<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               Commission File No. 0-19312
31, 1999

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

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

   707 State Road #206, Princeton, New Jersey            08854
   (Address of principal executive                     (Zip Code)
               offices)

Registrant's telephone number, including area code: (609) 430-2880

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        The Nasdaq Stock Market under symbol MEDX
            value)

  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 Form10-K.

                                      [X]

  As of December 31, 1999, the registrant had outstanding 32,112,442 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 $81.875 per share on February 11, 2000
was approximately $2,127,000,000.

                      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 18, 2000 (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

   In this Annual Report "Medarex" or the "company," "we," "us" and "our"
refer to Medarex, Inc. and our wholly owned subsidiaries. This Annual Report
contains forward-looking statements that involve risk and uncertainties. Our
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

Overview

   We are a leading human monoclonal antibody-based company with integrated
discovery, development and clinical supply manufacturing capabilities. We are
able to create fully human monoclonal antibodies in our genetically engineered
"HuMAb-Mice." These mice are "transgenic"--that is, the mouse genes for
creating antibodies have been inactivated and have been replaced by human
antibody genes. To date, 15 companies have acquired the rights to use our
HuMAb-Mice in their development of new products, including major
pharmaceutical and biotechnology companies such as Novartis, Amgen, Immunex,
Schering AG and Centocor.

   As new disease-related targets are continually being discovered through
genomic and other research programs, we intend to use our HuMAb-Mice and
additional human antibody technology to develop therapeutic products for
ourselves and for our existing and prospective corporate partners. To this
end, we have recently entered into a strategic alliance with Eos Biotechnology
to develop and commercialize at least six and up to nine genomics-derived
antibody-based therapeutic products for the treatment or prevention of life
threatening diseases that may include breast, colorectal and prostate cancers.

   We believe that genomic and other research techniques are leading to the
discovery of an unprecedented number of potential targets for therapeutic
antibody products. To date, nine monoclonal antibody-based products have been
approved for sale by the FDA. The estimated 1999 revenues for the six highest
selling of these antibodies are $1.3 billion worldwide. The majority of these
antibodies have been on the market for less than three years. Most of the
antibodies currently in development, and all of the antibodies that form the
basis of these approved products, have been made in normal, or "wild type,"
mice and subsequently made "chimeric" or "humanized," leading to a product
that contains both human and rodent proteins. These remaining rodent proteins
may be recognized by a patient's immune system as "foreign," potentially
limiting the utility of the product or causing allergic reactions. Instead of
engineering mouse antibodies to make them humanized, we have genetically
engineered mice so that they make fully human antibodies.

   Using our genetically engineered mice, it is possible to create and develop
product candidates very rapidly. We have recently been able to complete the
process of making a very high affinity human antibody to a therapeutic target
and filed an IND with the FDA in less than 12 months. We believe that this
efficient and rapid development capability will provide an attractive platform
for product development for our corporate partners and for our own in-house
development programs.

   The potential of our engineered mice to rapidly generate high affinity,
fully human antibodies has led to numerous corporate partnerships under which
biopharmaceutical companies have acquired the right to use our HuMAb-Mice. We
initiated or expanded six corporate partnerships in 1998, and an additional
six in 1999. We are currently negotiating additional arrangements, and expect
to enter into several new or expanded corporate partnerships in 2000 and in
each of the next several years.

   The financial terms of our corporate partnerships typically include license
fees and a series of milestone payments commencing upon initiation of clinical
trials through commercialization which may total up to $7 to $10 million per
target if the antibody receives approval from the FDA and equivalent foreign
agencies. We also will receive royalties on product sales. In some cases, our
corporate partners reimburse us for research and

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development activities conducted on their behalf. Generally, under the terms
of these collaborations, our corporate partners are responsible for all costs
of product development, manufacturing and marketing of any products.

   We have recently announced that we have expanded our ability to create
human antibodies by entering into a binding letter of intent for a corporate
partnership with Kirin. This arrangement will provide us with the exclusive
rights outside of Asia to use, and to provide our corporate partners with
access to, Kirin's Tc Mouse technology. Like our HuMAb-Mice, Kirin's Tc Mice
have been designed to create fully human antibodies. The Tc Mouse, however, is
"transchromosomic," meaning that 100% of the human antibody genes contained in
the transplanted chromosomes are present in the mouse.

   Over 200 companies are developing monoclonal antibody-based products. We
believe that many of these companies are potential partners for our HuMAb-
Mouse and Kirin's Tc Mouse technology. In part, this reflects the enormous
increase in knowledge about potential targets currently in research and
development. For example, genomics research has identified that there are over
100,000 human genes, many of which are expected to be disease-related. In many
cases, these genes encode proteins that may be attractive targets for
monoclonal antibody-based products. We believe that our genetically engineered
mice and our product development experience coupled with our cGMP
manufacturing facilities will allow us to rapidly create and develop numerous
fully human antibodies based upon these targets. We intend to develop some of
these products for our own portfolio and some in collaboration with our
existing and prospective corporate partners.

   In addition to our fully human antibody discovery capabilities, we also
have the resources to develop other monoclonal antibody products from creation
through preclinical development, clinical trials and clinical supply
manufacturing under the FDA's regulations. This was the principal focus of our
business prior to the acquisition of our HuMAb-Mouse technology in 1997, and
it led to eight products in clinical trials. All of these products are based
on mouse or humanized antibodies. We have recently entered into corporate
partnerships with a number of companies and are seeking additional alliances
that will support the costs of developing this portfolio of mouse and
humanized monoclonal antibody-based products. For some of these products, we
have retained commercial rights in North America, and in other cases we will
potentially receive milestone payments and royalties on commercial sales. We
believe that transferring the costs of developing our mouse and humanized
antibody-based products to these corporate partnerships will allow us to focus
our resources and efforts on our human antibody business and the development
of new fully human monoclonal antibody-based products and services.

Our Human Antibody Discovery Technology

   Our human antibody discovery technology includes our HuMAb-Mouse technology
and Kirin's Tc Mouse technology. Both of these technologies use genetically
engineered mice to produce fully human monoclonal antibodies.

   Our HuMAb-Mouse Technology. We have developed a method that uses
genetically altered mice to create fully human monoclonal antibodies. These
mice are "transgenic"--that is, the mouse genes for creating antibodies have
been inactivated and have been replaced by human antibody genes. Because genes
determine what proteins are made, our transgenic mice make human antibody
proteins. We have thus created mice, known as "HuMAb-Mice," that have the
ability to make fully human monoclonal antibodies. This result avoids the need
to humanize murine monoclonal antibodies. Because the human genes in our
HuMAb-Mice are relatively stable, they are passed on to offspring of the mice.
Thus, such traits can be bred indefinitely at relatively low cost and without
any additional genetic engineering.

   Kirin's Tc Mouse Technology. Our corporate partner, Kirin, has developed
mice with 100% of the human antibody genes. These mice are
"transchromosomic"--that is, the mouse genes for creating antibodies have been
inactivated and have been replaced by the human chromosomes containing all of
the human antibody genes, including the genes for all heavy chain classes, for
example, IgA, IgD, IgE, IgG, IgM, as well as all isotypes of antibodies, such
as IgG1 and IgG4. These "Tc" Mice also have the ability to make fully human
monoclonal antibodies. We recently entered into a binding letter of intent to
acquire access to this technology under which Kirin gained rights to our HuMAb
technology and paid us an upfront fee of $12 million.

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   Our HuMAb-Mice, as well as Kirin's Tc Mice, are able to produce completely
human monoclonal antibodies when they are immunized using the same techniques
that have been used for many years to make mouse monoclonal antibodies. The
creation of these monoclonal antibodies takes approximately three to six
months, the same amount of time as the immunization of normal, wild-type mice.
We believe that the monoclonal antibodies derived from these human antibody
technologies typically have affinities as high or higher than antibodies
obtained from other technologies. The antibodies from these human antibody
technologies are 100% human and do not require any humanization. Since the
immune system in both our HuMAb-Mice and Kirin's Tc Mice have been left intact
except for the genes related to antibody formation, the mice are capable of
producing fully human antibodies to human antigen targets.

   We believe that our human antibody services and products offer potential
advantages to the services and products offered by competitors that rely on
other antibody development technologies such as humanization and phage display
techniques, including:

   Antibodies that are Fully Human. Unlike humanization techniques, our human
antibody technology generates antibodies with 100% human protein sequences,
which we believe will permit the development of products with a favorable
safety profile. Additionally, fully human antibody-based products are likely
to be eliminated less quickly from the human body, potentially reducing the
frequency and amount of dosing.

   Breadth of Human Antibody Technology. Our collaboration with Kirin will
allow us to provide our corporate partners with access to Kirin's Tc Mouse
transchromosomic technology, thereby affording them with an additional option.
Kirin's Tc Mice contain 100% of the human antibody genes, including the genes
for all heavy chain classes, as well as all isotypes, of antibodies. The
combination of our HuMAb-Mice and Kirin's Tc Mice will provide us with a broad
range of human antibody technology.

   High Affinity Antibodies. The natural affinity maturation process of our
human antibody technology creates antibodies that, in a number of cases, have
affinities one hundred to one thousand times higher than the chimeric or
humanized antibodies now approved for sale in the United States. These high
affinity antibodies have been made to a wide range of target antigens. Our
human antibody technology uses the natural in vivo affinity maturation process
to generate antibody product candidates usually in two to four months. In
contrast to antibodies generated using humanization and phage display
technology, our human antibodies are produced without the need for any
subsequent engineering to make them more human, a process which at times has
proven to be challenging and time consuming. By avoiding the need to further
engineer antibodies, we reduce the risk that an antibody's structure and
therefore functionality will be altered between the time of the selection of
the initial antibody and the time the final antibody is placed into
production.

   Rapid Development Capabilities. By combining our human antibody technology
for creating antibodies with our in-house development and clinical supply
manufacturing expertise, we have been able to progress from immunization to
IND filing in less than 12 months. We are using this rapid development
capability for the development of our own product candidates and as a service
for our corporate partners.

   Diverse Selection of Antibodies Respond to Many Disease Targets. Our human
antibody technology has the potential to generate high affinity antibodies
that recognize more antigen structures than other technologies. In addition,
our human antibody technology has created large panels of monoclonal
antibodies to many potentially medically relevant antigens. For a given
antigen target having multiple antibodies to choose from could be important in
selecting the optimal antibody product for development. One of our corporate
partners, Schering AG, has stated that our HuMAb-Mice were capable of
generating a panel of high affinity human antibodies to a target antigen even
after several attempts to generate murine antibodies to that target in wild
type mice had failed.

   Providing Flexibility to Our Customers. Our HuMAb-Mouse technology can be
used either in our laboratories or in the laboratories of our corporate
partners. This provides our corporate partners with the flexibility to
incorporate our technology into their research and development programs or to
contract with us to produce the antibodies. High affinity antibodies from our
HuMAb-Mice have been made by some of our corporate partners in their own
laboratories in addition to the ones we have made in our facility.

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   Enabling More Efficient Product Development. In contrast to humanization or
phage display, which require the cloning of an antibody gene and the
generation of a recombinant cell line, the B cells generated in our HuMAb-Mice
and Kirin's Tc Mice can be turned directly into hybridoma cell lines for human
antibody production. Therefore, a supply of monoclonal antibodies can be
produced quickly to allow the timely initiation of preclinical and clinical
studies. Furthermore, since our human antibody technology can potentially
produce multiple product candidates more quickly than humanization and phage
display technology, preclinical testing can be conducted on several antibodies
in parallel to identify the optimal product candidate which will be tested in
clinical trials.

   Certainty of Intellectual Property Rights. We are not aware of any licenses
required to create fully human antibodies to a target owned by the user except
under patents owned or licensed by us. In contrast, various entities hold
patents that may cover the chimerization or humanization of monoclonal
antibodies. In addition, several companies and academic institutions have
developed phage libraries for the creation of monoclonal antibodies, and a
number of companies and academic research centers have received patents that
may apply to the creation of phage-derived monoclonal antibodies.

Our Genomics Collaborations

   Genomics research has identified that there are over 100,000 human genes,
many of which are expected to be disease related. In many cases, these genes
encode proteins that may be attractive targets for a monoclonal antibody-based
product.

   Eos Biotechnology. In February 2000, we entered into a binding letter of
intent with Eos Biotechnology providing for the establishment of a strategic
alliance to develop and commercialize genomics-derived antibody-based
therapeutic products. Eos Biotechnology is a leader in the development,
application and utilization of a variety of genomics-derived product
candidates. Eos Biotechnology will identify novel disease targets associated
with life threatening diseases that may include breast, colorectal and
prostate cancers. Under the terms of this letter of intent, Eos Biotechnology
will be responsible for all costs of developing the products through Phase IIa
clinical trials. Thereafter, we will share all revenue and expenses with Eos
Biotechnology on an equal basis with respect to at least six and up to nine
product candidates that have successfully completed Phase IIa clinical trials.
The letter of intent also grants us certain rights with respect to the
manufacture of any such product candidates developed by the alliance, as well
as the right to become the exclusive licensee in Europe for certain product
candidates.

   In exchange for these rights, we will pay Eos Biotechnology $5 million in
cash upon the earlier to occur of 30 days from the date we sign a definitive
agreement or May 15, 2000. In addition, we will deposit $20 million in cash in
an interest bearing escrow account. These monies will be released to Eos
Biotechnology over time upon their achievement of certain milestones. Eos
Biotechnology will also receive up to $75 million in value as credits against
certain license fees, milestone payments and royalties that they may otherwise
owe to us under our HuMAb-Mouse collaboration for our alliances with Eos
Biotechnology and for other Eos Biotechnology collaborations.

   The principal terms of the alliance are contained in the letter of intent
and will be incorporated into a definitive agreement. By its terms, the letter
of intent will remain in full force and effect and the parties will operate in
accordance with its terms until such time as a definitive agreement is
executed.

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<PAGE>

Our Human Antibody Partnering Business

   We have established collaborations with the following 15 companies to use
our technology to produce fully human antibodies to over 30 potential antigen
targets. Under these collaborations, we and our corporate partners intend to
generate antibody product candidates for the treatment of cancer,
inflammation, transplant rejection, cardiovascular disease and other diseases.

<TABLE>
<CAPTION>
                                                                    Number of
Partner                                              Date           Antigens
-------                                              ----           ---------
<S>                                                  <C>            <C>
Kirin                                                December 1999  Multiple
IDM                                                  December 1999  Multiple
Amgen                                                September 1999 Multiple
Eos Biotechnology                                    August 1999    Multiple
Genmab                                               March 1999     Multiple
Immunex                                              January 1999   Multiple
Novartis                                             November 1998  Multiple
medac                                                September 1998 Single
FibroGen                                             July 1998      Multiple
Bristol-Myers Squibb                                 June 1998      Multiple
EluSys Therapeutics                                  May 1998       Multiple
Schering AG                                          February 1998  Multiple
Centocor, a subsidiary of Johnson & Johnson          February 1997  Multiple
LeukoSite, Inc., a subsidiary of Millennium Pharma-
 ceuticals, Inc.                                     January 1995   Multiple
Eisai                                                May 1993       Single
</TABLE>

   We expect that substantially all of our revenues over the next few years
will come from payments from our existing and future corporate partners. These
collaborations typically provide our corporate partners with access to our
human antibody technology for the purpose of generating fully human antibodies
to specific antigen targets identified by our corporate partners. In most
cases, we provide our HuMAb-Mice to our corporate partners who then immunize
the mice to generate fully human antibodies. In other cases, we may immunize
the mice with our corporate partner's antigen.

   Most of our corporate partnerships share a similar structure. There is
usually an initial period during which our corporate partner may elect to
enter into a research license for antibodies to a particular designated
target. Subsequently, our corporate partner may elect to obtain a commercial
license for monoclonal antibodies to a particular target. Thereafter, our
corporate partners typically are required to pay us milestone payments during
various stages of the clinical trial and regulatory approval process. Upon
commercialization, we are entitled to receive royalties on product sales.

   Most of our corporate partners have entered into multi-antigen
collaborations with us that allow them to use our human antibody technology
broadly throughout their research and development programs. In those cases,
our corporate partners will need to obtain commercial licenses from us for any
human monoclonal antibodies that they seek to commercialize. To date, a number
of our corporate partners have elected to obtain a commercial license for
monoclonal antibodies to several targets. In some cases, once a corporate
partner has obtained a commercial license for a monoclonal antibody, we can no
longer license our human antibody technology for that particular antibody.

   The financial terms of these collaborations typically include potential
license fees and a series of milestone payments commencing upon initiation of
clinical trials through commercialization which may total $7 million to
$10 million per target if the antibody receives approval from the FDA and
equivalent foreign agencies. In some cases, partners reimburse us for research
conducted on their behalf, which includes immunization services and the
creation of hybridomas. We are also entitled to receive royalties on product
sales. Our corporate partners are generally responsible for all costs of
product development, manufacturing and marketing.


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Our Human Antibody Development Business

   We believe that our engineered mice, development experience and cGMP
clinical supply manufacturing facilities will allow us to rapidly create and
develop numerous fully human antibodies based upon these targets. We intend to
develop some of these product candidates for our own account and some in
collaboration with other companies.

   In addition to our HuMAb-Mouse and Kirin's Tc Mouse antibody discovery
technologies, we have considerable experience in clinical development and
clinical supply antibody manufacturing. To facilitate the clinical testing and
commercialization of antibody-based products for us and for our partners, we
have assembled a team of experienced scientific, production and regulatory
personnel. This team operates in our cGMP clinical supply manufacturing
facility, which has a capacity of 10 kilograms of monoclonal antibody
production per year. Over the last five years, we have received regulatory
approval to commence clinical testing of seven products in five countries. By
combining our HuMAb-Mouse technology for creating antibodies with our in-house
development and manufacturing expertise, we have been able to progress from
immunization to the filing of an IND in less than 12 months for one human
antibody. We believe that our existing facilities are adequate for the
production of materials for clinical trials of our products and for providing
the services we offer to our corporate partners in connection with our human
antibody technology. However, we do not currently have the capability to
manufacture our products under development in large commercial quantities and
have no experience in commercial-scale manufacturing.

   We are currently in discussion with several companies that have identified
potential therapeutic targets or have created platforms for the identification
of such targets. We are actively seeking the opportunity to in-license such
targets, and we intend to invest a significant portion of the proceeds of this
offering in acquiring the rights to these targets and in developing novel
therapeutic products by making human antibodies that interact with the
targets. We expect that we will develop such products at least through Phase
II clinical testing. Upon the completion of Phase II testing, we may decide to
fund further development or to find a corporate partner to complete the
development of the product.

   We intend to participate with some of our corporate partners in the
development of antibody products based on their novel targets. We are already
in the process of developing a number of human antibodies. Our affiliate,
Genmab, is conducting Phase I/II clinical trials of MDX-CD4, an anti-CD4 human
antibody being developed for rheumatoid arthritis. CD4 is a receptor on T-
cells that is believed to be associated with the inflammatory process.
Additionally, we are developing MDX-101 internally. MDX-101 is a fully human
antibody developed through the use of our HuMAb-Mouse technology that targets
an immune receptor known as CTLA-4. This receptor, which is a protein found on
the surface of T-cells, is believed by scientists to suppress the attack by
immune system killer cells on tumors or infectious agents. By using a fully
human antibody to block the activity of CTLA-4, we believe that patients'
immune systems may be able to more potently attack foreign pathogens and
cancers. We expect to begin initial clinical testing of MDX-101 in prostate
cancer patients during 2000.

   We believe that our human antibody partnering business has allowed us to
develop close relationships with numerous companies and institutions that may
enhance our ability to acquire the rights to attractive therapeutic targets.
Examples of potential therapeutic products to which we and our affiliates have
acquired access through our human antibody partnering business include MDX-
101, our anti-CTLA-4 product, which was acquired from Gilead Sciences, Inc.,
and Genmab's antibody product, which was acquired as part of our collaboration
with Immunex. In each of these cases, we were able to acquire potentially
valuable product opportunities as a result of our human antibody services--
that is, our ability to rapidly create, develop and initiate clinical testing
of human monoclonal antibodies on behalf of corporate partners.

