**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

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**FORM 10-K**

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**x**                               ANNUAL REPORT PURSUANT TO SECTION 13or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe fiscal year ended December 31, 2006**

**o**                                  TRANSITION REPORT PURSUANT TO SECTION 13or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from                       to                       .**

**CommissionFile No. 0-19312**

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**MEDAREX, INC.**

(Exact name of registrantas specified in its charter)

| **New Jersey**                                                   |   | **22-2822175**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
| **707 State Road, Princeton, New Jersey**                        |   | **08540**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |

 

Registrant’s telephonenumber, including area code: **(609) 430-2880**

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Securities registeredpursuant to Section 12(b) of the Act: **None**

Securities registeredpursuant to Section 12(g) of the Act:

| Title  of Class   | ** ** | **Name of Each Exchange on Which Registered** |
|-------------------|------------|-----------------------------------------------|
| Common Stock      |       | The NASDAQ Global  Market under               |
| ($0.01 par value) |       | symbol MEDX                              |

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Act. Yes  x  No  o

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes  o  No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.    Yes  x    No  o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K.   x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Act. (check one):

Large accelerated filer x           Acceleratedfiler o               Non-acceleratedfiler o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes  o  No x

The aggregate market valueof the voting stock held by non-affiliates of the Registrant was approximately $1,043,382,907 asof June 30, 2006,based upon the closing sale price on the NASDAQ Global Market reported for suchdate. The determination of affiliate status for the purposes of thiscalculation is not necessarily a conclusive determination for other purposes.The calculation excludes approximately 15,544,747 sharesheld by directors, officers and shareholders whose ownership exceeded 5% of theregistrant’soutstanding Common Stock as of June 30, 2006. Exclusion of these sharesshould not be construed to indicate that such person controls, is controlled byor is under common control with the registrant.

As of January 31,2007, the registrant had outstanding 124,244,059 shares of Common Stock, $0.01par value (“Common Stock”), which is registrant’s only class of Common Stock.

**DOCUMENTS INCORPORATED BYREFERENCE**

Portionsof the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholdersto be held on May 17, 2007 (the “Proxy Statement”) are incorporated byreference in Parts II and III of this Report. Other documents incorporated byreference in this report are listed in the Exhibit Index.

 

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**MEDAREX,INC.**

**TABLEOF CONTENTS**

**FORM 10-K**

|                   | ** ** | ** **                                                                                       | ** ** | **Page** |
|-------------------|------------|--------------------------------------------------------------------------------------------------|------------|----------|
| **Part I**   |       |                                                                                             |       |     |   |
| Item 1.           |       | Business                                                                                         |       | 1        |   |
| Item 1A.          |       | Risk Factors                                                                                     |       | 30       |   |
| Item  1B.         |       | Unresolved  Staff Comments                                                                       |       | 54       |   |
| Item 2.           |       | Properties                                                                                       |       | 54       |   |
| Item 3.           |       | Legal Proceedings                                                                                |       | 54       |   |
| Item  4.          |       | Submission  of Matters to a Vote of Security Holders                                             |       | 55       |   |
| **Part II**  |       |                                                                                             |       |     |   |
| Item  5.          |       | Market  for Registrant’s Common Equity and Related Shareholder Matters                      |       | 56       |   |
| Item  6.          |       | Selected  Consolidated Financial Data                                                            |       | 57       |   |
| Item  7.          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations      |       | 59       |   |
| Item  7A.         |       | Quantitative  and Qualitative Disclosures about Market Risks                                     |       | 78       |   |
| Item  8.          |       | Consolidated  Financial Statements and Supplementary Data                                        |       | F-1      |   |
| Item  9.          |       | Changes  in and Disagreements With Accountants on Accounting and Financial Disclosures           |       | 79       |   |
| Item  9A.         |       | Controls  and Procedures                                                                         |       | 79       |   |
| Item 9B.          |       | Other  Information                                                                               |       | 82       |   |
| **Part III** |       |                                                                                             |       |     |   |
| Item  10.         |       | Directors,  Executive Officers and Corporate Governance of the Registrant                        |       | 82       |   |
| Item  11.         |       | Executive  Compensation                                                                          |       | 82       |   |
| Item  12.         |       | Security  Ownership of Certain Beneficial Owners and Management and Related Shareholder  Matters |       | 82       |   |
| Item  13.         |       | Certain  Relationships and Related Transactions, and Director Independence                       |       | 82       |   |
| Item  14.         |       | Principal  Accountant Fees and Services                                                          |       | 82       |   |
| **Part IV**  |       |                                                                                             |       |     |   |
| Item  15.         |       | Exhibits,  Financial Statement Schedules                                                         |       | 83       |   |
|              |       | Signatures                                                                                       |       | 89       |   |
|              |       | Certifications                                                                                   |       |     |   |

 

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**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 anduncertainties. Actual events or results may differ materially from thosediscussed in this Annual Report. Factors that might cause such a differenceinclude, but are not limited to, those discussed in the sections entitled “Business,”“Risk Factors” and “Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” as well as those discussed elsewhere in this AnnualReport.

Medarex®, HuMAb-Mouse®, GenPharm®, KM-Mouse®, UltiMAb® andUltiMAb Human Antibody Development System® are registeredtrademarks of Medarex, Inc. Ultra-Potent ToxinTM is a trademark of Medarex, Inc.All other company names, registered trademarks, trademarks and service marksincluded in this Annual Report are trademarks, registered trademarks, servicemarks or trade names of their respective owners.

**Item 1.**                        Business

**Overview**

We are a biopharmaceutical company focused on thediscovery, development and potential commercialization of fully humanantibody-based therapeutic products. We believe that our UltiMAb Human AntibodyDevelopment System® enables us to rapidly create and develop suchproducts for a wide range of diseases, including cancer, inflammation,autoimmune disorders and other life-threatening and debilitating diseases.

Currently, 34antibody product candidates generated from our UltiMAb Human Antibody DevelopmentSystem® are in human clinical trials, or have hadregulatory applications submitted for such trials(1). Information regarding theclinical status of third-party antibody products is based on public informationavailable as of the date hereof. Phase III clinical trials are currently underway relating to seven of the most advanced product candidates in which Medarexhas an economic interest through co-promotion/profit sharing rights, royaltiesand/or equity ownership. Six of the seven product candidates currentlyin Phase III trials were generated through the use of our UltiMAb® technology and include:

·       ipilimumab(also known as MDX-010), which we are developing jointly withBristol-Myers Squibb Company, or BMS, for the treatment of metastatic melanomaand other cancers;

·       golimumab(also known as CNTO 148) under development by Centocor, Inc. (a subsidiaryof Johnson & Johnson), or Centocor, for the treatment of rheumatoidarthritis, psoriatic arthritis and ankylosing spondylitis;

·       CNTO1275 for the treatment of psoriasis, also under development by Centocor;

·       zanolimumab(also known as HuMax-CD4®),being developed by Genmab A/S, or Genmab, and Merck Serono S.A., or MerckSerono, for the treatment of T-cell lymphomas;

·       ofatumumab(also known as HuMax-CD20TM), being developed by Genmab and GlaxoSmithKline forthe treatment of follicular non-Hodgkin’s lymphoma and chronic lymphocyteleukemia; and

·       zalutumumab(also known as HuMax-EGFrTM), being developed by Genmab for the treatment ofhead and neck cancer.

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(1)          Information regardingthe clinical status of third-party antibody products is based on publicinformation available as of the date hereof.

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The seventh product candidate currently in Phase IIItrials in which we have an economic interest is CP-675,206, which isbeing developed by Pfizer, Inc., or Pfizer, for the treatment ofmetastatic melanoma. We expect to receive double-digit royalties on sales ofthis product, should commercialization occur.

Medarex iscommitted to building value by developing a diverse pipeline of antibodyproducts to address major unmet healthcare needs in the world. In addition tothe antibody candidates currently in Phase III trials, multiple productcandidates in Phase II, Phase I and preclinical testing are being developedeither by Medarex alone or by Medarex jointly with our partners, or separatelyby our partners. These partners include Amgen, Inc., BMS, Centocor, EliLilly and Company, or Eli Lilly, Genmab, ImClone Systems Incorporated, orImClone Systems, MedImmune, Inc., Novartis Pharma AG and Novo Nordisk A/S.We believe that through the broad use of our UltiMAb® technology, we are leveraging our efforts andour partners’ efforts to create, develop and potentially commercializeinnovative treatments for a wide range of diseases.

In addition to our UltiMAb Human Antibody DevelopmentSystem®, wehave considerable experience in preclinical and clinical development as well asin manufacturing antibodies for clinical trials. Our existing manufacturingfacility in Annandale, New Jersey currently has the capacity to undertakemultiple antibody projects concurrently for clinical development purposes,meeting our near-term production demands. We have assembled a team ofexperienced scientific, production, clinical and regulatory personnel tofacilitate the discovery and development of antibody-based products for us andfor certain of our partners. We intend to add sales, marketing and additionalmanufacturing capabilities as needed.

Our operations constituteone business segment. For additional financial information regarding thereportable segment, see “Results of Operations” in Item 7 and the ConsolidatedFinancial Statements and Supplementary Data in Item 8 of this Annual Report on Form 10-K.

**Products inDevelopment**

The following tablessummarize potential therapeutic indications and development stages for antibodyproducts in which Medarex has an economic interest, including our productcandidates and those of our partners (based on publicly available information),and is followed by brief descriptions of each specific program.

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***Phase III ProductCandidates in Clinical Development***

| **PRODUCT**                     | ** ** | ** **                                                           | ** ** | **INDICATION** | ** ** | **CLINICAL STATUS**                        | ** ** | **PARTNER/LICENSEE** |
|---------------------------------|------------|----------------------------------------------------------------------|------------|----------------|------------|-------------------------------------------------|------------|----------------------|
| ipilimumab  (MDX-010)           |       | Metastatic Melanoma                                                  |       | Phase III      |       | Co-developing with BMS*                         |
| golimumab  (CNTO 148)           |       | Rheumatoid Arthritis, Psoriatic Arthritis, Ankylosing Spondylitis    |       | Phase III      |       | Centocor♦                                 |
| CNTO 1275                       |       | Psoriasis                                                            |       | Phase III      |       | Centocor♦                                 |
| zanolimumab  (HuMax-CD4®)  |       | T-cell Lymphomas                                                     |       | Phase III      |       | Genmab (partnered with Merck Serono S.A.)† |
| ofatumumab  (HuMax-CD20TM)  |       | Chronic Lymphocytic Leukemia, Follicular non-Hodgkin’s Lymphoma |       | Phase III      |       | Genmab (partnered with GlaxoSmithKline)‡   |
| zalutumumab  (HuMax-EGFrTM) |       | Head and Neck Cancer                                                 |       | Phase III      |       | Genmab‡                                    |
| CP-675,206                      |       | Metastatic Melanoma                                                  |       | Phase III      |       | Pfizer♣                                   |

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*                    We have theoption to co-promote and share profits in the U.S. We expect to receivemilestone payments as this product candidate moves toward product approval, androyalties on product sales outside the U.S., should commercialization occur.

♦                    Weexpect to receive milestone payments as this product candidate moves throughclinical trials, and royalties on product sales, should commercializationoccur.

†                     Wereceived an equity interest in Genmab in exchange for a license of ourproprietary antibody technology. In addition, we expect to receive milestonepayments for activities in Europe and Asia, as well as royalties on productsales in Europe and Asia that could reach double-digits, shouldcommercialization of zanolimumab occur.

‡                     Wereceived an equity interest in Genmab in exchange for a license of ourproprietary antibody technology. We are not entitled to license fees, milestonepayments or royalties from the license of this particular product candidate.

♣                  Weexpect to receive double-digit royalties on product sales, shouldcommercialization occur.

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***Phase II and PhaseI/II Product Candidates in Clinical Development***

| **PRODUCT**           | ** ** | ** **                                                          | ** ** | **INDICATION**       | ** ** | **CLINICAL STATUS**                                | ** ** | **PARTNER/LICENSEE** |
|-----------------------|------------|---------------------------------------------------------------------|------------|----------------------|------------|---------------------------------------------------------|------------|----------------------|
| ipilimumab  (MDX-010) |       | Metastatic Melanoma, Prostate, Breast, Renal Cell and Other Cancers |       | Phase II and earlier |       | Co-developing with BMS*                                 |
| MDX-066 and MDX-1388  | * *   | *C. difficile*Disease                                               |       | Phase II             |       | Co-developing with Massachusetts Biologic LaboratoriesD |
| MDX-060               |       | Lymphoma                                                            |       | Phase II             |       | Wholly-owned by Medarex                                 |
| Amgen Antibody-1      |       | Undisclosed Disease                                                 |       | Phase II             |       | Amgen♦                                            |
| CNTO 95               |       | Cancer                                                              |       | Phase II             |       | Centocor♦                                         |
| MDX-018               |       | Inflammatory Disease                                                |       | Phase I/II           |       | Co-developing with Genmab‡                         |

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*                    We have theoption to co-promote and share profits in the U.S. We expect to receivemilestone payments as this product candidate moves toward product approval, androyalties on product sales outside the U.S., should commercialization occur.

D                   Weexpect to share certain research and development costs associated with thisproduct, as well as profits or losses associated with its commercialization, ona 50/50 basis.

♦                    Weexpect to receive milestone payments as this product candidate moves throughclinical trials, and royalties on product sales, should commercializationoccur.

‡                     Underour collaboration with Genmab on MDX-018, we have the right to 100% ofall revenues and profits in Asia. Outside of Asia, we and Genmab share in therevenues and profits on a 50/50 basis, subject to certain payments that Genmabowes us with respect to milestones and royalties on MDX-018.

***Phase I Product Candidates in Clinical Development***

| **PRODUCT**         | ** ** | ** **                                          | ** ** | **INDICATION** | ** ** | **CLINICAL STATUS**                                     | ** ** | **PARTNER/LICENSEE** |
|---------------------|------------|-----------------------------------------------------|------------|----------------|------------|--------------------------------------------------------------|------------|----------------------|
| MDX-1100            |       | Ulcerative Colitis                                  |       | Phase I        |       | Wholly-owned by  Medarex                                     |
| MDX-1106            |       | Cancer                                              |       | Phase  I       |       | Co-developing  with Ono Pharmaceutical Co. Ltd. §§ |
| MEDI-545            |       | Systemic Lupus  Erythematosus                       |       | Phase  I       |       | MedImmune*                                                   |
| MDX-1303            |       | Anthrax Infection                                   |       | Phase  I       |       | Co-developing  with PharmAthene, Inc. DD                |
| MDX-1401            |       | Cancer                                              |       | Phase  I       |       | Wholly-owned  by Medarex                                     |
| MDX-1307            |       | Colorectal, Pancreatic,  Bladder and Breast Cancers |       | Phase  I       |       | Celldex  Therapeutics, Inc.**                           |
| Novartis Antibody-1 |       | Autoimmune Disease                                  |       | Phase  I       |       | Novartis  Pharma♦                                      |
| Novartis Antibody-2 |       | Autoimmune Disease                                  |       | Phase  I       |       | Novartis  Pharma♦                                      |

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| Amgen Antibody-2    |   | Undisclosed Disease                                                     |   | Phase  I |   | Amgen♦                                                          |
|---------------------|--------|-------------------------------------------------------------------------|--------|----------|--------|-----------------------------------------------------------------------|
| Amgen Antibody-3    |   | Undisclosed Disease                                                     |   | Phase  I |   | Amgen♦                                                          |
| Amgen Antibody-4    |   | Undisclosed Disease                                                     |   | Phase  I |   | Amgen♦                                                          |
| AMG 714             |   | Psoriasis                                                               |   | Phase  I |   | Genmab  (partnered with Amgen) ‡                                 |
| FG-3019             |   | Idiopathic Pulmonary  Fibrosis; Diabetic Nephropathy; Pancreatic Cancer |   | Phase  I |   | FibroGen, Inc.♦                                            |
| HGS-TR2J            |   | Cancer                                                                  |   | Phase  I |   | Kirin  Brewery Co., Ltd. (partnered with Human Genome Sciences)§ |
| Lilly Antibody      |   | Undisclosed Disease                                                     |   | Phase  I |   | Eli  Lilly♦                                                     |
| BMS-66513           |   | Cancer                                                                  |   | Phase  I |   | BMS♦                                                            |
| Roche Antibody      |   | Undisclosed Disease                                                     |   | Phase  I |   | Genmab  (partnered with Roche)‡                                  |
| Undisclosed Product |   | Undisclosed Disease                                                     |   | Phase  I |   | Undisclosed                                                           |
| NI-0401             |   | Autoimmune Disease                                                      |   | Phase  I |   | NovImmune, Inc.♦                                           |
| Undisclosed Product |   | Undisclosed Disease                                                     |   | Phase  I |   | Undisclosed                                                           |
| IMC-18F1            |   | Cancer                                                                  |   | Phase  I |   | ImClone  Systems♦                                               |
| IMC-3G3             |   | Cancer                                                                  |   | Phase  I |   | ImClone  Systems♦                                               |

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§§             We have the right todevelop and commercialize MDX-1106 in North America, and Ono has theright to develop and commercialize MDX-1106 outside of North America, ineach case subject to payment of a royalty to the other party on sales in suchterritories, should commercialization occur.

*                    We have theoption to co-promote and share profits in the U.S. We expect to receivemilestone payments as this product candidate moves toward product approval, androyalties on product sales outside the U.S., should commercialization occur.

DD           PharmAtheneis fully responsible for funding of research and development activities for MDX-1303that are not supported by government funds. We expect to share profitsassociated with this product according to a preagreed allocation percentage.

**             In April 2004,we assigned our rights to this product candidate to Celldex, in which wecurrently have an equity interest of approximately 60%. We will not be entitledto license fees or milestone payments with respect to this product. We expectto receive royalties on product sales, should commercialization occur.

♦                    Weexpect to receive milestone payments as this product candidate moves throughclinical trials, and royalties on product sales, should commercializationoccur.

‡                     Wereceived an equity interest in Genmab in exchange for a license of ourproprietary antibody technology. We are not entitled to license fees, milestonepayments or royalties from the license of this particular product candidate.

§                    Weexpect to receive royalties on product sales, should commercialization occur.

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***SelectedPreclinical Product Candidates***

| **PRODUCT**          | ** ** | ** **           | ** ** | **INDICATION** | ** ** | **CLINICAL STATUS**                                    | ** ** | **PARTNER** |
|----------------------|------------|----------------------|------------|----------------|------------|-------------------------------------------------------------|------------|-------------|
| MDX-1333             |       | Lupus                |       | Preclinical    |       | MedImmune*                                                  |
| MDX-1411             |       | Cancer (**a**CD70)   |       | Preclinical    |       | Wholly-owned by Medarex                                     |
| MDX-1342             |       | Cancer (**a**CD19)   |       | Preclinical    |       | Wholly-owned by Medarex                                     |
| PacMab Antibody      |       | Cancer               |       | Preclinical    |       | Co-developing with PacMab LimitedD                          |
| **a**SDF-1  Antibody |       | Multiple Indications |       | Preclinical    |       | Co-developing  with Ono Pharmaceutical Co. Ltd.§§ |

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*                    We have theoption to co-promote and share profits in the U.S. We expect to receivemilestone payments as this product candidate moves toward product approval, androyalties on product sales outside the U.S., should commercialization occur.

D                   Weexpect to share certain research and development costs associated with this product,as well as profits or losses associated with its commercialization, on a 50/50basis.

§§             Wehave the right to develop and commercialize the αSDF-1 antibody inNorth America, and Ono has the right to develop and commercialize the αSDF-1 antibodyoutside of North America, in each case subject to payment of a royalty to theother party on sales in such territories, should commercialization occur.

***Phase III Product Candidates in Clinical Development***

**Ipilimumab (Anti-CTLA-4 Antibody)**—*Metastatic Melanoma.*   Ipilimumab,also known as MDX-010, is a fully human antibody that targets thecytotoxic T-lymphocyte antigen 4 immune receptor, known as CTLA-4. Thisreceptor, which is a molecule found on the surface of T-cells, has been shownto diminish or down-regulate the immune response to tumors or infectiousagents. By using a fully human antibody to block the activity of CTLA-4,we believe that patients’ immune systems may be able to mount a stronger immuneresponse against foreign pathogens and cancers. We initially focused on the useof this antibody for the treatment of metastatic melanoma and prostate cancerand have expanded clinical studies into other indications such as breast, renalcell, ovarian and other cancers. We have also expanded the ipilimumab clinicalprogram to include combination studies with chemotherapy, immunotherapy andvaccines. Effective January 2005, we entered into a collaboration with BMSto develop and potentially commercialize ipilimumab for melanoma and anyadditional disease indications. A more detailed description of ourcollaboration with BMS is included herein under the section entitled “Our HumanAntibody Partnering Business—*BMS*.”

*MetastaticMelanoma Registrational Program.**  *We and BMS are pursuing a registrationalprogram of clinical studies investigating ipilimumab as a monotherapy(second-line), in combination with chemotherapy (first-line) and in combinationwith a melanoma vaccine (second-line) for the treatment of metastatic melanoma.

In March 2006, undera Special Protocol Assessment agreement, or SPA, with the U.S. Food and DrugAdministration, or FDA, a single-arm monotherapy registrational study wasinitiated in patients with metastatic melanoma who have progressed after atleast one prior regimen of a melanoma treatment other than ipilimumab, and thetrial completed enrollment in 2006. This trial is the subject of a potentialBiologic License Application, or BLA, filing in 2007. The open labelclinical trial is designed to evaluate 150 patients with unresectable Stage IIIor Stage IV advanced melanoma who have progressed after at least one priorregimen of a melanoma treatment other than ipilimumab (second-line setting).Patients receive a 

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dose of 10 mg/kg of ipilimumab once everythree weeks for up to four doses. Subsequently, eligible patients who have notexperienced disease progression at week 24 continue in a maintenance phasewhere a single dose of ipilimumab is administered once every 12 weeks untildisease progression. The study is designed to assess best objective responserate (complete and partial responses) as the primary endpoint. Secondaryendpoints include disease control rate (complete and partial responses plusstable disease), progression-free and overall survival, as well as duration ofbest objective responses. Other supportive Phase II studies usingmonotherapy in second-line patients with metastatic melanoma are also under way**.**

In June 2006,under a separate SPA agreement with the FDA, a dacarbazine, or DTIC,combination Phase III trial was initiated and is expected to enroll up to 500patients with previously untreated Stage III or Stage IV metastaticmelanoma (first-line setting). Patients in the randomized, double-blind, two-armregistrational clinical trial will receive ipilimumab (10 mg/kg) in combinationwith DTIC, or DTIC with placebo once every three weeks for up to four doses.Subsequently, eligible patients who have not experienced disease progression atweek 24 continue in a maintenance phase where a single dose of ipilimumab isadministered once every 12 weeks until disease progression. The study isdesigned to assess progression-free survival as the primary endpoint. Secondaryendpoints include overall survival, progression-free survival rate at week 12,best overall objective response rate and duration of responses, and diseasecontrol rate (complete and partial responses plus stable disease).

Also under an SPAagreement with the FDA, a Phase III trial of ipilimumab in combination with MDX-1379(a melanoma peptide vaccine based on gp100) commenced enrollment in September 2004.We expect to enroll approximately 750 second-line HLA-A2 positive patients withunresectable Stage III or Stage IV melanoma in centers worldwide. The patientsare randomized to receive one of three regimens on a 3:1:1 basis, withapproximately 450 patients receiving ipilimumab/MDX-1379 combination,approximately 150 patients receiving MDX-1379 alone and approximately 150patients receiving ipilimumab alone. All patients receiving ipilimumab receivea dose of three mg/kg every three weeks for up to four doses. The study isdesigned to assess best objective response rate (complete and partialresponses) as the primary endpoint. Secondary endpoints include diseaseprogression and overall survival. Treatment assignment is blinded, withoversight by an independent Data Monitoring Committee, or DMC.

We and BMS continueto evaluate the relative priorities of these studies in light of regulatoryfeedback, new clinical data, enrollment rates and other factors relevant to thetiming of potential BLA filings.

