W. Fanger, dated July
                        15, 1987.
                        
               10.9(1)  Consulting Agreement between the Registrant and
                        Michael W. Fanger, dated as of July 15,
                        1987.
                        
              10.10(1)  Assignment Agreement by and between the Registrant
                        and Paul M. Guyre, dated July 15,
                        1987.
                        
              10.11(1)  Consulting Agreement between the Registrant and
                        Paul M. Guyre, dated as of July 15, 1987.
                        
              10.12(1)  Assignment Agreement by and between the Registrant
                        and Edward Ball, dated July 15, 1987.
                        
              10.13(1)  Consulting Agreement between the Registrant and
                        Edward Ball, dated as of July 15, 1987.
                        
              10.14(1)  Stock Purchase Agreement among Essex Vencap, Inc.
                        and Medarex Founders and the
                        Registrant, dated as of June 15, 1989.
                        
              10.15(1)  Amended and Restated Research and Development and
                        Umbrella Agreement between
                        Fondation Nationale de Transfusion Sanguine and
                        the Registrant, dated March 7, 1991.
                        
              10.16(1)  AML/SCCL License Agreement between Fondation
                        Nationale de Transfusion Sanguine
                        and the Registrant, dated February 13, 1990.
                        
              10.17(1)  HIV License Agreement between Fondation Nationale
                        de Transfusion Sanguine and the
                        Registrant, dated February 13, 1990.
                        
              10.18(1)  HIV Targeting Antibody License Agreement between
                        Fondation Nationale de Transfusion
                        Sanguine and the Registrant, dated February 13,
                        1990.
                        
             10.18A(1)  Amendment to AML/SCCL License Agreement, the HIV
                        License Agreement and the HIV
                        Targeting Antibody License Agreement dated March
                        7, 1991.
                        
              10.19(1)  Medarex Targeted Immunostimulation License
                        Agreement between the Registrant and
                        Fondation Nationale de Transfusion Sanguine, dated
                        March 7, 1991.
                        
              10.20(1)  FNTS Targeted Immunostimulation License Agreement
                        between Fondation Nationale de
                        Transfusion Sanguine and the Registrant, dated
                        March 7, 1991.
                        
              10.21(1)  Agreement of SmithKline Beecham Pharmaceuticals
                        and the Registrant with respect to
                        Research Collaboration, dated February 1, 1990.
                        
             10.21A(1)  Amendment to Agreement of SmithKline Beecham
                        Pharmaceuticals and the Registrant with respect to
                        Research Collaboration dated July 5, 1990.
                        
              10.22(1)  Research Agreement between the Registrant and The
                        Upjohn Company, dated October 18,
                        1990.
<PAGE>
 
        ITEM NUMBER
        -----------
 
              10.23(1)  Agreement dated as of May 16, 1991 by and among
                        Trustees of Dartmouth College and the
                        Registrant relating to the assignment of certain
                        patents and the modification of the Joint
                        Venture Agreement.
                        
              10.24(1)  Assignment of certain patent rights by Trustees of
                        Dartmouth College to the Registrant dated May 16,
                        1991.
                        
              10.25(1)  Loan Agreement by and between Dr. Edward Ball, Dr.
                        Paul Guyre, Dr. Donald Drakeman,
                        Dr. Michael Fanger, and First New Hampshire Bank
                        of Lebanon, dated October 25, 1990.
                        
              10.26(1)  Security Agreement between the Registrant and
                        First New Hampshire Bank of Lebanon,
                        dated October 25, 1990.
                        
              10.27(1)  Distribution Agreement between the Registrant and
                        Funakoshi Pharmaceutical Co., Ltd.,
                        dated as of June 1, 1989, expiring May 31, 1990.
                        110.28 Employment Agreement by and
                        between the Registrant and Dr. Donald Drakeman,
                        dated as of April 1, 1991, as amended.
                        
              10.29(1)  Employment Agreement by and between the Registrant
                        and Dr. Nathan B. Dinces, dated
                        as of April 1, 1991, as amended.
                        
              10.30(1)  Form of Financial Advisory and Investment Banking
                        Agreement between the Registrant and Josephthal
                        Lyon & Ross Incorporated.
                        
              10.31(1)  License Agreement between the Registrant and
                        Chiron Corporation (formerly Cetus
                        Corporation) dated as of February 19, 1991.
                        