Our Genmab Joint Venture

   In March 1999, we and BankInvest Biomedical Development Venture Fund
announced the formation of Genmab, a new Danish company established to develop
and commercialize a portfolio of fully human antibodies

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derived from our HuMAb-Mouse technology. Genmab received funding of
approximately $7.5 million; BankInvest VF was the lead investor with A/S Dansk
Erhvervsinvestering and others as co-investors. We elected to accept a 45%
equity ownership stake in Genmab in place of milestone payments and royalties.
Genmab plans to take advantage of Denmark's high quality medical and research
institutions to conduct clinical trials of human antibody products. Genmab
will focus primarily on developing several products to treat inflammatory
conditions, such as rheumatoid arthritis and psoriasis, and has received a
license to certain of our rights to MDX-CD4, a fully human antibody in Phase
I/II clinical trials for the treatment of rheumatoid arthritis. Genmab also
has entered into a collaboration with Immunex to develop fully human
antibodies to a molecule that appears to be involved in inflammatory and
autoimmune diseases. Genmab has recently received notice from the Vaekst
Fonden, a growth fund established by the government of Denmark, of its
intention to provide additional financing of approximately $7 million. To
date, Dr. Lisa Drakeman, our Senior Vice President--Business Development, has
acted as Genmab's President and Chief Executive Officer. Dr. Lisa Drakeman
does not receive any compensation from Genmab for these services. Upon
Genmab's formation, Dr. Lisa Drakeman received approximately 2% of the equity
of Genmab.

Our Corporate Collaborations

   Our HuMAb-Mouse Collaborations

   To date, we have entered into 15 collaborations to generate human antibody
product candidates utilizing our HuMAb-Mouse technology.

   Kirin. In December 1999, we entered into a binding letter of intent with
Kirin providing for the global commercialization of technology for creating
fully human monoclonal antibodies. Under the terms of this letter of intent,
Kirin was designated as the exclusive distributor of our HuMAb-Mouse
technology in Asia, and we were designated as the exclusive distributor of
Kirin's Tc Mice outside of Asia. Kirin paid us $12 million in upfront fees and
will pay certain additional payments over the term of this arrangement. We
will exchange broad licenses with Kirin, subject to milestone and royalty
payments, for in-house use of each other's technology for the development of
human antibody therapeutic products. We will also initiate a research
collaboration with Kirin to develop a novel approach to the creation of fully
human antibodies by combining our proprietary technologies. The binding letter
of intent with Kirin includes the principal terms of the transaction. These
terms are not subject to change except upon mutual consent and will be
incorporated into a definitive agreement. Any additional terms are subject to
the execution of the definitive agreement. Under the terms of the letter of
intent, any disagreements that arise with respect to such additional terms are
subject to binding arbitration.

   IDM. In December 1999, we entered into a collaboration with IDM involving
the use of our HuMAb-Mouse technology for the generation of fully human
antibodies. Under the terms of the agreement, we could receive research
payments, license fees and milestone payments as well as royalties on further
commercial sales. The agreement allows IDM to access our antibody development
technology for multiple targets. In addition, we intend to enter into an
agreement which will make IDM our first partner for CTLA-4 blockade technology
to enhance cancer vaccines. IDM intends to pursue an anti-CTLA-4 approach in
conjunction with its proprietary Dendritophages(TM) as a cellular vaccine for
the treatment of melanoma and prostate cancers.

   Amgen. In September 1999, we entered into a collaboration with Amgen to
generate human monoclonal antibodies to multiple antigens. Under this
collaboration, we have received research payments and may receive license fees
and milestone payments, as well as royalties on commercial sales.

   Eos Biotechnology. In August 1999, we entered into a collaboration with Eos
Biotechnology to generate human monoclonal antibodies to several target
antigens identified through genomic research. Under this collaboration, we
could receive research payments, license fees and milestone payments, as well
as royalties on commercial sales. This collaboration is in addition to our
recent strategic alliance with Eos Biotechnology for the development and
commercialization of genomics-derived antibody-based therapeutic products.


                                       7
<PAGE>

   Immunex. In January 1999, we entered into a license arrangement with
Immunex involving our HuMAb-Mouse technology. Through this license, Immunex
obtained the rights to use the HuMAb-Mouse technology throughout the entire
Immunex organization for an unlimited number of targets for up to ten years.
Under the terms of the agreement, we will receive technology access fees and
could receive research payments, license fees and milestone payments, as well
as royalties on commercial sales.

   Novartis. In November 1998, we entered into a global licensing arrangement
with Novartis involving our HuMAb-Mouse technology. Under the terms of the
agreement, Novartis can use the HuMAb-Mouse technology throughout the entire
Novartis organization for an unlimited number of targets for up to ten years.
Under the terms of the arrangement, Novartis made an initial equity investment
in our common stock of $2 million. Novartis made an additional $1 million
equity investment in November, 1999. A further $3 million in equity purchases
may be made after the initial five year term of the agreement. In addition, we
could receive license fees, milestone payments and royalties on sales of
products made utilizing the HuMAb-Mouse technology.

   medac. In September 1998, we entered into an antibody development agreement
with medac, a privately held company. Under this research collaboration and
license agreement, we are using our HuMAb-Mouse technology to produce a new
bispecific antibody to treat Hodgkin's Lymphoma. We are employing our HuMAb-
Mouse technology to generate a fully human monoclonal antibody to CD30, a
potential cancer antigen for which medac claims proprietary rights.

   FibroGen. In July 1998, we and FibroGen, a privately held biotechnology
company, entered into an antibody development agreement for potential anti-
fibrotic therapies. We could receive research and development payments,
license fees, milestone payments and royalty payments on future product sales
by FibroGen. The agreement calls for us to use our HuMAb-Mouse technology to
produce fully human antibodies against FibroGen's proprietary targets for
exclusive use by FibroGen and its licensees. FibroGen's targets include
connective tissue growth factor, or CTGF, and its processed fragments, bone
morphogenic protein 1 and tolloids, key proteins implicated in fibrotic
disease.

   Bristol-Myers Squibb. In June 1998, we entered into a research agreement
with Bristol-Myers Squibb involving our HuMAb-Mouse technology. Bristol-Myers
Squibb is using the HuMAb-Mouse to create human antibodies to multiple
antigens for use in their drug discovery programs. The agreement includes the
option for Bristol-Myers Squibb to commercialize these antibodies on terms
that could result in license fees and milestone payments, plus royalties.

   EluSys. In May 1998, we entered into an antibody development agreement with
EluSys, a privately held biotechnology company. Under this research
collaboration and license agreement, EluSys will employ our HuMAb-Mouse
technology to produce a fully human antibody to a proprietary target antigen.
We could receive license fees, milestone payments and preclinical and clinical
manufacturing payments plus royalty payments on future product sales by
EluSys. In addition, we and EluSys will collaborate to develop a second human
antibody to a different proprietary target antigen that will be shared by both
companies.

   Schering AG. In February 1998, we entered into a collaboration with
Schering AG for the use of our HuMAb-Mouse technology in the production of
fully human antibodies to a proprietary antigen. In May 1999, this
collaboration was expanded to include additional antigens. We could receive
research and development payments, a license fee, milestone payments and
royalty payments on future product sales by Schering AG.

   Centocor. In February 1997, we entered into a research and
commercialization agreement with Centocor, which is now a subsidiary of
Johnson & Johnson. The collaboration is focused on developing completely human
antibodies to four antigens. The Centocor agreement provides for research
payments to be paid to us, as well as an equity investment in our company of
$4 million which was paid in 1998. In addition, we received $4 million in
January 1999 for the exercise of Centocor's option for commercial rights to
these antibodies and could receive up to an additional $48 million upon the
achievement of various clinical milestones with respect to these

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antibodies. In turn, Centocor will have worldwide marketing and manufacturing
rights to any resulting antibodies for which they have exercised their option
for commercial rights, subject to the payment of royalties to us.

   LeukoSite. In January 1995, we entered into a collaboration with LeukoSite,
which is now a subsidiary of Millennium, to produce human antibodies from our
HuMAb-Mouse against certain specified antigens. The term of the LeukoSite
agreement and the research program to be conducted thereunder were extended in
1996. In February 1999, we and LeukoSite expanded this collaboration to allow
LeukoSite the ability to utilize the HuMAb-Mouse system as part of its
discovery research program. In exchange, we received additional rights to an
anti IL-8 antibody that we were previously jointly developing with LeukoSite
for the treatment of psoriasis. We could receive milestone payments and
royalties on commercial sales of products developed and commercialized by
LeukoSite using the HuMAb-Mouse technology.

   Eisai. In May 1993, we entered into a collaborative agreement with Eisai, a
leading Japanese healthcare company, to fund the development and initial
manufacturing of a human antibody product to a specific antigen. The Eisai
agreement and subsequent amendments provide for $12 million of research
payments as well as a further $18.5 million of milestone and other payments.
To date, we have received research and milestone payments totaling $13.6
million. An IND was filed with the FDA in 1998 for the first of the HuMAb-
Mouse products developed through this collaboration, and a Phase I clinical
trial in rheumatoid arthritis commenced in January 1999. Eisai has exclusive
marketing rights for Japan and for countries in Asia and Europe. We originally
retained marketing rights for North America and the remaining parts of the
world, which were licensed to Genmab in 1999. We are entitled to receive
royalty payments on Eisai sales as well as payments for providing bulk product
to Eisai.

   Our Humanized and Murine Monoclonal Antibody Business

   With the rapid increase of antigen targets being developed, particularly by
genomics companies, we have shifted the focus of our business and intend to
concentrate our resources and efforts primarily on our fully human antibody
development business. As a result, we have entered into a number of
collaborations whereby our corporate partners will bear significant
responsibility for the development and commercialization of certain of our
humanized and murine monoclonal antibody-based products. Currently, these
products employ murine and humanized monoclonal antibody technologies for the
treatment of cancer, autoimmune disorders and ophthalmic conditions.

   Scil Biomedicals. In January 2000, we entered into a binding letter of
intent with Scil Biomedicals GmbH for the development of MDX-210, our
antibody-based product for the treatment of cancers overexpressing HER-2, for
applications outside cellular therapy. Scil was formed by certain owners and
senior executives of Boehringer Mannheim following the acquisition of
Boehringer Mannheim by Roche Holding AG. MDX-210 is in Phase II trials for the
treatment of patients with hormone refractory prostate cancer. Scil has agreed
to pay us an upfront fee of $2 million and will pay all of the remaining costs
of the Phase II trials and has agreed to fund 100% of the Phase III costs
necessary to obtain regulatory approval in North America and Europe up to a
maximum of $17 million. Scil will have the rights to commercialize MDX-210 in
Europe, subject to royalties payable to us. If we elect to fund 50% of the
Phase III costs, we will retain all rights outside of Europe; if we elect to
have Scil pay all of the Phase III costs, we will share copromotion rights in
North America with Scil.

   As part of this agreement, Scil has also acquired certain rights to MDX-RA.
MDX-RA is an immunotoxin used to prevent secondary cataracts. MDX-RA is a type
of monoclonal antibody linked to ricin, a plant-derived toxin, which is
injected into the eye during primary cataract surgery after the insertion of a
new intraocular lens. This immunotoxin is used to destroy residual lens
epithelial cells, which, if left to grow, could cause opacification of the new
intraocular lens resulting in the need for secondary cataract surgery. In 1998
there were approximately 2.2 million primary cataract surgeries and
approximately 800,000 secondary cataract surgeries.

   A Phase III placebo controlled clinical trial of MDX-RA began in December
1997. In November 1998, we voluntarily suspended the Phase III trial after 565
patients had been treated. The reason for the suspension was

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the occurrence of serious adverse events, or SAEs, in seven patients receiving
a placebo and six treated with MDX-RA. We believe that the cause of the SAEs
resulted from the buffer solution used as part of the product. As a result of
these SAEs, we have received a small number of claims, of which only three
have resulted in lawsuits being filed. One of these lawsuits has been settled
for an insubstantial amount. The others are in the very early stages. We
believe our product liability insurance is sufficient to cover any such
claims.

   Under the terms of our letter of intent, we will transfer our development
rights for this product to Scil, which has agreed to undertake the continued
development and commercialization of MDX-RA. Scil will pay 100% of the costs
up to $8 million for clinical trials, regulatory filings and approvals and
manufacturing scale up for development of MDX-RA in Europe, the Near East and
North America. Thereafter, we will share all such costs with Scil equally
except for costs for additional clinical studies that are required only for a
specific territory, in which case the party having rights in that territory
will pay 100% of such costs. Pursuant to the letter of intent, we received $2
million in upfront fees. In addition, Scil will pay us royalties on commercial
sales and will be responsible for all third party royalties. We have agreed to
pay Scil certain milestone payments up to $3 million. We will remain
responsible for any claims relating to the prior clinical trials.

   The principal terms of the Scil collaboration are contained in the binding
letter of intent and will be incorporated into a definitive agreement for each
product. In the event we are unable to execute definitive agreements with
Scil, we intend to seek additional collaborative partners for the development
and commercialization of these products.

   Santen. We also have a strategic alliance with Santen pursuant to which
Santen has obtained the exclusive marketing rights to MDX-RA in Japan. We have
reached an understanding with Santen to modify the manufacturing and royalty
provisions in the original agreement, as well as to provide us an option to
reacquire commercial rights to the MDX-RA product for the Japanese market. In
return, we allowed Santen to issue a contingent note in the amount of $1
million for the milestone payment which was due in January 1998 relating to
the initiation of Phase III clinical trials of MDX-RA in the United States. In
light of the suspension of the Phase III clinical trials, the time for payment
of this note has been extended.

   Merck KGaA. We originally developed MDX-447 in conjunction with Merck KGaA.
Merck has the rights to commercialize MDX-447 in Europe, to negotiate for co-
marketing or co-promotion rights in the United States, and has a 50%
commercial interest outside Europe and the United States. Pursuant to our non-
binding letter of intent with IDM, we expect to transfer our financial
interest in MDX-447 to IDM, which will be responsible for its continuing
development.

   IDM. In January 2000, we entered into a non-binding letter of intent with
IDM which provides for among other things, the development of MDX-210 for
cellular therapy applications. We expect IDM to initiate a Phase III clinical
trial of MDX-210 in ovarian cancer in connection with IDM's macrophage
activated killer, or MAK, cells in the first half of 2000.

   The commercial rights to our MDX-447, MDX-220 and MDX-22 products are
proposed to be transferred to IDM pursuant to this agreement. We will continue
to collaborate with Merck KGaA and IDM in connection with MDX-447, a
monoclonal antibody-based product for patients with tumors overexpressing the
epidermal growth factor receptor, or EGFr. MDX-220 is in Phase I/II clinical
trials for colon and prostate cancer. MDX-22 is in Phase II clinical trials
for acute myeloid leukemia. IDM will pay all of the further costs of
development of these products.

   Under the terms of the letter of intent, we are required to pay IDM $2
million upon the execution of a definitive agreement which we anticipate will
occur during the first quarter of 2000. We currently have a 6% interest in
IDM. The agreement provides for us to obtain additional equity in IDM, or a
comparable interest in a new jointly owned entity, which will result in us
having a 43% aggregate equity interest in such entity. In addition, we are
required to purchase additional equity to fund up to an additional $5 million
in the event IDM does not complete a public or private financing of at least
$7 million on or before December 31, 2000. In

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addition, we will waive our existing rights to acquire the commercialization
rights in North America to IDM's MAK technology in targeted immunotherapy.

   The IDM letter of intent contains the principal terms of the collaboration
which are to be incorporated into a definitive agreement. In the event we are
unable to reach a definitive agreement with IDM, we intend to seek other
corporate partners for the development and commercialization of these products.

   Aventis Behring. In April 1996, we announced a collaborative arrangement
with Aventis Behring to jointly develop MDX-33, a humanized monoclonal antibody
for the treatment of a variety of autoimmune hematological disorders. MDX-33 is
designed for the treatment of ITP, an autoimmune condition in which patients'
platelets are destroyed by their own immune systems. Conventional treatments
include steroids, removal of the spleen and high doses of intravenous IgG. We
believe that intravenous IgG creates an antibody blockade by overwhelming
certain receptors on immune system killer cells with extremely large quantities
of antibodies, thus minimizing the effects of the auto-antibodies. MDX-33 is
designed to reduce the number of these receptors, and we believe that MDX-33
may achieve the same therapeutic results as large doses of IgG. MDX-33 is
currently in Phase II clinical trials.

   Under the terms of the agreement, Aventis Behring will finance product
development through Phase II clinical trials up to a maximum of $20 million.
Upon successful completion of these clinical trials, Aventis Behring will also
fund Phase III clinical trials, regulatory approvals and commercial launch
costs. Subject to the terms of the agreement, we have the potential to receive
up to approximately $10 million in payments from Aventis Behring for the
achievement of specific milestones. Upon commercialization, Aventis Behring
will have exclusive worldwide marketing rights to MDX-33 for autoimmune
hematological disorders, and we will be entitled to royalty payments and may
also manufacture the product for Aventis Behring.

   MDX-44. We are also internally developing MDX-44, our monoclonal antibody-
based product for the treatment of psoriasis and other dermatological
conditions. MDX-44 is an immunoconjugate consisting of a humanized antibody
linked to ricin. Promising results of animal testing of MDX-44 were published
in the January 2000 issue of Nature Biotechnology. We expect to have initial
results of clinical testing of MDX-44 in patients with atopic dermatitis in
2000.

Our Cross License Agreement With Abgenix

   In 1994, prior to our acquisition of GenPharm, Abgenix and related entities
brought a lawsuit against GenPharm relating to intellectual property issues
involved in creating transgenic mice capable of generating fully human
antibodies. GenPharm filed counterclaims, and the litigation was settled in
March 1997 upon the execution of a patent cross-license and settlement
agreement. Under the terms of this agreement, GenPharm granted a license, on a
non-exclusive basis, to certain patents, patent applications, third party
licenses and inventions pertaining to the development and use of certain
transgenic rodents, including mice, that produce fully human antibodies. In
exchange for this license, GenPharm received payments in 1997, and after our
acquisition of GenPharm we received payments, including interest, from Abgenix
and its related parties which totaled approximately $38.6 million. Neither
Abgenix nor any of its related entities have any further payment obligations to
us under the agreement. Neither we nor GenPharm were required to make any
payments to Abgenix or any related entity under the terms of the agreement. The
agreement also provides us with a non-exclusive license to certain intellectual
property held by Abgenix.

Research Collaborations

   Utrecht University. Medarex Europe B.V., our wholly-owned European
subsidiary, has established an alliance with Utrecht University, the largest
research university in the Netherlands. Research is being conducted with the
HuMAb-Mouse technology and related areas of immunotherapy.


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<PAGE>

Marketing

   Our potential products fall into two groups: those intended to be marketed
and sold by us and those expected to be marketed by our corporate partners. We
believe that a small sales force could successfully introduce and detail
certain of our potential products which have concentrated marketplaces.
Currently, we have no such sales force. We may develop our own internal sales
force for these products if they proceed to commercialization.

   We acknowledge that the successful marketing of some of our potential
products is beyond the capabilities of all but the largest pharmaceutical
organizations. For this reason, we plan 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.

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

Regulatory Issues

   General. The production, distribution and marketing of products employing
our technology and our 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 and biologics are subject to extensive rigorous federal regulation
including the requirement of approval by the FDA before marketing may begin
and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic
Act and the Public Health Service Act both, 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, distribution, storage, record keeping, approval, advertising and
promotion of our products. Product development and approval within this
regulatory scheme, if successful, will take a number of years and involve the
expenditure of substantial resources.

   Products employing our technology 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 biologic may be marketed in the United States
includes:

  .  preclinical laboratory and animal tests;

  .  submission to the FDA of an application for an IND, which must become
     effective before human clinical trials may commence;

  .  preliminary human clinical studies to evaluate the drug or biologic and
     its manner of use; and

  .  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 therapeutic use.

   If the product is regulated as a drug, the FDA Center for Drug Evaluation
and Research, or CDER, will require the submission and approval of a New Drug
Application, or NDA, before commercial marketing may begin. If the product is
regulated as a biologic such as antibodies, the FDA Center for Biologics
Evaluation and Research, or CBER, will require the submission and approval of
a Biologic License Application, or BLA, before commercial marketing may begin.
As part of the NDA or BLA 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 to support the proposed
clinical therapeutic use. Each domestic and foreign biopharmaceutical
manufacturing establishment, including our contract manufacturers, must also
be registered with the FDA and pass an inspection by the FDA prior to approval
for commercial distribution. If they fail to pass the inspection, we will not
receive approval to market these products.


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   Under the Prescription Drug User Fee Act, the FDA receives fees for
reviewing a BLA or NDA and supplements thereto, for each commercial
manufacturing establishment and for each product. These fees can be
significant; the NDA or BLA review fee can, by itself, exceed $270,000,
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 the law and FDA regulations, each NDA or BLA submitted for FDA approval
is reviewed usually within the 45 to 60 days following submission of the
application for administrative completeness and reviewability. If deemed
complete, the FDA will "file" the NDA or BLA, triggering substantive review of
the application. The FDA can refuse to file any NDA or BLA that it deems
incomplete or not easily reviewable. If the FDA refuses to file an
application, the FDA will retain 25% percent of the user fee as a penalty. The
application may be resubmitted after incorporating the additional information
or changes demanded by the FDA, or it may be requested that the application be
filed for substantive review over protest. In either case, a new NDA or BLA
review fee may be required.