Our ipilimumabmonotherapy registrational trial is based upon data from completed and ongoingPhase II studies in previously-treated metastatic melanoma and renal cellcancer indicating efficacy as monotherapy and adequate tolerability ofipilimumab at doses up to 10 mg/kg. Our registrational trial of ipilimumab incombination with DTIC is based upon Phase II data in which the combination ofipilimumab and DTIC produced an overall response rate of approximately 17%(median survival of 14.8 months with approximately 25% of patients alive nearly24 months post-treatment) and with an acceptable safety profile. Historically,median survival after diagnosis of metastatic melanoma is six to nine months.

Our Phase IIIpivotal trial of ipilimumab in combination with the MDX-1379 vaccine wasinitiated based on data from a Phase II clinical trial in which 56 patientswith metastatic melanoma were treated with one of two dose regimens ofipilimumab in combination with MDX-1379 and showed complete or partialresponses lasting, in some cases, over 40 months or more.

In June 2004, the FDA granted orphan drugdesignation to ipilimumab for the treatment of high risk Stage II, Stage IIIand Stage IV melanoma, and, in March 2005, orphan drug designation wasgranted to MDX-1379 for the treatment of HLA-A2-positive patientswith Stage IIB, Stage IIC, Stage III and Stage IV melanoma.

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In October 2004, Fast Track status was granted tothe development program for ipilimumab in combination with MDX-1379 forthe treatment of second-line patients with unresectable Stage III or Stage IVmelanoma. In December 2006, the FDA granted Fast Track designationfor ipilimumab used as a monotherapy in previously treated (second-line)metastatic melanoma patients, as well as for ipilimumab used in combinationwith chemotherapy (dacarbazine) in previously untreated (first-line) metastaticmelanoma patients.

Additional human clinical trials of ipilimumab aredescribed in the section entitled “Phase II Product Candidates in ClinicalDevelopment” below.

*AdverseEvents.  *Our ipilimumab clinical trials are conducted inpatients with serious life-threatening diseases for whom conventionaltreatments have been unsuccessful or for whom no conventional treatment exists,and in some cases, our product is used in combination with approved therapiesthat themselves have significant adverse event profiles. In trials ofipilimumab, the most commondrug-specific adverse events include diarrhea, rash, reduced pituitaryfunction, colitis and increased liver enzymes, ranging from mild in most casesto severe in a very small number of instances. These events were anticipatedand are consistent with an immune-based mechanism of action due toipilimumab-mediated CTLA 4 blockade. Other than a very small number offatalities not directly related to disease progression or complications of thedisease being treated, representing approximately 1% of over 1,000 patients treated in all previoustrials of ipilimumab, which may or may not be attributable to our productcandidates, the majority of adverse events resolved or improved with treatmentand without further significant complications. Through our experience in over 1,000 patients who have receivedipilimumab, collectively, treatment algorithms have evolved and are in place todiagnose and manage the adverse events, which appear to be statisticallycorrelated with clinical response. In addition, Phase II clinical trials areunder way to explore the prophylactic use of oral non-absorbable steroids tominimize the gastrointestinal events sometimes associated with ipilimumabactivity, as well as to explore potential biomarkers that may be predictive ofclinical responses.

**Golimumab(Anti-TNF****a Antibody)*****—Inflammatory Diseases.***   InOctober 2006, Centocor reported that golimumab, also known as CNTO 148, ahigh affinity, fully human antibody that targets TNFafor inflammatory diseases, is in Phase III clinical trials for activerheumatoid arthritis, active psoriatic arthritis and ankylosing spondylitis. Inaddition, according to publicly available information, golimumab is indevelopment for severe persistent asthma (Phase II). In January 2007,Johnson & Johnson reported that a BLA filing for golimumab is expectedin early 2008.

**CNTO1275 (Anti-IL-12/IL-23 Antibody)*****—Inflammatory Diseases.***   InOctober 2006, Centocor reported that CNTO 1275, a high affinity, fullyhuman antibody that targets IL-12/IL-23 for the treatment ofinflammatory diseases, is in a Phase III clinical trial for psoriasis. Inaddition, according to publicly available information, CNTO 1275 is in Phase IIclinical trials for psoriatic arthritis, multiple sclerosis and Crohn’sdisease. In January 2007, Johnson & Johnson reported that a BLAfiling for CNTO 1275 is expected in 2007.

**Zanolimumab(Anti-CD4 Antibody)*****—T-cell Lymphomas.******  ***Genmab andMerck Serono are developing zanolimumab, also known as HuMax-CD4®, a fully human antibody that targets theCD4 receptor on T-cells, which are believed to be involved in promotingautoimmune disease. In April 2005, Genmab announced its SPA agreement withthe FDA for a pivotal Phase III trial for the treatment of cutaneous T-celllymphomas, or CTCL, which is currently ongoing. A Phase II clinical trial innon-cutaneous T-cell lymphoma is also under way.

In March 2004, Genmab announced that zanolimumabhad been granted Fast Track status by the FDA for patients with CTCL. Genmabhas also disclosed that zanolimumab has received orphan drug designation forthe treatment of CTCL by the European Agency for the Evaluation of MedicinalProducts in April 2004 and by the FDA in August 2004.

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**Ofatumumab(Anti-CD20 Antibody****)*—Lymphoma, Leukemia,Rheumatoid Arthritis.***   Genmab andGlaxoSmithKline are developing ofatumumab, also known as HuMax-CD20TM, a fully human antibodytargeting CD20, a molecule found on B cells. In 2006, Genmab announced the initiationof two separate Phase III pivotal studies with ofatumumab, one for thetreatment of chronic lymphocytic leukemia, or CLL, in May 2006, and onefor the treatment of non-Hodgkin’s lymphoma in July 2006.

In December 2004, Genmab announced that this productcandidate was granted Fast Track designation by the FDA for the treatment ofCLL.

**Zalutumumab(Anti-EGFr Antibody)*****—Head and Neck Cancers.***   Genmabis developing zalutumumab, also known as HuMax-EGFrTM, a fully human antibody targeting EGFr, areceptor molecule that has been found in excess on many types of tumor cells. InSeptember 2006, Genmab announced the initiation of a Phase III pivotal studywith zalutumumab for the treatment of head and neck cancer.

In January 2006, the FDA granted Fast Trackdesignation to HuMax-EGFr for the treatment of patients with head and neckcancer who have previously failed standard therapies.

**CP-675,206 (Anti-CTLA-4  Antibody)*****—Metastatic Melanoma.***   Pfizeris developing CP-675,206, a fully human antibody generated by usingtransgenic mouse technology substantially similar to our HuMAb-Mouse® technology. Pfizer’s antibody targets theimmune receptor CTLA-4. According to publicly available information, afirst-line Phase III clinical trial comparing CP-675,206****aloneagainst chemotherapy alone for metastatic melanoma was initiated by Pfizer in March 2006.This two-arm, randomized Phase III clinical trial is expected to enroll up to630 patients, with a primary endpoint being overall survival. Secondaryendpoints are said to include durable responses, progression-free survival atsix months, objective tumor responses and duration of such responses and humananti-human antibody, or HAHA, responses. In addition, CP-675,206 is beingexplored as a monotherapy treatment for metastatic melanoma. The open label,single arm study is expected to enroll up to 215 patients, with a primaryendpoint being anti-tumor efficacy. Secondary endpoints are said to includesafety, pharmacokinetics, survival and health-related quality of life.

***Phase II and Phase I/II Product Candidates in ClinicalDevelopment***

**Ipilimumab(Anti-CTLA-4 Antibody)*****—Metastatic Melanoma; Prostate,Breast, Renal Cell and Other Cancers.***   As part ofour joint ipilimumab clinical development program with BMS, there are multiplePhase II and early clinical trials under way or expected to commence inmultiple tumor types, including melanoma, prostate, breast, renal, pancreatic,colorectal, ovarian, lymphoma and others. Some of these studies are designed tosupport our registrational program in melanoma, and other studies are designedto explore the activity of ipilimumab in additional disease indications asmonotherapy and in combination with other cancer therapies.

**MDX-066and MDX-1388 (Anti-Toxin A and Anti-Toxin B Antibodies)*****—Clostridium difficile AssociatedDiarrhea.***   MDX-066,also known as CDA-1, and MDX-1388 are fully human antibodies that we are co-developing with the MassachusettsBiologic Laboratories of the University of Massachusetts Medical School, or MBL. MDX-066 and MDX-1388 are designedto target Toxin A and Toxin B, respectively, the toxins produced by thebacterium *Clostridium difficile*,which are associated with a serious and sometimes deadly form ofdiarrhea called *Clostridium difficile* associateddiarrhea, or CDAD.

In September 2006, arandomized, double-blind, placebo-controlled Phase II clinical trial of MDX-066in combination with MDX-1388 was initiated for the treatment CDAD. Thesingle-dose Phase II clinical trial is expected to enroll up to 200 patientswith CDAD and is designed to assess the efficacy of the combination of the twoantibodies against placebo as an addition to standard of care antibiotics toresolve CDAD more quickly and to prevent subsequent relapse of disease.

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**MDX-060(Anti-CD30 Antibody)*****—Lymphoma.****  *MDX-060 is a fully humanantibody that targets CD30, which is a marker for activated lymphocytes and ispresent on the malignant cells of Hodgkin’s disease, or HD, and anaplasticlarge cell lymphoma, or ALCL, as well as other CD30-expressing cancers.Through its ability to target CD30-expressing tumor cells, we believethat MDX-060 may facilitate the elimination of such cells by the immunesystem. We have observed responses in HD and ALCL in early Phase I and Phase IIclinical trials and are currently exploring the activity profile of MDX-060in combination with gemcitabine in a Phase II clinical trial of up to 60patients with HD. In October 2004, the FDA granted orphan drug designationto MDX-060 for the treatment of HD. In January 2006, orphan drugdesignation was received for the treatment of CD30-positive T-celllymphoma.

**AmgenAntibody-1*****—Undisclosed Disease.***   Weare aware of one antibody product candidate derived from our technology beingdeveloped by Amgen that is in Phase II clinical trials for an undisclosedindication.

**CNTO95 (Anti-integrin receptors Antibody)*****—Cancer.***   InMay 2005, Centocor announced that it is developing CNTO 95, a highaffinity, fully human antibody targeting the avintegrin receptors that are implicated in tumor-induced angiogenesis.Angiogenesis is the formation of new blood vessels and is believed to play animportant role in tumor growth and metastasis. According to publicly availableinformation, a Phase II clinical trial of CNTO 95 is under way for advancedmelanoma.

**MDX-018(Anti-inflammation Antibody)*****—Inflammatory Disease.****  *MDX-018, also known as HuMax-InflamTM, is a fully human antibodythat we are co-developing with Genmab. A Phase I/II European clinical trial ofMDX-018 in patients suffering from an undisclosed autoimmune disease hasbeen completed, and Genmab and Medarex are continuing to investigate potentialdevelopment paths and also the competitive and commercial opportunities forthis product.

***Selected Phase I and Preclinical Product Candidates***

We and our partners and licensees have active earlyclinical and preclinical development programs that we anticipate may lead tothe identification of new antibody product candidates and novel combinationswith antibodies currently in development. We expect these development effortsto lead to additional clinical candidates in both the near and long term. Ourprograms and those of our partners and licensees include, among others, thefollowing:

**MDX-1100(Anti-IP-10 Antibody)*****—Inflammatory Diseases.***   Weare developing MDX-1100, a fully human antibody that targets IP-10,also known as CXCL10, a chemokine expressed in association with multipleinflammatory disease indications such as rheumatoid arthritis, inflammatorybowel disease and multiple sclerosis. The multi-center, single-dose,dose-escalation Phase I clinical trial is open to enroll up to 32 patients withulcerative colitis. We also have an ongoing Phase I safety trial of MDX-1100in healthy volunteers. We acquired full rights to MDX-1100 as part of ouracquisition of Ability Biomedical Corporation in August 2004.

**MDX-1106(Anti-PD-1 Antibody)*****—Cancer.****  *MDX-1106 is a fully humananti-PD-1 antibody that we are co-developing with Ono Pharmaceutical. MDX-1106is designed to target PD-1, a receptor expressed on the surface ofactivated lymphocytes and is involved in tumor evasion of the immune systemresponses. A dose-escalation Phase I clinical trial for the treatment ofrecurrent or treatment-refractory solid tumors is currently under way in up to39 patients.

Studies suggest that the PD-1 signaling pathwaymay play an important role in tumor evasion and escape from host immuneresponses and may also promote the persistence of certain chronic viralinfections. Preclinical studies suggest that antibody blockade of the PD-1signaling pathway promotes anti-tumor responses and control of persistent viralinfections. In addition to cancer, we and our partner expect to explorepotential new opportunities in the infectious disease setting.

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**MEDI-545and MDX-1333 (Anti-Type 1 IFN Antibodies)*****—Systemic Lupus Erythematosus.***   MedImmuneis developing MEDI-545, previously known as MDX-1103, and MDX-1333,also known as MEDI-546, two fully human antibodies that target twodifferent components of the Type 1 interferon, or IFN, pathway, which isbelieved to be involved with systemic lupus erythematosus, or SLE, diseaseactivity. MEDI-545 is an antibody designed to block multiple Type 1 IFNsubtypes, and MDX-1333 is an antibody that is designed to block thereceptor of Type 1 IFN. In November 2004, we announced a collaborationwith MedImmune, whereby MedImmune will be responsible for continued developmentof these antibodies. Prior to the initiation of a pivotal trial, we may electto co-develop and co-promote in return for a profit-share in the U.S. In April 2006,MedImmune initiated a Phase I clinical trial of MEDI-545 for thetreatment of SLE. The randomized, double-blind, placebo-controlled,dose-escalation Phase I study is expected to enroll up to 45 patients. In December 2006,MedImmune reported that it expects to initiate additional clinical trials of MEDI-545in lupus (Phase II), idiopathic inflammatory myositis (Phase II) and psoriasis(Phase I). MedImmune also reported that it expects to file an InvestigationalNew Drug Application, or IND, for MDX-1333.

**MDX-1303(Anti-Anthrax Antibody)*****—Bacillus anthracis Infection.****  *MDX-1303, also known asValortimTM, is a fullyhuman antibody that we are co-developing with PharmAthene. MDX-1303 isdesigned to protect against inhalation anthrax by targeting a protein componentof lethal toxins produced by the *Bacillus anthracis*bacteriumknown as the anthrax protective antigen.****In preclinicalstudies, MDX-1303 both protected against infection and, when administeredsome time after exposure, induced recovery and survival in animals exposed tolethal doses of inhalation anthrax spores. Recently, we and PharmAthenecompleted a dose-escalation Phase I clinical trial to evaluate the safety,tolerability and pharmacokinetics of MDX-1303 in 46 healthy volunteers.

In 2004, we and PharmAthene received two grants from adivision of the National Institutes of Health, or NIH, for up to $7.2 millionover three years to support our research and development of MDX-1303. Inaddition, we and PharmAthene procured $2.05 million and $1.0 million in fiscalyears 2006 and 2007, respectively, from the U.S. Department of Defense tosupport ongoing development of MDX-1303. In January 2006, the FDAgranted Fast Track status for MDX-1303. In February 2006, orphandrug designation was received for the treatment of anthrax infection.

**MDX-1401(Anti-CD30 Antibody)*****—Lymphoma.***   Weare developing MDX-1401, a fully human antibody that targets CD30-positivelymphomas. MDX-1401 is a second generation version of MDX-060 thatis manufactured using BioWa’s POTELLIGENTTM Technology toprovide for enchanced Fc receptor mediated anti-tumor activity. In January 2007,we announced the allowance of an IND filed with the FDA to commence adose-escalation, multi-dose Phase I clinical trial that is expected to enrollup to 36 patients with relapsed or refractory Hodgkin’s disease. The trial isdesigned to establish and evaluate the safety profile and initial efficacy ofMDX-1401. Preclinical *in vitro*studies showed that this second-generation nonfucosylated anti-CD30 antibodydemonstrated enhanced antibody-dependent cellular cytotoxicity, or ADCC, animportant mechanism of action of therapeutic antibodies.

**MDX-1307(Anti-Mannose Receptor/ßhCG Antibody)*****—Colorectal, Pancreatic, Bladderand Breast Cancers.***   Our partly-owned subsidiary,Celldex Therapeutics, Inc., or Celldex, is developing MDX-1307, alsoknown as CDX-1307, afusion protein composed of a mannose receptor-specific human antibodyconjugated to the beta chain of human chorionic gonadotropin, or ßhCG. This therapeutic cancer vaccineis designed to induce antibody and cytotoxic T-cell responses directed atcancer cells in patients with ßhCG-expressing tumors. An ongoingdose-escalation, multi-dose Phase I clinical trial is expected to enroll up to18 patients with metastatic or locally advanced colorectal, pancreatic orbladder cancers. A Phase I clinical trial with MDX-1307 for the treatmentof breast cancer is ongoing.

**AMG714 (Anti-IL-15 Antibody)*****—Psoriasis.***   AMG714 is a fully human antibody that is being developed under an agreementbetween Genmab and Amgen and that targets Interleukin-15 (IL-15),an 

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immune system signalingmolecule that appears early in the cascade of events that ultimately leads toinflammatory disease. According to Amgen, a Phase II trial investigating AMG714 in the treatment of rheumatoid arthritis has been completed and the datawere presented at the European League Against Rheumatism in 2006. Are-formulation of AMG 714 has been developed and is in Phase I clinical testingfor psoriasis.

**FG-3019(Anti-CTGF)—*****Idiopathic Pulmonary Fibrosis, DiabeticNephropathy and Pancreatic Cancer.***   FG-3019,being developed by FibroGen,****is a fullyhuman therapeutic antibody that targets CTGF, connective tissue growth factor. Accordingto Fibrogen, FG-3019 has completed a Phase Ib clinical trial for thetreatment of diabetic nephropathy and a Phase I clinical trial for idiopathicpulmonary fibrosis. In addition, an IND application has been filed to beginclinical testing in pancreatic cancer.

**Other Product Candidates.****  **We are aware of a number of other antibody productcandidates derived from our UltiMAb® technology for which our partners havecommenced Phase I clinical trials, including two Novartis antibodies for thetreatment of autoimmune disease, three Amgen antibodies for undisclosedindications, HGS-TR2J for cancer being developed by Human Genome Sciencespursuant to a license with Kirin Brewing Co., Ltd., or Kirin, Eli Lilly’santibody for an undisclosed indication, BMS-66513 by BMS for cancer, anundisclosed antibody being developed by Roche/Genmab for an undisclosedindication, NI-0401 by NovImmune, Inc. for autoimmune disease, twoanti-cancer antibodies being developed by ImClone Systems, and two undisclosedantibodies being developed by undisclosed partners.

**Our Human AntibodyPartnering Business**

As of February 1,2007, we have more than 45 partnerships with pharmaceutical and biotechnologycompanies to jointly develop and commercialize products or to enable othercompanies to use our UltiMAb Human Antibody Development System® in their development and commercialization ofnew therapeutic and, in some cases, diagnostic products.

***BMS***

In January 2005, we announced the closing of acollaboration and co-promotion agreement and a related securities purchaseagreement with BMS. Under the terms of the collaboration, we and BMS have each grantedthe other certain intellectual property licenses and product rights on aworldwide basis to enable us to collaborate in the research and development ofcertain therapeutic antibody-based product candidates for the treatment ofcancer and other diseases, and, in the event that further development work issuccessful, to commercialize any resulting products. In particular, thecollaboration includes a grant by us to BMS of a license to commercializeipilimumab, a fully human antibody product candidate developed using ourUltiMAb Human Antibody Development System®, that is antagonistic to CTLA-4. Ipilimumabis currently under investigation for the treatment of a broad range of cancers.The collaboration also includes the grant by us to BMS of a sub-license to MDX-1379,a gp100 peptide vaccine licensed by us from the U.S. Public Health Service, foruse with ipilimumab for the treatment of metastatic melanoma. The FDA hasgranted orphan drug designation for ipilimumab for the treatment of high riskStage II, Stage III and Stage IV melanoma.

We and BMS are currently conducting three separateregistrational studies of ipilimumab for metastatic melanoma under threeseparate Special Protocol Assessment agreements with the FDA. One is amonotherapy study of ipilimumab in second-line (previously treated withmelanoma therapy other than ipilimumab) metastatic melanoma that completedenrollment in 2006. This monotherapy study is the subject of a potential BLAfiling in 2007. A Phase III clinical trial of ipilimumab used in combinationwith chemotherapy in first-line (previously untreated) patients with metastaticmelanoma was initiated in June 2006 and is currently under way. The thirdstudy is an ongoing Phase III clinical trial with ipilimumab 

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and MDX-1379 combinationtherapy in Stage III and Stage IV metastatic melanoma patients. Each of thesetrials is being conducted at multiple sites worldwide.

As part of the collaboration, we and BMS havecommitted to an initial multi-year budget of approximately $192.0 million tofund the development of ipilimumab as a potential treatment for a broad rangeof cancers. BMS is responsible for 65% of all development costs related toclinical trials intended to support regulatory approval in both the U.S. andEurope, with the remaining 35% to be paid by us. We and BMS will share equallythe costs of any clinical trials of products intended solely for regulatoryapproval in the U.S., and BMS will be fully responsible for all developmentcosts that relate solely to regulatory approval in Europe and other parts ofthe world.

Under the terms of the collaboration, we have the option to co-promote anyproduct in the U.S. If we exercise a co-promotion option with respect to a product for use in the first cancerindication for which an initialregulatory approval filing is accepted by the FDA, we willhave the right and obligation to co-promote such product for use in all cancerindications, even if such indications are the subject of additional filings orapprovals, and even if we opted-out of the development of any such indication. Even if we elect to co-promote a product forcancer indications, however,we would need to exercise aseparate option toco-promote that product with respect to any indication other than cancer. If we do not exercise ourco-promotion option with respect to a product for use in the first cancer indication for which an initial regulatory approvalfiling is accepted by the FDA, then we will not have the right or obligation toco-promote such product for any cancer indications, unless the filing for that first cancer indication is notapproved by FDA.

Under the terms of the collaboration, we could receiveup to $205.0 million from BMS if all regulatory milestones are met, plus up toan additional $275.0 million in sales-related milestones. If we exercise ourco-promotion option with respect to ipilimumab for the metastatic melanomaindication, and regulatory approval is obtained, we would receive 45% of anyprofits from commercial sales of such product in the U.S. In the event wechoose not to exercise our co-promotion rights with respect to a product, BMSwill have exclusive commercial rights in the U.S. and will pay us royalties oncommercial sales. Regardless of whether or not we exercise our co-promotion option,outside the U.S., BMS will have exclusive commercial rights for products andwill pay us royalties on commercial sales.

Pursuant to these agreements, BMS made an initial cashpayment to us on January 21, 2005 of $25.0 million. In addition, BMSpurchased a total of 2,879,223 unregistered shares of our common stock at apurchase price equal to $8.6829 per share for an aggregate purchase price of$25.0 million. These shares were issued in a private placement pursuant to theexemption from registration provided by Section 4(2) of theSecurities Act of 1933, as amended. The purchase price represented a smallpremium to the market price on the date we entered into the collaboration. BMSagreed to a two-year lock-up period with respect to any sales of such stock.The lock-up period expired in January 2007, and BMS may now sell suchshares pursuant to the provisions of Rule 144 under the Securities Act. Wehave no future obligation to file a registration statement to permit the resaleof such shares.

Unless terminated earlier,the BMS collaboration will continue for as long as development and/orcommercialization of any collaboration products continue. BMS, however, mayterminate the collaboration on a country-by-country basis at any time and, undercertain conditions, on a product-by-product basis, resulting in the return ofall rights to us with respect to such country and/or product. In addition, BMSmay terminate our co-promotion rights in the U.S. in the event that we fail tosatisfy certain performance criteria. We may terminate theBMS collaboration in the event of certain specified material breaches byBMS, in which case product rights would revert to us, and we may terminate BMS’sco-promotion rights in the event that BMS fails to satisfy certainperformance criteria.