              10.32(1)  Form of invention and confidential information
                        agreement between registrant and its
                        employees.
                        
              10.33(1)  Stock Purchase Plan.
                        
              10.34(1)  Settlement Agreement by and between the Registrant
                        and Fondation Nationale de
                        Transfusion Sanguine, dated December 9, 1991.
                        
              10.35(1)  Amended and Restated HIV Targeting Antibody
                        License Agreement by and between the
                        Registrant and Fondation Nationale de Transfusion
                        Sanguine, dated December 9, 1991.
                        
              10.36(2)  HBV Cell Line License Agreement by and between the
                        Registrant and Fondation
                        Nationale de Transfusion Sanguine, dated December
                        9, 1991.
                        
              10.37(3)  Employment Agreement by and between the Registrant
                        and Michael A. Appelbaum,
                        dated as of July 29, 1991.
                        
              10.38(4)  Agreement dated November 28, 1991 between Scotgen
                        Limited and the Company
                        pertaining to the genetic engineering of one of
                        the Company's antibodies.
                        
              10.39(5)  Amended and Restated 1987 Stock Option Plan.
                        
              10.40(6)  Letter of Intent between Registrant and The Bayson
                        Company dated March 16, 1992.
                        
              10.41(6)  Form of Consulting Agreement between the
                        Registrant and Paul M. Guyre, dated as of
                        March 17, 1992.
                        
              10.42(6)  Form of Consulting Agreement between the
                        Registrant and Edward Ball, dated as of
                        March 17, 1992.
              10.43(6)  Form of Consulting Agreement between the
                        Registrant and Michael W. Fanger, dated
                        as of March 17, 1992.
<PAGE>
 
        ITEM NUMBER
        -----------
 
              10.44(6)   Agreement In Principle dated as of July 10, 1992
                         between the Registrant and Dr. Daniel
                         Beck of Centre Hospitalier Universiter Vaudrois.
                        
              10.45(6)   Agreement In Principle dated as of July 23, 1992
                         by and among Institut Curie, Immuno-
                         Designed Molecules, SARL and the Registrant.
                        
              10.46(7)   Underwriting Agreement by and between the
                         Registrant and Rosenkrantz Lyon & Ross
                         Incorporated as Representative of the Several
                         Underwriters, dated June 20, 1991.
                        
              10.47(9)   Placement Agent Agreement between the Registrant
                         and Josephthal Lyon & Ross
                         Incorporated, dated as of November 13, 1992.
                        
              10.48(9)   Placement Agent Warrant Agreement between the
                         Registrant and Josephthal Lyon & Ross
                         Incorporated, dated as of December 14, 1992.
                         Placement Agent Agreement between
                         the Registrant and Josephthal Lyon & Ross
                         Incorporated, dated as of December 17, 1992.
                        
              10.50(9)   Placement Agent Warrant Agreement between the
                         Registrant and Josephthal Lyon & Ross
                         Incorporated, dated as of December 18, 1992.
                        
              10.51(8)   1992 Employee Stock Option Plan.
                        
             10.52(10)   Lease of Registrant's Laboratory Facility
                         (Annandale, New Jersey).
                        
             10.53(11)   Amendment to Lease of Registrant's Laboratory
                         Facility (Annandale, New Jersey).
                        
             10.54(11)   Employment Agreement by and between the Registrant
                         and Yashwant M. Deo, dated as of
                         July 8, 1993.
                        
             10.55(12)   Financing Agreement dated as of December 1, 1993
                         by and among the Registrant, G. Musuri
                         S.A. and IDM S.A.
                        
             10.56(12)   Consulting Agreement dated February 10, 1994 by
                         and between the Registrant and
                         Dr. Julius A. Vida.
                        
             10.57(13)   Letter of Intent dated March 30, 1994 between the
                         Registrant and E. Merck.
                        
             10.58(14)   Sublease of Registrant's Laboratory Facility (W.
                         Lebanon, New Hampshire).
                        
             10.59(14)   Sublease of Registrant's Executive Office
                         (Princeton, New Jersey).
                        
             10.60(15)   Sublease of the Company's New Hampshire Facility
                         dated May 25, 1994.
                        
             10.61 (9)   1995 Stock Option Plan
                        
             10.61A(17)  Amendment to the Financing and Option Agreement of
                         December 1, 1993 by and among
                         the Registrant, G. Musuri S.A. and IDM S. A.
                        