   Moreover, we are now, and may become subject to additional, various
federal, state and local laws, regulations and recommendations relating to
safe working conditions, laboratory practices, the experimental use of animals
and the use, storage, handling and disposal of waste and hazardous substances,
including radioactive and toxic materials and infectious disease agents used
in conjunction with our research work.

   Certain issues that have potential impact on future marketing of products
employing our technology 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.

   Research refers to the discovery or identification of potential product
candidates, initial work on new applications of technology and other
associated discovery work.

   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 small numbers of healthy
volunteers or, on occasion, in patients afflicted with the target disease, to
determine the early side effect profile and the pattern of drug
pharmacokinetics distribution and metabolism. In Phase II, studies are
conducted in larger groups of patients afflicted with the target disease to
validate the clinical end point, to determine preliminary efficacy, optimal
dosages and expanded evidence of the safety profile. In Phase III, large-scale
clinical trials involving hundreds of patients are conducted in patients with
the target disease to provide sufficient data for the statistical proof of
efficacy and safety required by U.S. and foreign regulatory agencies. Such
Phase III trials must be well-controlled, and success of such trials often
depends on whether the required level of control is maintained. Maintenance of
such control is very difficult and we cannot assure you that such control will
be maintained and be performed in compliance with good clinical practice, or
GCP, regulations. 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 be
in compliance with GCP regulation, that the data will demonstrate that the
product is safe or effective or, in the case of a biologic product, potent as
well, or will provide sufficient data to support FDA approval of the product.
After FDA approval to market under an NDA or BLA, the FDA may require Phase IV
post-marketing studies to be performed as a condition of approval.

   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

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<PAGE>

"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.

   We and our collaborative partners also will be subject to widely varying
foreign regulations governing clinical trials and pharmaceutical sales which
may be different from those of the FDA. Whether or not FDA approval has been
obtained, a separate approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
product marketing 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. We intend, to the extent possible, to rely on foreign licensees to
obtain regulatory approval for marketing products employing our technology in
foreign countries. In addition, under current law, there are significant
restrictions on the export of products not approved by the FDA depending on
the country involved and the status of the product in that country.

   Regulatory approval to market a biologic or a new drug ordinarily takes
three to six years or more and involves the expenditure of substantial
resources. Approval time depends on a number of factors, including the period
of review at the FDA, the number of questions posed by the FDA during review,
how long it takes us to respond to the FDA questions, the severity of the
disease in question, the availability of alternative treatments, the
availability of clinical investigators and eligible patients, the rate of
enrollment of patients in clinical trials and the risks and benefits
demonstrated in the clinical trials.

   Currently, only one product employing our fully human antibody technology,
MDX-CD4, has entered into Phase I clinical trials. This product is designed
for the treatment of rheumatoid arthritis. No products employing our human
antibody technology have been approved by the FDA for sale.

   Treatment IND Status. Treatment protocols and INDs for products employing
our technology may also be submitted. The FDA may allow treatment protocols or
products for patients with life-threatening and severely debilitating diseases
especially where no satisfactory alternative therapy exists. The purpose of
these regulations is to facilitate the availability of new investigational
products to desperately ill patients before FDA approval for marketing begins.
We or our collaborative partners may be able to recover some of the costs of
production, manufacture, research, development and handling prior to market
approval if patients are allowed to be charged for the product used in such
studies. 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 not authorized to charge for the products.

   Drug and Biologics for Serious or Life-Threatening Illnesses. The Federal
Food, Drug and Cosmetic Act and FDA regulations provide certain mechanisms for
the accelerated approval of products intended to treat serious or life-
threatening conditions, which have been studied for safety and effectiveness,
and which demonstrate the potential to address unmet medical needs for such
conditions. 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, NDAs or BLAs to be approved on the basis of Phase II clinical study
results or on the basis of valid surrogate markers of product effectiveness,
thus accelerating the normal approval process. Certain products employing our
human antibody technology might qualify for this accelerated regulatory
procedure although we cannot assure you that the FDA will agree.
Notwithstanding the foregoing, approval may be denied by the FDA or additional
Phase III studies may be required. The FDA may also require our agreement to
perform post-approval Phase IV studies as a condition of such early approval.

Patents, Trademarks, Trade Secrets and Licenses

   Proprietary protection for our products, processes and know-how is
important to our business. Our policy is to file patent applications to
protect technology, inventions, and improvements that we consider important to
the development of our business. We also rely upon trade secrets, know-how and
continuing technological innovation

                                      14
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to develop and maintain our competitive position. We plan to aggressively
prosecute and defend our patents and proprietary technology.

   Currently, we hold 10 issued patents and allowed patent applications in the
United States, and 16 issued patents in foreign countries including Europe,
Japan, Korea, Canada and Australia, among others, covering aspects of our
HuMAb-Mouse technology and products. These patents, almost all of which are in
the same patent family, include the transgene, the transgenic mouse, methods
of obtaining high affinity antibodies, and composition of matter claims for
high affinity antibodies, among others. These patents have expiration dates
beginning 2011. We also have more than 25 related pending U.S. and foreign
patent applications covering aspects of our HuMAb-Mouse technology and
products. Additionally, we hold exclusive and non-exclusive licenses to
various pertinent technologies relating to our HuMAb-Mouse technology. For
example, these technologies include microinjection of transgene DNA,
homologous recombination, chomosome transfer, yeast artificial chromosome
transgene technology and other relevant technologies. We also hold an
exclusive license from The University of California covering aspects of our
anti-CTLA-4 human monoclonal antibody product.

   In addition to patent coverage for our HuMAb-Mouse technology, we currently
hold 21 patents and allowed patent applications in the United States, and 26
patents in foreign countries including Europe, Japan, Korea, Canada and
Australia among others, covering aspects of our bispecific molecule technology
and bispecific products. These patents have expiration dates from 2007-2016.
In addition, we have more than 75 pending U.S. and foreign patent applications
also covering aspects of our bispecific molecule technology and bispecific
products. In particular, we hold United States and European patents covering
our trigger antibody which binds to the type I human receptor molecule, as
well as bispecific molecules which incorporate the trigger antibody. We also
hold exclusive and non-exclusive licenses to technologies owned by third
parties relating to certain aspects of our bispecific and human monoclonal
antibody technologies. For example, we hold a license from Merck KGaA for its
anti-EGFr antibody used in the production of MDX-447, a bispecific antibody
directed against the EGF receptor, and a license from Chiron Corporation for
its anti-HER-2/neu antibody used in the production of MDX-210, a bispecific
antibody directed against the HER-2/neu receptor.

   In addition, we also hold registered trademarks on our corporate name
Medarex(R) and on the term Putting the Immune System to Work(R) in the United
States and Europe and have made applications for the registration of these
marks in Canada.

Competition

   We face competition in several different forms. First, our human antibody
development activities currently face competition from one principal
competitor and from other technologies. The actual products being developed by
our collaborators or by us also face actual and potential competition.

   We face competition from many companies that provide the services of
generating murine, humanized or human monoclonal antibodies. Our principal
competitor for our human antibody technology is Abgenix. As a result of the
cross licensing agreement, Abgenix offers to potential partners the use of its
transgenic mice known as XenoMice(TM), that, according to Abgenix, are capable
of generating fully human monoclonal antibodies. Numerous companies have
expertise in the realm of humanization technology, such as Genentech, Protein
Design Labs, and with phage display technology, such as Cambridge Antibody
Technology, Dyax Corp. and MorphoSys.

   The development of biotechnology and pharmaceutical products is a highly
competitive business subject to rapid technological change. We know of several
pharmaceutical and biotechnology companies conducting research or development
on monoclonal antibodies and related fields. Some of these companies are
pursuing product development efforts for the same disease areas as we or our
partners are pursuing.

   Other technologies can also be applied to the treatment of the diseases
that we or our corporate partners are pursuing. For example, immunoconjugates,
monoclonal antibodies linked to toxins or radioactive isotypes, are being
developed by others. In addition, the application of recombinant DNA
technology to develop potential

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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, or
TNF, 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. In particular, we are
aware that Genentech, Inc. has developed a monoclonal antibody-based product
that targets HER-2 that may be competitive with MDX-210. We are also aware
that ImClone Systems, Inc. has published reports indicating that it is
developing monoclonal antibody-based products targeting EGFr that may be
competitive with MDX-447. ITP is currently being treated with WinRhoSDF(TM)
sold by Nabi(R), IVIgG and steroids, all of which have had limited success.
Rheumatoid arthritis is currently being treated with a number of compounds and
a number of monoclonal antibodies, including antibodies against TNF and CD4.
Anti-TNF and anti-CD4 antibodies are being developed by a number of companies
including Centocor, IDEC Pharmaceuticals, SmithKline Beecham and others.

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

   With respect to the prevention of secondary cataracts, we are not aware of
any commercial competitor with a competing product on the market. Prizm
Pharmaceuticals, Inc., has announced plans to develop a macromolecular
protein-toxin conjugate. Prizm has been informed that if it commercializes
such conjugate, it would infringe certain of our patent rights. Pharmacia &
Upjohn, Inc. has a research-stage project related to the reduction of
secondary cataracts. Efforts of other competitors with respect to secondary
cataracts have been primarily directed toward enhanced surgical techniques,
alternative intraocular lens designs and certain pharmacologic approaches.

Employees

   As of December 31, 1999, we employed 93 persons, of whom 15 hold Ph.D.
degrees and 23 hold other advanced degrees. Approximately 68 employees are
engaged in research and development activities. There are 19 employees
involved in business development, intellectual property, finance and other
administrative functions. None of our employees is covered by a collective
bargaining agreement. We have entered into employment contracts and consulting
agreements with certain of our executive officers and directors.

   Our success will depend in large part upon our ability to attract and
retain employees. We face competition for employees from other companies,
research and academic institutions, government agencies and other
organizations. We believe we maintain good relations with our employees.

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                                 RISK FACTORS

   This Annual Report contains forward-looking statements within the meaning
of Sections 27A and 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding our expectations, beliefs, intentions, or
strategies regarding the future. Forward-looking statements include, without
limitation, statements in "Risk Factors", "Business" and elsewhere in this
Annual Report regarding, among other things, uncertainties relating to the
technological approach; history of operating losses and anticipation of future
losses; uncertainty of product development; need for additional capital and
uncertainty of change; uncertainty of patent and proprietary rights;
management of growth, and risks of acquiring new technologies; uncertainties
related to clinical trials; government regulation and uncertainty of obtaining
regulatory approval; dependence on key personnel; dependence on research
collaborators and scientific advisors; uncertainty of health care reform
measures and third-party reimbursement and risk of product liability. All
forward-looking statements included in this Annual Report are based on
information available to us, as of the date hereof, and we do not assume any
obligation to update any such forward-looking statements. Our actual results
may differ materially from the results discussed in the forward-looking
statements. Among the factors that could cause actual results to differ
materially are the factors detailed in "Risk Factors" below. Accordingly, in
addition to the other information in this Annual Report, the following factors
should be considered carefully. References to our products, business,
financial results or financial condition should be considered to refer to us
and our subsidiaries unless the context otherwise requires.

Product candidates developed from our HuMAb-Mouse technology are in early
stages of development. Only one of our fully human monoclonal antibody
products has entered clinical trials. No product candidates employing our
human antibody technology have completed clinical trials.

   Our human antibody technology is a new approach to the generation of
antibody-based therapeutic products. Product candidates employing our human
antibody technology are in early stages of development. Only a limited number
of fully human antibody product candidates employing our human antibody
technology have been generated pursuant to our collaborations, and only one of
these fully human monoclonal antibody product candidates has entered clinical
trials. Only one investigational new drug application, or IND, has been
submitted and clinical trials have not begun for any additional product
candidates employing our human antibody technology. In addition, we are not
aware of any commercialized fully human monoclonal antibody therapeutic
products that have been generated from any technologies similar to ours. We
cannot be certain that any product candidates employing our human antibody
technology will advance beyond the early stages of product development or
demonstrate clinical efficacy.

   We cannot be certain that our human antibody technology will generate
antibodies against all the antigens to which it is exposed in an efficient and
timely manner, if at all. If our human antibody technology fails to generate
antibody product candidates, and if we or our partners do not succeed in the
development of products employing our antibody technology, those product
candidates may not be approved or commercialized and our business will suffer.

Our product candidates developed from mouse and humanized antibody
technologies are in early stages of development. None of these product
candidates has completed clinical trials. Further development of these
products will depend upon the efforts of our corporate partners.

   Our mouse and humanized monoclonal antibody therapeutic products are still
under development, and no revenues have been generated from their sale. Prior
to the acquisition of our HuMAb-Mouse technology in 1997, these products were
the principal focus of our business and led to eight products in clinical
trials. All of these products were based on mouse or humanized antibodies.
Only one of such products progressed to Phase III clinical trials, enrollment
in which is currently suspended.

   We have recently entered into corporate partnerships with a number of
companies and are seeking additional alliances that will support the costs of
developing our portfolio of mouse and humanized monoclonal antibody-based
product candidates. The success of these products is dependent upon the
efforts of our corporate partners

                                      17
<PAGE>

in developing these products in the future. Neither we nor our present or
proposed corporate partners know if any of these products will be effective,
or if significant toxic side effects will occur negating the therapeutic
utility, if any, of these product candidates.

We have incurred large operating losses and these losses may continue.

   We have incurred large operating losses and these losses may continue. In
particular, as of December 31, 1999, we had an accumulated deficit of
approximately $126.4 million. Our losses have resulted principally from:

  .  research and development costs relating to the development of our
     technology and antibody product candidates; and

  .  general and administrative costs relating to our operations.

   We intend to continue to make significant investments in:

  .  preclinical testing and clinical trials;

  .  research and development;

  .  establishing new collaborations; and

  .  investing in new technologies.

   We do not know when or if we or our corporate partners will complete any
pending or future product development efforts, receive regulatory approval or
successfully commercialize any approved products. We may continue to incur
substantial operating losses even if our revenues increase. As a result, we
cannot predict the extent of future losses or the time required for us to
achieve profitability, if at all.

Our operating results may vary significantly from period-to-period and these
variations may be difficult to predict. These variations may adversely affect
the trading price of our common stock.

   Our future revenues and operating results are expected to vary
significantly from period-to-period due to a number of factors. Many of these
factors are outside of our control. These factors include:

  .  the timing of the commencement, completion or termination of
     collaborative agreements;

  .  the introduction of new products and services by us, our collaborative
     partners or our competitors;

  .  delays in preclinical testing and clinical trials;

  .  costs and expenses associated with preclinical testing and clinical
     trials;

  .  the timing of regulatory approvals, if any;

  .  sales and marketing expenses; and

  .  the amount and timing of operating costs and capital expenditures
     relating to the expansion of our business operations and facilities.

   Our revenues in any particular period may be lower than we anticipate and,
if we are unable to reduce spending in that period, our operating results will
be adversely affected. You should not rely on period-to-period comparisons of
our results of operations as an indication of future performance.

   It is likely that in some future periods our results of operations may be
below the expectations of public market analysts and investors. If this
occurs, the price of our common stock may decline.

Clinical trials will need to be conducted for all product candidates employing
our antibody technology. These trials are expensive and time-consuming, and
their outcome is uncertain.

   Product candidates employing our antibody technology must demonstrate that
they are safe and effective for use in humans through preclinical testing and
clinical trials in order to be approved for commercial sale.

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<PAGE>

Conducting clinical trials is a lengthy, time-consuming and expensive process.
The length of time may vary substantially according to the type, complexity,
novelty and intended use of the product candidate, and often can be several
years or more. Delays associated with products for which we are directly
conducting preclinical or clinical trials will cause us to incur additional
operating expenses. The commencement and rate of completion of clinical trials
may be delayed by many factors, including:

  .  inability to manufacture sufficient quantities of qualified cGMP
     materials for clinical trials;

  .  slower rates of patient recruitment;

  .  inability to adequately observe patients after treatment;

  .  unforeseen safety issues; and

  .  government or regulatory delays.

   Even if we obtain positive results from preclinical or clinical trials, we
may not achieve the same success in future trials. Clinical trials may not
demonstrate sufficient safety and efficacy to obtain the requisite regulatory
approvals for product candidates employing our human antibody technology. The
failure of clinical trials to demonstrate safety and efficacy for our desired
indications could harm the development of that product candidate as well as
other product candidates, and our business and results of operations will
suffer.

Market acceptance for product candidates employing our antibody technology is
uncertain. If these products fail to gain acceptance, our business will
suffer.

   Even if clinical trials demonstrate the safety and efficacy of products
developed by us or our corporate partners using our technology and all
regulatory approvals have been obtained, product candidates employing our
antibody technology may not gain market acceptance among physicians, patients,
third-party payors and the medical community. For example, the current
delivery systems for antibody-based therapeutic products are intravenous and
subcutaneous injection, which are generally less well received by patients
than tablets or capsule delivery. The degree of market acceptance of any
product candidates employing our technology will depend on a number of
factors, including:

  .  establishment and demonstration of clinical efficacy and safety,
     especially as compared to conventional treatments;

  .  cost-effectiveness;

  .  alternative treatment methods;

  .  reimbursement policies of government and third-party payors; and

  .  marketing and distribution support for our product candidates.

   In addition, many of our activities involve genetic engineering in animals
and animal testing. These types of activities have been the subject of
controversy and adverse publicity. Animal rights groups and various other
organizations and individuals have attempted to stop genetic engineering
activities and animal testing by lobbying for legislation and regulation in
these areas.

   If products employing our technology do not achieve significant market
acceptance, our business will suffer.

The successful commercialization of our antibody products will depend on
obtaining coverage and reimbursement for use of these products from third-
party payors.

   Sales of pharmaceutical products largely depend on the reimbursement of
patients' medical expenses by government health care programs and private
health insurers. Without the financial support of the governments or third-
party payors, the market for products employing our human antibody technology
will be limited. We cannot be sure that third-party payors will reimburse
sales of products employing our human antibody technology, or enable us or our
corporate partners to sell them at profitable prices.


                                      19
<PAGE>

   Third-party payors control health care costs by limiting both coverage and
the level of reimbursement for new health care products. In the future, the US
government may institute price controls and further limits on Medicare and
Medicaid spending. Internationally, medical reimbursement systems vary with
differing degrees of regulation. Pricing controls and reimbursement
limitations could affect the payments we receive from sales of products
employing our human antibody technology. These variations could harm our
ability and the ability of our corporate partners to sell products employing
our human antibody technology in commercially acceptable quantities at
profitable prices.

We have limited manufacturing capabilities. If we are unable to expand our
current facilities to manufacture adequate quantities of products to meet
demand, our business and financial condition will be harmed.

   To be successful, our therapeutic products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. While we believe our current facilities are adequate for the
limited production of product candidates for clinical trials, our facilities
are not yet adequate to produce sufficient quantities of any products for
commercial sale. We may seek to expand our facilities to manufacture some
products commercially. In order to manufacture products for such purposes, we
will have to enhance our existing facilities and obtain requisite consents, or
acquire new facilities, which will require additional funds and inspection and
approval by the FDA and other regulatory agencies. We have no experience in
large-scale manufacturing, and we may not be able to successfully increase our
capacity or achieve profitability.

We have no sales or marketing experience. If we are unable to develop adequate
sales and marketing capabilities, we may be unable to directly commercialize
our products.

   We currently have no sales, marketing or distribution capabilities. We may
choose to market some of our products directly through a sales and marketing
force. In order to do this, we will have to develop a sales and marketing
staff and establish distribution capability. Developing a sales and marketing
force would be expensive and time-consuming and could delay any product
launch. If we choose to market any of our products directly but are unable to
successfully implement a marketing and sales force, our business and operating
results will be harmed.

We are dependent on our corporate partners to fund our business and to develop
products employing our antibody technology.

   We depend on our corporate partners to fund our business and to develop
products employing our antibody technology. We rely on our corporate partners
to:

  .  fund our business operations;

  .  access proprietary antigens for the development of product candidates;

  .  fund our research and development activities;

  .  fund and conduct preclinical testing and clinical trials;

  .  seek and obtain regulatory approvals;

  .  manufacture products; and

  .  commercialize and market future products.

   Our dependence on our corporate partners subjects us to a number of risks,
including:

  .  our corporate partners have significant discretion whether to pursue
     planned activities;

  .  we cannot control the quantity and nature of the resources our corporate
     partners may devote to product candidates;

  .  our corporate partners may not develop products employing our antibody
     technology as expected;

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<PAGE>

  .  business combinations or significant changes in a corporate partner's
     business strategy may adversely affect that partner's willingness or
     ability to continue to pursue these product candidates; and

  .  our corporate partners may require us to grant exclusive research and
     development or marketing rights.