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***Pfizer***

In September 2004, we entered into a series ofagreements with Pfizer. The first agreement, or the Pfizer Amendment, amendedour existing collaborative research and license and royalty agreements withPfizer to provide for the discovery and development of up to 50 antibodyproducts over ten years. The second and third agreements were a sublicense byus to Pfizer and a cross-license of certain patents and patent applicationssolely relating to our respective anti-CTLA-4 antibody programs,together, the Pfizer Licenses. The fourth agreement was a stock purchaseagreement also related to the anti-CTLA-4 programs. Pursuant to certainof these agreements, Pfizer made a total initial cash payment to us of $80.0million and purchased, through its wholly-owned subsidiary Pfizer OverseasPharmaceuticals, a total of 4,827,808 unregistered shares of our common stockat a purchase price equal to $6.21 per share for an aggregate purchase price of$30.0 million at a small premium to market price at the time we entered intothe collaboration. The shares were issued in a private placement pursuant tothe exemption from registration provided by Section 4(2) of theSecurities Act of 1933, as amended. Pfizer also agreed to a two-year lock-up periodwith respect to any sales of such stock. This lock-up period has expired andsuch shares may now be sold pursuant to the provisions of Rule 144 underthe Securities Act. We have no future obligation to file a registrationstatement to permit the resale of such shares.

Under the Pfizer Amendment, we expect to use ourUltiMAb Human Antibody Development System® togenerate product candidates to disease-associated targets identified by Pfizer.We will receive standard market rates for performing these antibody-makingservices. The product candidates generated by the collaboration will then betransferred to Pfizer, which will be fully responsible for the worldwidedevelopment and commercialization of such product candidates, including thepayment of all costs and expenses related thereto. We have no future paymentobligations relating to the development and commercialization of these productcandidates. We have the potential to receive research funding, license fees andmilestone payments. if certain development milestones are met, as well asroyalties on any commercial sales of the products.

We and Pfizer haveretained all rights to our respective separate anti-CTLA-4 products.Pursuant to the Pfizer Licenses, which are non-exclusive, we have the potentialto receive milestones and double-digit royalty payments based upon commercialsales of any Pfizer anti-CTLA-4 antibody product whether or not suchproduct was generated using our UltiMAb® technology. In contrast, we have no futurepayment obligations to Pfizer in connection with any anti-CTLA-4 productwe may develop. Both we and Pfizer are independently pursuing the clinicaltesting of antibodies to CTLA-4, including our ipilimumab and Pfizer’s CP-675,206product candidates, both of which are currently in Phase III clinical trialsfor metastatic melanoma.

***Our 50/50 Collaborative Partnerships***

We have continued toincrease our access to novel therapeutic targets by establishing collaborationswith other companies and institutions that have identified potentialtherapeutic targets or have created platforms for the identification of suchtargets. We actively seek opportunities to in-license and/or acquire suchtargets and intend to develop novel therapeutic products by producing fullyhuman antibodies that interact with such targets. As of February 1, 2007,we had agreements with more than two dozen collaborators with whom we plan tojointly develop and commercialize human antibody products. Typically, acollaborator will provide one or more target antigen(s), and we will generateand develop antibodies against the antigen(s) using our UltiMAb HumanAntibody Development System®. We and our collaborators typically agree to shareequally the costs of clinical development and manufacturing, as well asrevenues, expenses and profits associated with any products arising under thecollaboration. We believe this allows us to participate in the research anddevelopment of substantially more potential candidates than we could develop onour own if we bore the entire cost of development.

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***Our Out-Licensing Partnerships***

Our licensing partners typically obtain licenses toone or more of our antibody generating technologies which allow these partnersto develop and commercialize antibody-based products using our technology. Wecould receive license fees, milestone payments and royalties on product salesin connection with each of these products. Under these licenses, there isusually an initial period during which our licensing partner may elect to enterinto a research license for antibodies to a particular designated target.Subsequently, our partner may elect to obtain a commercial license for one ormore specific monoclonal antibodies. In some cases, once a partner has obtaineda commercial license for monoclonal antibodies to a given target, we can nolonger license our human antibody technology to a different company for thatparticular target. As of February 1, 2007, we had approximately two dozenlicensing partnerships with various partners including industry leaders such asAbbott Laboratories, Amgen, Centocor, Eli Lilly, ImClone Systems, MedImmune,Novartis, Novo Nordisk and Pfizer.

The financial terms of ourlicensing partnerships typically include license fees and a series of milestonepayments commencing upon initiation of clinical trials and continuing throughto commercialization. These fees and milestones may total up to $7.0 to $10.0million per antibody if the antibody receives approval from the FDA orequivalent foreign agencies. A licensing partnership may involve multipleantibodies. Under these partnerships, we expect to also receive royalties onany product sales. In some cases, our partners reimburse us for research anddevelopment activities we conduct on their behalf. Generally, under the termsof these agreements, our partners are responsible for all costs of productdevelopment, manufacturing and commercialization of any products.

***Our Cross-Licensing and In-Licensing Partnerships***

**Kirin**

In September 2002, we entered into acollaboration and license agreement with Kirin, which provides for us toexchange with Kirin certain cross-licenses for each other’s technology for thedevelopment and commercialization of human antibody products. Pursuant to aletter of intent that was superceded by the collaboration and licenseagreement, we and Kirin developed the KM-Mouse®, a unique crossbred mouse that combinesthe traits of our HuMAb-Mouse® with Kirin’s TC MouseTM. Under the collaboration and licenseagreement, we have exchanged cross-licenses with Kirin with respect to the KM-Mouse® and other antibody-generating mice. Inaddition, certain of the cross-licenses granted under the collaboration andlicense agreement are subject to license, milestone and royalty payments by oneparty to the other. We are aware of one antibody, HGS-TR2J, currently in aPhase I clinical trial, which is being developed by Human Genome Sciencespursuant to a license with Kirin. We expect to receive royalties on sales ofthis product, should commercialization occur.

Through December 31,2006, we had not made any milestone payments to Kirin, although approximately$2.8 million has been paid to Kirin as of December 31, 2006 representing apayment due Kirin as a result of our collaboration with Pfizer. Based on atotal of four products we are developing which use or we believe may use Kirintechnology and that (i) are currently in clinical trials, or (ii) weanticipate may enter clinical trials through the end of 2008, we may berequired to make milestone payments to Kirin aggregating up to approximately $17.0million with respect to such products, or a maximum of approximately $4.25million per product. Our future milestone payment obligations to Kirin may ormay not be triggered, and may vary in size, depending on a number of variables,almost all of which are currently unknown, including the following:

·       whetheror not a decision is made to request a license from Kirin;

·       thetype of license requested (research or commercial);

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·       thesuccess and timing of development efforts and clinical trials of productcandidates covered by any such licenses;

·       thetype of product developed **(**paymentobligations differ depending on whether a product is an *ex vivo* therapeutic, *in vivo* therapeutic, research reagent ordiagnostic product**)**; and

·       otherfinancial provisions of the Kirin agreement that provide for variations in feelevels and netting of certain payments over specified periods of time that mayimpact the total amount potentially payable to Kirin for any particular licensefee or milestone payment.

Whether we may be obligated to make payments to Kirinin the future is subject to the success of our efforts with respect to productswe are developing that utilize the Kirin technology and, accordingly, isinherently uncertain.

Unless terminated earlier,the collaboration and license agreement with Kirin expires on December 31,2014. The collaboration and license agreement can be terminated by either partyin the event of a material breach by the other party if the breach is not curedduring a specified cure period. In addition, either party may terminate anycommercial license with respect to a specific biologic target granted to it bythe other party under the agreement at any time.

**OtherCross-Licensing and In-Licensing Partnerships**

In addition to ourcollaboration with Kirin, we have entered into a number of other agreementsthat contain in-licenses of third-party technology which may be used togetherwith our own platform technologies for the generation, development and/ormanufacture of our antibody products. We have also entered into otherthird-party agreements that contain licenses associated with antibody productsthat target specific antigens. Many of these agreements contain milestonepayments, which we will be required to pay, that become due with respect toproducts using/targeting the licensed technology/antigen only if and whencertain specified pre-commercialization events occur. Not all of our productscurrently under development trigger such milestone payments. Through December 31,2006, we had made milestone payments of approximately $0.3 million underthese agreements. In addition, under the agreements we currently have in place(other than with Kirin), based on a total of nine products we are developingfor which milestones are potentially due and that (i) are now in clinicaltrials, or (ii) which we anticipate may enter clinical trials before theend of 2008, we may be obligated to make future milestone payments aggregatingup to approximately $59.6 million with respect to such products. In general,potential milestone payments for our antibody products may or may not betriggered under these licenses, and may vary in size, depending on a number ofvariables, almost all of which are currently uncertain. Typically, the eventsthat trigger these payments per product include:

·       submissionof IND(s) or foreign equivalents;

·       commencementof Phase I, Phase II and/or Phase III clinical trials or foreign equivalents;

·       submissionof BLA(s) or foreign equivalents; and

·       receiptof marketing approval(s) to sell products in a particular country orregion.

In addition, the licenses above may trigger royaltypayments in connection with the commercialization of certain of our products.To date, we have not made any royalty payments on sales of our products andbelieve we are at least one year away from selling any products that wouldrequire us to make any such royalty payments. Whether we will be obligated tomake milestone or royalty payments in the future is subject to the success ofour product development efforts and, accordingly, is inherently uncertain.

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**Significant PartnerRevenue**

Revenuefrom partners representing 10% or more of total revenues for the years ended December 31,2006, 2005 and 2004 is as follows: 

| **Partners** | ** ** | ** ** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|
| BMS          |       |       | 37         | %        |       |     | 34         | %        |       |   | 4 | % |   |
| Genmab       |       |       | 3          | %        |       |     | 8          | %        |       |   | 26 | % |   |
| Pfizer       |       |       | 21         | %        |       |     | 18         | %        |       |   | 20 | % |   |

 

Further informationregarding revenues from partners is included in Notes 9 and 10 in the Notes tothe Consolidated Financial Statements and Supplementary Data included in Item 8of this Annual Report on Form 10-K.

**Strategic Investments**

***Genmab***

In August 2000, we entered into a bindingmemorandum of understanding, or the Genomics Agreement, with Genmab, a Danishbiotechnology company in which we held, at the time, an equity interest ofapproximately 44%, pursuant to which we granted Genmab rights to make availableour transgenic mouse technologies for multi-target (five or more targets)genomics partnerships to certain pharmaceutical and biotechnology companieswhose headquarters are located in Europe. The Genomics Agreement had an initialterm of five years with a right exercisable by Genmab to extend the term for anadditional two years. The initial term of the agreement expired in August 2005and was not extended. For each year of the agreement, we received $2.0 millionper year from Genmab. At Genmab’s option, these amounts were paid in eithercash or capital stock. During the years ended December 31, 2006,  2005 and 2004, we recognized $0, $1.3 millionand $2.0 million, respectively, of revenue from this agreement.

In October 2000, Genmab became a publicly listedcompany on the Copenhagen Stock Exchange. As a result of raising the equivalentof $178.0 million (based on the 8.7695 DKK/USD exchange rate on the listingdate of October 18, 2000) and subsequent investments in Genmab by otherparties, our ownership interest in Genmab decreased to approximately 32%. In July 2004,Genmab completed a private placement of 5.6 million shares of its stock,resulting in a further reduction in our ownership interest to approximately24.7%. In August 2005, Genmab sold approximately 2.5 million shares of itsstock to a corporate partner in connection with a global development andcommercialization agreement. As a result of this sale of stock, our ownershippercentage in Genmab was reduced to approximately 22.2%, where it remained asof December 31, 2005. We accounted for our investment in Genmab under theequity method of accounting through January 31, 2006.

In February 2006, Genmab completed a privateplacement of 5.75 million shares of its stock. As a result of this offering,our ownership interest was reduced to below 20%. Beginning February 1,2006, we accounted for our investment in Genmab as a marketable security inaccordance with SFAS No. 115, *Accounting for CertainInvestments in Debt and Equity Securities*.

In February 2007, wesold 2,578,500 shares of Genmab through a block trade resulting in net proceedsof approximately $152.1 million, thereby reducing our interest in Genmab toapproximately 10.8%.

***IDM***

During the second half ofthe 1990s, the focus of our business shifted from humanized and murinemonoclonal antibody-based products to fully human antibody development. As aresult, in July 2000, we entered into an agreement with Immuno-DesignMolecules, S.A., or IDM, whereby we licensed to IDM certain of our humanizedand murine antibodies in exchange for equity units in IDM. In August 2005,

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IDMcompleted a share exchange with Epimmune Inc., a Delaware corporation traded onthe NASDAQ Global Market, whereby IDM shareholders exchanged their IDM sharesfor shares of Epimmune. Epimmune subsequently changed its name to IDM Pharma, Inc.,or IDM Pharma. As a result of the exchange and a subsequent private placementin February 2007, we currently hold an approximate 14.6% equity positionin IDM Pharma. IDM Pharma’s most advanced product candidate, JunovanTM, hascompleted Phase III clinical trials for the treatment of osteosarcoma, a bonecancer affecting adolescents, and is under review for market approval by theFDA and the European Agency for the Evaluation of Medicinal Products, or EMEA.

***Celldex***

In 2004, we assigned or licensed to Celldex, our thenwholly-owned subsidiary, certain intellectual property related to our vaccinetechnology, including the rights to MDX-1307, one of our productcandidates for the treatment of cancer, as well as the IND associated with thisproduct candidate.

In October 2005, Celldex acquired all of theissued and outstanding shares of capital stock of Lorantis Limited, orLorantis, a privately held biotechnology company based in Cambridge, U.K. andsubstantially all of the assets of Alteris Therapeutics, Inc., or Alteris,a privately held biotechnology company based in Philadelphia, Pennsylvania. Thepurchase price for the Lorantis capital stock consisted of 6.8 million sharesof Celldex Class A common stock, and the purchase price for the Alterisassets consisted of 1.2 million shares of Celldex common stock, a cash paymentof $1.6 million and certain potential milestone and other payments. As a resultof these transactions, our ownership percentage of Celldex was reduced toapproximately 60%.

At the date of acquisition, in addition to cash ofapproximately $30 million, Lorantis’ assets included a pre-clinical programbased upon the discovery of a fundamental immune mechanism, the Notch signalingpathway, that has been shown in preclinical studies to selectively modulateimmune responses.

Through the acquisition ofAlteris, Celldex obtained exclusive rights to CDX-110, a therapeuticcancer vaccine, previously knowns as ALT-110, currently in an investigator-initiatedPhase II clinical trial for the treatment of brain cancer and aninvestigator-initiated Phase I clinical trial for the treatment of prostate andovarian cancers. CDX-110 is based on a variant of the epidermal growthfactor receptor known as EGFRvIII. In addition, Celldex acquired several patentapplications from Alteris covering the Rapid Identification of AlternativeSplicingTM system, or RIAS, a proprietary technologyplatform for the discovery of new disease-specific targets.

**Our Human AntibodyTechnology**

***The UltiMAb***® Technology Platform

Antibodies are natural proteins produced in the humanbody by B cells and serve as an important defense against disease. Human Bcells produce millions of different types of antibodies, all with varyingshapes that allow them to attach to and, as a result, neutralize differentdisease targets. For example, certain antibodies seek out and attach toviruses, bacteria and diseased cells, making them susceptible for destructionby the human immune system. Others attach to specific disease targets and blocktheir interaction with other molecules.

Our solution to making antibodies with fully human proteinsequences is to use transgenic strains of mice in which mouse antibody geneexpression is suppressed and replaced with human antibody gene expression.Because our mice contain genes encoding human antibodies, we believe theantibodies we generate are more likely to have favorable safety profiles and beeliminated less rapidly from the human body, potentially reducing the frequencyand amount of dosing required to affect disease targets. Additionally, ourfully human antibodies do not require any humanization, a process that at timeshas 

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proven to be challengingand time consuming, and can result in antibodies with lowered bindingaffinities for their respective targets. Our human antibody technology includes(i) our HuMAb-Mouse® technology, (ii) Kirin’s TC MouseTM technology, and (iii) the KM-Mouse® technology, a crossbred mouse that combinesthe characteristics of our HuMAb-Mouse® with those of the TC MouseTM. In total these technologies constituteour UltiMAb Human Antibody Development System®.

Our HuMAb-Mouse® technology refers totransgenic mice in which the mouse genes for creating antibodies have beendisrupted and functionally replaced by human antibody genes. Our HuMAb-Mouse® transgenic strains contain key gene sequencesfrom unrearranged human antibody genes that code for both the heavy and lightchains of human antibodies. Because genes determine what proteins are made, ourtransgenic mice make human antibody proteins. We have thus created mice thathave the ability to make fully human monoclonal antibodies. This result avoidsthe need to humanize murine monoclonal antibodies, and because the human genesin our HuMAb-Mouse® are stable, they are passed on to the miceoffspring and, therefore, bred indefinitely at relatively low cost and withoutadditional genetic engineering. Our HuMAb-Mouse® cangenerate fully human antibodies with affinities in the picomolar range, or ashigh as 1012 (molar-1).

Through our collaboration with Kirin, we have accessto the Kirin TC MouseTM,which contains complete sets of the variable and constant genes found in thecorresponding natural human immunoglobulin loci, including all heavy chainclasses that encode all isotypes (IgG1-4, IgA1-2, IgD, IgM andIgE). The TC MouseTM also has the ability to make fully humanmonoclonal antibodies. Together with Kirin, we have developed the KM-Mouse®, a crossbred mouse thatcombines the characteristics of our HuMAb-Mouse® with those of Kirin’s TC MouseTM, retaining the capability to produce allhuman antibody isotypes with an immune response that we believe is previouslyunseen in any human antibody producing mouse system.

To further enhance ourability to create products from genomics research, we have also coupled theUltiMAb Human Antibody Development System® with other technologies, such as ourproprietary Ultra-Potent ToxinTM,or UPT, technology for creating antibody immunoconjugates. Our UPT programincludes a class of DNA alkylating agents, which have been designed to overcomemulti-drug resistance. We believe this program provides us with a platform forgenerating cytotoxic drugs that specifically target various cancers.

***The UltiMAb***® Advantage

Our unique technology platform constitutes what webelieve to be the most complete technology solution available in themarketplace for generating fully human antibodies and enables us to produceantibodies that we believe set the industry standard in that they (i) are fullyhuman, (ii) are of a very high affinity, and (iii) can be producedand manufactured relatively quickly and efficiently.

We believe that ourfully human antibody technologies offer the following advantages over otherantibody technologies:

·                    *Fully Human Antibodies*.   Unlikehumanization techniques, our UltiMAb Human Antibody Development System® generates antibodies with fully human proteinsequences, which we believe will permit the development of products with afavorable safety profile. Additionally, we believe fully human antibody-basedproducts are likely to be eliminated less rapidly from the human body,potentially reducing the frequency and amount of dosing.

·                    *High Affinity Antibodies.  *Our humanantibody technology takes advantage of the human body’s natural affinitymaturation process, whereby antibodies evolve over time to have higher affinityto targets, creating antibodies that can have affinities up to 1,000 timeshigher than the chimeric or humanized antibodies now approved for sale in theU.S. Our high affinity antibodies have been 

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generated against a widerange of target antigens. Our human antibodies are produced without the needfor any subsequent engineering to make them more human—a process that at timeshas proven to be challenging and time consuming. Thus, we reduce the risk thatan antibody’s structure and function will be altered by such engineering.

·                    *Rapid Development Capabilities.  *Bycombining our technology for creating fully human antibodies with our in-housedevelopment and clinical supply manufacturing expertise, we believe that we canrapidly progress from first generation of the antibody to the clinic.

·                    *Diverse Selection of Antibodies Responding to ManyDisease Targets.  *We believe that our technology has thepotential to generate high affinity human antibodies of all isotypes andsubclasses. In addition, we have been able to create large panels of monoclonalantibodies to many potentially medically relevant antigens. For a given antigentarget, the ability to select a product candidate from a pool of multipleantibodies could be important in selecting the optimal antibody productcandidate for development.

·                    *Flexibility for Our Partners.  *Ourhuman antibody technology can be used either in our laboratories or in thelaboratories of our partners. This provides our partners with the flexibilityto incorporate our technology into their research and development programs orto contract with us to produce antibodies for them.

·                    *Greater Certainty of Intellectual Property Rights.  *Weare not aware of any licenses required to create fully human antibodies usingour UltiMAb® technology platform to a target owned by theuser except under patents currently owned or licensed by us. In contrast,various entities hold patents that may cover the chimerization or humanizationof monoclonal antibodies. In addition, several companies and academicinstitutions have developed phage libraries for the creation of monoclonalantibodies, and a number of companies and academic research centers havereceived patents that may apply to the creation of phage-derived monoclonalantibodies.

**Our Research,Development and Manufacturing of Human Antibodies**

Our product development efforts are supported by ourexperience in both generating and developing numerous human antibodies and inmanufacturing clinical supply materials. We believe this experience, togetherwith access to novel therapeutic targets, will allow us to rapidly generate anddevelop a large, diverse pipeline of fully human antibody products. We intendto develop some of these product candidates for our own account and some incollaboration with other companies, leveraging their respective research anddevelopment resources.

Our antibody generation resources include highlytrained teams of scientists in our research facilities located in Milpitas andSunnyvale, California, as well as scientists in Annandale and Bloomsbury, NewJersey, who work with our UltiMAb Human Antibody Development System® to generate antibodies for our own developmentand for our partners. These scientists are experienced in molecular biology,protein chemistry, animal biology, pharmacology, toxicology, process scienceand formulation development. Other development resources include in-housemedical professionals with product development expertise in oncology,infectious diseases, rheumatology, immunology and pulmonology, and consultingarrangements with leading academic researchers.

In addition to our experience in generatingantibodies, we have considerable experience in clinical development andclinical supply antibody manufacturing. To facilitate the development andcommercialization of antibody-based products for us and for our partners, we haveassembled a team of experienced scientific, production and regulatorypersonnel. This team operates in Bloomsbury, New Jersey, and in our clinicaltrial material manufacturing production facility in Annandale, New Jersey.

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Our Bloomsbury, New Jersey, research and developmentfacility is situated on approximately 135 acres of land and currently containsspace for approximately 165,000 square feet of laboratory and office space. Wecompleted a renovation of these facilities in 2004 and currently use approximately100,000 square feet in these facilities, accommodating approximately 220employees engaged in antibody research, development and manufacturing.

We lease approximately45,000 square feet of laboratory, clinical trial production and office space inAnnandale, New Jersey, where we manufacture antibody products for use inclinical development and clinical trials conducted by us and by certain of ourpartners. Our Annandale facility currently has the capacity to develop up to 15new antibody projects per year and operates in accordance with current goodmanufacturing practices, or cGMP, regulatory requirements for the manufactureof clinical trial materials. We believe that our existing facility in Annandaleis adequate for the production of materials for clinical trials of our productsand for providing the support we offer to certain of our partners in connectionwith our human antibody technology in the near-term. In September 2003, weentered into a clinical supply agreement with Lonza Group Ltd. with respect toipilimumab and MDX-060. Our partner BMS is responsible for securingcommercial supply arrangements for ipilimumab and is currently in negotiationswith respect to such arrangements. We do not currently have the capability tomanufacture our product candidates under development in large commercialquantities and have no experience in commercial-scale manufacturing.

**Our Cross LicenseAgreement With Abgenix**

In 1994, prior to ouracquisition of GenPharm International, Inc., or GenPharm, Abgenix, Inc.,or Abgenix, and related entities brought a lawsuit against GenPharm relating tointellectual property issues involved in creating transgenic mice capable ofgenerating fully human antibodies. GenPharm filed counterclaims, and thelitigation was settled in March 1997 upon the execution of a patentcross-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 thedevelopment and use of certain transgenic rodents, including mice, that producefully human antibodies. In exchange for this license, GenPharm receivedpayments in 1997, and after our acquisition of GenPharm, we received payments,including interest, from Abgenix and its related parties, which totaledapproximately $38.6 million. Neither Abgenix nor any of its related entitieshave any further payment obligations to us under the agreement. Neither we norGenPharm were required to make any payments to Abgenix or any related entityunder the terms of the agreement. The agreement also provides us with anon-exclusive license to certain intellectual property held by Abgenix. In April 2006,Abgenix and Amgen completed a merger that resulted in Amgen gaining access tothe patents, patent applications, third-party licenses and inventions licensedto Abgenix under the cross-license agreement.

**IntellectualProperty**

Proprietary protection for our products, processes andknow-how is important to our business. Our practice is to file patentapplications to protect technology, inventions, and improvements that weconsider important to the development of our business. We also rely upon tradesecrets, know-how and continuing technological innovation to develop andmaintain our competitive position. We plan to aggressively prosecute and defendour patents and proprietary technology.