              10.62(9)   Stock Purchase Agreement dated May 16, 1995
                         between the Registrant and Novartis Inc 
                        
              10.63(9)   Development and Commercialization Agreement dated
                         May 16, 1995 between the
                         Registrant and Novartis Inc 
                        
              10.64(9)   Registration Rights Agreement dated May 16, 1995
                         between the Registrant and
                         Novartis Inc 
                        
              10.65(13)  Letter to Josephthal Lyon & Ross Incorporated
                         dated April 12, 1996.
                        
              10.66(20)  Convertible Note dated December 18, 1996 executed
                         by Houston Biotechnology
                         Incorporated in favor of the Registrant.
 
<PAGE>
 
        ITEM NUMBER
        ----------- 
 
              10.67(21)  License Agreement effective December 18, 1996
                         between Houston Biotechnology
                         Incorporated and the Registrant.
                          
              10.68(22)  Escrow Agreement dated as of December 18, 1996
                         Among Houston Biotechnology
                         Incorporated, the Registrant and Satterlee
                         Stephens Burke & Burke LLP, as escrow
                         agent.
                          
              10.69(19)  Convertible Note dated January 15, 1997 executed
                         by Houston Biotechnology
                         Incorporated in favor of the Registrant.
                          
                 11      Statement re: computation of per share earnings.
                         
              21(23)     Subsidiaries of the Registrant.
                         
               23.1      Consent of Ernst & Young LLP.
 
----------
  (1) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Registration Statement on Form S-1 (File No. 33-39956) filed
      on April 12, 1991.
  (2) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Current Report on Form 8-K dated December 20, 1991.
  (3) Incorporated by reference to exhibit number 10.33 to the Registrant's
      Current Report on Form 8-K dated August 9, 1991.
  (4) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Annual Report on Form 10-K filed on March 6, 1992.
  (5) Incorporated by reference to exhibit number 4 to the Registrant's
      Registration Statement on Form S-8 (File No. 33-44276) filed on November
      29, 1991.
  (6) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Registration Statement on Form S-1 (File No. 33-46509) filed
      on March 18, 1992.
  (7) Incorporated by reference to the exhibit number 1.1 to the Registrant's
      Registration Statement on Form S-1 (File No. 33-39956) filed on April 12,
      1991.
  (8) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Annual Report on Form 10-K filed on March 15, 1993.
  (9) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Post-Effective Amendment No. 5 to Registration Statement on
      Form S-1 (File No. 33-57366) filed on September 15, 1995.
 (10) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Quarterly Report on Form 10-Q filed on May 14, 1993.
 (11) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Quarterly Report on Form 10-Q filed on August 16, 1993.
 (12) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Annual Report on   Form 10-K filed on February 15, 1994.
 (13) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Registration Statement on Form S-1 (File No. 33-75324) filed
      on June 28, 1994.
 (14) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Quarterly Report on Form 10-Q filed on May 13, 1994.
 (15) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Quarterly Report on Form 10-Q filed on August 12, 1994.
 (16) Incorporated by reference to the identically numbered exhibits to the
      Registrant's Registration Statement on Form S-1 (File No. 33-98244) filed
      on July 26, 1995.
 (17) Incorporated by reference to the identically numbered exhibits to the
      Registrant's Quarterly Report on Form 10-Q filed on May 11, 1995.
 (18) Incorporated by reference to Exhibit 2.1 of the Registrant's Registration
      Statement on Form S-4 (File No. 333-20119) filed on January 22, 1997.
<PAGE>
 
 (19) Incorporated by reference to the identically number exhibit to the
      Registrant's Registration Statement on Form S-4 (File No. 333-20119) filed
      on January 22, 1997.
(20)  Incorporated by reference to Exhibit Number 99.2 to the Registrant's
      Current Report on Form 8-K filed on January 2, 1997.
(21)  Incorporated by reference to Exhibit Number 99.3 to the Registrant's
      Current Report on Form 8-K filed on January 2, 1997.
(22)  Incorporated by reference to Exhibit Number 99.4 to the Registrant's
      Current Report on Form 8-K filed on January 2, 1997.
(23)  Incorporated by reference to the identically numbered exhibit to the
      Registrant's Registration Statement on Form S-3 (File No. 333-16373) filed
      on November 19, 1996.

      (b) Reports on Form 8-K

          None