   If we do not realize the contemplated benefits from our corporate
partnerships, our business will suffer.

If a significant number of our existing corporate partnerships are not
completed or are terminated, or if we are not able to establish additional
corporate partnerships, we may be required to increase our internal product
development and commercialization efforts.

   We have entered into a binding letter of intent with Eos Biotechnology to
develop and commercialize at least six and up to nine genomics-derived
antibody-based therapeutic products. The binding letter of intent includes the
principal terms of the transaction which will be incorporated into a
definitive agreement. By its terms, the letter of intent will remain in full
force and effect and the parties will operate in accordance with its terms
until such time as a definitive agreement is executed. If we are unable to
agree on the terms of the definitive agreement, our business may be harmed. We
have signed a binding letter of intent with Kirin with respect to its Tc Mouse
and our HuMAb-Mouse technologies. This binding letter of intent includes the
principal terms of the transaction. Any additional terms are subject to the
execution of a definitive agreement. If we cannot agree with Kirin on these
additional terms, an arbitrator will decide on the additional terms. If these
additional terms are not favorable to us, our business may be harmed. We have
also signed a binding letter of intent with Scil Biomedicals GmbH relating to
some of our mouse and humanized antibody products. This letter of intent sets
forth the principal terms of the transaction which are to be incorporated into
a definitive agreement. If we cannot agree on the terms of this agreement, our
business may be harmed. In addition, we have signed a non-binding letter of
intent with Immuno-Designed Molecules, S.A., or IDM, a biotechnology company
based in Paris, France, to collaborate on certain antibody products. We cannot
assure you that we will be able to negotiate a definitive agreement with IDM
on terms that are favorable to us, if at all.

   We have entered into corporate partnerships and intend to enter into
additional corporate partnerships with third parties in the future. In
addition, our corporate partners generally have the right to terminate our
corporate partnerships at any time. Lengthy negotiations with potential new
corporate partners or disagreements between us and our corporate partners may
lead to delays or termination in the research, development or
commercialization of product candidates. If we are not able to establish
additional corporate partnerships on terms that are favorable to us or if a
significant number of our existing corporate partnerships are terminated and
we cannot replace them, we may be required to increase our internal product
development and commercialization efforts. This would likely:

  .  limit the number of product candidates that we will be able to develop
     and commercialize;

  .  reduce the likelihood of successful product introduction;

  .  significantly increase our need for capital; and\

  .  place additional strain on management's time.

We may have conflicts of interest with our corporate partners that could
adversely affect expectations regarding our collaborations.

   We may have conflicts of interest with our corporate partners that could
adversely affect our business. For example, existing or future corporate
partners may pursue alternative technologies, including those of our
competitors. Disputes may arise with respect to the ownership of rights to any
technology or products developed with any current or future corporate partner.
If our corporate partners pursue alternative technologies or fail to develop
or commercialize successfully any product candidate to which they have
obtained rights from us, our business will suffer.

                                      21
<PAGE>

We have a minority interest in a foreign entity and expect to obtain a
minority interest in an additional foreign entity. There may be conflicts of
interest between us and these entities.

   We have a 45% interest in Genmab, a Danish company we formed along with
outside investors to develop and commercialize a portfolio of fully human
antibodies derived from our HuMAb-Mouse technology. We currently have a 6%
interest in IDM and expect to obtain additional equity in IDM, or a comparable
interest in a new jointly owned entity, which will result in us having a 43%
aggregate equity interest in such entity. IDM intends to develop and
commercialize a portfolio of antibody-based products. We will have significant
minority ownership positions in each of these entities, but we will also have
contractual obligations and rights which could result in conflicts between us
and these entities.

We are dependent on our key personnel. If we are not able to attract and
retain key employees and consultants, our business could be harmed.

   We are highly dependent on the members of our scientific and management
staff. If we are not able to retain any of these persons, our business may
suffer. In particular, we depend on the services of Donald L. Drakeman, our
President and Chief Executive Officer, and Michael A. Appelbaum, our Executive
Vice President-Finance and Administration, Secretary and Treasurer. For us to
pursue product development, marketing and commercialization plans, we will
need to hire additional qualified scientific personnel to perform research and
development. We will also need to hire personnel with expertise in clinical
testing, government regulation, manufacturing, marketing and finance. We may
not be able to attract and retain personnel on acceptable terms, given the
competition for such personnel among biotechnology, pharmaceutical and
healthcare companies, universities and non-profit research institutions. If we
are not able to attract and retain qualified personnel, our business will
suffer.

We depend on patents and proprietary rights. If we cannot adequately protect
our patent and proprietary rights, our business will suffer.

   Our success depends in part on our ability to:

  .  protect trade secrets;

  .  operate without infringing upon the proprietary rights of others; and

  .  obtain patents.

   We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We protect our proprietary position by filing United States and foreign patent
applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. While a
number of patents have been issued in the United States and Europe relating to
our human antibody technology, we may not be able to obtain patent protection
in other countries. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. The patent position of biotechnology companies involves complex
legal and factual questions and, therefore, enforceability cannot be predicted
with certainty. Patents, if issued, may be challenged, invalidated or
circumvented. Thus, any patents that we own or license from third parties may
not provide sufficient protection against competitors. Also, patent rights may
not provide us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have
developed. The laws of foreign countries may not protect our intellectual
property rights to the same extent as do the laws of the United States.

   In addition to patents, we rely on trade secrets and proprietary know-how.
We seek protection, in part, through confidentiality and proprietary
information agreements. These agreements may not provide protection or
adequate remedies for our human antibody technology in the event of
unauthorized use or disclosure of confidential and proprietary information, or
breach of these agreements. Furthermore, our trade secrets may otherwise
become known to, or be independently developed by, our competitors.

                                      22
<PAGE>

   Our commercial success depends significantly on our ability to operate
without infringing the patents and other proprietary rights of third parties.
In the event that our technologies may infringe on the patents or violate
other proprietary rights of third parties, we and our corporate partners may
be prevented from pursuing product development or commercialization. Such a
result would harm our business.

If the validity of our patents or other proprietary rights is challenged, our
business will suffer.

   The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property lawsuits, United States
Patent and Trademark Office interference proceedings and related legal and
administrative proceedings in the United States and internationally involve
complex legal and factual questions. As a result, such proceedings are costly
and time-consuming to pursue and their outcome is uncertain. Litigation may be
necessary to:

  .  enforce our issued and licensed patents;

  .  protect trade secrets or know-how that we own or license; or

  .  determine the enforceability, scope and validity of the proprietary
     rights of others.

   If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts
of our technical and management personnel will be diverted. An adverse
determination may subject us to significant liabilities or require us to seek
licenses that may not be available from third parties on commercially
favorable terms, if at all. Therefore, we and our collaborative partners may
be restricted or prevented from manufacturing and selling products employing
our human antibody technology, which would harm our business.

   In some cases, litigation or other proceedings may be necessary to defend
against or to assert claims of infringement, to enforce patents issued to us
or our licensors, to protect trade secrets, know-how or other intellectual
property rights owned by us, or to determine the scope and validity of the
proprietary rights of third parties. Such litigation could result in
substantial costs to us. An adverse outcome in any such litigation or
proceeding could subject us to significant liabilities, requiring us to cease
using the subject technology or to license the subject technology from the
third party. This could have a material adverse effect on our business,
financial condition and results of operations.

   Even though we have received patents pertaining to the HuMAb-Mouse
technology, this does not mean that we and our permitted licensees of HuMAb-
Mice will have exclusive rights to antibodies against all targets that are
made using this technology, or that we or our licensees will have the right to
make, develop, use or sell such antibodies.

  .  Our patents covering the HuMAb-Mouse technology include patents that
     cover particular human monoclonal antibodies. These patents do not cover
     all human antibodies.

  .  Our patents may not protect against the importation of products, such as
     antibodies, made using HuMAb-Mouse technology.

  .  Moreover, other parties could have blocking patent rights to products
     made using HuMAb-Mouse technology, such as antibodies, and their
     production and uses, either because of a proprietary position covering
     the antibody or the antibody's target. For example, we are aware of
     certain United States and European patents held by third parties
     relating to particular targets for their human monoclonal antibodies, to
     human monoclonal antibodies against various targets and bispecific
     products, and the manufacture and use of such products. In particular,
     we are aware of a patent in the United States and Europe which pertains
     to certain monoclonal antibodies against CTLA-4.

   We seek to obtain licenses to such patents when, in our judgment, such
licenses are needed. If any licenses are required, we may not be able to
obtain any such license on commercially favorable terms, if at all. If these

                                      23
<PAGE>

licenses are not obtained, we may be prevented from using certain of our
technologies or taking certain products to market. Our failure to obtain a
license to any required technology or product may have a material adverse
effect on our business, financial condition and results of operations. We
cannot assure you that our products and/or actions in developing or selling
our products will not infringe such patents. In general, our patent protection
may not prevent others from developing competitive products using our
technology or other technologies. Similarly, others may obtain patents that
could limit our ability and the ability of our licensees to use, import,
manufacture, market or sell products or impair our competitive position and
the competitive position of our licensees.

   We are not the exclusive owner of the technology underlying our HuMAb-Mice.
In March 1997, GenPharm entered into a cross-license and settlement agreement
with Abgenix, Cell Genesys, Inc., Xenotech, L.P. and Japan Tobacco, Inc.,
pursuant to which Abgenix and these entities paid us and GenPharm a total of
approximately $38.6 million during 1997 and 1998. This payment was in exchange
for a non-exclusive license to certain patents, patent applications, third-
party licenses and inventions pertaining to the development and use of certain
transgenic rodents, including mice, that produce fully human antibodies that
are integral to our products and business. These patents, licenses and
inventions form the basis of our HuMAb-Mouse technology. Our business may
suffer from the competition of these entities or if any of these entities
breach the cross-license and settlement agreement.

We may face product liability claims related to the use or misuse of products
employing our antibody technology which may harm our business, financial
condition and results of operations.

   The administration of drugs to humans, in clinical trials or after
commercialization, exposes us to product liability claims. Product liability
claims may be expensive to defend and may result in large judgments against
us. In November 1998, we voluntarily suspended clinical trials for one of our
products after some patients experienced serious adverse events, or SAEs. In
connection with the trial, we received a small number of claims against us. We
believe that our product liability insurance is sufficient to cover the
claims. We currently maintain liability insurance with specified coverage
limits. Although we believe these coverage limits are adequate, we cannot be
certain that the insurance policies will be sufficient to cover all claims
that may be made against us. Product liability insurance is expensive,
difficult to obtain and may not be available in the future on acceptable
terms. Any claims against us, regardless of their merit, could harm our
business, financial condition and results of operations.

We face intense competition and rapid technological change, and the failure to
compete effectively would harm our business.

   The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. Developments by our
competitors may render our human antibody technology obsolete or non-
competitive. We are aware of several pharmaceutical and biotechnology
companies that are actively engaged in research and development in areas
related to antibody therapy. These companies have commenced clinical trials of
antibody products or have successfully commercialized antibody products. Many
of these companies are addressing the same diseases and disease indications as
we and our corporate partners. Also, we compete with companies that offer
antibody generation services to companies that have antigens. These
competitors have specific expertise or technology related to antibody
development. We compete directly with Abgenix, Inc., with respect to the
generation of fully human antibodies from transgenic mice. We also compete
with Cambridge Antibody Technology Group plc and MorphoSys AG with respect to
the generation of fully human antibodies derived from phage display
technology, and with Protein Design Labs, Inc. with respect to humanized
murine antibodies.

   Some of our competitors have received regulatory approval or are developing
or testing product candidates that compete directly with product candidates
employing our antibody technology. Many of these companies and institutions,
either alone or together with their corporate partners, have substantially
greater financial resources

                                      24
<PAGE>

and larger research and development staffs than we or some of our corporate
partners do. In addition, many of these competitors have significantly greater
experience than we do in:

  .  developing products;

  .  undertaking preclinical testing and clinical trials;

  .  obtaining FDA and other regulatory approvals of products; and

  .  manufacturing and marketing products.

   Accordingly, our competitors may obtain patent protection, receive FDA
approval or commercialize products before we or our corporate partners do. If
we or our corporate partners commence commercial product sales, we or our
corporate partners will be competing against companies with greater marketing
and manufacturing capabilities, areas in which we and certain of our corporate
partners have limited or no experience.

   We also face intense competition from other pharmaceutical and
biotechnology companies to establish corporate partnerships, as well as
relationships with academic and research institutions, and to license
proprietary technology. These competitors, either alone or with their
corporate partners, may succeed in developing technologies or products that
are more effective than ours.

If our operating losses are greater than anticipated, we may need substantial
additional funding. We may not be able to obtain sufficient funds to grow our
business or continue our operations.

   We will continue to expend substantial resources for research and
development, including costs associated with developing our antibody
technology and conducting preclinical testing and clinical trials. Our future
liquidity and capital requirements will depend on:

  .  the size and complexity of research and development programs;

  .  the scope and results of preclinical testing and clinical trials;

  .  the retention of existing and establishment of further corporate
     partnerships, if any;

  .  continued scientific progress in our research and development programs;

  .  the time and expense involved in seeking regulatory approvals;

  .  competing technological and market developments;

  .  the time and expense of filing and prosecuting patent applications and
     enforcing patent claims; and

  .  the cost of establishing manufacturing capabilities, conducting
     commercialization activities and arrangements and in-licensing products.

   We may be unable to raise sufficient funds to complete development of any
of our product candidates or to continue operations. As a result, we may face
delay, reduction or elimination of research and development programs or
preclinical or clinical trials, in which case our business will suffer.

We are subject to extensive and costly government regulation. If we fail to
obtain or maintain governmental approvals, we will not be able to
commercialize our products and our business will suffer.

   Product candidates employing our human antibody technology are subject to
extensive and rigorous domestic government regulation. The FDA regulates the
development, testing, manufacture, safety, efficacy, record-keeping, labeling,
storage, approval, advertising, promotion, sale and distribution of
biopharmaceutical products. If products employing our human antibody
technology are marketed abroad, they will also be subject

                                      25
<PAGE>

to extensive regulation by foreign governments. The regulatory review and
approval process, which includes preclinical testing and clinical trials of
each product candidate, is lengthy, expensive and uncertain. Securing FDA
approval requires the submission of extensive preclinical and clinical data
and supporting information to the FDA for each indication to establish the
candidate's safety and efficacy. The approval process takes many years,
requires substantial resources, involves post-marketing surveillance, and may
involve ongoing post-marketing studies. Delays in obtaining regulatory
approvals may:

  .  adversely affect the successful commercialization of any drugs that we
     or our corporate partners develop;

  .  impose costly procedures on us or our corporate partners;

  .  diminish any competitive advantages that we or our corporate partners
     may attain; and

  .  adversely affect our receipt of revenues or royalties.

   Material changes to an approved product, such as manufacturing changes or
additional labeling claims, require further FDA review and approval. Once
obtained, any approvals may be withdrawn. Further, if we, our corporate
partners or our contract manufacturers fail to comply with applicable FDA and
other regulatory requirements at any stage during the regulatory process, the
FDA may impose sanctions, including:

  .  delays;

  .  warning letters;

  .  fines;

  .  product recalls or seizures;

  .  injunctions;

  .  refusal of the FDA to review pending market approval applications or
     supplements to approval applications;

  .  total or partial suspension of production;

  .  civil penalties;

  .  withdrawals of previously approved marketing applications; or

  .  criminal prosecutions.

   We expect to rely on our corporate partners to file INDs and direct the
regulatory approval process for products employing our human antibody
technology. Our corporate partners may not be able to conduct clinical testing
or obtain necessary approvals from the FDA or other regulatory authorities for
any product candidates employing our human antibody technology. If they fail
to obtain required governmental approvals, our corporate partners will be
delayed or precluded from marketing these products. As a result, commercial
use of products employing our technology will not occur and our business may
be harmed.

We do not have, and may never obtain, the regulatory approvals we need to
market our product candidates.

   To date, we have not applied for or received the regulatory approvals
required for the commercial sale of our products in the United States or in
any foreign jurisdiction. None of our product candidates has been determined
to be safe and effective, and we have not submitted a new drug application, or
NDA, to the FDA or to any foreign regulatory authorities for any of our
product candidates. We have only limited experience in filing and pursuing
applications necessary to obtain regulatory approval, and we cannot assure you
that any of our product candidates will be approved for marketing.

                                      26
<PAGE>

If our manufacturing partners do not obtain or maintain current good
manufacturing practices, we may not be able to commercialize our product
candidates.

   We will depend on our corporate partners and other third parties to
manufacture products employing our human antibody technology. Before
commercializing a new drug, manufacturers must comply with the applicable FDA
current good manufacturing practice regulations, or cGMP, which include
quality control and quality assurance requirements as well as the maintenance
of records and documentation. Manufacturing facilities are subject to ongoing
periodic inspection by the FDA and corresponding state agencies, including
unannounced inspections, and must be licensed before they can be used in
commercial manufacturing of products employing our technology. After
regulatory approvals are obtained, the subsequent discovery of previously
unknown problems or failure to maintain compliance with the regulatory
requirements may result in restrictions on the marketing of a product,
withdrawal of the product from the market, seizures, injunctions, or criminal
sanctions. We cannot assure you that such third parties will be able to comply
with the applicable regulations.

Our operations involve hazardous materials and are subject to environmental
controls and regulations.

   Our business activities involve the controlled use of hazardous materials.
We cannot eliminate the risk of accidental contamination or injury from these
materials. In the event of an accident or environmental discharge, we may be
held liable for any resulting damages, which may exceed our financial
resources and may materially adversely affect our business, financial
condition and results of operations.

Our stock price may be volatile.

   There has been significant volatility in the market prices of biotechnology
companies' securities. Various factors and events may have a significant
impact on the market price of our common stock. These factors include:

  .  fluctuations in our operating results;

  .  announcements of technological innovations or new commercial therapeutic
     products by us or our competitors;

  .  published reports by securities analysts;

  .  progress with clinical trials;

  .  governmental regulation;

  .  developments in patent or other proprietary rights;

  .  developments in our relationship with collaborative partners;

  .  public concern as to the safety and efficacy of our products; and

  .  general market conditions.

   The trading price of our common stock has been, and could continue to be,
subject to wide fluctuations in response to these factors, including the sale
or attempted sale of a large amount of our common stock into the market. Broad
market fluctuations may also adversely affect the market price of our common
stock.

We have obligations to issue shares of our common stock in the future which
may have a dilutive effect on the shares of our common stock currently
outstanding.

   As of February 11, 2000, we have 2,083,593 shares of common stock reserved
for issuance pursuant to options having a weighted average exercise price of
$5.95 per share and 454,796 shares of common stock issuable upon the exercise
of certain warrants issued at an exercise price of $10.00 per share.

   The exercise of all or a portion of the outstanding options and warrants
may result in a significant increase in the number of shares of our common
stock that will be subject to trading on The Nasdaq National Market, and the
issuance and sale of the shares of our common stock upon the exercise thereof
may have an adverse effect on the price of our common stock.

                                      27
<PAGE>

Future sales of our common stock could cause the market price of our common
stock to decline.

   As of February 11, 2000, we have 32,625,611 shares of common stock
outstanding, of which 3,257,354 are restricted securities as that term is
defined in Rule 144 under the Securities Act. Under certain circumstances,
these restricted securities may be sold without registration pursuant to such
rule. In addition, the holders of 1,023,341 shares of such restricted
securities are entitled to registration rights which could expedite the resale
of such shares into the public market. We are unable to predict the effect
that sales made under Rule 144 or pursuant to any registration may have on the
market price of our common stock. The sale of a significant number of
additional securities, or even the possibility thereof, may lower the market
price of our common stock.

   We have filed registration statements on Form S-3 under the Securities Act
relating to 4,246,673 shares of common stock that may be offered by certain of
our stockholders and corporate partners. These shares of common stock are
freely tradable without restriction or further registration under the
Securities Act, except for shares held by our affiliates, which will be
subject to resale limitations of Rule 144.

   In addition, we have filed registration statements on Form S-8 under the
Securities Act which cover 2,083,593 shares of common stock currently issuable
under our stock option plans. Shares issued under these plans, other than
shares issued to affiliates, will be freely tradable in the public market.