As of December 31, 2006, we hold an ownershipinterest in a total of 66 issued patents in the U.S. and 248**issued patents in foreign countries with respect to ourUltiMAb® technology and products, our bispecificmolecule technology and products, and our other technology and products.

Of these, 18 of our issued patents in the U.S. and 41of our issued patents in foreign countries, including European countries,Japan, Korea, New Zealand and Australia, among others, relate to various 

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aspects of our UltiMAb® technology. These patents, most of which arein the same patent family, claim the transgene, the transgenic mouse andmethods of obtaining high affinity antibodies, among others. These patents haveexpiration dates beginning in 2008, although the majority of the keyHuMAb-Mouse® technology patents expire beginning in 2011.In addition to our UltiMAb® technology patents, we have five issued U.S.patents and 34 issued foreign patents that relate particularly to HuMAb-Mouse® products. We also have 45 related pending U.S.and foreign patent applications directed to various aspects of our UltiMAb® technology and 334 pending U.S. and foreignpatent applications directed to various aspects of our UltiMAb® products. These include patent applicationsdescribing several of our particular human antibody product candidates, such asour anti-CTLA-4 (ipilimumab) and anti-CD30 (MDX-060) productcandidates. We have been assigned patent rights relating to MEDI-545 andMDX-1333 by Nufarm, B.V., Medisup International N.V., Pharma Pacific Pty.Ltd and Laboratorie European de Biotechnologie. We have acquired patent rightsrelating to MDX-1100 through our acquisition of Ability Biomedical. Inaddition, we have acquired patent rights from Corixa Corporation relating totumor-activated prodrugs. A U.S. patent to our human anti-CTLA-4 antibodyproducts issued in January 2006.

In 2006, 20 U.S. provisional or utility patentapplications and 22 Patent Cooperation Treaty, or PCT, applications were filedby or on behalf of Medarex. As of December 31, 2006, we had a total of 93U.S. patent applications and 458 foreign patent applications pending.

From time to time, we may decide to selectively divestsome of our patents or pending patent applications as our business evolves.Multiple provisional U.S. applications may be combined in a single U.S. and/orPCT filing; provisional U.S. filings expire in favor of a PCT filing which willeventually become national stage filings in the U.S. and other countries; andapplications containing multiple inventions may be filed separately in multipledivisional applications. Thus, these patent and patent application counts willnot always correspond from year to year.

In addition to the patents and patent applications inwhich we hold an ownership interest, we hold exclusive and non-exclusivelicenses to many other patents and applications, including the license to theAbgenix (and now Amgen) intellectual property mentioned above. For example,these technologies include microinjection of transgene DNA, homologousrecombination, chromosome transfer, yeast artificial chromosome transgenetechnology and other relevant technologies. We also hold an exclusivesub-license to intellectual property created at the University of Californiarelating to aspects of ipilimumab and also have licenses from BMS and Pfizerconcerning other intellectual property related to ipilimumab. We have a licensefrom the U.S. Public Health Service with respect to MDX-1379.

We own registrations forthe following trademarks in the listed jurisdictions: Medarex® in the U.S., the European Union, Canada,Australia and Switzerland; HuMAb-Mouse®,UltiMAb Human Antibody Development System® in the U.S.,Canada and European Union; KM-Mouse® and Putting the Immune System to WorkTM in the European Union; GenPharm® andTrans-Phage Technology® in the U.S.; and UltiMAb® inthe European Union.

**Regulatory Issues**

***General***

The production, distribution and marketing of productsemploying our technology, and our research and development activities, aresubject to extensive governmental regulation in the U.S. and in othercountries. In the U.S., our products are regulated both as drugs and as biologicalproducts and are subject to the Federal Food, Drug, and Cosmetic Act, asamended, the Public Health Service Act, as amended, and the regulationspromulgated under these statutes, as well as to other federal, state, and localstatutes and regulations. These laws, and similar laws outside the U.S., governthe clinical and non-clinical testing, manufacture, safety, effectiveness,approval, labeling, distribution, sale, import, export, storage, recordkeeping, reporting, advertising and promotion of our products. Productdevelopment and approval within 

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this regulatory framework,if successful, will take many years and involve the expenditure of substantialresources. Violations of regulatory requirements at any stage may result invarious adverse consequences, including the FDA’s and other health authorities’delay in approving or refusal to approve a product. Violations of regulatoryrequirements also may result in enforcement actions, including withdrawal ofapproval, labeling restrictions, seizure of products, fines, injunctions and/orcivil or criminal penalties.

The following paragraphs provide further informationon certain legal and regulatory issues with a particular potential to affectour operations or the future marketing of products employing our technology.

*Research, Development, andProduct Approval Process.**  *The research, development, and approval process inthe U.S. and elsewhere is intensive and rigorous, and generally takes manyyears. The typical process required by the FDA before a therapeutic drug orbiological product may be marketed in the U.S. includes:

·                    submissionto the FDA of an application for an IND, which must become effective beforehuman clinical trials may commence;

·                    preliminaryhuman clinical studies to evaluate the drug or biologic and its manner of use;adequate and well-controlled human clinical trials to establish (i) for adrug or a biological product (such as an antibody), whether it is safe andeffective for its intended uses, and (ii) for a biological product,whether it is also pure and potent;

·                    FDAreview of whether the facility in which the drug or biologic is manufactured,processed, packed or held meets standards designed to assure the product’scontinued quality; and

·                    submissionof an appropriate product application to the FDA, and approval of theapplication by the FDA.

During preclinical testing, studies are performed withrespect to the chemical and physical properties of candidate formulations, andare subject to good laboratory practices requirements. Biological testing istypically done in animal models to demonstrate the activity of the compoundagainst the targeted disease or condition and to assess the apparent effects ofthe new product candidate on various organ systems, as well as its relativetherapeutic effectiveness and safety. An IND must be submitted to the FDA andbecome effective before studies in humans may commence.

Clinical trial programs in humans generally follow athree-phase process. Typically, Phase I studies are conducted in small numbersof healthy volunteers or, on occasion, in patients afflicted with the targetdisease, to determine the metabolic and pharmacological action of the productcandidate in humans, the side effects associated with increasing doses, and, ifpossible, to gain early evidence of effectiveness. In Phase II, studies aregenerally conducted in larger groups of patients having the target disease orcondition in order to validate clinical endpoints, and to obtain preliminarydata on the effectiveness of the product candidate and optimal dosing. Thisphase also helps determine further the safety profile of the product candidate.In Phase III, large-scale clinical trials are generally conducted in hundredsof patients having the target disease or condition to provide sufficient datafor the statistical proof of effectiveness and safety of the product candidateas required by U.S. and foreign regulatory agencies.

In the case of products for cancer and certain otherlife-threatening diseases, the initial human testing may be done in patientswith the disease rather than in healthy volunteers. Because these patients arealready afflicted with the target disease or condition, it is possible thatsuch studies will also provide results traditionally obtained in Phase IIstudies. These studies are often referred to as “Phase I/II” studies.Notwithstanding the foregoing, even if patients participate in initial humantesting and a Phase I/II study carried out, the sponsor is still responsiblefor obtaining all the data usually obtained in both Phase I and Phase IIstudies.

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Before proceedingwith a study, sponsors may seek a written agreement from the FDA regarding thedesign, size, and conduct of a clinical trial. This is known as a SpecialProtocol Assessment, or SPA. Among other things, SPAs can cover clinicalstudies for pivotal trials whose data will form the primary basis to establisha product’s efficacy. Where the FDA agrees to an SPA, the agreement may not bechanged by either the sponsor or the FDA except if the sponsor and the FDAagree to a change, or a senior FDA official determines that a substantialscientific issue essential to determining the safety or effectiveness of theproduct was identified after the testing began. SPAs thus help establishup-front agreement with the FDA about the adequacy of a clinical trial designto support a regulatory approval, but the agreement is not binding if newcircumstances arise. There is no guarantee that a study will ultimately beadequate to support an approval even if the study is subject to an SPA.

U.S. law requiresthat studies conducted to support approval for product marketing be “adequateand well controlled.” In general, this means that either a placebo or a productalready approved for the treatment of the disease or condition under study mustbe used as a reference control. Studies must also be conducted in compliancewith good clinical practice, or GCP, requirements, and informed consent must beobtained from all study subjects.

The clinical trial process for a new compound can take10 years or more to complete. The FDA may prevent clinical trials frombeginning or may place clinical trials on hold at any point in this process if,among other reasons, it concludes that study subjects are being exposed to anunacceptable health risk. Trials may also be prevented from beginning or may beterminated by institutional review boards, who must review and approve allresearch involving human subjects. Side effects or adverse events that arereported during clinical trials can delay, impede, or prevent marketingauthorization. Similarly, adverse events that are reported after marketingauthorization can result in additional limitations being placed on a product’suse and, potentially, withdrawal of the product from the market.

Following the completion of clinical trials, the dataare analyzed to determine whether the trials successfully demonstrated safetyand effectiveness, and whether a product approval application may be submitted.In the U.S., if the product is regulated as a drug, a New Drug Application, orNDA, must be submitted and approved before commercial marketing may begin. Ifthe product, such as an antibody, is regulated as a biologic, a BLA must besubmitted and approved before commercial marketing may begin. The NDA or BLA mustinclude a substantial amount of data and other information concerning thesafety and effectiveness (and, in the case of a biologic, purity and potency)of the compound from laboratory, animal and human clinical testing, as well asdata and information on manufacturing, product quality and stability, andproposed product labeling.

Each domestic and foreign biopharmaceuticalmanufacturing establishment, including any contract manufacturers we may decideto use, must be listed in the NDA or BLA and must be registered with the FDA.The application will not be approved until the FDA conducts a manufacturinginspection, approves the applicable manufacturing process for the drug orbiological product, and determines that the facility is in compliance with cGMPrequirements.

Under the Prescription Drug User Fee Act, as amended,the FDA receives fees for reviewing a BLA or NDA and supplements thereto, aswell as annual fees for commercial manufacturing establishments and forapproved products. These fees can be significant. For fiscal year 2006, the NDAor BLA review fee alone was $767,000, and for fiscal year 2007 this fee is$896,200, although certain limited deferrals, waivers and reductions may beavailable.

Each NDA or BLA submitted for FDA approval is usuallyreviewed for administrative completeness and reviewability within 45 to 60 daysfollowing submission of the application. If deemed complete, the FDA will “file”the NDA or BLA, thereby triggering substantive review of the application. TheFDA can refuse to file any NDA or BLA that it deems incomplete or not properlyreviewable. The FDA has established performance goals for the review of NDAsand BLAs—six months for priority applications and 

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10 months for regularapplications. However, the FDA is not legally required to complete its reviewwithin these periods and these performance goals may change over time.Moreover, the outcome of the review, even if generally favorable, typically isnot an actual approval but an “action letter” that describes additional workthat must be done before the application can be approved. The FDA’s review ofan application may involve review and recommendations by an independent FDAadvisory committee. Even if the FDA approves a product, it may limit theapproved therapeutic uses for the product as described in the product labeling,require that warning statements be included in the product labeling, requirethat additional studies be conducted following approval as a condition of theapproval, impose restrictions and conditions on product distribution,prescribing or dispensing in the form of a risk management plan, or otherwiselimit the scope of any approval.

Significant legal and regulatory requirements alsoapply after FDA approval to market under an NDA or BLA. These include, amongother things, requirements related to adverse event and other reporting,product advertising and promotion, and ongoing adherence to cGMPs, as well asthe need to submit appropriate new or supplemental applications and obtain FDAapproval for certain changes to the approved product, product labeling ormanufacturing process. The FDA also enforces the requirements of thePrescription Drug Marketing Act, or PDMA, which, among other things, imposesvarious requirements in connection with the distribution of product samples tophysicians.

The regulatory framework applicable to the production,distribution, marketing, sale and/or reimbursement of our products may changesignificantly from the current descriptions provided herein in the time that itmay take for any of our products to reach a point at which an NDA or BLA isapproved. For example, federal legislation has been proposed that would requireall NDAs and BLAs to include risk management plans, with potential measuressuch as special labeling, adverse event reporting, post-approval studies,advertising limitations, and distribution restrictions.

Overall research, development and approval timesdepend on a number of factors, including the period of review at the FDA, thenumber of questions posed by the FDA during review, how long it takes torespond to the FDA questions, the severity or life-threatening nature of thedisease in question, the availability of alternative treatments, theavailability of clinical investigators and eligible patients, the rate ofenrollment of patients in clinical trials and the risks and benefitsdemonstrated in the clinical trials.

*Drugsand Biologics for Serious or Life-Threatening Illnesses.**  *The Federal Food, Drug and CosmeticAct, as amended, and FDA regulations provide certain mechanisms for theaccelerated “Fast Track” approval of products intended to treat serious orlife-threatening illnesses which have been studied for safety and effectivenessand which demonstrate the potential to address unmet medical needs. Theprocedures permit early consultation and commitment from the FDA regarding thepreclinical and clinical studies necessary to gain marketing approval.Provisions of this regulatory framework also permit, in certain cases, NDAs orBLAs to be approved on the basis of valid surrogate markers of producteffectiveness, thus accelerating the normal approval process. Where the FDAapproves a product on the basis of a surrogate marker, it requires the sponsorto perform post-approval, or Phase IV, studies as a condition of approval. Inaddition, the FDA may impose restrictions on distribution and/or promotion in connectionwith any accelerated approval, and may withdraw approval if post-approvalstudies do not confirm the intended clinical benefit or safety of the product.Special rules would also apply to the submission to FDA of advertising andpromotional materials prior to use.

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*Orphan Drugs.**  *Under the Orphan Drug Act, special incentives existfor companies to develop products for rare diseases or conditions, which aredefined to include those diseases or conditions that affect fewer than 200,000people in the U.S. Companies may request that the FDA grant a drug orphandesignation prior to approval. Products designated as orphan drugs are eligiblefor special grant funding for research and development, the FDA assistance withthe review of clinical trial protocols, potential tax credits for research,reduced filing fees for marketing applications, and a special seven-year periodof market exclusivity after marketing approval. Orphan drug exclusivityprevents the FDA approval of applications by others for the same drug and thedesignated orphan disease or condition. The FDA may approve a subsequentapplication from another entity if the FDA determines that the application isfor a different drug or different use, or if the FDA determines that thesubsequent product is clinically superior, or that the holder of the initialorphan drug approval cannot assure the availability of sufficient quantities ofthe drug to meet the public’s need. A grant of an orphan designation is not aguarantee that a product will be approved. If a sponsor receives orphan drugexclusivity upon approval, there can be no assurance that the exclusivity willprevent another entity or a similar drug from receiving approval for the sameor other uses.

***Other U.S. Regulatory Requirements***

In the U.S., the research, manufacturing,distribution, sale, and promotion of drug and biological products arepotentially subject to regulation by various federal, state and localauthorities in addition to the FDA, including the Centers for Medicare andMedicaid Services (formerly the Health Care Financing Administration), otherdivisions of the U.S. Department of Health and Human Services (e.g., the Officeof Inspector General), the U.S. Department of Justice and individual U.S.Attorney offices within the Department of Justice, and state and localgovernments. For example, sales, marketing and scientific/educational grantprograms must comply with the anti-fraud and abuse provisions of the SocialSecurity Act, the False Claims Act, the privacy provisions of the HealthInsurance Portability and Accountability Act, or HIPAA, and similar state laws,each as amended. Pricing and rebate programs must comply with the Medicaidrebate requirements of the Omnibus Budget Reconciliation Act of 1990 and theVeterans Health Care Act of 1992, each as amended. If products are madeavailable to authorized users of the Federal Supply Schedule of the GeneralServices Administration, additional laws and requirements apply. All of theseactivities are also potentially subject to federal and state consumerprotection, unfair competition, and other laws.

Moreover, we are now, andmay become subject to, additional federal, state and local laws, regulationsand policies relating to safe working conditions, laboratory practices, theexperimental use of animals, and/or the use, storage, handling, transportationand disposal of human tissue, waste and hazardous substances, includingradioactive and toxic materials and infectious disease agents used inconjunction with our research work.

***Foreign Regulatory Requirements***

We and our collaborativepartners are subject to widely varying foreign regulations, which may be quitedifferent from those of the FDA, governing clinical trials, manufacture,product registration and approval, and pharmaceutical sales. Whether or not FDAapproval has been obtained, we must obtain a separate approval for a product bythe comparable regulatory authorities of foreign countries prior to thecommencement of product marketing in these countries. In certain countries,regulatory authorities also establish pricing and reimbursement criteria. Theapproval process varies from country to country, and the time may be longer orshorter than that required for FDA approval. In addition, under current U.S.law, there are significant restrictions on the export of products not approvedby the FDA, depending on the country involved and the status of the product inthat country.

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***Reimbursement and Pricing Controls***

Inmany of the markets where we or our collaborative partners would commercializea product following regulatory approval, the prices of pharmaceutical productsare subject to direct price controls by law and to drug reimbursementprograms with varying price control mechanisms. Public and private health care payors control costs and influence drugpricing through a variety of mechanisms, including through negotiatingdiscounts with the manufacturers and through the use of tiered formularies andother mechanisms that provide preferential access to certain drugs over otherswithin a therapeutic class. Payors also set other criteria to govern the usesof a drug that will be deemed medically appropriate and therefore reimbursed orotherwise covered. In particular, many public and private health care payorslimit reimbursement and coverage to the uses of a drug that are either approvedby the FDA or that are supported by other appropriate evidence, such aspublished medical literature, and appear in a recognized drug compendium. Drugcompendia are publications that summarize the available medical evidence forparticular drug products and identify which uses of a drug are supported or notsupported by the available evidence, whether or not such uses have beenapproved by the FDA. For example, in the case of Medicare coverage forphysician-administered oncology drugs, the Omnibus Budget Reconciliation Act of1993, with certain exceptions, prohibits Medicare carriers from refusing tocover unapproved uses of an FDA-approved drug if the unapproved use issupported by one or more citations in the American Hospital Formulary ServiceDrug Information, the American Medical Association Drug Evaluations, or theU.S. Pharmacopoeia Drug Information. Another commonly cited compendium, forexample under Medicaid, is the DRUGDEX Information System.

**Competition**

We face competition in several different forms. Ourhuman antibody generation activities currently face competition from severalcompanies and from other technologies. In addition, the actual products beingdeveloped by us or by our partners also face actual and potential competition.

The development of biotechnology and pharmaceuticalproducts is a highly competitive business subject to rapid technologicalchange. We know of many pharmaceutical and biotechnology companies conductingresearch or development on therapeutic monoclonal antibody products. Many ofthese companies have commenced clinical trials with, and several havesuccessfully commercialized, antibody products. Some of these companies arealso pursuing product development efforts for the same disease areas or againstthe same biological targets as we or our partners are pursuing.

We face competition from many companies that providethe services of generating monoclonal antibodies for antibody-basedtherapeutics. One competitor with respect to our human antibody technology isAmgen, as a result of its acquisition of Abgenix in April 2006. As aresult of the cross-license agreement with GenPharm, our wholly ownedsubsidiary, Abgenix had offered to potential partners the use of its transgenicmouse known as XenoMouse® to generate fully human monoclonal antibodies.As a result of the merger, Amgen has access to the patents, patentapplications, third-party licenses and inventions licensed to Abgenix by thirdparties in addition to our technology under the cross-license agreement.

In addition, we have entered into agreements with eachof Kirin and Genmab, respectively, which grant these companies licenses to ourproprietary transgenic mouse technology platform, enabling them to compete withus in offering antibody generation and development services in certain markets.Certain of our other partners who have licensed our transgenic mouse technologyalso could compete with us with respect to the development andcommercialization of certain antibodies.

In February 2007, Regeneron Pharmaceuticals, Inc.,or Regeneron, licensed its VelocImmune monoclonal antibody generationtechnology to AstraZeneca. Regeneron claims that its VelocImmune® mice have humanized immune systems that can beused to generate human antibodies, potentially enabling 

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Regeneron, AstraZeneca andany other Regeneron licensees to compete with us in the generation oftherapeutic antibodies. AstraZeneca also has access to antibody generationtechnologies through its ownership of Cambridge Antibody Technology Group plc(part of the AstraZeneca group of companies), or CAT.

Other companies are also developing, or have developedtechnologies for generating human or partially human antibodies. For example,Xenerex Biosciences (a subsidiary of Avanir Pharmaceuticals), or Xenerex, andXTL Biopharmaceuticals Ltd., or XTL, each have developed technology that,according to Xenerex and XTL, will allow them to generate fully humanmonoclonal antibodies in functionally modified mice.

Numerous other companies are developing therapeuticproducts comprising human antibody components. Furthermore, several companiesare developing, or have developed, technologies not involving animalimmunization that result in libraries composed of numerous human antibodysequences. For example, phage display technology is being used by companiessuch as Dyax Corp., CAT, and MorphoSys AG to develop potentially therapeuticproducts comprising human antibody sequences. XOMA Ltd. and PDL BioPharma, Inc.,or PDL BioPharma, both offer technologies to convert mouse antibodies intoantibodies closely resembling human antibodies. Companies such as Johnson &Johnson, MedImmune, Amgen, Biogen Idec, Inc., Novartis, Genentech, Inc.,PDL BioPharma, Wyeth, Abbott Laboratories, and GlaxoSmithKline have generatedtherapeutic products that are currently in development or on the market andthat are derived from recombinant DNA that comprise human antibody sequences.Numerous additional companies are developing therapeutic products comprisinghuman antibody components.

We are aware of several pharmaceutical andbiotechnology companies actively engaged in research and development ofantibody-based products that have commenced clinical trials with or havesuccessfully commercialized antibody products. Some of these companies, such asPfizer, ImClone Systems, Johnson & Johnson, Wyeth, Amgen, Abbott, UCBPharma, Biogen Idec, CAT, MorphoSys AG, Tanox, Inc., Genentech, Inc.,Human Genome Sciences, Millennium and PDL BioPharma are addressing diseases anddisease indications that are being targeted by us and certain of our partners.For example, Pfizer is developing CP-675,206, an antibody to CTLA-4,in potential competition with our product candidate, ipilimumab. CP-675,206is currently in Phase III clinical trials, and Pfizer has announced that itexpects to file a BLA on the product in 2007. Several of the foregoingcompanies are also licensees of our transgenic mouse technology. Many of thesecompanies and institutions, either alone or together with their partners, have substantiallygreater financial resources and larger research and development divisions thanwe have. In addition, many of these competitors, either alone or together withtheir partners, have substantially greater experience than us in developingpharmaceutical products, undertaking preclinical testing and human clinicaltrials, obtaining FDA and other regulatory approvals of such products and themanufacturing and commercialization of such products. Accordingly, ourcompetitors may succeed in obtaining patent protection, receiving FDA or othernon-U.S. equivalent marketing approval and commercializing products morerapidly than us.

Other technologies canalso be applied to the treatment of the diseases that we or our partners arepursuing. For example, immunoconjugates—monoclonal antibodies linked to toxinsor radioactive isotopes—are being developed by others, such as ImmunoGen, Inc.and Seattle Genetics, Inc. as well as by us. In addition, the applicationof recombinant DNA technology to develop potential products consisting ofproteins (such as growth factors, hormones, enzymes, cytokines, receptorfragments and fusion proteins, or cytokines) that do not occur normally in thebody, or occur only in small amounts, has been under way for some time.Included in this group are interleukins such as IL-2 and IL-11,interferons, colony stimulating factors such as G-CSF and GM-CSF, clottingfactors, growth hormones, erythropoeitin, DNAse, tPA, glucocerebrosidase, PDGF,and a number of other biological response modifiers. Continuing development ofnew chemical entities and other drugs by pharmaceutical and other biotechnology

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companiesalso carries with it the potential discovery of agents for treating diseaseindications targeted by drugs that we or our partners are developing.

**Marketing**

Our potential products may be marketed and sold inseveral possible ways, depending on the product, including: solely by us,jointly by us and our collaborative partners, or solely by or on behalf of ourcollaborative or our licensing partners. Marketing and sales rights withrespect to ipilimumab are subject to the terms of our collaboration with BMS.We believe that a small sales force could successfully introduce and detailcertain of our potential products that have concentrated marketplaces. Otherproducts, however, may require a larger sales force. Currently, we have nosales force. We may develop our own internal sales force for these products ifthey proceed to commercialization.