   On January 28, 2000 we filed a registration statement on Form S-3 relating
to an underwritten public offering by us of up to 2,012,500 shares of our
common stock. If the Offering is completed, all of the shares of our common
stock sold in the offering will be freely tradable under the Securities Act
unless purchased by our affiliates. In connection with the offering, our
officers and directors, as well as shareholders holding an aggregate of
4,176,673 shares of our common stock, are required to refrain from selling
shares of our common stock for a period of 90 days after the completion of the
offering without the written consent of the underwriters.

Our restated certificate of incorporation and New Jersey law contain
provisions that could delay or prevent an acquisition of our company.

   Our restated certificate of incorporation and by-laws contain provisions
that may discourage third parties from seeking to acquire our company. These
provisions include:

  .  a classified board of directors;

  .  a requirement that special meetings of shareholders be called only by
     our board of directors, chairman of the board, chief executive officer
     or president;

  .  advance notice requirements for shareholder proposals and nominations;

  .  limitations on the ability of shareholders to amend, alter or repeal our
     by-laws; and

  .  the authority of the board of directors to issue, without shareholder
     approval, preferred stock with such terms as the board of directors may
     determine.

   We are also afforded the protections of the New Jersey Shareholders
Protection Act. This New Jersey statute contains provisions which impose
restrictions on shareholder action to acquire control of our company. The
effect of the provisions of our restated certificate of incorporation and by-
laws and New Jersey law may discourage third parties from acquiring control of
our company.

Item 2. Properties

   We have leased approximately 43,000 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. The term of the lease expires
on September 30, 2003, subject to review for an additional five years. We
believe that this facility is well suited for clinical-grade production of
monoclonal antibodies, since we have 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

                                      28
<PAGE>

spending modestly to adapt it, we believe that we have preserved a
considerable amount of capital that might otherwise have been used to build a
biopharmaceutical production facility. This facility has a capacity of
10 kilograms of monoclonal antibody production per year. We believe that our
existing facilities are adequate for the production of materials for clinical
trials of our products and for providing the services we offer to our
corporate partners in connection with our human antibody technology. However,
we do not currently have the capability to manufacture our products under
development in large commercial quantities and have no experience in
commercial-scale manufacturing.

   In January 1998, we entered into a four year lease for approximately 10,000
square feet in a modern facility located in San Jose, California. This space,
which is owned by Becton Dickinson Corporation, includes an animal facility to
house our HuMAb-Mice, research and development laboratories and administrative
offices. In September 1999, we entered into a five year lease for
approximately 6,000 square feet of administrative office space in a modern
facility located in Princeton, New Jersey. This facility serves as our general
corporate headquarters. In November 1999, we entered into a five year lease
for approximately 11,000 square feet of administrative office space in a
modern facility located in Annandale, New Jersey. The combined minimum annual
lease commitments for these facilities is approximately $2.4 million, and the
aggregate future minimum lease commitments over the remainder of the lease
terms are approximately $6.9 million.

Item 3. Legal Proceedings

   In the ordinary course of our business, we are at times subject to various
legal proceedings. We do not believe that any of our current legal
proceedings, individually or in the aggregate, will have a material adverse
effect on our operations or financial condition.

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, 1999 through the
solicitation of proxies or otherwise.

                                      29
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters

   Our common stock is listed on the Nasdaq National Market under the symbol
"MEDX." The following table sets forth the high and low sale prices per share
of common stock, as reported on the Nasdaq National Market, during the periods
indicated.

<TABLE>
<CAPTION>
                                                                   Common Stock
                                                                      Price
                                                                   ------------
                                                                    High   Low
                                                                   ------ -----
<S>                                                                <C>    <C>
Year ended December 31, 1998
  First Quarter................................................... $ 6.25 $4.38
  Second Quarter.................................................. $ 8.25 $4.75
  Third Quarter................................................... $ 7.06 $2.75
  Fourth Quarter.................................................. $ 5.13 $2.75
Year ended December 31, 1999
  First Quarter................................................... $ 4.31 $2.88
  Second Quarter.................................................. $ 5.97 $2.88
  Third Quarter................................................... $ 9.97 $4.00
  Fourth Quarter.................................................. $41.50 $6.44
</TABLE>

   The number of shares of our common stock outstanding as of February 11,
2000 was 32,625,611. As of such date, there were approximately 584 record
holders of common stock (which includes individual holders) and as of May 20,
1999, the date of the last shareholders' meeting, there were over 8,000
beneficial shareholders of our common stock.

   We currently expect to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.

                                      30
<PAGE>

Item 6. Selected Consolidated Financial Data

<TABLE>
<CAPTION>
                                   Year Ended December 31,
                          ----------------------------------------------
                           1995     1996      1997      1998      1999
                          -------  -------  --------  --------  --------
                                (in thousands, except per share data)
<S>                       <C>      <C>      <C>       <C>       <C>       <C> <C>
Statement of Operations
 Data:
Revenues:
  Sales.................  $   312  $   255  $    221  $  1,349  $  1,079
  Grants, contract and
   license revenues.....    1,467    1,626     3,011     5,443     8,845
                          -------  -------  --------  --------  --------
   Total revenues.......    1,778    1,881     3,232     6,792     9,924
Costs and expenses:
  Cost of sales.........      123      132       150     1,218       709
  Research and
   development..........    6,442    7,596    14,100    23,122    19,929
  General and
   administrative.......    2,275    2,558     3,644     5,065     8,036
  Stock bonus to
   GenPharm employees...       --       --     2,275        --        --
  Acquisition of in-
   process technology...       --       --    40,316        --        --
                          -------  -------  --------  --------  --------
   Operating loss.......   (7,062)  (8,405)  (57,253)  (22,613)  (18,750)
Interest and dividend
 income.................      561    1,542     1,903     1,956     1,205
Interest expense........       (8)      (5)      (27)   (1,539)       (8)
                          -------  -------  --------  --------  --------
   Loss before provision
    (benefit) for income
    taxes...............   (6,509)  (6,868)  (55,377)  (22,196)  (17,553)
Provision (benefit) for
 income taxes...........       --       --        --       341      (522)
                          -------  -------  --------  --------  --------
   Net loss.............  $(6,509) $(6,868) $(55,377) $(22,537) $(17,031)
                          =======  =======  ========  ========  ========
Basic and diluted net
 loss per share(1)......  $  (.69) $  (.45) $  (2.93) $   (.89) $   (.53)
                          =======  =======  ========  ========  ========
Weighted average common
 shares outstanding(1)..    9,457   15,289    18,871    25,390    31,920
</TABLE>

<TABLE>
<CAPTION>
                                          As of December 31,
                            --------------------------------------------------
                              1995      1996      1997      1998       1999
                            --------  --------  --------  ---------  ---------
                                            (in thousands)
<S>                         <C>       <C>       <C>       <C>        <C>
Balance Sheet Data:
Cash, cash equivalents and
 marketable securities....  $ 15,729  $ 31,463  $ 28,444  $  34,664  $  30,147
Working capital...........    14,549    31,259     1,647     29,581     22,382
Total assets..............    19,240    36,044    48,695     42,235     40,482
Long-term obligations.....        40       110       107         62      6,023
Accumulated deficit.......   (24,623)  (31,491)  (86,869)  (109,405)  (126,436)
Total shareholders'
 equity...................    17,375    34,648     5,681     35,229     22,299
</TABLE>
--------
(1) Computed on the basis described for net loss per share in note 2 to the
    consolidated financial statements.

                                       31
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results Of Operations

   The following discussion should be read together with our consolidated
financial statements and the accompanying notes included elsewhere in this
Annual Report and contains trend analysis and other forward-looking statements
that involve substantial risks and uncertainties. Our actual results could
differ materially from those expressed or implied in these forward-looking
statements as a result of various factors.

Basis of Financial Statement Presentation

   We are primarily engaged in the discovery and development of human
antibody-based therapeutics to fight cancer and other life-threatening and
debilitating diseases. We have developed a broad platform of patented
technologies for antibody discovery and development, including our technology
for the creation of high affinity fully human antibodies. Through our 1997
acquisition of GenPharm International, Inc., and our recent letter of intent
for our collaboration with Kirin, we expanded our business to include both our
HuMAb-Mouse and Kirin's Tc Mouse technologies. These technologies allow us to
rapidly create fully human antibodies in about two to four months. Not only
can we create new proprietary products, but these technologies provide us with
the opportunity to expand our corporate collaborations with both existing and
new partners. We entered into six new corporate partnerships relating to the
HuMAb-Mouse technology during 1998 and an additional six new corporate
partnerships in 1999. To date, we have received upfront payments and we
anticipate that we will receive license fees, milestone payments and royalties
from such partnerships. We believe that our acquisition of GenPharm, our
collaboration with Kirin and our expansion into the human antibody business
will provide us with significant additional sources of revenue in the
foreseeable future.

   Revenue--Our revenue is principally derived through licensing our human
antibody technology to pharmaceutical and biotechnology companies and through
government grants. The terms of these collaborations typically include
potential license fees and a series of milestone payments commencing upon
initiation of clinical trials through commercialization which may total $7
million to $10 million per product if the antibody receives approval from the
FDA and equivalent foreign agencies. We are also entitled to royalties on
product sales.

   Research and Development Expenses--Research and development expenses
consist primarily of compensation expense, facilities and supply expense
relating to antibody product development and to the breeding, caring for and
continued development of our HuMAb-Mice, as well as to the performance of
contract services for our collaborative partners.

   General and Administrative Expenses--General and administrative expenses
consist primarily of compensation, facility, travel and other expenses
relating to our general management, financial, administrative and business
development activities.

Results of Operations

   Years Ended December 31, 1997, 1998 and 1999

   Revenues for 1997, 1998, and 1999 were principally derived from contract
and licensing activities. Total revenues in 1997 of $3,232,000 included
$865,000 of contract revenue received from Santen Pharmaceutical Co., Ltd. of
Osaka, Japan, or Santen, $743,000 from Aventis Behring, $377,000 from Eisai
Co., Ltd. of Tokyo, Japan, or Eisai, and $269,000 from Small Business
Innovation Research grants. Total revenues in 1998 of $6,792,000 increased
110% over 1997. The increase relates to $1,112,000 received from the sale of
MDX-447, one of our monoclonal antibody products, to Merck KGaA, our corporate
partner for MDX-447, and increases in contract and license revenues with Merck
KGaA, Eisai, Schering AG, Centocor, Aventis Behring, FibroGen, Inc., Novartis
and medac GmbH. Revenue for 1999 increased by $3,132,000, a 46% increase from
1998. The increase relates principally to a $4,000,000 milestone payment from
Centocor, Inc. Centocor holds exclusive commercial licenses to develop HuMab-
Mouse antibodies to license four targets. In addition, the increase in 1999
reflects payments pursuant to license agreements with Merck KGaA.

                                      32
<PAGE>

   Our cost of sales increased by $1,068,000 in 1998, a 712% increase over
1997. In 1998, the increase was principally due to manufacturing expenses
incurred in producing MDX-447 for proposed new human clinical trials to be
conducted in conjunction with Merck KGaA. Our cost of sales decreased by
$509,000 during 1999, a 42% decrease as compared to 1998. The 1999 decrease is
due to lower production of MDX-447 for Merck KGaA.

   Research and development expense increased $9,022,000 in 1998, a 64%
increase from 1997. The 1998 increase was primarily attributable to a high
level of human clinical trials, license fees related to the targeting
component used in MDX-210 and MDX-447, personnel costs and supply expenses.
Research and development expenses decreased $3,193,000 during 1999, a 14%
decrease from 1998. The 1999 decrease was principally due to decreased
clinical trial activity partially as the result of the suspension of patient
enrollment in the Phase III clinical trial of MDX-RA. The research and
development expense reduction was partially offset by higher personnel costs.
Research and development costs are expected to increase at an accelerated rate
as our products progress through the regulatory approval process.

   General and administrative expenses increased $1,421,000 in 1998, a 39%
increase over 1997. The increase was primarily attributable to higher legal
fees incurred in connection with a $7,500,000 milestone payment from Xenotech,
L.P. relating to the issuance of a U.S. patent, personnel costs, consulting
and shareholder relation expenses. General and administrative expenses
increased by $2,971,000 for 1999, a 59% increase from 1998. The increase is
primarily attributable to higher personnel costs and heightened business
development activities. These expenses are expected to increase as our
products are developed and we expand our HuMAb-Mouse licensing activities.

   Acquisition of in-process technology charges of $40,316,000 in 1997 related
to the February 28, 1997 acquisition of Houston Biotechnology ($10,386,000)
and the October 21, 1997 acquisition of GenPharm ($29,930,000).

   Interest and dividend income increased by $53,000 in 1998, a 3% increase
over 1997. These increases reflected higher average cash balances. Interest
and dividend income decreased by $751,000 for 1999, a 38% decrease as compared
to 1998. This decrease was the result of both a lower average cash balance and
a lower return on investments.

   In 1998, interest expense increased by $1,512,000. The increase is
attributable to the amortization of a discount of the liability due to
GenPharm shareholders pursuant to the acquisition of GenPharm in October 1997.
This liability was satisfied on various dates through September 1, 1998 and as
a result, interest expense decreased by $1,531,000 for 1999, a 99% decrease as
compared to 1998.

   Our income tax provision of $341,000 for the year ended December 31, 1998
represented taxes paid related to the GenPharm acquisition, which were in
excess of the amount of the liability provided for on the date of the
acquisition. Our benefit for income taxes for the year ended December 31, 1999
consisted of $1,434,000 received from the sale of a portion of our New Jersey
state NOLs and research and development tax credits offset, in part, by a
provision for state taxes.

   We do not believe that inflation has had a material impact on our results
of operations.

Liquidity and Capital Resources

   We have financed our operations since inception primarily through private
placements and public sales of our securities, contract and license revenues
and research product sales. Through December 31, 1999, we had raised
$68,652,000 from sales of securities.

   We had $34,664,000 and $30,147,000 in cash, cash equivalents and marketable
securities as of December 31, 1998 and 1999, respectively. Operating
activities consumed $11,894,000, $12,577,000 and $5,610,000 of cash for the
years ended December 31, 1997, 1998 and 1999, respectively.

                                      33
<PAGE>

   Through December 31, 1998 and December 31, 1999, we had invested $7,042,000
and $7,707,000, respectively, in property and equipment.

   We have incurred and will continue to incur significant costs in the area
of research and development, including preclinical and clinical trials, as our
products develop. Administrative costs are also expected to increase with the
expansion of administrative activities and the creation of an internal sales
force.

   In connection with our merger with Essex Medical Products, we issued
promissory notes to Essex Chemical Corporation in the principal amount of
$100,000 and committed to pay 20% of our net after-tax income until a total of
$1,000,000 has been paid, contingent upon the occurrence of certain events. At
our option, this contingent obligation may be satisfied by the payment of
shares of our common stock having a fair market value equal to the amount
owed, provided such shares are registered for sale with the SEC. On June 6,
1991, we repaid the $100,000 of notes, plus accrued interest to Essex.

   At December 31, 1999, we had federal net operating loss ("NOL")
carryforwards of approximately $58,931,000. The NOL carryforwards expire in
2002 ($45,000), 2003 ($196,000), 2004 ($524,000), 2006 ($863,000), 2007
($3,985,000), 2008 ($5,533,000), 2009 ($7,592,000), 2010 ($6,395,000), 2011
($7,028,000), 2012 ($9,642,000) and 2018 ($17,128,000). We have not performed
a detailed analysis to determine whether an ownership change under Section 382
of the Internal Revenue Code of 1986, as amended, occurred, but believe that
it is very likely that such a change occurred during 1996, 1997 or 1998. The
effect of an ownership change would be the imposition of an annual limitation
on the use of NOL carryforwards attributable to periods before change. The
amount of the annual limitation depends upon our value immediately before the
change, changes to our capital during a specified period prior to the change,
and an interest rate which is published monthly. Due to uncertainty as to the
date of an ownership change during 1996, 1997 or 1998 we have not determined
the amount of the potential limitation. Any such material limitation could
have a significant impact on our ability to use our NOL carryforwards.

   The New Jersey Division of Taxation has developed a program that allows new
or expanding technology and biotechnology businesses to "sell" their Unused
NOL Carryover and Unused Research and Development Tax Credits to corporate
taxpayers in the state for at least 75% of the value of the benefits. The
effective date of this program was January 1, 1999. In 1999, we received
$1,434,000 for the sale of a portion of our NOLs and Research and Development
Tax Credits. During 2000 we intend to sell additional New Jersey NOLs.

   In 1997, 27% or $865,000 of our revenue was derived from Santen for
research funding, 23% or $743,000 was from Aventis Behring for research
funding and milestone payments and 12% or $377,000 was from Eisai for research
funding.

   In 1998, 20% or $1,339,000 of our total revenue was derived from Aventis
Behring for research funding, 13% or $900,000 was from Santen for research
funding, 11% or $750,000 from Eisai for a milestone payment and 24% from Merck
KGaA, including $1,112,000 for producing MDX-447 for proposed new human
clinical trials, $492,000 for research funding and $240,000 premium paid for
our common stock over the fair market value.

   In 1999, 40% or $4,000,000 of our total revenue was derived from a
milestone payment made by Centocor. In addition, 31% or $3,056,000 of our
total revenue was derived from Merck KGaA, consisting of $500,000 for
producing MDX-447 for proposed new human clinical trials, $1,056,000 for
research funding and a $1,500,000 technology option fee.

   No other single source accounted for more than 10% of our total revenues
for 1997, 1998 and 1999.

   We have recently entered into a binding letter of intent with Eos
Biotechnology to develop and commercialize genomics-derived antibody-based
therapeutic products. Pursuant to the letter of intent, on or before May 15,
2000 we are required to pay $5,000,000 to Eos Biotechnology and to deposit an
additional $20,000,000 in a third party escrow account to be released over
time to Eos Biotechnology upon the achievement of certain milestones.

                                      34
<PAGE>

   We have entered into a non-binding letter of intent with IDM relating to
the development of certain of our non-HuMAb-Mouse antibody-based products.
Under the terms of the letter of intent, we are required to pay IDM $2,000,000
upon the execution of a definitive agreement which we anticipate will occur
during the first quarter of 2000. In addition, we are required to purchase
additional equity in IDM, or a comparable interest in a new jointly owned
entity to fund up to an additional $5,000,000 in the event IDM does not
complete a public or private financing of at least $7,000,000 on or before
December 31, 2000. Such an event could cause us to incur losses to the extent
of our investment in IDM.

   Although we believe that the proceeds from the offering, if completed,
together with our current cash balances, cash equivalents, and marketable
securities and cash generated from contract and licensing activities will be
sufficient to meet our operating and capital requirements for at least the
next 24 months, we may require additional financing within this time frame. We
may be required to raise additional funds through public or private
financings, collaborative relationships or other arrangements.

Recently Issued Accounting Standard

   In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS 133 requires us to measure all
derivatives at fair value and to recognize them in the balance sheet as an
asset or liability, depending on our rights or obligations under the
applicable derivative contract. We will adopt SFAS 133 no later than the first
quarter of fiscal year 2001. SFAS 133 is not expected to have an impact on our
consolidated results of operations, financial position or cash flows.

Recently Issued Staff Accounting Bulletin

   In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial Statements.
The SAB spells out four basic criteria that must be met before registrants can
record revenue. In addition, the SAB also provides guidance on the disclosures
(both in footnotes and in Management's Discussion and Analysis of Financial
Condition and Results of Operations) registrants should make about their
revenue recognition policies and the impact of events and trends on revenue.
The SAB states that all registrants are expected to apply the accounting and
disclosures described in it no later than the first fiscal quarter of the
fiscal year beginning after December 15, 1999. The application of SAB No. 101
is not expected to have any effect on our financial condition and results of
operations.

Update on Year 2000 Computer Issues

   We did not experience any computer or systems problems relating to the Year
2000. Upon review of our internal and external systems during 1999, we
determined that we did not have any material exposure to such computer
problems and that the software and systems required to operate our business
and provide our services were Year 2000 compliant. As a result, we did not
incur, and do not expect to incur, any material expenditures relating to Year
2000 systems remediation.

Item 7A. Quantitative and Qualitative Disclosures about Market Risks

   We do not use derivative financial instruments in our operations or
investment portfolio. However, we regularly invest excess operating cash in
deposits with major financial institutions, money market funds, notes issued
by the U.S. Government, as well as fixed income investments and U.S. stock
funds both of which can be readily purchased or sold using established
markets. We believe that the market risk arising from our holdings of these
financial instruments is minimal. We do not have exposure to market risks
associated with changes in interest rates as we have no variable interest rate
debt outstanding. We do not believe we have any material exposure to market
risks associated with interest rates.

                                      35
<PAGE>

Item 8. Consolidated 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 Subsidiaries as of December 31, 1998 and 1999 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 Subsidiaries at December 31, 1998 and 1999 and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

                                          /s/ Ernst & Young LLP

MetroPark, New Jersey
February 10, 2000

                                      36
<PAGE>

                         MEDAREX, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                   (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                             December 31,
                                                          --------------------
                                                            1998       1999
                                                          ---------  ---------
<S>                                                       <C>        <C>
                         ASSETS
Current assets:
  Cash and cash equivalents.............................. $   4,411  $  14,366
  Marketable securities..................................    30,253     15,781
  Trade accounts receivable, less allowance for doubtful
   accounts of $5 .......................................        16         16
  Inventory..............................................        49         33
  Prepaid expenses and other current assets..............     1,796      4,346
                                                          ---------  ---------
    Total current assets.................................    36,525     34,542
Property and equipment:
  Machinery and equipment................................     4,439      5,061
  Furniture and fixtures.................................       282        336
  Leasehold improvements.................................     2,321      2,310
                                                          ---------  ---------
                                                              7,042      7,707
  Less accumulated depreciation and amortization.........    (3,703)    (4,633)
                                                          ---------  ---------
                                                              3,339      3,074
  Investments in, and advances to affiliates.............       561        499
  Segregated cash........................................     1,300      1,300
  Patents rights and other assets........................       510      1,067
                                                          ---------  ---------
    Total assets......................................... $  42,235  $  40,482
                                                          =========  =========
          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Trade accounts payable................................. $     394  $     620
  Accrued liabilities....................................     4,867      5,133
  Deferred contract revenue--current.....................     1,683      6,407
                                                          ---------  ---------
    Total current liabilities............................     6,944     12,160

Deferred contract revenue--long-term.....................       --       6,000
Other long-term obligations..............................        62         23

Commitments and contingencies............................

Shareholders' equity:
  Preferred stock, $1.00 par value, 2,000,000 shares
   authorized, none issued and outstanding...............       --         --
  Common stock, $.01 par value, 40,000,000 shares
   authorized, 31,507,186 shares issued and outstanding
   at December 31, 1998 and 32,714,942 shares issued and
   32,112,442 shares outstanding at December 31, 1999....       315        327
  Capital in excess of par value.........................   144,252    149,032
  Treasury stock, at cost 0 and 602,500 shares,
   respectively..........................................       --      (3,031)
  Deferred compensation..................................       --       2,970
  Accumulated other comprehensive income (loss)..........        67       (563)
  Accumulated deficit....................................  (109,405)  (126,436)
                                                          ---------  ---------
    Total shareholders' equity...........................    35,229     22,299
                                                          ---------  ---------
    Total liabilities and shareholders' equity........... $  42,235  $  40,482
                                                          =========  =========
</TABLE>

                See notes to consolidated financial statements.

                                       37
<PAGE>

                         MEDAREX, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                            For the Year Ended December 31,
                                            ----------------------------------
                                               1997        1998        1999
                                            ----------  ----------  ----------
<S>                                         <C>         <C>         <C>
Sales...................................... $      221  $    1,349  $    1,079
Grants, contract and license revenues......      3,011       5,443       8,845
                                            ----------  ----------  ----------
    Total revenues.........................      3,232       6,792       9,924
Costs and expenses:
  Cost of sales............................        150       1,218         709
  Research and development.................     14,100      23,122      19,929
  General and administrative...............      3,644       5,065       8,036
  Bonus to GenPharm International, Inc.
   employees...............................      2,275         --          --
  Acquisitions of in-process technology....     40,316         --          --
                                            ----------  ----------  ----------
    Operating loss.........................    (57,253)    (22,613)    (18,750)
Interest and dividend income...............      1,903       1,956       1,205
Interest expense...........................        (27)     (1,539)         (8)
                                            ----------  ----------  ----------
    Loss before provision (benefit) for
     income taxes..........................    (55,377)    (22,196)    (17,553)
Provision (benefit) for income taxes.......        --          341        (522)
                                            ----------  ----------  ----------
    Net loss............................... $  (55,377) $  (22,537) $  (17,031)
                                            ==========  ==========  ==========
Basic and diluted net loss per share....... $    (2.93) $    (0.89) $    (0.53)
                                            ==========  ==========  ==========
Weighted average number of common shares
 outstanding during the year--basic and
 diluted................................... 18,871,000  25,390,000  31,920,000
                                            ==========  ==========  ==========
</TABLE>


                See notes to consolidated financial statements.

                                       38
<PAGE>

                         MEDAREX, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
                   (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                          Common Stock                                       Treasury Stock
                        ----------------- Capital   Accumulated              ---------------
                                             in
                          Number           excess      other                 Number                            Total
                            of             of par  comprehensive Accumulated   of               Deferred   shareholders'
                          shares   Amount  value   income (loss)   deficit   shares  Amount   Compensation    equity
                        ---------- ------ -------- ------------- ----------- ------- -------  ------------ -------------
<S>                     <C>        <C>    <C>      <C>           <C>         <C>     <C>      <C>          <C>
Balance at December
 31, 1996.............  17,592,992  $176  $ 65,947     $  16       ($31,491)                                  $34,648
                        ==========  ====  ========     =====      =========  ======= =======     ======       =======
Issuance of common
 stock, options and
 warrants in exchange
 for Houston
 Biotechnology
 Incorporated stock...   1,026,245    10     8,108                                                              8,118
Issuance of common
 stock, options and
 warrants as a portion
 of the proceeds for
 GenPharm
 International, Inc.
 stock................   3,250,000    33    17,793                                                             17,826
Issuance of common
 stock for exercise of
 options..............      32,469             145                                                                145
Issuance of common
 stock for exercise of
 warrants.............      20,480              55                                                                 55
Options issued to non-
 employes                                       94                                                                 94
Net loss..............                                              (55,377)                                  (55,377)
Other comprehensive
 income unrealized
 gain on securities...                                   172                                                      172
                                                                                                              -------
 Comprehensive loss...                                                                                        (55,205)
                        ----------  ----  --------     -----      ---------  ------- -------     ------       -------
Balance at December
 31, 1997.............  21,922,186   219    92,142       188        (86,868)                                    5,681
                        ----------  ----  --------     -----      ---------  ------- -------     ------       -------
Issuance of common
 stock, as a portion
 of the proceeds for
 GenPharm
 International, Inc.
 stock................   7,551,192    76    43,369                                                             43,445
Issuance of common
 stock for exercise of
 options..............      35,017              41                                                                 41
Issuance of common
 stock in private
 placements...........   1,603,849    16     6,712                                                              6,728
Issuance of common
 stock for bonus to
 GenPharm
 International, Inc.
 employees............     394,942     4     1,988                                                              1,992
Net Loss..............                                              (22,537)                                  (22,537)
Other comprehensive
 income unrealized
 loss on securities...                                  (121)                                                    (121)
                                                                                                              -------
 Comprehensive loss...                                                                                        (22,658)
                        ----------  ----  --------     -----      ---------  ------- -------     ------       -------
Balance at December
 31, 1998               31,507,186   315   144,252        67       (109,405)                                   35,229
                        ----------  ----  --------     -----      ---------  ------- -------     ------       -------
Issuance of common
 stock for exercise of
 options and grant of
 restricted shares....     453,665     5     3,698                                                              3,703
Issuance of common
 stock in private
 placements...........     123,001     1       899                                                                900
Exercise of warrants..      28,590             128                                                                128
Issuance of common
 stock for Executive
 Deferred Compensation
 Plan.................     602,500     6        55                           602,500 $(3,031)    $2,970           --
Net loss..............                                              (17,031)                                  (17,031)
Other comprehensive
 income unrealized
 loss on securities...                                  (630)                                                    (630)
                                                                                                              -------
 Comprehensive loss...                                                                                        (17,661)
                        ----------  ----  --------     -----      ---------  ------- -------     ------       -------
Balance at December
 31, 1999.............  32,714,942  $327  $149,032     $(563)     $(126,436) 602,500 $(3,031)    $2,970       $22,299
                        ==========  ====  ========     =====      =========  ======= =======     ======       =======
</TABLE>

                See notes to consolidated financial statements.

                                       39
<PAGE>

                         MEDAREX, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                            For the Year Ended December 31,
                                            ----------------------------------
                                               1997        1998        1999
                                            ----------  ----------  ----------
<S>                                         <C>         <C>         <C>
Operating activities:
 Net loss.................................. $  (55,377) $  (22,537) $  (17,031)
 Adjustments to reconcile net loss to net
  cash used in operating activities:
   Depreciation............................        538         698         696
   Amortization............................        225         475         352
   Cash received from patent issuance......        --        7,500         --
   Equity received for contract revenue....        --         (100)        --
   Non cash interest expense...............        --        1,521         --
   Write-off of in-process technology......     40,316         --          --
   Stock bonus to employees................        --          --        2,279
   Stock bonus to GenPharm International,
    Inc. employees.........................      2,275         --          --
   Value of stock options to non-
    employees..............................         68          34         --
Changes in operating assets and
 liabilities, net acquisition:
 Trade accounts receivable, net............         (2)          9         --
 Inventory.................................          3          (5)         16
 Prepaid expenses and other current
  assets...................................        156        (788)     (1,950)
 Trade accounts payable....................       (311)         12         226
 Accrued liabilities.......................        215      (1,079)        278
 Deferred contract revenue.................        --        1,683       9,524
                                            ----------  ----------  ----------
   Net cash used in operating activities...    (11,894)    (12,577)    (5,610)
Investing activities:
 Purchase of property and equipment........     (1,957)     (1,611)       (740)
 Purchase of Houston Biotechnology
  Incorporated, net of cash acquired.......     (1,007)        --          --
 Purchase of GenPharm International, Inc.,
  net of cash acquired.....................      6,054         --          --
 Decrease in note receivable...............        --       15,000         --
 (Increase) decrease in advances to
  affiliates...............................        --          (46)         62
 Proceeds from sale of equipment...........          5         --          --
 Decrease (increase) in segregated cash
  and other assets.........................        952        (985)        --
 Purchase of marketable securities.........        --      (37,628)     (4,000)
 Sales of marketable securities............      9,507      28,975      17,842
                                            ----------  ----------  ----------
   Net cash provided by investing
    activities.............................     13,554       3,705      13,164
Financing activities:
 Cash received from sales of stock, net....        192       6,770       2,452
 Increase in other long term obligations...         15         --          --
 Principal payments under debt
  obligations..............................       (102)       (210)        (51)
                                            ----------  ----------  ----------
   Net cash provided by financing
    activities.............................        105       6,560       2,401
                                            ----------  ----------  ----------
   Net increase (decrease) in cash and cash
    equivalents............................      1,765      (2,312)      9,955
 Cash and cash equivalents at beginning of
  period...................................      4,958       6,723       4,411
                                            ----------  ----------  ----------
 Cash and cash equivalents at end of
  period................................... $    6,723  $    4,411  $   14,366
                                            ==========  ==========  ==========
Supplemental disclosures of cash flow
 information
 Cash paid during period for:
   Income taxes............................ $      --   $    1,009  $      --
                                            ==========  ==========  ==========
   Interest................................ $       19  $       18  $        8
                                            ==========  ==========  ==========
</TABLE>

                See notes to consolidated financial statements.

                                       40
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

1. Nature of Operations

   Medarex, Inc. ("Medarex" or the "Company"), incorporated in July 1987, is a
biotechnology company developing therapeutic products for cancer, autoimmune
disease, secondary cataracts and other life-threatening and debilitating
diseases based on proprietary technology in the field of immunology. The
Company has three wholly-owned subsidiaries: Medarex Europe B.V. which was
incorporated in the Netherlands on October 31, 1996; Houston Biotechnology
Incorporated ("HBI") which was acquired on February 28, 1997 (See Note 14);
and GenPharm International, Inc. ("GenPharm") which was acquired on October
21, 1997 (See Note 14). The Company's therapeutic products are currently under
development and will need the approval of the U.S. Food and Drug
Administration ("FDA") prior to commercial distribution. The Company's
operations constitute one business segment. All significant intercompany
balances and transactions have been eliminated in consolidation.

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 and U.S. stock funds, both of 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 accumulated other comprehensive income (loss),
which is a separate component of shareholders' equity. These unrealized gains
and losses are considered temporary.

   Inventory

   Inventory consists primarily of antibodies to be sold to the research
community and to Merck KGaA, the Company's partner on MDX-447, 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
three to 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.

   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.

   Revenue related to collaborative research with the Company's corporate
partners is recognized as research services are performed over the related
funding periods for each contract. Under these agreements, the

                                      41
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

Company is required to perform research and development activities as
specified in each respective agreement. Deferred revenue may result when the
Company does not expend the required level of effort during a specific period
in comparison to funds received under the respective contracts or when funds
received are refundable under certain circumstances. Milestone and royalty
payments, if any, are recognized pursuant to collaborative agreements upon the
achievement of specified milestones.

   Non-refundable up-front payments received in connection with research and
development collaboration agreements are deferred and recognized on a
straight-line basis over the relevant periods in the agreement, generally the
research term.

   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

   In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, the
Company applies Accounting Principles Board 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 8 to the consolidated financial statements contains a
summary of the pro-forma effects to reported net loss and loss per share for
1997, 1998 and 1999 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

   Basic and diluted earnings per share is calculated in accordance with the
Financial Accounting Standards Board ("FASB") SFAS No. 128, Earnings per
Share. Potentially dilutive securities have been excluded from the
computation, as their effect is antidilutive.

   Impact of Recently Issued Accounting Standards

   In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS 133 requires the Company to
measure all derivatives at fair value and to recognize them in the balance
sheet as an asset or liability, depending on Medarex's rights or obligations
under the applicable derivative contract. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. As the Company does
not currently engage in derivatives or hedging transactions, SFAS 133 is not
expected to have an impact on the Company's consolidated results of
operations, financial position or cash flows.


                                      42
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

3. Available for Sale Investments

   Available for sale investments consist of the following as of December 31:

<TABLE>
<CAPTION>
                                      1998                          1999
                         ------------------------------ -----------------------------
                                 Unrealized  Estimated          Unrealized Estimated
                          Cost   Gain (Loss) Fair Value  Cost     (Loss)   Fair Value
                         ------- ----------- ---------- ------- ---------- ----------
<S>                      <C>     <C>         <C>        <C>     <C>        <C>
Money market funds
 (included in cash and
 cash equivalents)...... $   533    $ --      $   533   $ 1,241   $ --      $ 1,241
US Treasury
 Obligations............  15,951      (21)     15,930     6,824    (278)      6,546
US Corporate Debt
 Securities.............  14,184       88      14,272     9,520    (285)      9,235
US Stock Funds..........      51      --           51       --      --          --
                         -------    -----     -------   -------   -----     -------
                         $30,719    $  67     $30,786   $17,585   $(563)    $17,022
                         =======    =====     =======   =======   =====     =======
</TABLE>

   The Company's available for sale investments have the following maturities
at December 31, 1999:

<TABLE>
   <S>                                                                   <C>
   Due in one year or less.............................................. $6,229
   Due after one year, less than five years.............................  4,580
   Due after five years.................................................  6,213
</TABLE>

4. Leases

   The Company leases laboratory, production and office space in New Jersey
and California. These leases expire on various dates between December 2001 and
November 2004. The Company incurred rent expense of $2,063 in 1997, $2,096 in
1998 and $2,768 in 1999.

   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 $1,300 is fully cash collateralized and the cash is categorized as
segregated cash in the balance sheet.

   Future minimum lease commitments are as follows:

<TABLE>
   <S>                                                                    <C>
   2000.................................................................. $1,900
   2001..................................................................  1,900
   2002..................................................................  1,530
   2003..................................................................  1,288
   2004..................................................................    287
   Remainder.............................................................    --
                                                                          ------
                                                                          $6,905
                                                                          ======
</TABLE>

                                      43
<PAGE>

                         MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                        December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

5. Taxes

   Income tax expense is determined using the liability method.

   The provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>
                                                                 Year ended
                                                                 December 31
                                                              -----------------
                                                              1997 1998  1999
                                                              ---- ---- -------
   <S>                                                        <C>  <C>  <C>
   Federal
     Current................................................. $--  $341 $   --
     Deferred................................................  --   --      --
                                                              ---- ---- -------
     Total federal...........................................  --   341     --
   State
     Current.................................................  --   --     (522)
     Deferred................................................  --   --      --
                                                              ---- ---- -------
     Total state.............................................  --   --     (522)
   Foreign
     Current.................................................  --   --    1,200
     Deferred................................................  --   --   (1,200)
                                                              ---- ---- -------
     Total foreign...........................................  --   --      --
                                                              ---- ---- -------
       Total................................................. $--  $341 $  (522)
                                                              ==== ==== =======
</TABLE>

   The current state tax benefit in 1999 includes $1,434 attributable to the
Company's sale of certain state net operating loss and credit carryforwards.
The current and deferred foreign tax provisions for 1999 relate to foreign
withholding tax on deferred revenue.

   A reconciliation of the provision (benefit) for income taxes and the amount
computed by applying the federal income rate of 34% to income before provision
(benefit) for income tax is as follows:

<TABLE>
<CAPTION>
                                                     Year ended December 31
                                                    --------------------------
                                                      1997     1998     1999
                                                    --------  -------  -------
   <S>                                              <C>       <C>      <C>
   Computed at statutory rate...................... $(18,828) $(7,547) $(5,968)
   State income taxes, net of federal tax effect...       --       --     (338)
   Loss of foreign subsidiary......................      206      217      346
   Permanent items related to the acquisition of
    subsidiaries, the write off of technology and
    investment in foreign joint venture............   12,545       --    2,550
   Other...........................................        8      346       33
   Federal deferred tax valuation reserve..........    6,069    7,325    2,855
                                                    --------  -------  -------
                                                    $     --  $   341  $  (522)
                                                    ========  =======  =======
</TABLE>

                                       44
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

   The components of net deferred tax consist of the following as of December
31:

<TABLE>
<CAPTION>
                                                               1998      1999
                                                             --------  --------
   <S>                                                       <C>       <C>
   Deferred tax assets:
     Net operating loss carryforwards....................... $ 26,732  $ 24,796
     Foreign withholding tax................................       --     1,200
     R&D capitalized for tax purposes.......................    4,148     4,148
     Deferred revenue.......................................       --     4,793
     Research credits.......................................    3,435     2,912
     Other..................................................      112       199
                                                             --------  --------
                                                               34,427    38,048
     Deferred tax asset valuation reserve...................  (34,427)  (36,369)
                                                             --------  --------
                                                                   --     1,679
                                                             --------  --------
   Net deferred tax liabilities--other......................       --       479
                                                             --------  --------
   Net deferred tax assets.................................. $     --  $  1,200
                                                             ========  ========
</TABLE>

   At December 31, 1999, the Company had federal net operating loss ("NOL")
carryforwards of approximately $58,931. The NOL carryforwards for the Company
expire in 2002 ($45), 2003 ($196), 2004 ($524), 2006 ($863), 2007 ($3,985),
2008 ($5,533), 2009 ($7,592), 2010 ($6,395), 2011 ($7,028), 2012 ($9,642) and
2018 ($17,128). The Company has not performed a detailed analysis to determine
whether an ownership change under Section 382 of the Internal Revenue Code
occurred, but believes that it is very likely that such a change occurred
during 1996, 1997 or 1998. The effect of an ownership change would be the
imposition of an annual limitation on the use of NOL carryforwards
attributable to periods before change. The amount of the annual limitation
depends upon the value of the Company immediately before the change, changes
to the Company's capital during a specified period prior to the change, and a
published interest rate. Due to uncertainty as to the existence and date of an
ownership change during 1996, 1997 or 1998 the Company has not determined the
amount of the potential limitation. Any such material limitation could have a
significant impact on the Company's ability to use its NOL carryforwards.

   The Company had federal research tax credit carryforwards at December 31,
1999 of approximately $1,676 which expire between 2005 and 2019. If an
ownership change under Section 382 occurred during 1996, 1997 or 1998 the use
of these carryforwards also would be subject to limitation.

   At December 31, 1999, the Company has state NOL and research credit
carryforwards of approximately $47,936 and $786, respectively, that expire
between 2002 and 2006.

   As a result of the acquisition of HBI (See Note 14), the Company had
additional federal NOL carryforwards at December 31, 1999 of approximately
$7,481. The NOL carryforwards expire as follows: 2001 ($145), 2002 ($900),
2003 ($1,038), 2005 ($295), 2006 ($783), 2007 ($666), 2008 ($781), 2009
($114), 2013 ($74), and 2018 ($2,685). Also related to this acquisition, the
Company had research credit carryforwards of approximately $672 which expire
between 2005 and 2010. The use of the NOL and credit carryforwards is subject
to an annual limitation under Section 382. The Company has not determined the
amount of the limitation.