We acknowledge that thesuccessful marketing of some of our potential products may be beyond thecapabilities of all but the largest pharmaceutical organizations. For thisreason, we, along with our collaborative partners, may license to majorpharmaceutical companies individual products serving large markets or thosethat will be widely distributed and/or detailed geographically, if the productsare approved by the FDA. Our collaboration with BMS is an example of this kindof relationship.

**Employees**

As of December 31,2006, we employed 492 regular, full and part-time employees, of whomapproximately 427 were engaged in research and development activities. As ofthat date, there were 65 employees involved in business development, legal,finance and other administrative functions. None of our employees is covered bya collective bargaining agreement. We have entered into employment contractswith certain of our executive officers. Our success will depend in large partupon our ability to attract and retain employees. We face competition foremployees from other companies, research and academic institutions, governmentagencies and other organizations. We believe we maintain good relations withour employees.

**AvailableInformation**

We were incorporated in the State of New Jersey on July 8,1987. Our principal executive offices are located at 707 State Road, Princeton,New Jersey 08540. Our telephone number is (609) 430-2880.

We file annual, quarterly and current reports, proxystatements and other information with the Securities and Exchange Commission,or SEC. You may read and copy our reports, proxy statements and otherinformation at the SEC’s public reference room at 100 F Street N.W.,Washington, D.C. 20549. You can request copies of these documents bywriting to the SEC and paying a fee for the copying cost. Please call the SECat 1-800-SEC-0330 for more information about the operation ofthe public reference room. Our SEC filings are also available at the SEC’s website at *www.sec.gov*. In addition, you can readand copy our SEC filings at the office of the National Association ofSecurities Dealers, Inc. at 1735 K Street N.W., Washington, D.C. 20006.

You may obtain a free copyof our annual reports on Form 10-K, quarterly reports on Form 10-Qand current reports on Form 8-K and amendments to those reports onthe day of filing with the SEC, on our website at *www.medarex.com*,by contacting the Investor Relations Department at our corporate offices bycalling (609) 430-2880, or by sending an e-mail message to *information@medarex.com*. You can direct requests for literatureto the information request section on our website.

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**Item 1A.**                RiskFactors

**Forward LookingInformation**

This Annual Reportcontains forward-looking statements within the meaning of Sections 27A and 21Eof the Securities Exchange Act of 1934, as amended, including statementsregarding our expectations, beliefs, intentions, or strategies regarding thefuture. Statements preceded by, followed by or that otherwise include the words“believes”, “expects”, “anticipates”, “intends”, “estimates”, “plans”, “forecasts”,“is likely to”, “projected” and similar expressions or future conditional verbssuch as “should”, “would”, “may”, and “could” are generally forward-looking innature and not historical facts. Forward-looking statements include, withoutlimitation, statements in this section, and in the sections entitled “Business,”“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and elsewhere in this Annual Report regarding, among other things,uncertainties relating to our technology; history of operating losses andanticipation of future losses; uncertainty of product development; uncertaintyrelating to competitive products, need for additional capital and uncertaintyof change; uncertainty of patent and proprietary rights; management of growth,and risks of acquiring new technologies; uncertainties related to clinicaltrials; government regulation and uncertainty of obtaining regulatory approval;dependence on research collaborators and scientific advisors; uncertainty ofhealth care reform measures and third-party reimbursement and risk of productliability. All forward-looking statements included in this Annual Report arebased on information available to us as of the date hereof, and we do notassume any obligation to update any such forward-looking statements. Our actualresults may differ materially from the results discussed in the forward-lookingstatements. Among the factors that could cause actual results to differmaterially are the factors detailed below. Accordingly, in addition to theother information in this Annual Report, the following factors should beconsidered carefully. References to our products, business, financial resultsor financial condition should be considered to refer to us and our subsidiariesunless the context otherwise requires.

**Risks Related toOur Business and Industry**

**Successfuldevelopment of our products is uncertain.**

Based on public disclosures, as of February 1,2007, regulatory applications, including INDs, have been submitted to the FDAor comparable foreign authorities, for over 30 product candidates derived fromour UltiMAb® platform. Neither we nor our partners have anyproduct candidates employing our human antibody technology that have beenapproved for sale by the FDA or comparable foreign authorities and/orcommercialized. Product candidates employing our human antibody technology havenot advanced and may not advance beyond clinical development and may notdemonstrate clinical safety and effectiveness.

Our development ofcurrent and future product candidates is subject to the risks of failure anddelay inherent in the development of new pharmaceutical products and productsbased on new technologies. These risks include, but are not limited to:

·       delaysin product development, clinical testing or manufacturing;

·  slower than expected patient enrollment;

·       unplannedexpenditures in product development, clinical testing or manufacturing;

·       failurein clinical trials;

·       failureto receive regulatory approvals;

·       emergenceof superior or equivalent products;

·       inabilityto manufacture on our own, or through others, product candidates on acommercial scale;

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·       inabilityto market products due to third-party proprietary rights;

·       electionby our partners not to pursue product development;

·       failureby our partners to develop products successfully;

·       failureto receive adequate coverage and reimbursement for our products from healthcare payors;

·       changesin legal and regulatory requirements; and

·       failureto achieve market acceptance.

In certain instances, wehave experienced delays in our product development and clinical testing as aresult of slower than anticipated patient recruitment. In a number ofinstances, we have terminated the development of certain products in the earlystages of human clinical testing due to a lack of effectiveness.

Because of these risks,our research and development efforts or those of our partners may not result inany commercially viable products. If a significant portion of these developmentefforts are not successfully completed, required regulatory approvals are notobtained or any approved products are not commercially successful, ourbusiness, financial condition and results of operations may be materiallyharmed.

**Our revenue and profit potential are unproven. Norevenues have been generated from the commercial sale of our products and ourproducts may not generate commercial revenues in the future.**

Because we and ourpartners have not begun commercial sales of our products, our revenue andprofit potential are unproven, which makes it difficult for an investor toevaluate our business and prospects. Our technology may not result in anymeaningful benefits to our current or potential partners. No revenues have beengenerated from the commercial sale of our products, and our products may notgenerate revenues in the future. Our business and prospects should beconsidered in light of the heightened risks and unexpected expenses andproblems we may face as a company in a rapidly evolving biopharmaceutical industry.

**We have incurred large operating losses, and weanticipate that these losses will continue.**

Wehave incurred large operating losses, and we anticipate that these losses willcontinue for the foreseeable future. In particular, as of December 31,2006, we had an accumulated deficit of approximately $963.7 million. Our netlosses were $181.7 million for the year ended December 31, 2006. Ourlosses have resulted principally from:

·       researchand development costs relating to the development of our technology andantibody product candidates;

·       costsassociated with the establishment of our laboratory and manufacturingfacilities and manufacturing of products; and

·       generaland administrative costs relating to our operations.

Weintend to continue to make significant investments in:

·       researchand development;

·       preclinicaltesting and clinical trials;

·       manufacturingclinical supplies of our antibody products;

·       establishingnew collaborations; and

·       newtechnologies.

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Inaddition, we may be obligated to make milestone payments with respect tocertain of our products as they progress through the clinical trial process.

Wedo not know when or if we or our partners will complete any pending or futureproduct development efforts, receive regulatory approval or successfullycommercialize any approved products.

We may continue to incur substantial operating losseseven if our revenues increase. As a result, we cannot predict the extent offuture losses or the time required for us to achieve profitability, if at all.

**Our operatingresults may vary significantly from period-to-period, which may result in adecrease in the price of our securities.**

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

·       the timing of thecommencement, completion or termination of partnership agreements;

·       the introduction of newproducts and services by us, our partners or our competitors;

·       delays in, or terminationof, preclinical testing and clinical trials;

·       changes in regulatoryrequirements for clinical trials;

·       costs and expensesassociated with preclinical testing and clinical trials;

·       the timing of regulatoryapprovals, if any;

·       sales and marketingexpenses; and

·       the amount and timing ofoperating costs and capital expenditures relating to the expansion of ourbusiness operations and facilities.

Period-to-periodcomparisons of our results of operations may not be relied upon as anindication of future performance.

It is possible that in some future periods, ouroperating results may be below expectations of analysts and investors. If thishappens, the price of our securities may decrease.

**We are subject toan informal inquiry by the SEC and a grand jury investigation by the UnitedStates Attorney’s Office for the District of New Jersey, relating to our stockoption granting practices, and such governmental inquiry and investigation mayresult in charges filed against us and in fines or penalties.**

TheSEC is conducting an informal inquiry into our historical stock option grantingpractices and related accounting and disclosures. In addition, the UnitedStates Attorney’s Office for the District of New Jersey is conducting a grandjury investigation relating to the same matters.  The governmental inquiry and investigationrelate to the same facts underlying the investigation (the “Investigation”)conducted by a special investigation committee of our independent directorsrelating to our stock option grant practices from 1996 through June 30,2006. Based upon the information obtained in the Investigation, through July 2002,we had a practice, in many instances, of selecting dates for our stock optiongrants and restricted stock grants as of the date when the stock price was thelowest during the month of grant, without disclosing this practice in ourpublic filings and without properly measuring the compensation expense on adate that the terms of the equity awards were finalized. Subsequent to July 2002,while this practice of selecting dates ceased by us in response to new legaland regulatory reporting requirements, there were two annual equity grants forrank and file employees for which the measurement dates differed from the grantdates recorded in our books and records, which the Investigation revealed wereprimarily a result of administrative delays, with no apparent intent to achievefavorable exercise prices. Based on the results of the Investigation, werestated our financial statements for the quarter ended March 31, 2006 andthe years ended December 31, 2005, 2004 and 2003, respectively.

Criminal or civil charges could be filed against usand we could be required to pay significant fines or penalties in connectionwith either or both of the governmental inquiry and investigation or other 

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governmentalinvestigations. We have incurred, and continue to incur, substantial costsrelated to the governmental inquiry and investigation and they continue tocause a diversion of our management’s time and attention which could have amaterial adverse effect on our financial condition and results of operations. Anycriminal or civil charges by the SEC or the U.S. Attorney’s Office or othergovernmental agency or any fines or penalties imposed by either the SEC or theU.S. Attorney’s Office could materially harm our business, results ofoperations, financial position and cash flows.

**We have civillitigation pending that relates to our stock option granting practices, and wecannot predict the ultimate outcome of this litigation.**

In June 2006, two derivative actions were filedin New Jersey state court by shareholders purporting to act on behalf ofMedarex, naming Medarex as a nominal defendant and certain current and formerdirectors as defendants. In November 2006 and January 2007, threeadditional derivative complaints were filed in the United States District Courtfor the District of New Jersey, containing nearly identical factual allegationsconcerning Medarex’s historical stock option granting practices. The complaintsallege, among other things, that certain of Medarex’s officers and directorsbreached their fiduciary duties to the Company and violated federal securitieslaws in connection with public statements made in SEC filings relating to theCompany’s historical stock option granting practices and related accounting.The complaints seek unspecified damages and equitable relief. These actions arein their preliminary stages. We could be required to pay significant legal feesand damages in connection with this litigation.

**We are subject to therisks of additional lawsuits and regulatory actions in connection with ourhistorical stock option practices, the resulting restatements, and the remedialmeasures we have taken.**

In addition to the possibilities that there may beadditional governmental actions and shareholder lawsuits against us, we may besued or taken to arbitration by former officers or employees in connection withtheir stock options or other matters. These governmental actions,lawsuits and arbitrations may be time consuming and expensive, and causefurther distraction from the operation of our business. The adverse resolutionof any specific action could have a material adverse effect on our business,financial condition and results of operations. 

**We are at risk foradditional tax liabilities.**

**Inconnection with the Investigation, we evaluated the related tax issues todetermine if we may be subject to additional tax liabilities.  Due to revision of measurement dates forcertain stock option grants, certain stock options that were previously treatedas incentive stock options may not actually qualify for such treatment and maybe treated as non-statutory stock options. As a result, we may be subject to fines or penalties relating to the taxtreatment of such stock options.  It ispossible that additional tax liabilities exist arising out of our past stockoption granting practices, and the amount of such additional tax liabilitiescould be material.**

**We are at risk ofsecurities class action litigation.**

In the past, securities class action litigation hasoften been brought against a company following a decline in the market price ofits securities. The risk is especially relevant for us because biotechnologycompanies have experienced greater than average price volatility in recentyears and because we are currently subject to an SEC inquiry and a grand juryinvestigation relating to our historical stock option granting practices. If wefaced such litigation, it could result in substantial costs and a diversion ofmanagement’s attention and resources, which could  materially harm our business.

**We may needsubstantial additional funding. We may not be able to obtain sufficient fundsto grow our business or continue our operations.**

We will continue to expend substantial resources forresearch and development, including costs associated with developing ourantibody technology and conducting preclinical testing and clinical trials. Ourfuture capital requirements will depend on a number of factors, including, forexample:

·       the size and complexity ofresearch and development programs;

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·       the scope and results ofpreclinical testing and clinical trials;

·       the retention of existingand establishment of further partnerships, if any;

·       continued scientificprogress in our research and development programs;

·       the time and expenseinvolved in seeking regulatory approvals;

·       competing technological andmarket developments;

·       the time and expense offiling and prosecuting patent applications and enforcing patent claims; and

·       the cost of establishingcommercial scale manufacturing capabilities, conducting commercializationactivities and arrangements and in-licensing products.

We believe our current sources of liquidity will besufficient to meet our operating, debt service and capital requirements for atleast the next 24 months. To the extent our 2.25% convertible senior notes duein 2011 are converted into shares of our common stock on or before theirmaturity date, we will have use of that portion of the principal amount of thenotes to fund our on-going operations. In any event, we may require additionalfinancing within this time frame and may raise funds through public or privatefinancings, line of credit arrangements, collaborative relationships, sale ofassets, and/or other methods. The use of cash on hand or other financialalternatives will depend on several factors including, but not limited to, thefuture success of our products in clinical development, the prevailing interestrate environment and access to the capital markets. We may be unable to raisesufficient funds to complete development of any of our product candidates, tocontinue operations or to repay our debt obligations at maturity. As a result,we may face delay, reduction or elimination of research and developmentprograms or preclinical or clinical trials, in which case our business,financial condition or results of operations may be materially harmed.

**We have asignificant amount of debt and may have insufficient cash to satisfy our debtservice obligations. In addition, the amount of our debt could impede ouroperations and flexibility.**

Wehave $150.0 million in aggregate principal amount of our 2.25% convertiblesenior notes outstanding, which, unless converted to shares of our common stockor redeemed, will mature in 2011. Generally, during the last five years, ouroperating cash flows were negative and insufficient to cover our fixed charges.Our ability to generate sufficient operating cash flow to service ourindebtedness, including the notes, and fund our operating requirements willdepend on our ability, alone or with others, to successfully develop,manufacture, and obtain required regulatory approvals and market our productcandidates, as well as other factors, including general economic, financial,competitive, legislative and regulatory conditions, some of which are beyondour control. If we are unable to generate sufficient operating cash flow toservice our indebtedness and fund our operating requirements, we may need toobtain additional debt or equity financing to do so, which may not be availableto us on satisfactory terms or at all. In addition, if new indebtedness isincurred, the risks relating to our ability to service our indebtedness that weface could intensify.

Even if we are able to meet our debt serviceobligations, the amount of debt we have could adversely affect us in a numberof ways, including by:

·       limiting our ability toobtain any necessary financing in the future for working capital, capitalexpenditures, debt service requirements or other purposes;

·       limiting our flexibility inplanning for, or reacting to, changes in our business;

·       placing us at a competitivedisadvantage relative to our competitors who have lower levels of debt;

·       making us more vulnerableto a downturn in our business or the economy generally; and

·       requiringus to use a substantial portion of our cash to pay principal and interest onour debt, instead of applying those funds to other purposes such as workingcapital and capital expenditures.

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**Clinical trialsrequired for our product candidates are expensive and time-consuming, and theiroutcome is uncertain.**

To obtain FDA approval to market a new drug product,we or our partners must demonstrate proof of safety and efficacy in humans. Tomeet these requirements, we or our partners will have to conduct extensivepreclinical testing and “adequate and well-controlled” clinical trials.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 severalyears or more per trial. Delays associated with products for which we aredirectly conducting preclinical or clinical trials may cause us to incuradditional operating expenses. Moreover, we will continue to be affected bydelays associated with the preclinical testing and clinical trials of certainproduct candidates conducted by our partners over which we have no control. Thecommencement and rate of completion of clinical trials may be delayed by manyfactors, including, for example:

·       the inability tomanufacture sufficient quantities of qualified materials under cGMPs for use inclinical trials;

·       the need or desire tomodify our manufacturing processes;

·       slower than expected ratesof patient recruitment;

·       modification of clinicaltrial protocols;

·       the inability to adequatelyobserve patients after treatment;

·       changes in regulatoryrequirements for clinical trials;

·       the lack of effectivenessduring the clinical trials;

·       unforeseen safety issues;

·       delays, suspension ortermination of the clinical trials due to the institutional review boardresponsible for overseeing the study at a particular study site, or for somestudies due to the data safety monitoring committee charged with overseeing thestudy as a whole; and

·       government or regulatorydelays or “clinical holds” requiring suspension or termination of the trials.

Evenif we obtain positive results from preclinical or clinical trials, we may notachieve the same success in future trials. Clinical trials may not demonstratestatistically sufficient safety and effectiveness to obtain the requisiteregulatory approvals for our product candidates. In a number of instances, wehave terminated the development of certain products in the early stages ofhuman clinical testing due to a lack of effectiveness.

Generally,our clinical trials, including our melanoma trials for ipilimumab, areconducted in patients with serious or life-threatening diseases for whomconventional treatments have been unsuccessful or for whom no conventionaltreatment exists, and in some cases, our product is used in combination withapproved therapies that themselves have significant adverse event profiles.During the course of treatment, these patients could suffer adverse medicalevents or die for reasons that may or may not be related to our products. The most common adverse events associatedwith our trials of ipilimumab have consisted of flu-like symptoms such asfever, chills and nausea. These events were expected and generallyresponded to standard medical therapy. Inaddition, some patients have experienced anticipated drug-relatedimmune-mediated events, such as diarrhea, rash, reduced pituitary function,colitis and increased liver enzymes, ranging from mild in most cases to severein a very small number of instances. Other than a very small number offatalities not directly related to progression or complications of the diseasebeing treated, representing approximately 1% of over 1,000 patients treated in all previous trials, which may or maynot be attributable to our product candidate, most events resolved withtreatment. We cannot assure you that additional safety issues will not arisewith respect to our products in the future.

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Todate, we have experienced slower than expected rates of patient recruitment incertain of our clinical trials. As a result, in certain instances, we haveexperienced or may experience delays in our product development and clinicaltesting.

Data obtained from clinical trials of our productcandidates to date have been insufficient to demonstrate safety and efficacyunder applicable FDA criteria. As a result, such data will not support anapplication for regulatory approval without further clinical trials. Clinicaltrials that we conduct or that third parties conduct on our behalf may notdemonstrate sufficient safety and efficacy to obtain the requisite regulatoryapprovals for any of our product candidates. We expect to commence new clinicaltrials from time to time in the course of our business as our productdevelopment work continues. The failure of clinical trials to demonstratesafety and effectiveness for our desired indications could harm the developmentof that product candidate as well as other product candidates. Any change in,or termination of, our clinical trials could materially harm our business,financial condition and results of operations.

**Success in early clinicaltrials may not be indicative of results obtained in later trials.**

Resultsof our early clinical trials and those of our partners using our human antibodytechnology are based on a limited number of patients and may, upon review, berevised or negated by authorities or by later stage clinical results.Historically, the results from preclinical testing and early clinical trialshave often not been predictive of results obtained in later clinical trials. Anumber of potential new drugs and biologics have shown promising results ininitial clinical trials, but subsequently failed to establish sufficient safetyand efficacy data to obtain necessary regulatory approvals. Data obtained frompreclinical and clinical activities are subject to varying interpretations,which may delay, limit or prevent regulatory approval.

In addition, regulatory delays or rejections may beencountered as a result of many factors, including changes in regulatory policyduring the period of product development.

**Product candidates employingour antibody technology may fail to gain market acceptance.**

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

·       establishment anddemonstration of clinical efficacy and safety, especially as compared toconventional treatments;

·       cost-effectiveness;

·       alternative treatmentmethods;

·       reimbursement policies ofgovernment and third-party payors; and

·       marketing and distributionsupport for our product candidates.

Inaddition, many of our activities involve genetic engineering in animals andanimal testing, controversial subjects which have generally received adversepublicity from animal rights activists and various other interest groups. Suchadverse publicity could decrease market acceptance of products employing ourtechnology.

If products employing our technology do not achievesignificant market acceptance, our business, financial condition and results ofoperations may be materially harmed.

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**Thesuccessful commercialization of our antibody products will depend on obtainingcoverage and reimbursement for use of these products from third-party payors.**

Sales of pharmaceuticalproducts largely depend on the reimbursement of patients’ medical expenses bygovernment health care programs and private health insurers. Without thefinancial support of the government or third-party payors, the market forproducts employing our human antibody technology will be limited. Thesethird-party payors are increasingly challenging the price and examining thecost effectiveness of medical products and services. In addition, significantuncertainty exists as to the reimbursement status of newly approved healthcareproducts. We may need to conduct post-marketing studies in order to demonstratethe cost-effectiveness of our products. Such studies may require us to dedicatea significant amount of resources. Our project candidates may not be consideredcost-effective. Third-party payors may not reimburse sales of productsemploying our human antibody technology, or enable us or our partners to sellthem at profitable prices.

**Thecontinuing efforts of governmental and third-party payers to contain or reducethe costs of healthcare may impair our future revenues and profitability.**

The pricing of our futureproducts may be influenced in part by government controls. For example, incertain foreign markets, pricing or profitability of prescriptionpharmaceuticals is subject to government control. In the United States, therehave been, and we expect that there will continue to be, a number of federaland state proposals to implement more rigorous provisions relating togovernment payment levels. While we cannot predict whether the government willadopt any such legislative or regulatory proposals, the announcement oradoption of these proposals could have a material adverse effect on ourbusiness, results of operations, financial condition and cash flow.

**Ourmanufacturing facilities may not continue to meet regulatory requirements andmay have limited capacity.**

Before approving a new drug or biologic product, theFDA requires that the facilities at which the product will be manufactured arein compliance with cGMP requirements. To be successful, our therapeuticproducts must be manufactured for development and, following approval, incommercial quantities, in compliance with regulatory requirements and atacceptable costs. While we believe our current facilities are adequate for thelimited production of product candidates for clinical trials, our facilitiesare not adequate to produce sufficient quantities of any products forcommercial sale.

If we are unable to establish and maintain amanufacturing facility or secure third-party manufacturing capacity within ourplanned time and cost parameters, the development and commercialization of ourproducts and our financial performance may be materially harmed.

We may alsoencounter problems with the following:

·       productionyields;

·       qualitycontrol and assurance;

·       shortagesof qualified personnel;

·       compliancewith FDA regulations, including the demonstration of purity and potency;

·       changesin FDA requirements;

·       productioncosts; and/or

·       developmentof advanced manufacturing techniques and process controls.

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We are aware of only a limited number of companies ona worldwide basis that operate manufacturing facilities in which our productcandidates can be manufactured under cGMP regulations, a requirement for allpharmaceutical products. We are currently pursuing late-stage clinical and commercialsupply agreements with cGMP-compliant third-party manufacturers with availablecapacity to meet our internal production timetables. We have entered intoclinical supply agreements with Lonza with respect to ipilimumab and MDX-060.As part of our collaboration with BMS, we assigned to BMS the clinical supplyagreement with respect to ipilimumab. Our partner BMS is responsible forsecuring commercial supply agreements for ipilimumab and is currently innegotiations with respect to such arrangements. BMS may not be able tosuccessfully consummate such arrangements. We do not currently have thecapability to manufacture our product candidates under development in largecommercial quantities and have no experience in commercial-scale manufacturing.It would take a substantial period of time for a contract facility that has notbeen producing antibodies to begin producing antibodies under cGMP regulations.We cannot make assurances that we will be able to contract with such companiesfor clinical and/or commercial supply on acceptable terms or in a timelymanner, if at all. Moreover, even if we are able to enter into clinical and/orcommercial supply manufacturing arrangements with cGMP-compliant third-partymanufacturers, we cannot assure you that such manufacturers will be able toproduce products that are substantially equivalent to the product candidatesthat we have produced in our own facilities and used in our clinical trials. Ifsuch companies are not able to produce products that are substantially equivalentto our product candidates, the progress of our clinical trials and/orcommercialization of our products may be delayed and our business, financialcondition and results of operations may be materially harmed.