                                      45
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

6. Balance Sheet Detail

   Prepaid expenses and other current assets consist of the following as of
December 31:

<TABLE>
<CAPTION>
                                                                  1998    1999
                                                                 ------- ------
   <S>                                                           <C>     <C>
   Payroll taxes receivable--employees.......................... $    -- $1,889
   Other........................................................   1,796  2,457
                                                                 ------- ------
                                                                 $ 1,796 $4,346
                                                                 ======= ======
</TABLE>

   Accrued liabilities consist of the following as of December 31:

<TABLE>
<CAPTION>
                                                                   1998   1999
                                                                  ------ ------
   <S>                                                            <C>    <C>
   Accrued compensation.......................................... $1,009 $1,220
   Accrued payroll taxes.........................................      2  1,911
   Accrued taxes.................................................     --    912
   Accrued clinical trials expense...............................    981    287
   Accrued professional fees.....................................    263    376
   Accrued rent..................................................     23     18
   Accrued license fees..........................................  1,540     --
   Accrued acquisition...........................................    334     --
   Other.........................................................    715    409
                                                                  ------ ------
                                                                  $4,867 $5,133
                                                                  ====== ======
</TABLE>

7. Shareholders' Equity

   On February 28, 1997, the Company completed its acquisition of HBI. The
purchase price consisted of 1,026,245 shares of Medarex common stock (valued
at $7.375 per share), the assumption of HBI's outstanding options and
warrants, the assumption of certain liabilities in excess of assets acquired
and transaction costs.

   On October 21, 1997, the Company consummated the acquisition of GenPharm
(the "Merger") resulting in GenPharm becoming a wholly-owned subsidiary of the
Company. Pursuant to the Merger, the Company was obligated to issue shares of
its Common Stock having a value of up to $62,725 (the "Purchase Price"),
subject to adjustment, in exchange for all of the outstanding shares of
GenPharm capital stock. During 1997 the Company issued 3,250,000 shares of its
Common Stock as payment of $17,794 of the Purchase Price (See Note 14). The
amount of the Purchase Price was subsequently reduced by approximately $518 as
a result of certain adjustments provided for under the terms of the Merger.

   On August 4, 1998, certain of the former GenPharm stockholders assigned
their rights (the "Rights") to receive $25,123 of the remaining balance of the
Purchase Price to BCC Acquisition I LLC ("BCC"), a limited liability company
formed between The Bay City Capital Fund I, L.P., an affiliate of Bay City
Capital LLC and various affiliates of BCC. As part of this transaction, the
Company issued 3,721,877 shares of Common Stock and warrants to purchase
454,796 shares of Common Stock at an exercise price of $10.00 per share
exercisable over a period of seven (7) years to BCC in exchange for such
Rights. On September 1, 1998, the Company prepaid the remaining balance of the
Purchase Price owed to the GenPharm stockholders ($19,290) by issuing
3,829,315 shares of Common Stock, valued at $5.04 per share.

                                      46
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

   In August 1998, Merck KGaA made a $1,200 milestone payment in exchange for
192,000 shares of the Company's common stock. Of this amount $960 was included
in equity and $240 was recorded as contract revenue. The payment was triggered
by clinical development progress on MDX-447. In December 1998, Merck KGaA
obtained an option to expand its collaboration with Medarex for the anti-
cancer bispecific antibody, MDX-447. Merck KGaA has obtained the exclusive
option to negotiate for worldwide licensing rights, with Medarex retaining
United States rights, in return for an option fee of $1,500. The option fee at
December 31, 1998 was recorded as deferred revenue and will be amortized into
revenue over the one year life of the option.

   In September 1998, Centocor exercised its option to obtain an exclusive
commercial license to fully human antibodies for four antigens created with
the Company's HuMAb-Mouse technology. Under the terms of the agreement,
Centocor made a $4,000 equity purchase and received 900,340 shares of the
Company's common stock.

   In December 1998, Novartis made a $2,000 equity purchase for 511,509 shares
of the Company's common stock. This payment represents the first disbursement
by Novartis pursuant to a license agreement for the rights to use the HuMAb-
Mouse technology. Of this amount, $1,800 is included in equity and $200 is
being amortized into contract revenue as Novartis evaluates the initial HuMAb-
Mouse target. In November 1999, Novartis made a $1,000 equity purchase of
123,001 shares of the Company's common stock. This payment represents the
second disbursement by Novartis pursuant to a license agreement for the rights
to use the HuMAb-Mouse technology. Of this amount, $900 is included in equity
and $100 is being amortized into contract revenue as Novartis evaluates
additional HuMAb-Mouse targets.

8. Stock Options

   The Company has ten (10) Stock Option Plans (the "Plans"). 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. As a result of the 1997 HBI
acquisition, outstanding HBI options were converted to 187,471 Medarex
options. At December 31, 1999, a total of 7,275 shares were available for
future grants under the Plans.

   In accordance with the terms of the Company's 1999 Stock Option Plan, on
November 1, 1999, five of the Company's employees were granted a total of
100,200 shares of restricted common stock. Under the terms of each restricted
stock agreement, the shares of restricted stock could not be sold, assigned,
pledged or transferred until the date on which the last reported sales price
of the Company's common stock as reported on the Nasdaq Stock Market equaled
or exceeded $17.00 per share for any 10 trading days out of any 20 consecutive
trading days. The Company's common stock closed at or above $17.00 per share
10 days between December 3, 1999 and December 17, 1999, therefore the
restriction on these shares lapsed on December 17, 1999 on which date the
closing price was $22.75 per share. The Company has recorded compensation
expense of $2,279 in its statement of operations for the year ended December
31, 1999 related to these restricted stock grants.

                                      47
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

   A summary of the Company's stock option activity and related information
for the years ended December 31, 1997, 1998 and 1999 follows:

<TABLE>
<CAPTION>
                                 1997                1998                1999
                          ------------------- ------------------- --------------------
                                     Weighted            Weighted             Weighted
                           Common    Average   Common    Average    Common    Average
                            Stock    Exercise   Stock    Exercise   Stock     Exercise
                           Options    Price    Options    Price    Options     Price
                          ---------  -------- ---------  -------- ----------  --------
<S>                       <C>        <C>      <C>        <C>      <C>         <C>
Outstanding at beginning
 of year................  1,808,600   $3.62   2,634,452   $4.20    2,790,927   $4.17
  Granted...............    861,671    5.44     218,425    3.53      949,450    6.29
  Exercised.............    (32,469)  (4.47)    (29,850)  (1.27)  (1,056,165)  (2.11)
  Canceled..............     (3,350)  (9.20)    (32,100)  (5.15)     (93,580)  (5.83)
                          ---------           ---------           ----------
Outstanding at end of
 year...................  2,634,452    4.20   2,790,927    4.17    2,590,632    5.73
                          =========           =========           ==========
Exercisable at end of
 year...................  1,953,522           2,576,602            1,641,182
                          =========           =========           ==========
Weighted average fair
 value of
 options granted during
 the year...............              $2.31               $2.14                $4.68
</TABLE>

   Stock options outstanding at December 31, 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                              Weighted Average
         Range of      Outstanding Options at    Remaining     Weighted Average
      Exercise Price     December 31, 1999    Contractual Life  Exercise Price
      --------------   ---------------------- ---------------- ----------------
      <S>              <C>                    <C>              <C>
      $1.00 to $4.00           250,750              8.83            $ 3.20
      $4.00 to $6.44         1,053,025              7.13            $ 4.96
      $6.44 to $7.18           878,350              9.03            $ 6.79
      $3.09 to $54.95           82,757              5.33            $10.15
      $7.20 to $11.19          325,750              6.26            $ 8.24
                             ---------
                             2,590,632
                             =========
</TABLE>

   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 increased to the pro forma amounts
indicated in the table below.

<TABLE>
<CAPTION>
                                                    1997      1998      1999
                                                  --------  --------  --------
   <S>                                            <C>       <C>       <C>
   Net loss--as reported......................... $(55,377) $(22,537) $(17,031)
   Net loss--pro-forma........................... $(56,821) $(23,945) $(18,388)
   Loss per share--as reported................... $  (2.93) $   (.89) $   (.53)
   Loss per share--pro-forma..................... $  (3.01) $   (.94) $   (.58)
</TABLE>

                                      48
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

   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:

<TABLE>
<CAPTION>
                                                          1997    1998    1999
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   Expected dividend yield..............................      0%      0%      0%
   Expected stock price volatility......................   59.0%   68.8%   99.8%
   Risk-free interest rate..............................    5.8%    4.6%    5.5%
   Expected life of options............................. 5 years 5 years 5 years
</TABLE>

9. Executive Deferred Compensation Plan

   Effective March 31, 1999 the Company instituted an executive deferred
compensation plan to permit certain individuals to defer the gain on the
exercise of stock options to a specified future period. In June 1999, six
individuals deferred the gain on the exercise of options to purchase 602,500
shares of the Company's common stock which is included as treasury stock in
the Company's December 31, 1999 consolidated balance sheet. The Company's
executive deferred compensation plan does not permit diversification and must
be settled by the delivery of 590,521 shares of the Company's stock on
September 7, 2002. Accordingly, changes in the fair value of the amount owed
to the individuals are not recognized.

10. Warrants

   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. In 1999, 28,590 warrants were exercised and
71,410 warrants expired on June 30, 1999.

   On February 28, 1997, the Company completed its acquisition of HBI (see
note 14). As a result of this purchase, the Company assumed HBI outstanding
warrants which were convertible into 822,924 shares of Common Stock at $51.54
per share. These warrants expired on June 30, 1998.

   On October 21, 1997, the Company acquired GenPharm (see note 14). As a
result of this purchase, the Company assumed GenPharm's outstanding warrants
which, when converted, can purchase 25,000 shares of Common Stock at $6.00 per
share. These warrants expired on June 30, 1999.

   On August 4, 1998, certain of the former GenPharm stockholders assigned
their rights to receive $25,123 of the remaining balance of the purchase price
to BCC. As part of this transaction, the Company issued to BCC warrants to
purchase 454,796 shares of Common Stock at an exercise price of $10.00 per
share exercisable over a period of seven (7) years.

11. Research and Development Agreements

   On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Aventis Behring, a Delaware limited liability
company formed through a joint venture of Hoechst AG and Rhne-Poulenc Rorer,
Inc., to develop and market MDX-33. This collaboration provides for the joint
development of MDX-33 by the Company and Aventis Behring. 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 products used in clinical trials. Aventis Behring will be primarily
responsible for the payment of all expenses

                                      49
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

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. If such trials are successfully
completed, Aventis Behring 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, Aventis
Behring paid to the Company an up-front fee of $1,000 which is included in
contract and license revenue and will pay research and development funding of
$900 over three years. Aventis Behring may also provide the Company with up to
$10,000 of additional funding upon the achievement of certain milestones.
During 1997, the Company recognized $1,043 in contract revenue from Aventis
Behring. In 1998 and 1999 the Company recognized $1,339 and $353 in contract
revenue from Aventis Behring.

   Under the terms of the arrangement, Aventis Behring has an option (the
"Option") to purchase shares of Common Stock of the Company in an amount equal
to $2,000, 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 Aventis Behring does not elect to exercise the Option, then
Aventis Behring will be required to pay $2,000 in cash to the Company.

   HBI, which was acquired by the Company on February 28, 1997, had entered
into an exclusive license agreement with Baylor College of Medicine ("Baylor")
to market, manufacture, grant sublicenses and sell HBI's 4197X-RA Immunotoxin
(also known as MDX-RA). Baylor may terminate this license agreement if a
Product License Application is not filed with the U.S. Food and Drug
Administration ("FDA") by December 31, 2000. Pursuant to this agreement, the
Company is obligated to pay Baylor a royalty equal to a maximum of 10% of the
net sales of the product until $5,000 in royalties are paid and 5% of net
sales thereafter (5% and 2.5% in certain instances). No royalties have yet
been paid under this agreement.

   Effective December 29, 1995, HBI 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 over the next five years to support the Company's development
of MDX-RA. 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 the
Company. 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 the Company 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. Amounts paid by Santen to the Company,
except those amounts related to the purchase of the MDX-RA, are subject to a
10% withholding tax imposed by the Japanese government. The Company receives
U.S. income tax credits equal to the amounts withheld, but the Company is not
currently able to utilize such credits. During 1997 and 1998, the Company
recognized $865 and $900, respectively, in contract revenue from Santen.

   The Company has reached an understanding with Santen regarding certain
modifications to the Santen License whereby the Company will obtain, among
other things, revisions in the manufacturing and royalty provisions as well as
an option, subject to certain rights of Santen, to reacquire commercial rights
to the MDX-RA product for the Japanese market. In return, the Company allowed
Santen to issue a contingent note in the amount of $1,000 for the milestone
payment which was originally due in January 1998 relating to the initiation of
Phase III clinical trials of MDX-RA in the United States. In November 1998,
the Phase III clinical trial for

                                      50
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

MDX-RA was suspended by the trial safety committee after 565 patients had been
treated. The reason for the suspension was the occurrence of serious adverse
events ("SAEs") in seven (7) placebo treated patients and six (6) patients
given active drug. The Company is currently analyzing the SAE's and product
formulation to try to determine the cause of the SAE's. As a result of the
suspension of the Phase III clinical trial of MDX-RA, the Company and Santen
are discussing the status of this collaboration. All payment obligations by
Santen have been suspended until completion of the Phase III clinical trials
of MDX-RA in the United States.

   The Company holds a non-exclusive license from Sanofi, S.A., ("Sanofi") a
French pharmaceutical company, to use its patented method for conjugating
antibodies involving the particular toxin and linker used by the Company in
the manufacture of MDX-RA. A royalty of $1.00 per treatment unit of MDX-RA is
payable to Sanofi for sales in countries where Sanofi has patent rights until
royalties of $1 million are paid, after which the royalty rate is reduced to
$.75 per treatment unit. The license provides for minimum annual royalties of
$138 for 1996 and thereafter, with the last payment due in March 1999. During
1997, 1998 and 1999, the Company paid a minimum fee of $115, $138 and $103,
respectively.

   In May 1993, GenPharm, which was acquired by the Company on October 21,
1997, entered into a collaboration with Eisai to fund the development and
initial manufacturing of a specific human antibody product. This agreement was
subsequently amended to provide for further research and development funding
through December 31, 1997. Revenue recognized in 1997 by the Company under
this research agreement, as amended, was $377. In 1998, the Company received a
$750 milestone payment for the production of antibodies. Research and
development costs incurred under this agreement, to date, have approximated
revenues.

   In February 1997, GenPharm entered into a Research and Commercialization
Agreement with Centocor. This agreement provides Centocor with a research
license in return for annual license fees. Further, Centocor was granted an
option to obtain exclusive worldwide marketing and manufacturing rights to any
antibodies which are developed under the terms of the agreement contingent
upon Centocor making equity investments in GenPharm (now the Company). Under
the terms of the agreement, in October 1998, Centocor exercised its option by
making a $4,000 equity purchase and received 900,340 shares of Medarex's
Common Stock. The agreement provides for benchmark payments on the achievement
of certain milestones and royalty payments on product sales. In 1999, the
Company received a $4,000 milestone payment from Centocor.

   In August 1998, the Company announced that it had received a $1,200
milestone payment from Merck KGaA in exchange for 192,000 shares of Medarex
Common Stock. The milestone payment was triggered by clinical development
progress of MDX-447, an anti-cancer treatment developed jointly by Merck KGaA
and Medarex. In December 1998, Merck KGaA obtained an option to expand its
collaboration with Medarex for the
anti-cancer bispecific antibody, MDX-447. Merck KGaA obtained the exclusive
option to negotiate for worldwide licensing rights, with Medarex retaining
United States rights, in return for an option fee of $1,500, which was
recognized in contract revenue in 1999, and Merck's agreement to pay fully for
Phase II clinical trials of MDX-447. Merck KGaA currently has exclusive
marketing rights in Europe. Medarex retains U.S. rights and the two companies
share the rest of the world.

   In February of 1998, the Company entered into a collaboration with Schering
AG, Germany, in which Medarex will use its HuMAb-Mouse technology to produce
fully human antibodies to a proprietary antigen for Schering AG. Medarex could
receive research and development payments, a license fee, milestone payments
and royalty payments on future product sales by Schering AG.

                                      51
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

   In May 1998, the Company entered into an antibody development agreement
with EluSys Therapeutics, a privately held biotechnology company. Under this
new research collaboration and license agreement, EluSys Therapeutics will
employ Medarex's HuMAb-Mouse technology to produce a fully human antibody for
use as part of a platform technology that has the potential to treat numerous
infectious diseases. Medarex could receive license fees, milestone payments
and pre-clinical and clinical manufacturing payments plus royalty payments on
future product sales by EluSys Therapeutics. In addition, Medarex and EluSys
Therapeutics will collaborate to develop a second human antibody that will be
shared by both companies.

   In June 1998, the Company entered into a research agreement with Bristol-
Myers involving Medarex's HuMAb-Mouse technology. Bristol-Myers will use the
HuMAb-Mouse to create human antibodies to multiple antigens for use in their
drug discovery programs. The agreement includes the option for Bristol-Myers
to commercialize these antibodies with terms that could result in license fees
and milestone payments, plus royalties to Medarex.

   In July 1998, the Company and FibroGen, a privately held biotechnology
company, entered into an antibody development agreement for potential anti-
fibrotic therapies. Medarex could receive research and development payments,
license fees and milestone payments plus royalty payments on future product
sales by FibroGen. The agreement calls for Medarex to use its HuMAb-Mouse
technology to produce fully human antibodies against FibroGen's proprietary
targets for exclusive use by FibroGen and its licensees. FibroGen's targets
include connective tissue growth factor (CTGF) and its processed fragments,
bone morphogenic protein 1 and tolloids, key proteins implicated in fibrotic
disease.

   In September 1998, the Company entered into an antibody development
agreement with medac, a privately held company. Under this research
collaboration and license agreement, Medarex will use its technology to
produce a new bispecific antibody to treat Hodgkin's Lymphoma. Medarex will
employ its HuMAb-Mouse technology to generate a fully human monoclonal
antibody to CD30, a potential cancer antigen for which medac claims
proprietary rights.

   In December 1998, the Company and Novartis entered into a global licensing
arrangement involving Medarex's HuMAb-Mouse technology. Under the terms of the
agreement, Novartis obtains the rights to use the HuMAb-Mouse technology
throughout the entire Novartis organization for an unlimited number of targets
for up to ten years. Under the terms of the arrangement, Novartis made an
initial equity investment in the Company by purchasing 511,509 shares of
Common Stock of $2,000 at a purchase price of $3.91 per share, a premium to
the market price on the day of the transaction. An additional $1,000 equity
investment will be made on the first anniversary of the agreement. A further
$3,000 in equity purchases may be made after the initial five year term of the
agreement. In addition, the Company could receive license fees, milestone
payments and royalties on sales of products made utilizing the HuMAb-Mouse
technology.

   In December 1999, Medarex entered into a strategic alliance with Kirin
Brewery Co., Ltd., providing for the global commercialization of technology
for creating fully human monoclonal antibodies. Under the terms of this
alliance, Kirin paid Medarex $12,000 in up-front fees in December of 1999,
plus certain additional payments over the term of the alliance. The $12,000
will be recognized as revenue by the Company on a semi-annual basis during
2000 and 2001 as the required work is performed. In addition, Kirin was
designated as the exclusive distributor of the Company's HuMAb-Mouse
technology in Asia, and Medarex was designated as the exclusive distributor of
Kirin's Transchromosomic Mouse outside of Asia. In addition Medarex will
exchange broad licenses with Kirin, subject to milestone and royalty payments,
for in-house use of each other's technology for the development of human
antibody therapeutic products. Medarex will also initiate a research
collaboration

                                      52
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

with Kirin to develop a novel approach to the creation of fully human
antibodies by combining proprietary technologies.

   The Company spent $14,100, $23,122 and $19,929 during the years ended
December 31, 1997, 1998 and 1999, respectively, on activities relating to
development of new products, services or techniques or the improvement of
existing products, services or techniques. In 1997, approximately 7% of the
Company's research and development was funded by Aventis Behring and in 1997
6% was funded by Santen. In 1998, 6% was funded by Aventis Behring, 4% by
Santen and 3% was funded by both Merck KGaA and Eisai. In 1999, 20% was funded
by Centocor, 15% by Merck KGaA and 3% was funded by Genmab.

12. Related Party Transactions

   In March 1999, the Company and BankInvest Biomedical Development Venture
Fund formed Genmab, a new Danish company established to develop and
commercialize a portfolio of fully human antibodies derived from the Company's
HuMAb-Mouse technology.