In addition, we and anythird-party manufacturer will be required to register manufacturing facilitieswith the FDA and other regulatory authorities. The facilities will be subjectto inspections confirming compliance with cGMP or other regulations. If we orany of our third-party manufacturers fail to maintain regulatory compliance,the FDA or other regulatory authorities can impose regulatory sanctionsincluding, among other things, refusal to approve a pending application for anew drug product or biologic product, or revocation of a pre-existing approval.

**Thedevelopment and commercialization of our lead product candidate, ipilimumab,is, in large part, dependent on the actions of BMS, which are outside of ourcontrol.**

We depend, in part, on ourpartners to support our business, including the development of productsgenerated through the use of our antibody technology. In particular, under theterms of our collaboration and co-promotion agreement with BMS, we have granteda license to commercialize our lead product candidate, ipilimumab, to BMS forthe treatment of all diseases. We have also granted to BMS a sub-license to MDX-1379for use in combination with ipilimumab for the treatment of metastaticmelanoma. The successful development and commercialization of ipilimumab isdependent, in large part, on the actions of BMS, which are outside of ourcontrol. The failure of BMS to act in accordance with its obligations under thecollaboration and co-promotion agreement or to prioritize or devote sufficientresources to ipilimumab development and commercialization, or a change ofcontrol of BMS, may cause us to incur substantial additional costs in order todevelop and commercialize ipilimumab, which could materially harm our business.

**Weare, in part, dependent on our partners’ willingness and/or ability to devoteresources to the development and commercialization of product candidates orotherwise support our business as contemplated in our partnership agreements.**

We currently, or inthe future may, rely on our partners to:

·       accessproprietary antigens for the development of product candidates;

·       accessskills and information that we do not possess;

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·       fundour research and development activities;

·       manufactureproducts;

·       fundand conduct preclinical testing and clinical trials;

·       seekand obtain regulatory approvals for product candidates; and/or

·       commercializeand market future products.

Our dependence onour partners subjects us to a number of risks, including:

·       ourpartners have significant discretion whether to pursue planned activities;

·       wecannot control the quantity and nature of the resources our partners may devoteto product candidates;

·       ourpartners may not develop products generated using our antibody technology asexpected; and

·       businesscombinations or significant changes in a partner’s business strategy mayadversely affect that partner’s willingness or ability to continue to pursuethese product candidates.

If we do not realize thecontemplated benefits from our partners, our business, financial condition andresults of operations may be materially harmed.

**Ourexisting partnerships may be terminated, and we may not be able to establishadditional partnerships.**

Our licensingpartners generally have the right to terminate our partnerships at any time.Our ability to continue our current partnerships and to enter into additionalpartnerships is dependent in large part on our ability to successfullydemonstrate that our UltiMAb® technology is anattractive method of developing fully human antibody therapeutic products.Existing or potential partners may pursue alternative technologies, includingthose of our competitors, or enter into other transactions that could make acollaboration with us less attractive to them. For example, if an existingpartner purchases or is purchased by a company that is one of our competitors,that company could be less willing to continue its collaboration with us andmay, instead, become one of our competitors. In April 2006, Abgenix andAmgen completed a merger, that resulted in Amgen’s ownership of Abgenix’sXenoMouse® technology. As a result, Amgen may be lesswilling to continue its collaboration with us and may, through the use of itsnewly acquired XenoMouse® technology, engage in direct competition withus in the area of generating fully human monoclonal antibodies forantibody-based therapeutics. In addition, a company that has a strategy ofpurchasing companies rather than entering into partnership arrangements mighthave less incentive to enter into a collaboration agreement with us. Moreover, disputesmay arise with respect to the ownership of rights to any technology or productsdeveloped with any current or future partner. Lengthy negotiations withpotential new partners or disagreements between us and our partners may lead todelays or termination in the research, development or commercialization ofproduct candidates. If we are not able to establish additional partnerships onterms that are favorable to us or if a significant number of our existingpartnerships are terminated and we cannot replace them, we may be required toincrease our internal product development and commercialization efforts. Thiswould likely:

·       limitthe number of product candidates that we will be able to develop andcommercialize;

·       significantlyincrease our need for capital; and/or

·       placeadditional strain on management’s time.

Any of the above maymaterially harm our business, financial condition and results of operations.

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**Dueto the size of our equity interest in Celldex Therapeutics, Inc., we mustconsolidate the results of its operations in our financial statements.**

We own approximately 60%of Celldex Therapeutics, Inc., a privately held biopharmaceutical company.Due to the size of our equity interest in Celldex, we are currently required toconsolidate the operations of Celldex in our financial statements, whichresults in the inclusion of their losses in our financial statements. We areunable to predict what such losses will be. For the year ended December 31,2006, our share, net of minority interest, of Celldex’s net loss includedin our financial statements was approximately $10.3 million.

**Ourstrategic equity investments in our partners expose us to equity price riskand, in addition, investments in our partners may be deemed impaired, whichwould affect our results of operations.**

We have a number of strategic investments that exposeus to equity price risk. These investments may become impaired, which wouldadversely affect our results of operations.

We are exposed to equity price risk on our strategicinvestments in our publicly-traded partners, and as part of our businessstrategy, we may choose to make additional similar investments in publiccompanies in the future. Under SFAS No. 115, *Accountingfor Certain Investments in Debt and Equity Securities*, theseinvestments are designated as available-for-sale and are reported at fair valueon our consolidated balance sheet. Unrealized holding gains and losses onavailable-for-sale securities are generally excluded from earnings and reportedwithin other comprehensive income which is a separate component of shareholders’equity. Under our accounting policy, marketable equity securities are generallyconsidered to be impaired if their fair value is less than our cost basis insuch securities for more than six months, or some other period in light of theparticular facts and circumstances surrounding the investment. If a decline inthe fair value of available-for-sale securities is considered to be other thantemporary, the cost basis of the security is written down to fair value as anew cost basis and the amount of the write-down is included in earnings as animpairment charge. For the years ended December 31, 2006 and 2004, werecorded impairment charges of $5.2 million and $0.2 million on investments inpartners whose securities are publicly traded. During the year ended December 31,2005, no impairment charges were recorded related to the value of ourinvestments in publicly traded companies. If we deem these investments to befurther impaired at the end of any future reporting period, we may incuradditional impairment charges on these investments.

In addition, we haveinvestments in several of our partners whose securities are not publiclytraded. The value of our investments in these companies are inherently moredifficult to estimate than our investments in publicly traded companies. Weestimate the value of these investments by using information acquired fromindustry trends, management of these companies, financial statements and otherexternal sources. Specifically, our determination of any potential impairmentof the value of privately held securities includes an analysis of the followingfor each company on a periodic basis: review of interim and year-end financialstatements, cash position and overall rate of cash used to support operations,the progress and development of technology and product platform, the per sharevalue of subsequent financing and potential strategic alternatives. Based onthe information acquired through these sources, we record an investmentimpairment charge when we believe an investment has experienced a decline invalue that is considered to be other than temporary. For the years ended December 31,2006, 2005 and 2004, we recorded impairment charges of approximately $0, $33.3million and $7.1 million, respectively, on our investments in privately-heldcompanies. Approximately $7.0 million of the 2004 impairment charge related toIDM Pharma. Approximately $29.3 million of the 2005 impairment charge relatedto IDM Pharma prior to the share exchange with Epimmune, Inc., at whichtime IDM Pharma became a publicly traded company. Future adverse changes inmarket conditions or adverse changes in operating results of these companiesmay also require an impairment charge in the future.

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**Becausecompetition for qualified personnel is intense, we may not be able to retain orrecruit such qualified personnel, which could impact the research, developmentand commercialization of our products.**

For us to pursue productdevelopment and commercialization plans, we will need to hire additionalqualified scientific personnel to perform research and development. We willalso need to hire personnel with expertise in clinical testing, governmentregulation, manufacturing, sales and marketing, relevant law and finance. Wemay not be able to attract and retain personnel on acceptable terms, given thecompetition for such personnel among biotechnology, pharmaceutical andhealthcare companies, universities and non-profit research institutions. If weare not able to attract and retain qualified personnel, our business, financialcondition and results of operations may be materially harmed.

**Wehave had and may continue to face product liability claims related to the useor misuse of products developed by us or our partners.**

The administration of drugs to humans, in clinicaltrials or after approval and during commercialization, may expose us to productliability claims. Consumers, healthcare producers or persons selling productsbased on our technology may be able to bring claims against us based on the useof our products in clinical trials and the sale of products based on ourtechnology. Product liability claims may be expensive to defend and may resultin large judgments against us. We have obtained limited product liabilitycoverage for our clinical trials, under which coverage limits are $20.0 millionper occurrence and $20.0 million in the aggregate. Although we believe thesecoverage limits are adequate, we cannot be certain that the insurance policieswill be sufficient to cover all claims that may be made against us. We intendto increase our coverage limits as we progress into additional late-stageclinical trials and to expand our insurance coverage to include the sale ofcommercial products if we obtain marketing approval for products indevelopment. Product liability insurance is expensive, difficult to obtain andmay not be available in the future on acceptable terms.

In November 1998, we voluntarily suspendedclinical trials for one of our products after some patients experienced seriousadverse events, or SAEs. This product did not employ our core fully humanantibody technology and we have determined not to pursue further development ofthis product. As a result of these SAEs, we received a small number of claims,of which five resulted in lawsuits being filed. All of these lawsuits have beensettled for insubstantial amounts. We cannot make assurances that additionalclaims will not be filed against us relating to these SAEs or arising out ofany other clinical trial we have conducted or will conduct in the future.

Generally, our clinicaltrials, including our melanoma trials for ipilimumab, are conducted in patientswith serious life-threatening diseases for whom conventional treatments havebeen unsuccessful or for whom no conventional treatment exists, and in somecases, our product is used in combination with approved therapies thatthemselves have significant adverse event profiles. During the course oftreatment, these patients could suffer adverse medical events or die forreasons that may or may not be related to our products. The most common adverseevents associated with our melanoma trials of ipilimumab have consisted offlu-like symptoms such as fever, chills and nausea. These events were expectedand generally responded to standard medical therapy. In addition, some patientshave experienced anticipated drug-related immune-mediated adverse events, suchas diarrhea, rash, reduced pituitary function, colitis and increased liverenzymes, ranging from mild in most cases to severe in a very small number ofinstances. Almost all of these adverse events responded to medical therapy. Ina very small number of instances (approximately 1% of over 1,000 patientstreated), fatalities not directly related to disease progression orcomplications have occurred during the course of these trials—such fatalitiesmay or may not be attributable to our product. Any of these events or any otheradverse events in any of our other clinical trials could result in a productliability claim. Any such claims against us, regardless of their merit, could 

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resultin significant awards against us, which could materially harm our business,financial condition and results of operations.

**We face intensecompetition and rapid technological change.**

The development of biotechnology and pharmaceuticalproducts is a highly competitive business subject to significant and rapidtechnological change. We face competition in several different forms. First,our human antibody generation activities currently face competition fromseveral competitors with similar technology to ours as well as distinctlydifferent technologies. Second, the actual products being developed by us or byour partners also face actual and potential competition. Developments by ourcompetitors may render our human antibody technology or our products obsoleteor non-competitive.

We are aware of several pharmaceutical andbiotechnology companies that are actively engaged in research and developmentin areas related to antibody therapeutics. Some of these companies havecommenced clinical trials of antibody products or have successfullycommercialized antibody products. Many of these companies are addressing thesame disease indications as are we and our partners. Also, we compete withcompanies that offer antibody generation services to other companies that havedisease related target antigens. These competitors have specific expertise ortechnology related to monoclonal antibody development. In the past, we competeddirectly with Abgenix, which merged with Amgen in April 2006, with respectto the generation of fully human antibodies from transgenic mice. As a resultof the merger, Amgen owns Abgenix’s XenoMouse® technology and may engage in directcompetition with us in the area of generating fully human monoclonal antibodiesfor antibody-based therapeutics. In February 2007, Regeneron licensed itsVelocImmune® monoclonal antibody generation technology toAstraZeneca, potentially enabling AstraZeneca to compete with us in the generationof therapeutic antibodies. Regeneron may also compete with us directly in thegeneration of therapeutic antibodies or may enter into additional licenses withother companies. AstraZeneca also has access to antibody generationtechnologies through its ownership of CAT. In addition, we have entered intoagreements with each of Kirin and Genmab, respectively, that grant thesecompanies licenses to our proprietary transgenic mouse technology platform,enabling them to compete with us in offering antibody generation anddevelopment services in certain markets.

We have also entered into license agreements withPfizer which enable it to compete with us in the development of antibodies toCTLA-4. Pfizer is developing CP-675,206, a fully human antibodygenerated by using transgenic mouse technology substantially similar to ourHuMAb-Mouse® technology that targets the T-cell receptorCTLA-4. According to publicly available information, a first-line PhaseIII clinical trial comparing CP-675,206 alone to chemotherapy alone formetastatic melanoma was initiated by Pfizer in March 2006. In addition, CP-675,206is being explored as a monotherapy treatment for metastatic melanoma. Pfizerhas disclosed that it expects to file a Biologics License Application, or BLA,with respect to CP-675,206 in 2007.

Xenerex and XTL have developed technologies that,according to Xenerex and XTL, will allow them to generate fully humanmonoclonal antibodies in functionally modified mice. Numerous additionalcompanies are developing therapeutic products comprising human antibodycomponents. Furthermore, several companies are developing, or have developed,technologies that do not involve immunization of animals for creatingantibodies comprising human antibody sequences. XOMA and PDL BioPharma bothoffer technologies to convert mouse antibodies into antibodies closelyresembling human antibodies. For example, phage display technology is beingused by companies, such as CAT, Dyax and MorphoSys to generate potentiallytherapeutic products comprising human antibody sequences. Companies such asJohnson & Johnson, MedImmune, Amgen, Biogen Idec, Novartis, Genentech,PDL BioPharma, Wyeth, Abbott Laboratories and GlaxoSmithKline havegenerated therapeutic products that are currently in development or on themarket and that are derived from recombinant DNA that comprise human antibodycomponents.

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Other technologies can also be applied to thetreatment of the diseases that we or our partners are pursuing. For example,immunoconjugates—monoclonal antibodies linked to toxins—are being developed byothers, as well as by us, and other companies are developing antibodies linkedto radioactive isotopes. In addition, the application of recombinant DNAtechnology to develop potential products consisting of proteins (such as growthfactors, hormones, enzymes, cytokines receptor fragments and fusion proteins)that do not occur normally in the body, or occur only in small amounts, hasbeen under way for some time. Included in this group are interleukins such as IL-2and IL-11, interferons, colony stimulating factors such as G-CSF andGM-CSF, clotting factors, growth hormones, erythropoeitin, DNAse, tPA,glucocerebrosidase, PDGF and a number of other similar biological agents.Continuing development of new chemical entities and other drugs bypharmaceutical and other biotechnology companies carries with it the potentialdiscovery of agents for treating disease indications also targeted by drugsthat we or our partners are developing.

Some of ourcompetitors have received regulatory approval or are developing or testingproduct candidates that compete directly with product candidates employing ourantibody technology. Many of these companies and institutions, either alone ortogether with their partners, have substantially greater financial resourcesand larger research and development staffs than we or some of our partners do.In addition, many of these competitors have significantly greater experiencethan we do in:

·       developingproducts;

·       undertakingpreclinical testing and clinical trials;

·       obtainingFDA and other regulatory approvals of products; and

·       manufacturingand commercializing products.

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

We also face intensecompetition from other pharmaceutical and biotechnology companies to establishpartnerships, as well as relationships with academic and research institutions,and to in-license proprietary technology from these institutions. Thesecompetitors, either alone or with their partners, may succeed in developing orlicensing technologies or products that are more effective than ours.

**Seeking orphan drugdesignation for eligible products is an uncertain process, and we may not receiveany effective or competitive results from this competitive strategy*.***

Our competitive strategy includes seeking orphan drugdesignation for eligible products (i.e., certain products for diseases withsmall patient populations). The first drug with an orphan drug designation fora given disease to receive regulatory approval for such disease generallyreceives marketing exclusivity for the use of the drug for such disease for aperiod of seven years from approval. The orphan drug exclusivity bars others fromobtaining approval for the same drug for the designated indication during theseven years, unless the subsequent applicant can demonstrate that its productis clinically superior to the drug with exclusivity or the prior applicant isunable to provide adequate supply to meet medical need.

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We have obtained orphan drug designation for each ofipilimumab and MDX-1379 for specified metastatic melanoma patientpopulations, and therefore each is eligible for orphan drug exclusivity ifapproved first. The FDA’s approach with respect to orphan drug status forantibody products is uncertain, particularly with respect to whether twoantibody products against the same disease target would be considered to be thesame for orphan drug purposes under current law and regulations. Furthermore,we are not aware of established FDA policies or precedent for how orphan drugexclusivity applies in circumstances where two or more compounds with orphandrug designations are approved for combination therapy. The FDA may not grantus exclusivity for the ipilimumab and MDX-1379 combination therapy, ormay permit others to receive approval for differing combinations of similarcompounds despite any orphan drug exclusivity we receive for different uses orfor treating metastatic melanoma, depending on FDA’s assessment of the chemicalsimilarity of the other drugs to our products. Orphan drug exclusivity alsodoes not prevent FDA from permitting others to market the same compound fordifferent uses than the orphan use. We therefore may not receive any meaningfulprotection for ipilimumab, MDX-1379 or our other products based on orphandrug exclusivity.

In addition, Pfizer hasobtained orphan drug designation for CP-675,206 for specific patientpopulations, including metastatic melanoma. If Pfizer is first to receiveapproval by the FDA for such patient populations, and CP-675,206 andipilimumab are considered to be the “same” drug for orphan exclusivitypurposes, Pfizer could obtain exclusivity that would potentially block us andour partner BMS from obtaining approval to sell ipilimumab, whether as amonotherapy or combination therapy, for such patient populations, includingmetastatic melanoma.

**We are subject toextensive and costly government regulation.**

Product candidates employing our human antibodytechnology are subject to extensive and rigorous domestic government regulationincluding regulation by the FDA, the Centers for Medicare and MedicaidServices, other divisions of the U.S. Department of Health and Human Services,the U.S. Department of Justice, state and local governments and theirrespective foreign equivalents. The FDA regulates the research, development,preclinical and clinical testing, manufacture, safety, effectiveness,record-keeping, reporting, labeling, storage, approval, advertising, promotion,sale, distribution, import, and export of biopharmaceutical products. The FDAregulates human antibodies as biologics, subject to a BLA, under the PublicHealth Service Act, as amended. If products employing our human antibodytechnology are marketed abroad, they will also be subject to extensiveregulation by foreign governments, whether or not we have obtained FDA approvalfor a given product and its uses. Such foreign regulation may be equally ormore demanding than corresponding U.S. regulation.

Government regulationsubstantially increases the cost and risk of researching, developing,manufacturing, and selling our products. The regulatory review and approvalprocess, which includes preclinical testing and clinical trials of each productcandidate, is lengthy, expensive and uncertain. We or our partners must obtainand maintain regulatory authorization to conduct clinical trials. We or ourpartners must obtain regulatory approval for each product we intend to market,and the manufacturing facilities used for the products must be inspected andmeet legal requirements. Securing regulatory approval requires the submissionof extensive preclinical and clinical data and other supporting information foreach proposed therapeutic indication in order to establish the product’ssafety, efficacy, potency and purity for each intended use. The development andapproval process takes many years, requires substantial resources, and maynever lead to the approval of a product. Failure to obtain regulatoryapprovals, or delays in obtaining regulatory approvals may:

·       adverselyaffect the successful commercialization of any drugs that we or our partnersdevelop;

·       imposeadditional costs on us or our partners;

·       diminishany competitive advantages that we or our partners may attain; and

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·       adverselyaffect our receipt of revenues or royalties.

Even if we are ableto obtain regulatory approval for a particular product, the approval may limitthe indicated medical uses for the product, may otherwise limit our ability topromote, sell, and distribute the product, may require that we conduct costlypost-marketing surveillance, and/or may require that we conduct ongoingpost-marketing studies. Material changes to an approved product, such as, forexample, manufacturing changes or revised labeling, may require furtherregulatory review and approval. Once obtained, any approvals may be withdrawn,including, for example, if there is a later discovery of previously unknownproblems with the product, such as a previously unknown safety issue. If we,our partners or our contract manufacturers fail to comply with applicableregulatory requirements at any stage during the regulatory process, suchnoncompliance could result in, among other things:

·       delaysin the approval of applications or supplements to approved applications;

·       refusalof a regulatory authority, including the FDA, to review pending market approvalapplications or supplements to approved applications;

·       warningletters;

·       fines;

·       importand/or export restrictions;

·       productrecalls or seizures;

·       injunctions;

·       totalor partial suspension of production;

·       civilpenalties;

·       withdrawalsof previously approved marketing applications or licenses;

·       recommendationsby the FDA or other regulatory authorities against governmental contracts; and

·       criminalprosecutions.

In certain cases, weexpect to rely on our partners to file INDs with the FDA and to direct theregulatory approval process for products employing our human antibodytechnology. Our partners may not be able to conduct clinical testing or obtainnecessary approvals from the FDA or other regulatory authorities for theirproduct candidates employing our human antibody technology. If they fail toobtain required governmental approvals, our partners will be delayed orprecluded from marketing these products. As a result, commercial use ofproducts employing our technology will not occur and our business, financialcondition and results of operations may be materially harmed.

**We donot have, and may never obtain, the regulatory approvals we need to market ourproduct candidates.**

Following completion of clinical trials, the resultsare evaluated and, depending on the outcome, submitted to the FDA in the formof a BLA or NDA, to obtain FDA approval of the product and authorization to commencecommercial marketing. In responding to a BLA or NDA, the FDA may requireadditional testing or information, may require that the product labeling bemodified, may impose post-approval study or reporting requirements or otherrestrictions on product distribution, or may deny the application. The FDA hasestablished performance goals for review of NDAs and BLAs—six months forpriority applications and 10 months for standard application. However, the FDAis not required to complete its review within these time periods. The timing offinal FDA review and action varies greatly, 

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but can take years in somecases and often involves the input of an FDA advisory committee of outsideexperts. Product sales in the U.S. may commence only when a BLA or NDA is approved.

To date, we have not applied for or received theregulatory approvals required for the commercial sale of any of our products inthe U.S. or in any foreign jurisdiction. None of our product candidates hasbeen determined to be safe and effective. We have only limited experience infiling and pursuing applications necessary to obtain regulatory approval. It ispossible that none of our product candidates will be approved for marketing.

Product candidatesthat appear promising in the early phases of development, such as inpreclinical development or in early human clinical trials, may fail to reachthe market for a number of reasons, such as:

·       theproduct candidate did not demonstrate acceptable clinical trial results eventhough it demonstrated positive preclinical trial results;

·       theproduct candidate was not effective in treating the specified disease orcondition;

·       theproduct candidate had harmful side effects on humans or presented unacceptablesafety risks;

·       thegoverning regulatory authorities (such as the FDA) denied approval to theproduct candidate altogether or denied a commercially important indicated use;

·       theproduct candidate was not economical for us to manufacture; and/or

·       theproduct candidate was not cost effective in light of alternative therapies.

We cannot guarantee thatwe will ever be able to produce commercially successful products.

**If weor our manufacturing partners do not comply with current good manufacturingpractices requirements, we will not be able to commercialize our productcandidates.**

We will depend on our ownmanufacturing facilities and/or on those of our partners and other thirdparties to manufacture products generated through the use of our human antibodytechnology if we are able to commercialize any of our product candidates.Before commercializing a new drug, manufacturers must demonstrate compliancewith the applicable cGMP requirements which include quality control and qualityassurance requirements as well as the maintenance of extensive records and documentation.Manufacturing facilities are subject to ongoing periodic inspection by the FDAand corresponding foreign and state authorities, including unannouncedinspections, and must be licensed before they can be used in commercialmanufacturing for products generated through the use of our technology. Inaddition, cGMP requirements are constantly evolving, and new or differentrequirements may apply in the future. We, our partners or third party contractmanufacturers may not be able to comply with the applicable regulations. Afterregulatory approvals are obtained, the subsequent discovery of previouslyunknown problems, or the failure to maintain compliance with existing or newregulatory requirements may result in restrictions on the marketing of a product,withdrawal of the product from the market, seizures, costly required correctiveand preventative actions, the shutdown of manufacturing facilities,injunctions, monetary fines and/or civil or criminal sanctions.

**Even if approved,our products will be subject to extensive post-approval regulation.**

Once a product is approved, numerous post-approvalrequirements apply. Among other things, the holder of an approved BLA or NDA issubject to periodic and other FDA monitoring and reporting obligations, includingobligations to monitor and report adverse events and instances of the failureof a product to meet the specifications in the BLA or NDA. Application holdersmust submit new or supplemental applications and obtain FDA approval forcertain changes to the approved product, product 

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labeling or manufacturingprocess. Application holders must also submit advertising and other promotionalmaterial to the FDA and report on ongoing clinical trials.

Advertising and promotional materials must comply withFDA rules in addition to other potentially applicable federal and statelaws. The distribution of product samples to physicians must comply with therequirements of the Prescription Drug Marketing Act. Manufacturing facilitiesremain subject to FDA inspection and must continue to adhere to FDA’s cGMPrequirements. Sales, marketing, and scientific/educational grant programs mustcomply with the anti-fraud and abuse provisions of the Social Security Act, theFalse Claims Act and similar state laws, each as amended. Pricing and rebateprograms must comply with the Medicaid rebate requirements of the OmnibusBudget Reconciliation Act of 1990 and the Veteran’s Health Care Act of 1992,each as amended. If products are made available to authorized users of theFederal Supply Schedule of the General Services Administration, additional lawsand requirements apply. All of these activities are also potentially subject tofederal and state consumer protection and unfair competition laws.

Depending on thecircumstances, failure to meet these post-approval requirements can result incriminal prosecution, fines or other penalties, injunctions, recall or seizureof products, total or partial suspension of production, denial or withdrawal ofpre-marketing product approvals, or refusal to allow us to enter into supplycontracts, including government contracts. Any government investigation ofalleged violations of law could require us to expend significant time andresources in response, and could generate negative publicity. In addition, evenif we comply with FDA and other requirements, new information regarding thesafety or effectiveness of a product could lead the FDA to modify or withdraw aproduct approval.

**Newlegal and regulatory requirements could make it more difficult for us to obtainapprovals for our product candidates, and could limit or make more burdensomeour ability to commercialize any approved products.**

Numerous proposals have been made in recent months andyears to impose new requirements on drug approvals, expand post-approvalrequirements, and restrict sales and promotional activities. For example,federal legislation has been proposed that would require all new drugapplicants to submit risk evaluation and minimization plans to monitor andaddress potential safety issues for products upon approval, grant FDA theauthority to impose risk management measures for marketed products and tomandate labeling changes in certain circumstances, and establish newrequirements for disclosing the results of clinical trials. Additional measureshave also been proposed to address perceived shortcomings in FDA’s handling ofdrug safety issues, and to limit pharmaceutical company sales and promotionalpractices that may be viewed as excessive or improper. If these or other legalor regulatory changes are enacted, it may become more difficult or burdensomefor us to obtain approval of our product candidates, any approvals we receivemay be more restrictive or be subject to onerous post-approval requirements,our or our partners’ ability to commercialize approved products successfullymay be hindered, and our business may be harmed as a result.

Numerous proposals havebeen made in recent months and years to change, in response to drug safety andrisk management, clinical trial disclosure and place limits on advertising andpromotion.

**If weare able to obtain approvals for our products, we could face competition from “generic”or “follow-on” versions of our products.**

Under current U.S. law and FDA policy, genericversions of conventional chemical drug compounds, sometimes referred to assmall molecule compounds, may be approved through an abbreviated approvalprocess. In general terms, the generic applicant references an approvedinnovator product for which full clinical data demonstrating safety andeffectiveness exist for the approved conditions of use. The generic 

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applicant in turn needonly demonstrate that its product has the same active ingredient(s), dosageform, strength, route of administration, and conditions of use (labeling) asthe referenced innovator drug, and that the generic product is absorbed in thebody at the same rate and to the same extent as the referenced innovator drug(this is known as bioequivalence). In addition, the generic application mustcontain information regarding the manufacturing processes and facilities thatwill be used to ensure product quality, and must contain certifications topatents listed with the FDA for the referenced innovator drug.

There is no such abbreviated approval process undercurrent law for biological products approved under the Public Health ServiceAct through a BLA, such as monoclonal antibodies, cytokines, growth factors,enzymes, interferons and certain other proteins. However, various proposalshave been made to establish an abbreviated approval process to permit approvalof generic or follow-on versions of certain types of biological products,including, for example, insulin. The proposals include proposals forlegislation, and proposals for FDA to extend its existing authority to thisarea.

If the law is changed orif FDA somehow extends its existing authority in new ways, and third partiesare permitted to obtain approvals of versions of our products through anabbreviated approval mechanism, and without conducting full clinical studies oftheir own, it could materially harm our business. Such products would besignificantly less costly than ours to bring to market, and could lead to theexistence of multiple lower priced competitive products. This wouldsubstantially limit our ability to obtain a return on the investments we havemade in those products.

**Weare subject to federal, state, local and foreign laws and regulations, andcomplying with these may cause us to incur significant costs.**

We are subject tolaws and regulations enforced by certain federal, state, local and foreignhealth and environmental authorities and other regulatory statutes including:

·       theOccupational Safety and Health Act;

·       theEnvironmental Protection Act;

·       theToxic Substances Control Act;

·       theFood, Drug and Cosmetic Act;

·       theResource Conservation and Recovery Act; and

·       othercurrent and potential federal, state, local or foreign laws and regulations.

In particular, with respect to environmental laws,product development activities involve the use of hazardous materials, and wemay incur significant costs as a result of the need to comply with these laws.Our research, development and manufacturing activities involve the controlleduse of hazardous materials, chemicals, viruses and radioactive compounds. Weare subject to federal, foreign, state and local laws and regulations governingthe use, manufacture, storage, handling and disposal of these materials andwaste products. Although we believe that our safety procedures for handling anddisposing of these materials comply with the standards prescribed by applicablelaws and regulations, we cannot completely eliminate the risk of contaminationor injury, by accident or as the result of intentional acts of terrorism, fromthese materials. In the event of an accident, we could be held liable for anydamages that result, and any resulting liability could exceed our resources. Wemay also be required to incur significant costs to comply with environmentallaws and regulations in the future.

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**Risks Related toIntellectual Property**

**We depend onpatents and proprietary rights.**

Our success dependsin part on our ability to:

·       applyfor, obtain, protect and enforce patents;

·       protecttrade secrets;

·       operatewithout infringing upon the proprietary rights of others; and

·       in-licenseor acquire certain technologies.

We will be able to protect our proprietary rights fromunauthorized use by third parties only to the extent that our proprietaryrights are covered by valid and enforceable patents or are effectivelymaintained as trade secrets. We protect our proprietary position by filing U.S.and foreign patent applications related to our proprietary technology,inventions and improvements that are important to the development of ourbusiness. Our pending patent applications, those we may file in the future, orthose we may license from third parties, may not result in patents being issuedor , if issued, held enforceable. The patent position of biotechnologyintellectual property involves complex legal and factual questions and,therefore, enforceability cannot be predicted with certainty. Patents, ifissued, may be challenged, invalidated or circumvented. Thus, any patents thatwe own or license from third parties may not provide sufficient protection againstcompetitors. Also, patent rights may not provide us with proprietary protectionor competitive advantages against competitors with similar technology. Furthermore,others may independently develop similar technologies or duplicate anytechnology that we have developed which is not covered by an issued patent. Thelaws of foreign countries may not protect our intellectual property rights tothe same extent as do the laws of the U.S.

In addition to patents, werely on trade secrets and proprietary know-how. We seek protection, in part,through confidentiality and proprietary information agreements. Theseagreements may not provide protection or adequate remedies in the event ofunauthorized use or disclosure of confidential and proprietary information, orbreach of these agreements. Furthermore, our trade secrets may otherwise becomeknown to, or be independently developed by, our competitors.

**We donot have exclusive access to certain patents and therefore we may faceincreased competition from those entities that share access to these patents.**

Even though we have issued patents, filed applicationsand received licenses pertaining to the HuMAb-Mouse® andthe KM-Mouse® technologies, this does not mean that we andour licensees of the HuMAb-Mouse® and the KM-Mouse® technology will have exclusive rights toantibodies against all targets that are made using this technology, or that weor our licensees will have the right to make, develop, use or sell suchantibodies.

Our patents and applications covering the HuMAb-Mouse® and the KM-Mouse® technology include patents and applicationsthat cover particular human antibodies. These patents do not cover all humanantibodies. Our patents may not protect against the importation of products,such as antibodies, made using HuMAb-Mouse® or KM-Mouse® technology.

We do not have exclusive access to the patentsunderlying the HuMAb-Mouse®. In March 1997, prior to our acquisition ofGenPharm, GenPharm entered into a cross-license and settlement agreement withAbgenix, Cell Genesys, Inc., Xenotech, L.P. and Japan Tobacco, Inc.,pursuant to which Abgenix and these entities paid GenPharm a total ofapproximately $38.6 million in exchange for a non-exclusive license to certainpatents, patent applications, third-party licenses and inventions pertaining tothe development and use of certain transgenic rodents, including mice, thatproduce fully human antibodies that are integral to 

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our products and business.These patents, patent applications, third party licenses and inventions form thebasis of our HuMAb-Mouse® technology. Abgenix completed its merger withAmgen in April 2006. As a result, Amgen has access to such patents, patentapplications, third party licenses and inventions. Our business may suffer fromthe competition of these entities and their licensees and sublicensees.

We are not the exclusive owner of the technologyunderlying the KM-Mouse®.Effective September 2002, we entered into a collaboration and licenseagreement with Kirin, which provides for us to exchange certain cross-licensesfor each other’s technology for the development and commercialization of humanantibody products made using the HuMAb-Mouse®, the KM-Mouse® andcertain other antibody-generating mice. Kirin has certain rights to distributeand use such mice throughout the world. Our business may be materially harmedas a consequence of competition from Kirin and its licensees and sublicenseesor if the collaboration and license agreement were breached or terminated forany reason.

Moreover, other partiescould have blocking patent rights to products made using UltiMAb® technology, such as antibodies, and theirproduction and uses, for instance because of a proprietary position coveringthe antibody or the antibody’s target or the method of manufacturing such antibody.For example, we are aware of certain U.S. and foreign patents held by thirdparties relating to particular targets for their human monoclonal antibodies,to human monoclonal antibodies against various targets, and to the method ofmanufacture and use of such products. Weare also aware of a patent held by Pfizer which may cover the manufacture ofcommercial supplies of anti-CTLA-4 antibodies, such as ipilimumab. Weare also aware of certain U.S. and foreign patents and patent applications heldby third parties relating to anti-CTLA-4 antibodies, such as ipilimumab,as well as other antibody product candidates under development by us alone orwith our collaborators.

**Thirdparties may allege our products or technologies infringe their patents or maychallenge the validity of our patents and other intellectual property rights,resulting in litigation or other time-consuming and expensive proceedings whichcould deprive us of valuable products and/or rights*.***

Our commercial success depends significantly on ourability to operate without infringing the patents and other proprietary rightsof third parties. In the event that our products or technologies may infringeon the patents or violate other proprietary rights of third parties, we and ourpartners may be prevented from pursuing product development, manufacturing orcommercialization or may be required to pay significant monetary damages orroyalty rates to third parties. Such a result may materially harm our business,financial condition and results of operations.

If we become involved in any intellectual propertylitigation, interference or other judicial or administrative proceedings, wewill incur substantial expense and the efforts of our technical and managementpersonnel will be diverted. An adverse determination may subject us tosignificant liabilities or require us to seek licenses that may not be availablefrom third parties on commercially favorable terms, if at all. Therefore, weand our partners may be restricted or prevented from manufacturing and sellingproducts that are covered by such intellectual property, which would materiallyharm our business.

With respect to third party patent rights, we areaware of a U.S. patent owned by Genentech, relating to the production ofrecombinant antibodies in host cells. The U.S. Patent and Trademark Office, orUSPTO, has reexamined the patentability of this patent and, in a final officeaction, rejected the patentability of such claims.  Genentech hasannounced its intent to respond to such action and, if necessary, to appeal. Uponcompletion of any appeal that might take place, the rejection of thepatentability of such claims could be reversed. The appeal processes could takeseveral years to complete.

We currently produce our products and our partners’products using recombinant antibodies from host cells and may choose to produceadditional products in this manner. If any of our antibody products areproduced in the manner ultimately claimed in the Genentech patent, which claimssurvive the re-

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examination and any appealprocesses, then we may need to obtain a license, should one be available. Wehave a license to this patent from Genentech for our anti-CTLA-4 productcandidate (ipilimumab) but currently do not have licenses for any of our otherantibody product candidates. If we desire a license for any of our otherantibody product candidates and are unable to obtain a license on commerciallyreasonable terms or at all, we may be restricted in our ability to useGenentech’s techniques to make recombinant antibodies in or to import them intothe United States.

In addition to this challenge to the validity of thisGenentech patent through reexamination process at the USPTO, MedImmune, alicensee of the patent, has filed a complaint in Federal District Courtalleging that the patent is invalid. MedImmune’s standing to prosecute thiscomplaint as a non-breaching licensee was challenged by Genentech, but a recentSupreme Court ruling on the matter has resulted in MedImmune’s standing beingupheld, and the case has been remanded for further consideration of the merits.As a result of this ruling, it may now be possible for licensees of our patentsto challenge the validity of the patents that we  have licensed to the licensee.

In addition to Genentech’s patent, we are also awareof certain U.S. patents held by third parties relating to antibody expressionin particular types of host cells, including CHO cells, including certain mediapreparations and their use for culturing CHO cells, and particular antibodyformulations, any of which may be relevant to our current or futuremanufacturing techniques. If we determine that we need a license to these orother patents relating to methods of making antibodies and are unable to obtainlicenses on commercially reasonable terms or at all, we may be restricted inour ability to use these methods to make antibodies or to import the antibodiesinto the United States.

If our antibody products(or those antibody products of our partners using our human antibodytechnology) or their commercial use or production are covered by any of theclaims of the aforementioned patents or any other patents, or patents that mayissue from the aforementioned patent applications or any other patentapplications, then we or our partners may need a license to one or more ofthese patents. Further, we are aware of a number of other third party patentapplications that, if granted, with claims as currently drafted, may cover ourand our partners’ current or planned activities. We cannot assure you that ourproducts and/or actions in developing or selling human antibody products willnot infringe such patents. We intend to seek licenses to such patents when, inour judgment, such licenses are needed. If any licenses are required, there canbe no assurance that we will be able to obtain any such license on commerciallyfavorable terms, if at all, and if these licenses are not obtained, we might beprevented from using certain of our technologies for the generation of ourrecombinant human antibody products. Our failure to obtain a license to anytechnology that we may require may materially harm our business, financialcondition and results of operations.

**Risks Related toOur Common Stock**

**Our stock price maybe volatile.**

Historically, therehas been significant volatility in the market prices of biotechnology companies’securities. During the two-year period ended December 31, 2006, the saleprices of our common stock ranged between $6.65 and $16.23. Various factors andevents may have a significant impact on the market price of our common stock.These factors include, by way of example:

·       fluctuationsin our operating results;

·       announcementsof technological innovations or new commercial therapeutic products by us orour competitors;

·       publishedreports by securities analysts;

·       progresswith clinical trials;

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·       governmentalregulation;

·       developmentsin patent or other proprietary rights;

·       developmentsin our relationship with collaborative partners;

·       publicconcern as to the safety and effectiveness of our products;

·       changesin our management;

·       mattersrelating to the investigation of our past stock option grant practices; and

·       generalmarket conditions.

The trading price of ourcommon stock has been, and could continue to be, subject to wide fluctuationsin response to these or other factors, including the sale or attempted sale ofa large amount of our common stock into the market. Broad market fluctuationsmay also adversely affect the market price of our common stock.

**Wehave obligations to issue shares of our common stock in the future, which mayhave a dilutive effect on the shares of our common stock currently outstanding.**

As of January 31, 2007, we had 17,133,754 sharesof common stock reserved for issuance pursuant to options and other stock basedawards which had been granted under our equity incentive plans having aweighted average exercise price of $8.88 per share and we had reserved8,382,910 shares of common stock for issuance pursuant to future grants ofoptions under our equity incentive plans. We have filed registration statementson Form S-8 under the Securities Act covering all of these shares.Shares issued pursuant to these plans, other than shares issued to affiliates,will be freely tradable in the open market. Shares held by affiliates may besold pursuant to the requirements of Rule 144.

At our annual meeting of shareholders held on May 18,2006, our shareholders approved an amendment to our 2005 Equity Incentive Planto increase the aggregate number of shares of common stock authorized forissuance under the plan by 5,500,000 shares. We intend to file a registrationstatement on Form S-8 under the Securities Act covering theseadditional shares, and such registration statement will become effective uponfiling. Shares issued upon the exercise of options related to such additionalshares, other than shares issued to affiliates, will be freely tradeable in theopen market. Shares held by affiliates may be sold pursuant to the requirementsof Rule 144.

As of January 31, 2007, we had reserved 619,372shares of common stock for issuance pursuant to our 2002 Employee StockPurchase Plan. We have filed a registration statement on Form S-8under the Securities Act covering all of those shares. All shares issued underthis plan, other than shares issued to affiliates, will be freely tradable onthe open market. Shares held by affiliates may be sold pursuant to therequirements of Rule 144.

The exercise of all or a portion of the outstandingoptions may result in a significant increase in the number of shares of ourcommon stock that will be subject to trading on the NASDAQ Global Market andthe issuance and sale of the shares of our common stock upon the exercisethereof may have an adverse effect on the price of our common stock.

As of January 31,2007, we had 10,936,935 shares of common stock reserved for issuance pursuantto the conversion of the $150.0 million aggregate principal amount of ouroutstanding 2.25% Convertible Senior Notes due May 15, 2011. Holders ofthese notes may convert their notes into shares of common stock at any timeprior to maturity or redemption by us at a conversion rate of 72.9129 sharesper each $1,000 principal amount of the notes ($13.72 per share), subject toadjustment.

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**Futuresales of our common stock or other securities could cause the market price ofour common stock to decline.**

As of January 31,2007, we had 124,244,059 shares of common stock outstanding, of whichapproximately 10,118,000 are restricted securities as that term is defined in Rule 144under the Securities Act. Under certain circumstances, these restrictedsecurities may be sold without registration pursuant to such rule. We areunable to predict the effect that sales made under Rule 144 or pursuant toany registration may have on the market price of our common stock. The sale ofa significant number of additional securities, or even the possibility thereof,may lower the market price of our common stock.

**Uponthe occurrence of certain change of control events of our company, we arerequired to offer to repurchase all of our debt, which may adversely affect ourbusiness and the price of our common stock.**

Upon the occurrence ofcertain change of control events of our company, we are required to offer torepurchase all of our outstanding 2.25% Convertible Senior Notes due May 15,2011. As of January 31, 2007, $150.0 million aggregate principal amount ofthese notes was outstanding. In each instance, we may pay the repurchase pricein cash or, at our option, in common stock. These change of control eventsinclude, without limitation, (i) the acquisition by any third party of atleast 50% of our common stock; or (ii) our merger or consolidation with orinto any other person, any merger or consolidation of another person into us orour sale or other disposal of all or substantially all of our assets, except incertain limited circumstances provided in the indentures relating to the notes.Such repurchase rights may be triggered at a time at which we do not havesufficient funds available to pay the repurchase price in cash or determinethat payment in cash is otherwise inadvisable. In such event, the issuance of asignificant number of additional shares of common stock in payment of therepurchase price may lower the market price of our common stock.

**Ourrestated certificate of incorporation, amended and restated by-laws,shareholder rights plan and New Jersey law contain provisions that coulddelay or prevent an acquisition of our company even if the acquisition would bebeneficial to our shareholders, and as a result, our management may becomeentrenched and hard to replace.**

In May 2001, our board of directors adopted ashareholder rights plan. The shareholder rights plan provides for a dividend ofone preferred share purchase right on each outstanding share of our commonstock. Each right entitles shareholders to buy 1/1000th of a share of our Series Ajunior participating preferred stock at an exercise price of $150.00. Eachright will become exercisable following the tenth day after a person or groupannounces an acquisition of 20% or more of our common stock. We will beentitled to redeem the rights at $0.001 per right at any time on or before theclose of business on the tenth day following acquisition by a person or groupof 20% or more of our common stock.

The shareholderrights plan and certain provisions of our restated certificate of incorporationand amended and restated by-laws and New Jersey law may have the effect ofmaking it more difficult for a third party to acquire, or of discouraging athird party from attempting to acquire, control of us. This could limit theprice that certain investors might be willing to pay in the future for ourcommon stock. The provisions of our restated certificate of incorporation andamended and restated by-laws include:

·       aclassified board of directors;

·       arequirement that special meetings of shareholders be called only by our boardof directors, chairman of the board, chief executive officer or president;

·       advancenotice requirements for shareholder proposals and nominations;

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·       limitationson the ability of shareholders to amend, alter or repeal our by-laws; and

·       theauthority 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 theprotections of the New Jersey Shareholders Protection Act. This New Jersey statutecontains provisions that impose restrictions on shareholder action to acquirecontrol of our company. The effect of the provisions of our shareholder rightsplan, restated certificate of incorporation and amended and restated by-lawsand New Jersey law may discourage third parties from acquiring control of ourcompany. In addition, these measures may result in the entrenchment of ourmanagement and may prevent or frustrate any attempt by shareholders to replaceor remove our current management.

**We do not intend topay cash dividends on our common stock in the foreseeable future.**

We intend to retain anyfuture earnings to finance the growth and development of our business, and wedo not plan to pay cash dividends on our common stock in the foreseeable future.

**Item 1B.**               UnresolvedStaff Comments

As of the date of filingof this Annual Report on Form 10-K, there are no written commentsfrom the SEC’s staff in connection with its review of our periodic or currentreports under the Exchange Act that remain unresolved.

**Item 2.**                        Properties

Thefollowing is a description of our owned and leased properties:

| **Location**           | ** ** | ** ** | ** ** | **Leased/  Owned** | ** ** | **Square  Feet** | ** ** | **Use**                              | ** ** | **Lease  Expiration  Date** |
|------------------------|------------|------------|------------|--------------------|------------|------------------|------------|--------------------------------------|------------|-----------------------------|
| Annandale, New Jersey  |       | Leased     |       |               | 45,000     |             |       | Production, Office              |       | 2011                        |
| Bloomsbury, New Jersey |       | Owned      |       |               | 165,000    |             |       | Laboratory,  Office                  |       | N/A                         |
| Milpitas, California   |       | Owned      |       |               | 65,000     |             |       | Laboratory,  Office                  |       | N/A                         |
| Sunnyvale, California  |       | Leased     |       |               | 37,000     |             |       | Laboratory,  Office                  |       | 2009                        |
| Princeton, New Jersey  |       | Leased     |       |               | 20,000     |             |       | Corporate Headquarters,  Office |       | 2013                        |

 

We believe that ourexisting owned and leased facilities are adequate for the production ofmaterials for clinical trials of our current products and for providing theservices we currently offer to our partners in connection with our humanantibody technology.

**Item 3.**                        LegalProceedings

The SEC is conducting an informal inquiry into ourstock option grants and practices and related accounting. In addition, we havereceived a subpoena from the U.S. Attorney’s Office, District of New Jersey,relating to the same matters. We could be required to pay significant fines orpenalties in connection with these regulatory inquiries.

In June 2006, two derivative actions were filedin New Jersey state court by shareholders purporting to act on behalf ofMedarex, naming Medarex as a nominal defendant and certain current and formerdirectors as defendants. In November 2006 and January 2007, threeadditional derivative complaints were filed in the United States District Courtfor the District of New Jersey, containing nearly identical factual allegationsconcerning Medarex’s historical stock option granting practices. The complaintsallege, among other things, that certain of Medarex’s officers and directorsbreached their fiduciary duties to the 

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Company and violatedfederal securities laws in connection with public statements made in SECfilings relating to the Company’s historical stock option granting practicesand related accounting. The complaints seek unspecified damages and equitablerelief. These actions are in their preliminary stages.