   Genmab received funding of approximately $7,500; BankInvest VF was the lead
investor with A/S Dansk Erhvevsinvestering and others as co-investors. The
Company elected to accept a 45% equity ownership stake in Genmab in place of
milestone payments and royalties. Genmab will focus primarily on developing
several products to treat inflammatory conditions, such as rheumatoid
arthritis and psoriasis, and has received licenses to certain of the Company's
rights to MDX-CD4, a fully human antibody in Phase I/II clinical trials for
the treatment of rheumatoid arthritis. Upon formation, the Company's Senior
Vice President of Business Development received approximately 2% of the equity
of Genmab. The Company recognized approximately $630 of revenue from Genmab
during 1999.

13. Commitments and contingences

   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 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 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.

   In the ordinary course of our business, the Company is at times subject to
various legal proceedings. The Company does not believe that any of our
current legal proceedings, individually or in the aggregate, will have a
material adverse effect on its operations or financial condition.

14. Acquisitions

   On February 28, 1997, the Company completed its acquisition of HBI, a
biotechnology company located in Houston, Texas. HBI is involved in the
development of monoclonal antibodies and other biopharmaceutical products to
prevent secondary cataracts and to treat glaucoma and other disorders that
impair or destroy human vision. The purchase price consisted of 1,026,245
shares of Medarex common stock (valued at $7.375 per share),

                                      53
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

the assumption of HBI's outstanding options and warrants (valued at $550), the
assumption of certain liabilities in excess of tangible assets acquired of
$879, forgiveness of indebtedness of $750 and transaction and other costs of
approximately $638. The transaction was treated as a purchase for accounting
purposes, and accordingly, the assets and liabilities assumed have been
recorded at their estimated fair market values at the date of acquisition.
Since technological feasibility of the in-process research and development
costs have not yet been established and the technology had no alternative
future use at the acquisition date, the in-process research and development
costs of $10,386 were immediately written-off and included in the results of
operations as a non-recurring charge for the year ended December 31, 1997.

   On October 21, 1997, the Company acquired all of the assets and liabilities
of GenPharm, a privately held biopharmaceutical company located in Palo Alto,
California. GenPharm is engaged in the development of transgenic mice for the
creation of fully human monoclonal antibodies. The Company agreed to pay
GenPharm shareholders up to $62,725 (the "Purchase Price"), payable in shares
of the Company's Common Stock. The Purchase Price was subsequently reduced by
approximately $518 pursuant to certain adjustments provided for in the Merger.
The transaction was treated as a purchase for accounting purposes and since
the technological feasibility of the in-process research and development costs
have not yet been established and the technology had no alternative future use
at the acquisition date, the in-process research and development costs were
immediately written off and included in the results of operations as a non-
recurring charge for the year ended December 31, 1997. In addition, in
connection with the Merger, the Company agreed to pay a stock bonus to certain
employees of GenPharm in an amount up to $2,275 payable in Common Stock. In
January 1998, $1,188 of the stock bonus was paid through the issuance of
250,000 shares of the Company's Common Stock and in September of 1998, $1,085
was paid through the issuance of 144,942 shares of the Company's Common Stock
and cash.

   During 1997, the Company issued 3,250,000 shares of its Common Stock as
payment of $17,794 of the Purchase Price. On August 4, 1998, certain of the
former GenPharm stockholders assigned their Rights to receive $25,123 of the
remaining balance of the Purchase Price to BCC. As part of this transaction,
the Company issued 3,721,877 shares of Common Stock and warrants to purchase
454,796 shares of Common Stock at an exercise price of $10.00 per share
exercisable over a period of seven (7) years to BCC in exchange for such
Rights. On September 1, 1998, the Company prepaid the remaining balance of the
Purchase Price owed to the GenPharm stockholders ($19,290) by issuing
3,829,315 shares of Common Stock, valued at $5.04 per share.

   The results of operations for the HBI and GenPharm acquisitions are
included in the statement of operations from the respective dates of
acquisition.

   The pro-forma unaudited results of operations for the year ended December
31, 1997, assuming the acquisitions of HBI and GenPharm took place on January
1, 1997, are as follows:

<TABLE>
   <S>                                                                <C>
   Total revenue..................................................... $  5,977
   Net loss..........................................................  (13,412)
   Basic and diluted net loss per share.............................. $   (.61)
</TABLE>

   The pro-forma information for the year ended December 31, 1997 does not
include cross license settlement income of $22,500, related litigation fees
and expenses of $4,727, the write-off of in-process technology of $40,316 and
$2,275 of stock bonus paid the GenPharm employees which are not expected to
recur in the future. The pro-forma unaudited financial results are not
necessarily indicative of the results of operations that would have occurred
had the HBI and GenPharm acquisitions taken place at the beginning of the
periods presented nor are they intended to be indicative of results that may
occur in the future.


                                      54
<PAGE>

                        MEDAREX, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 1997, 1998 and 1999
                   (Dollars in thousands, except share data)

15. Segment Information

   The Company is an integrated monoclonal antibody-based company with
antibody discovery, development and manufacturing capabilities. The operations
of the Company and its wholly-owned subsidiaries constitute one business
segment.

   Revenue from customers representing 10% or more of total revenues for the
years ended December 31, 1997, 1998 and 1999 is as follows:

<TABLE>
<CAPTION>
   Customer                                                      1997  1998  1999
   --------                                                      ----  ----  ----
   <S>                                                           <C>   <C>   <C>
   Centocor..................................................... --      6%   40%
   Merck KGaA................................................... --     24%   31%
   Aventis Behring..............................................  23%   20%    4%
   Santen.......................................................  26%   13%  --
   Eisai........................................................  12%   11%  --
</TABLE>

   No other single customer accounted for more than 10% of the Company's total
revenues for the years ended December 31, 1997, 1998 and 1999, respectively.

16. Subsequent Events

   In January 2000, the Company entered into a non-binding letter of intent
with Immuno-Designed Molecules, S.A. ("IDM") relating to the development of
certain non-HuMab-Mouse antibody-based products. Under the terms of the letter
of intent, Medarex is required to pay IDM $2,000 upon the execution of a
definitive agreement. The Company has a 6% interest in IDM. This agreement
provides for the Company to obtain additional equity in IDM, or a comparable
interest in a new jointly owned entity, which will result in the Company
having a 43% aggregate equity interest in such entity. Medarex is also
required to purchase additional equity to fund up to an additional $5,000 in
the event IDM does not obtain additional financing of at least $7,000 by
December 31, 2000.

   On February 10, 2000, the Company entered into a binding letter of intent
with Eos Biotechnology, Inc. ("Eos Biotechnology") for the establishment of a
strategic alliance to develop and commercialize genomics-derived antibody
therapeutics. Medarex will pay Eos Biotechnology $5,000 in cash by May 15,
2000, and has committed $20,000 which will be released to Eos Biotechnology
over time upon their achievement of certain milestones. In addition, Medarex
will have certain rights with respect to the manufacture of any product
developed by the alliance as well as the right to become the exclusive
licensee in Europe for certain products.The letter of intent will terminate by
May 14, 2000 should Medarex not obtain at least $50,000 of additional
financing.

                                      55
<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 our definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 18, 2000,
which will be filed on or before April 14, 2000, and is incorporated herein by
reference.

Item 11. Executive Compensation

   The information required herein will be reported in our definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 18, 2000,
which will be filed on or before April 14, 2000, and is incorporated herein by
reference.


Item 12. Security Ownership of Certain Beneficial Owners and Management

   The information required herein will be reported in our definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 18, 2000,
which will be filed on or before April 14, 2000 and is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

   The information required herein will be incorporated in our definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on May 18,
2000, which will be filed on or before April 14, 2000, and is incorporated
herein by reference.

                                      56
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

  Item
 Number
--------

(a).1.   Consolidated Financial Statements

         Report of Independent Auditors.

         Consolidated Balance Sheets as of December 31, 1998 and 1999.

         Consolidated Statements of Operations for the Years Ended December 31,
         1997, 1998 and 1999.

         Consolidated Statements of Shareholders' Equity for the Years Ended
         December 31, 1997, 1998 and 1999.
         Consolidated Statements of Cash Flows for the Years Ended December 31,
         1997, 1998 and 1999.

         Notes to Consolidated Financial Statements

(a).2.   Financial Statement Schedules

         All Financial Statement schedules for which provision is made in the
         applicable Accounting regulations of the Securities and Exchange
         Commission are either not required under the related instructions or
         are inapplicable because the required information is included in the
         consolidated financial statements or related notes thereto.

(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.

2.3(28)  Amended and Restated Agreement and Plan of Reorganization among the
         Registrant, Medarex Acquisition Corp. and GenPharm International,
         Inc., dated as of May 5, 1997, together with 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.

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.

                                       57
<PAGE>

  Item
 Number
--------
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.

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.


                                       58
<PAGE>

<TABLE>
<CAPTION>
    Item
   Number
 ---------
 <C>        <S>
 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.

 10.28(1)   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.
</TABLE>

                                       59
<PAGE>

<TABLE>
<CAPTION>
    Item
   Number
 -----------

 <C>         <S>
 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.
 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.
 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.
</TABLE>

                                       60
<PAGE>

<TABLE>
<CAPTION>
    Item
   Number
 -----------

 <C>         <S>
 10.69(19)   Convertible Note dated January 15, 1997 executed by Houston
             Biotechnology Incorporated in favor of the Registrant.

 10.70(29)** Cooperative Research and Development Agreement made May 31, 1993
             between Eisai Co., Ltd. and GenPharm International, Inc. together
             with Amendment No. 1 thereto effective as of October 10, 1995, and
             Amendment No. 2 thereto effective as of April 26, 1996.

 10.71(29)** Cooperative Research Agreement made effective as of January 1,
             1995, between LeukoSite, Inc. and GenPharm International, Inc.,
             together Amendment No. 1 thereto effective as of January 1, 1996,
             Amendment No. 2 thereto made effective as of December 1, 1996, and
             an Acknowledgement Relating thereto made effective March 24, 1997.

 10.72(29)** Research and Commercialization Agreement made February 24, 1997
             between Centocor, Inc. and GenPharm International, Inc.

 10.73(23)** Release and Settlement Agreement, dated March 26, 1997, among cell
             Genesys, Inc., Abgenix, Inc., Xenotech, L.P., Japan Tobacco, Inc.
             and GenPharm International, Inc.

 10.74(24)** Cross License Agreement, effective as of March 26, 1997, among
             Cell Genesys, Inc., Abgenix, Inc., Xenotech, L.P., Japan Tobacco,
             Inc. and GenPharm International, Inc.

 10.75(25)** Interference Settlement Procedure Agreement, effective as of March
             26, 1997, among Cell Genesys, Inc., Abgenix, Inc., Xenotech, L.P.,
             Japan Tobacco, Inc. and GenPharm International, Inc.

 10.76(26)   Convertible Note Purchase Agreement, dated as of March 26, 1997,
             between Cell Genesys, Inc. and GenPharm International, Inc.

 10.77(27)   Convertible Subordinated Promissory Note, dated March 26, 1997,
             made by Cell Genesys, Inc. to the order of GenPharm International,
             Inc.

 10.78(30)** Development and Licensing Agreement between the Registrant and
             Centeon L.L.C. dated April 24, 1996.

 10.79(31)** Research and Licensing Agreement between the Registrant and Merck
             KGaA dated June 26, 1996.

 10.80(32)** Research and Commercialization Agreement dated February 11, 1998
             between the Registrant and Schering AG.

 10.81(33)   Rights Exchange Agreement dated as of June 10, 1998 between the
             Registrant and BCC Acquisition I LLC, together with the exhibits
             thereto.

 10.82(34)** Evaluation Research and Commercialization Agreement effective as
             of November 6, 1998 between GenPharm International, Inc. and
             Novartis Pharma AG.

 10.83(35)** Stock Purchase Agreement dated as of November 6, 1998 between the
             Registrant and Novartis Pharma AG.

 10.84(36)** Shareholders Agreement dated February 25, 1999 among Medarex,
             Inc., GenPharm International, Inc., BankInvest, BI Asset
             Management Fondsmaeglerselskab A/S and certain other investors.

 10.85(37)** Evaluation and Commercialization Agreement dated as of February
             25, 1999 among Medarex, Inc., GenPharm International, Inc. and
             Genmab.

 10.86(30)   Medarex, Inc. Executive Deferred Savings Plan.

 10.87(39)   Agreement of Lease dated July 7, 1999 between McCarthy Associates
             Limited and the Registrant.

 10.88(40)   Medarex, Inc. 1997 Stock Option Plan.

</TABLE>


                                       61
<PAGE>

<TABLE>
<CAPTION>
    Item
   Number
 -----------

 <C>         <S>
 10.89(41)   Medarex, Inc. 1999 Stock Option Plan.

 10.90(42)   Lease Agreement dated August 9, 1999 between The Hunterdon Group
             and the Registrant.

 10.91(43)*  Evaluation and Commercialization Agreement effective as of May 4,
             1998 between the Registrant and ErythroMed, Inc. (which
             subsequently changed its name to EluSys Therepeutics Inc.)

 10.92(44)*  Research and Commercialization Agreement dated as of July 9, 1998
             between GenPharm International, Inc. ("GenPharm"), a wholly-owned
             subsidiary of the Registrant, the Registrant and Fibrogen Inc. and
             its wholly-owned subsidiary, FibroPharma, Inc.

 10.93(45)*  Evaluation, Research and Commercialization Agreement effective as
             of January 11, 1999 among GenPharm, the Registrant and Immunex
             Corporation, a Washington corporation.

 10.94(46)*  Amendment No. 1 effective January 1999 to the Research and
             Commercialization Agreement dated as of February 9, 1998 among
             Schering AG, GenPharm and the Registrant.

 10.95(47)*  Evaluation and Commercialization Agreement effective as of
             February 24, 1999 between the Registrant and Leukosite, Inc.

 10.96(48)*  Collaboration and License Agreement dated as of March 29, 1999
             between NeXstar Pharmaceuticals, Inc. and the Registrant.

 10.97(49)*  Research and Commercialization Agreement dated as of August 2,
             1999 between GenPharm and EOS Biotechnology, Inc.

 10.98(50)*  Research and Commercialization Agreement effective as of September
             21, 1999 among the Registrant, GenPharm and Amgen Inc.

 10.99(51)*  Agreement dated December 21, 1999 among the Registrant, GenPharm,
             and Immuno-Designed Molecules S.A.

 10.100(52)* Agreement on Essential Terms for Collaboration effective as of
             December 27, 1999 among the Registrant, GenPharm and Kirin Brewery
             Co., Ltd.

 10.101(53)* Binding Letter of Intent dated January 3, 2000 among the
             Registrant, GenPharm and Scil Biomedicals GmbH.

 10.102(54)* Binding Letter of Intent dated February 10, 2000 among the
             Registrant and Eos Biotechnology, Inc.

 21          Subsidiaries of the Registrant.

 23.1        Consent of Ernst & Young LLP.

 27          Financial Data Schedule
</TABLE>
--------
(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.

                                       62
<PAGE>

<TABLE>
 <C>  <S>
  (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.
 (19) Incorporated by reference to the identically numbered 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 Exhibit Number 10.44 to Cell Genesys, Inc.'s
      Annual Report on Form 10-K/A filed on May 1, 1997.
 (24) Incorporated by reference to Exhibit Number 10.45 to Cell Genesys, Inc.'s
      Annual Report on Form 10-K/A filed on May 1, 1997.
 (25) Incorporated by reference to Exhibit Number 10.46 to Cell Genesys, Inc.'s
      Annual Report on Form 10-K/A filed on May 1, 1997.
 (26) Incorporated by reference to Exhibit Number 10.47 to Cell Genesys, Inc.'s
      Annual Report on Form 10-K/A filed on May 1, 1997.
 (27) Incorporated by reference to Exhibit Number 10.48 to Cell Genesys, Inc.'s
      Annual Report on Form 10-K/A filed on May 1, 1997.
 (28) Incorporated by reference to Exhibit Number 2.1 to the Registrant's
      Registration Statement on Form S-4 (No. 333-29953) filed on June 25,
      1997.
</TABLE>

                                       63
<PAGE>

<TABLE>
 <C>  <S>
 (29) Incorporated by reference to identically numbered exhibit to the
      Registrant's current Report on Form 8-K filed on March 31, 1998.
 (30) Incorporated by reference to Exhibit Number 10.74 to the Registrant's
      current Report on Form 8-K filed on March 31, 1998.
 (31) Incorporated by reference to Exhibit Number 10.73 to the Registrant's
      current Report on Form 8-K filed on March 31, 1998.
 (32) Incorporated by reference to the identically numbered exhibits to the
      Registrant's Quarterly Report on Form 10-Q filed May 14, 1998.
 (33) Incorporated by reference to the identically numbered exhibit to the
      Registrant's Current Report on Form 8-K filed on June 15, 1998.
 (34) Incorporated by reference to Exhibit Number 10.1 to the Registrant's
      Current Report on Form 8-K filed on February 26, 1999.
 (35) Incorporated by reference to Exhibit Number 10.2 to the Registrant's
      Current Report on Form 8-K filed on February 26, 1999.
 (36) Incorporated by reference to Exhibit Number 10.80 to the Registrant's
      Current Report on Form 8-K filed on August 11, 1999.
 (37) Incorporated by reference to Exhibit Number 10.81 to the Registrant's
      Current Report on Form 8-K filed on August 11, 1999.
 (38) Incorporated by reference to Exhibit Number 10.82 to the Registrant's
      Quarterly Report on Form 10-Q filed on August 13, 1999.
 (39) Incorporated by reference to Exhibit Number 10.83 to the Registrant's
      Quarterly Report on Form 10-Q filed on August 13, 1999.
 (40) Incorporated by reference to Exhibit Number 10.84 to the Registrant's
      Quarterly Report on Form 10-Q filed on August 13, 1999.
 (41) Incorporated by reference to Exhibit Number 10.85 to the Registrant's
      Quarterly Report on Form 10-Q filed on August 13, 1999.
 (42) Incorporated by reference to Exhibit Number 10.86 to the Registrant's
      Quarterly Report on Form 10-Q filed on November 11, 1999.
 (43) Incorporated by reference to Exhibit Number 10.1 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (44) Incorporated by reference to Exhibit Number 10.2 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (45) Incorporated by reference to Exhibit Number 10.3 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (46) Incorporated by reference to Exhibit Number 10.4 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (47) Incorporated by reference to Exhibit Number 10.5 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (48) Incorporated by reference to Exhibit Number 10.6 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (49) Incorporated by reference to Exhibit Number 10.7 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (50) Incorporated by reference to Exhibit Number 10.8 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (51) Incorporated by reference to Exhibit Number 10.9 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (52) Incorporated by reference to Exhibit Number 10.10 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (53) Incorporated by reference to Exhibit Number 10.11 to the Registrant's
      Current Report on Form 8-K filed on January 26, 2000.
 (54) Incorporated by reference to Exhibit Number 10.1 to the Registrant's
      Current Report on Form 8-K filed on February 14, 2000.
</TABLE>

                                       64
<PAGE>

--------
 *Confidential treatment has been requested with respect to specified portions
 of this exhibit.

**Confidential treatment has been granted with respect to specified portions of
 this exhibit.

(b) Reports on Form 8-K

   None.

                                       65
<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 February 12,
2000.

                                          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.

<TABLE>
<CAPTION>
                 Signature                            Title                  Date
                 ---------                            -----                  ----

<S>                                         <C>                        <C>
          /s/ Donald L. Drakeman            Director, President and      February 12,
___________________________________________  Chief Executive Officer         2000
            Donald L. Drakeman               (Principal Executive
                                             Officer, and Director)

         /s/ Michael A. Appelbaum           Director, Executive Vice     February 12,
___________________________________________  President and Chief             2000
           Michael A. Appelbaum              Financial Officer
                                             (Principal Financial
                                             Officer, Accounting
                                             Officer and Director)

             /s/ Irwin Lerner               Chairman of the Board        February 12,
___________________________________________  (Director)                      2000
               Irwin Lerner

           /s/ Michael W. Fanger            Director                     February 12,
___________________________________________                                  2000
             Michael W. Fanger

            /s/ Robert Iggulden             Director                     February 12,
___________________________________________                                  2000
              Robert Iggulden

           /s/ Charles Schaller             Director                     February 12,
___________________________________________                                  2000
             Charles Schaller

        /s/ W. Leigh Thompson, Jr.          Director                     February 12,
___________________________________________                                  2000
          W. Leigh Thompson, Jr.

            /s/ Julius A. Vida              Director                     February 12,
___________________________________________                                  2000
              Julius A. Vida

            /s/ Fred B. Craves              Director                     February 12,
___________________________________________                                  2000
              Fred B. Craves

</TABLE>