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

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

None.

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**PART II**

**Item 5.**                        Marketfor Registrant’s Common Equity and Related Shareholder Matters

Ourcommon stock is traded on The NASDAQ Global Market under the symbol “MEDX.” Thefollowing table sets forth, during the periods indicated, the high and lowsales prices per share of our common stock, as reported on The NASDAQ GlobalMarket:

| ** **                             | ** ** | **Common Stock  Price** | ** ** |
|----------------------------------------|------------|------------------------------|------------|
| ** **                             | ** ** | **High**                     | ** ** | **Low** | ** ** |
| **Year ended December 31,  2005** |       |                         |       |   |   |
| First Quarter                          |       | $                            | 10.87      |   | $ | 6.88 |   |
| Second Quarter                         |       | $                            | 8.82       |   | $ | 6.65 |   |
| Third Quarter                          |       | $                            | 10.50      |   | $ | 8.22 |   |
| Fourth Quarter                         |       | $                            | 14.35      |   | $ | 7.45 |   |
| **Year ended December 31,  2006** |       |                         |       |   |   |
| First Quarter                          |       | $                            | 16.07      |   | $ | 12.23 |   |
| Second Quarter                         |       | $                            | 13.01      |   | $ | 8.51 |   |
| Third Quarter                          |       | $                            | 11.41      |   | $ | 8.72 |   |
| Fourth Quarter                         |       | $                            | 16.23      |   | $ | 10.42 |   |

 

The number of shares of our common stock outstanding asof January 31, 2007 was 124,244,059. As of January 31, 2007, therewere approximately 460 record holders of our common stock.

No dividends have beenpaid on our common stock. We currently expect to retain our future earnings, ifany, for use in the operation and expansion of our business and do notanticipate paying any cash dividends in the foreseeable future.

***Securities Authorized for Issuance Under EquityCompensation Plans***

The information requiredby this Item is contained in Part III of this Annual Report on Form 10-Kunder “Item 12. Security Ownership of Certain Beneficial Owners and Managementand Related Shareholder Matters.”

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**Item 6.**                        SelectedConsolidated Financial Data

Theinformation set forth below is not necessarily indicative of results of futureoperations, and should be read in conjunction with Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andthe Consolidated Financial Statements and Supplementary Data and related notesthereto included in Item 8 of this Form 10-K to fully understand thefactors that may affect the comparability of the information presented below.

| ** **                                                            | ** ** | **For the Year Ended December 31,**       | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2006**                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                            | ** ** | **(In thousands, except per share data)** | ** ** |
| **Statement of Operations Data:**                                     |       |                                                               |       |   |   |   |   |   |   |   |   |
| Revenues:                                                             |       |                                                               |       |   |   |   |   |   |   |   |   |
| Sales                                                                 |       | $                                                                  | —     |   | $ | — |   | $ | — |   | $ | 25 |   | $ | 176 |   |
| Contract and license  revenues                                        |       | 26,736                                                             |       | 30,226 |   | 9,119 |   | 5,833 |   | 24,552 |   |
| Sales, contract and  license revenues from Genmab                |       | 1,553                                                              |       | 4,067 |   | 3,355 |   | 5,316 |   | 14,751 |   |
| Reimbursement of  development costs                                   |       | 20,357                                                             |       | 17,162 |   | — |   | — |   | — |   |
| Total revenues                                                        |       | 48,646                                                             |       | 51,455 |   | 12,474 |   | 11,174 |   | 39,479 |   |
| Costs and expenses:                                                   |       |                                                               |       |   |   |   |   |   |   |   |   |
| Cost of sales                                                         |       | —                                                             |       | — |   | — |   | 3 |   | 8,327 |   |
| Research and development                                              |       | 194,512                                                            |       | 136,940 |   | 123,012 |   | 97,803 |   | 84,261 |   |
| General and  administrative                                           |       | 51,928                                                             |       | 28,969 |   | 25,259 |   | 23,840 |   | 23,727 |   |
| Write-off of facility  costs                                          |       | —                                                             |       | — |   | — |   | — |   | 11,294 |   |
| Acquisition of  in-process technology                                 |       | —                                                             |       | 8,447 |   | 5,455 |   | 6,500 |   | 16,312 |   |
| Total costs and expenses                                              |       | 246,440                                                            |       | 174,356 |   | 153,726 |   | 128,146 |   | 143,921 |   |
| Operating loss                                                        |       | (197,794                                                           | )          | (122,901 | ) | (141,252 | ) | (116,972 | ) | (104,442 | ) |
| Equity in net loss of  affiliate                                      |       | (1,037                                                             | )          | (6,323 | ) | (19,791 | ) | (14,997 | ) | (50,625 | ) |
| Interest and dividend  income                                         |       | 17,352                                                             |       | 14,740 |   | 9,228 |   | 11,301 |   | 15,448 |   |
| Impairment loss on  investments in  partners                          |       | (5,170                                                             | )          | (33,347 | ) | (7,309 | ) | (1,400 | ) | (11,886 | ) |
| Interest expense                                                      |       | (4,709                                                             | )          | (4,233 | ) | (12,845 | ) | (11,777 | ) | (9,065 | ) |
| Minority  interest—Celldex                                       |       | 6,891                                                              |       | 4,410 |   | — |   | — |   | — |   |
| Debt conversion expense                                               |       | —                                                             |       | — |   | (10,151 | ) | — |   | — |   |
| Net loss on  extinguishment of debt                                   |       | —                                                             |       | — |   | (4,241 | ) | — |   | — |   |
| Non-cash gain on loss of  significant influence in Genmab             |       | 3,202                                                              |       | — |   | — |   | — |   | — |   |
| Loss before provision  for income taxes                               |       | (181,265                                                           | )          | (147,654 | ) | (186,361 | ) | (133,845 | ) | (160,570 | ) |
| Provision for income  taxes                                           |       | 436                                                                |       | 358 |   | 31 |   | 69 |   | 103 |   |
| Loss before cumulative  effect of change in accounting principle |       | (181,701                                                           | )          | (148,012 | ) | (186,392 | ) | (133,914 | ) | (160,673 | ) |
| Cumulative effect of  change in accounting principle             |       | —                                                             |       | — |   | — |   | (830 | ) | — |   |
| Net loss                                                              |       | $                                                                  | (181,701   | ) | $ | (148,012 | ) | $ | (186,392 | ) | $ | (134,744 | ) | $ | (160,673 | ) |
| Basic and diluted net  loss per share(1):                             |       |                                                               |       |   |   |   |   |   |   |   |   |
| Loss before cumulative  effect of change in accounting principle |       | $                                                                  | (1.50      | ) | $ | (1.34 | ) | $ | (2.29 | ) | $ | (1.71 | ) | $ | (2.14) |   |
| Cumulative effect of  change in accounting principle             |       | —                                                             |       | — |   | — |   | (0.01 | ) | — |   |
| Net loss                                                              |       | $                                                                  | (1.50      | ) | $ | (1.34 | ) | $ | (2.29 | ) | $ | (1.72 | ) | $ | (2.14 | ) |
| Weighted average common  shares outstanding(1)                        |       |                                                               |       |   |   |   |   |   |   |   |   |
| —basic and diluted                                               |       | 121,126                                                            |       | 110,309 |   | 81,494 |   | 78,314 |   | 75,231 |   |

 

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| ** **                                       | ** ** | **December 31,**   | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|
| ** **                                       | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                       | ** ** | **(In thousands)** | ** ** |
| **Balance Sheet Data:**                          |       |                    |       |   |   |   |   |   |   |   |   |
| Cash, cash equivalents and marketable securities |       | $                       | 883,876    |   | $ | 351,307 |   | $ | 374,507 |   | $ | 358,458 |   | $ | 350,046 |   |
| Working capital                                  |       | 441,329                 |       | 327,733 |   | 339,956 |   | 349,389 |   | 338,499 |   |
| Total assets                                     |       | 954,693                 |       | 486,876 |   | 549,345 |   | 557,726 |   | 549,051 |   |
| Long term convertible debt                       |       | 141,581                 |       | 150,000 |   | 296,986 |   | 300,000 |   | 175,000 |   |
| Cash dividends declared per common  share        |       | —                  |       | — |   | — |   | — |   | — |   |
| Accumulated deficit                              |       | (963,654                | )          | (781,953 | ) | (633,941 | ) | (447,549 | ) | (312,805 | ) |
| Total shareholders’ equity                  |       | 640,173                 |       | 159,245 |   | 106,235 |   | 232,963 |   | 351,162 |   |
|                                                  |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Computed on the basisdescribed in Note 2 to the Consolidated Financial Statements.

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**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*Certain statements made in this Annual Report onForm 10-K are “forward-looking statements” that are subject to risksand uncertainties that may cause our actual results, performance orachievements to be materially different from any future results, performance orachievements expressed or implied by these forward-looking statements.Forward-looking statements include information concerning our future financial performance,business strategy, plans, goals and objectives. Statements preceded by,followed by or that otherwise include the words “believes”, “expects”,“anticipates”, “intends”, “estimates”, “plans”, “forecasts”, “is likely to”,“projected” and similar expressions or future conditional verbs such as“should”, “would”, “may”, and “could” are generally forward-looking in natureand not historical facts. You should not place undue reliance on any suchforward-looking statements as such statements speak only as of the date onwhich they are made, and we might not update them to reflect changes that occurafter the date they are made.*

**Overview**

We are a biopharmaceutical company focused on thediscovery, development and potential commercialization of fully humanantibody-based therapeutic products. We believe that our UltiMAb Human AntibodyDevelopment System® enables us to rapidly create and develop suchproducts for a wide range of diseases, including cancer, inflammation,autoimmune disorders and other life-threatening and debilitating diseases.

Currently, 34antibody product candidates generated from our UltiMAb Human AntibodyDevelopment System® are in human clinical trials, or have hadregulatory applications submitted for such trials(1). Phase III clinical trialsare currently underway relating to seven of the most advanced productcandidates in which Medarex has an economic interest throughco-promotion/profit sharing rights, royalties and/or equity ownership. Six ofthe seven product candidates currently in Phase III trials were generatedthrough the use of our UltiMAb® technology and include:

·       ipilimumab(also known as MDX-010), which we are developing jointly withBristol-Myers Squibb Company, or BMS, for the treatment of metastatic melanomaand other cancers;

·       golimumab(also known as CNTO 148) under development by Centocor, Inc. (a subsidiaryof Johnson & Johnson), or Centocor, for the treatment of rheumatoidarthritis, psoriatic arthritis and ankylosing spondylitis;

·       CNTO 1275 for the treatmentof psoriasis,  also under development byCentocor;

·       zanolimumab(also known as HuMax-CD4®),being developed by Genmab A/S, or Genmab, and Merck Serono S.A., or MerckSerono, for the treatment of T-cell lymphomas;

·       ofatumumab(also known as HuMax-CD20TM),being developed by Genmab and GlaxoSmithKline for the treatment of follicularnon-Hodgkin’s lymphoma and chronic lymphocyte leukemia; and

·       zalutumumab(also known as HuMax-EGFrTM),being developed by Genmab for the treatment of head and neck cancer.

The seventh productcandidate currently in Phase III trials in which we have an economic interestis CP-675,206, which is being developed by Pfizer, Inc., or Pfizer,for the treatment of metastatic melanoma. We expect to receive double-digitroyalties on sales of this product, should commercialization occur.

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(1)          Information regardingthe clinical status of third-party antibody products is based on publicinformation available as of the date hereof.

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Medarex is committed to building value by developing adiverse pipeline of antibody products to address major unmet healthcare needsin the world. In addition to the antibody candidates currently in Phase IIItrials, multiple product candidates in Phase II, Phase I and preclinicaltesting are being developed either by Medarex alone or by Medarex jointly withour partners, or separately by our partners. These partners includeAmgen, Inc., BMS, Centocor, Eli Lilly and Company, or Eli Lilly, Genmab,ImClone Systems Incorporated, or ImClone Systems, MedImmune, Inc.,Novartis Pharma AG and Novo Nordisk A/S. We believe that through the broad useof our UltiMAb® technology, we are leveraging our efforts andour partners’ efforts to create, develop and potentially commercializeinnovative treatments for a wide range of diseases.

In addition to our UltiMAb Human Antibody DevelopmentSystem®, wehave considerable experience in preclinical and clinical development as well asin manufacturing antibodies for clinical trials. Our existing manufacturingfacility in Annandale, New Jersey currently has the capacity to undertakemultiple antibody projects concurrently for clinical development purposes,meeting our near-term production demands. We have assembled a team ofexperienced scientific, production, clinical and regulatory personnel to facilitatethe discovery and development of antibody-based products for us and for certainof our partners. We intend to add sales, marketing and additional manufacturingcapabilities as needed.

A portion of our revenue is derived from licensing ourfully human antibody technology to pharmaceutical and biotechnology companies.The terms of these license agreements typically include potential license feesand a series of potential milestone payments commencing upon the initiation ofclinical trials and continuing through commercialization. These payments maytotal $7.0 million to $10.0 million per product if the antibody receivesapproval from the U.S. Food and Drug Administration, or FDA, and equivalentforeign agencies. In general, we are also entitled to receive royalties onproduct sales. Additional revenue may be earned from the sales to, and in somecases, the manufacturing of antibodies for, our partners, as well as fromgovernment grants.

Our most significant costs on an annual basis areresearch and development expenses and general and administrative expenses.Research and development expenses represent those costs that support theadvancement of our product pipeline and primarily consist of personnel costs,facilities (including depreciation), research and laboratory supplies, fundingof outside research, license and technology access fees, expenses related toantibody manufacturing and clinical trial expenses. We believe that continuedinvestment in research and development is critical to attaining our strategicobjectives. General and administrative expenses consist primarily of personnelexpenses for executive, finance, legal and administrative personnel,professional fees and other general corporate expenses. We may be required toadd personnel in the future and incur additional costs as we expand ourbusiness activities.

We have a history ofoperating losses and may not achieve profitability. As of December 31,2006, we had an accumulated deficit of approximately $963.7 million. Over thenext several years, we expect to incur substantial expenses as we continue toidentify, develop and manufacture our potential products, invest in research,move forward with our product development and prepare to commercialize ourproduct(s). Our commitment of resources to research and the continueddevelopment and potential commercialization of our product candidates willrequire substantial additional funds. Our operating expenses may also increaseas we invest in research or acquire additional technologies, as additionalpotential product candidates are selected for clinical development and as someof our earlier stage product candidates move into later stage clinicaldevelopment. In addition, we may incur significant milestone paymentobligations as our products progress towards commercialization. In the absenceof substantial revenues from new corporate collaborations or other sources, wewill incur substantial operating losses and may be required to raise additionalfunds through debt or equity financings or sales of stock of partners in whichwe have an equity ownership or delay, reduce or eliminate certain of ourresearch and development programs.

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**Critical AccountingPolicies**

The methods, estimates andjudgments we use in applying our most critical accounting policies have asignificant impact on the results we report in our consolidated financialstatements. We evaluate our estimates and judgments on an on-going basis. Webase our estimates on historical experience and on assumptions that we believeto be reasonable under the circumstances. Our experience and assumptions formthe basis for our judgments about the carrying value of assets and liabilitiesthat are not readily apparent from other sources. Actual results may vary fromwhat we anticipate and different assumptions or estimates about the futurecould materially change our reported results. We believe the followingaccounting policies are the most critical to us, in that they are important tothe portrayal of our financial statements and they require our most difficult,subjective or complex judgments in the preparation of our consolidatedfinancial statements.

***Revenue Recognition***

We receive paymentsfrom our customers and partners for the sale of antibodies, for licenses to ourproprietary technology, for product development services and from theachievement of product development milestones. These payments are generallynon-refundable and are reported as deferred revenue until they are recognizableas revenue. We follow the following principles in recognizing revenue:

·       Wereceive research fees from the licensing of our proprietary technologies forresearch and development performed by our customers and partners. Revenue fromthese research fees is recognized generally on a straight line basis over theterm of the respective license period beginning only after both the licenseperiod has begun and the technology has been delivered.

·       Wereceive fees for product development services (including manufacturing) weperform for our customers and partners. These fees are recognized ratably overthe entire period during which the services are performed.

·       Revenuefrom milestone payments is recognized when each milestone is achieved, whencollectibility of such milestone payment is assured and we have no futureperformance obligations relating to that event. Milestone payments aretriggered either by the results of our research efforts or by the efforts ofour partners and include such events as submission of an Investigational NewDrug Application, or IND, commencement of Phase I, II or III clinicaltrials, submission of a Biologic License Application, or BLA, and regulatoryapproval of a product. Milestone payments are substantially at risk at theinception of an agreement.

·       Revenuearrangements that include multiple deliverables are divided into separate unitsof accounting if the deliverables meet certain criteria, including whether thefair value of the delivered items can be determined and whether there isevidence of fair value of the undelivered items. In addition, the considerationis allocated among the separate units of accounting based on their fair values,and the applicable revenue recognition criteria are considered separately foreach of the separate units of accounting.

·       Revenuesderived from reimbursements of costs associated with the development of productcandidates are recorded in compliance with EITF Issue 99-19, *Reporting Revenue Gross as a Principal Versus Net as an Agent*,or EITF 99-19. According to the criteria established by EITF 99-19,in transactions where we act as a principal, with discretion to choosesuppliers, bear credit risk and perform part of the services required in thetransaction, we believe we have met the criteria to record revenue for thegross amount of the reimbursements.

·       Wesell antibodies primarily to partners in the United States and overseas.Revenue from these sales is recognized when the antibodies are shipped and wehave no further obligations related to the development of the antibodies.

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·       Grant revenues arerecognized as we provide the services stipulated in the underlying grant basedon the time and materials incurred. Amounts received in advance of servicesprovided are recorded as deferred revenue and amortized as revenue when theservices are provided.

***Investments***

Our investment policy calls for investments in fixedincome high grade securities such as U.S. corporate debt securities, U.S.treasury obligations and money market funds for which we believe there is not asignificant risk of loss. Our primary objectives for our investment portfolioare liquidity and safety of principal. Investments are made to achieve thehighest rate of return consistent with these two objectives. However, in thecourse of our business, we have made and may continue to make investments incompanies (both public and private) as part of our strategic collaborations.Investments in companies whose securities are publicly traded (other thanGenmab) are classified as marketable securities on our consolidated balancesheets. The fair market value of investments in our partners whose securitiesare publicly traded (other than Genmab) represented approximately 2.2% of totalmarketable securities as of December 31, 2006 and approximately 2.6% oftotal marketable securities as of December 31, 2005.

Under SFAS No. 115, *Accounting for Certain Investments in Debt and Equity Securities,*ourmarketable securities are classified as available-for-sale securities and arecarried at fair value. Marketable securities will include those securities ofdebt and publicly traded equity securities accounted for under the cost method.These securities trade on listed exchanges; therefore, fair value is readilyavailable. These securities are also subject to an impairment charge when webelieve an investment has experienced a decline in value that is other thantemporary. Under our accounting policy, a decline in the value of ourinvestments is deemed to be other than temporary and such investments aregenerally considered to be impaired if their value is less than our cost basisfor more than six (6) months, or some other applicable period in light ofthe facts and circumstances surrounding the investments.

In addition, in connection with our collaborativepartnering business, we sometimes make strategic investments in the securitiesof companies that are privately held. Investments in our partners whose equityis not publicly traded are classified in a separate line item in ourconsolidated balance sheet entitled “Investments in, and advances to, otherpartners” and were $8.1 million as of December 31, 2006. These securitiesare carried at original investment cost and adjusted for other than temporaryimpairment charges, if any. Because these securities are not listed on afinancial exchange, the value of these investments is inherently more difficultto estimate than investments in public companies. We value these investments byusing information acquired from industry trends, management of these companies,financial statements, and other external sources. Specifically, ourdetermination of any potential impairment of the value of privately heldsecurities includes an analysis of the following for each company on a periodicbasis: review of interim and year-end financial statements, cash position andoverall rate of cash used to support operations, the progress and developmentof technology and product platform, the per share value of subsequentfinancings and potential strategic alternatives. Based on the informationacquired through these sources, we record an investment impairment charge whenwe believe an investment has experienced a decline in value that is other thantemporary.

Future adverse changes inmarket conditions or adverse changes in financial condition and/or operatingresults of the companies in which we invest that may not be reflected in aninvestment’s current carrying value may also require an impairment charge inthe future.

***Stock Based Compensation***

Prior to January 1, 2006, we accounted for our2005 Equity Incentive Plan, or the Plan, as amended, under the recognition andmeasurement provisions of APB Opinion No. 25, *Accountingfor Stock Issued to Employees*, or APB No. 25 and relatedInterpretations, as permitted by FASB Statement No. 123, 

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*Accountingfor Stock-Based Compensation*, or Statement No. 123. Compensationexpense was recognized in the consolidated statement of operations for allstock option grants under the Plan that had an exercise price which was lessthan the fair market value of the underlying common stock on the grant date.However, no compensation expense was recorded in the financial statements forall stock options grants with an exercise price equal to the fair market valueof the underlying common stock on the date of grant.

Effective January 1, 2006, we adopted the fairvalue recognition provisions of FASB Statement No. 123(R), *Share-Based Payment*, or Statement No. 123(R), using themodified prospective transition method. Under the modified prospectivetransition method, compensation expense is recognized in the financialstatements on a prospective basis for (i) all share based payments grantedprior to, but not vested as of January 1, 2006, based upon the grant datefair value estimated in accordance with the original provisions of  Statement No. 123, and (ii) sharebased payments granted on or subsequent to January 1, 2006, based upon thegrant date fair value estimated in accordance with the provisions of Statement No. 123(R).The grant date fair value of awards expected to vest is expensed on a straightline basis over the vesting periods of the related awards. Under the modifiedprospective transition method, results for prior periods are not restated.

Thefair value of each option grant is estimated using the Black-Scholes optionpricing method. The fair value is then amortized on a straight-line basis overthe requisite service periods of the awards, which is generally the vestingperiod (generally 4 years). Use of a valuation model requires management tomake certain assumptions with respect to selected model inputs. In order to estimatethe grant date fair value, option pricing models require the use of estimatesand assumptions as to (i) the expected term of the option, (ii) theexpected volatility of the price of the underlying stock, (iii) the riskfree interest rate for the expected term of the option and (iv) pre-vestingforfeiture rates. The expected term of the option is based upon the contractualterm, taking into account expected employee exercise and expected post-vestingtermination behavior. The expected volatility of the price of the underlyingstock is based on the historical volatility of our common stock. The risk freeinterest rate is based on U.S. Treasury zero-coupon issues with a remainingterm equal to the expected life assumed on the date of grant. Pre-vesting forfeiturerates are estimated based on past voluntary termination behavior, as well as ananalysis of actual option forfeitures. We are currently using an estimatedforfeiture rate of 13.7%. The following table sets forth the weighted averageassumptions used to calculate the fair value of options granted for the yearsended December 31, 2006, 2005 and 2004:

| ** **                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Expected dividend  yield          |       | 0        | %          | 0        | %          | 0        | %          |
| Expected stock  price volatility  |       | 82.8     | %          | 99.1     | %          | 55.0     | %          |
| Risk free  interest rate          |       | 4.62     | %          | 4.29     | %          | 3.60     | %          |
| Expected life of options  (years) |       | 6.25     |       | 6.25     |       | 5.0      |       |

 

Our results of operations for the year ended December 31,2006 include incremental share based compensation expense of approximately $16.6million. As of December 31, 2006,the total unrecognized compensation cost related to non-vested stock optionswas approximately $28.4 million. This cost is expected to be recognized over aweighted average period of 2.7 years.

However, any significantawards granted during the remainder of the year, required changes in theestimated forfeiture rates or significant changes in the market price of ourstock could have an impact on this estimate.

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***Valuation ofLong-Lived and Intangible Assets***

Weassess the impairment of long-lived assets and identifiable intangible assetswhenever events or changes in circumstances indicate that the carrying valuemay not be recoverable. Factors we consider important that could trigger animpairment review include the following:

·       asignificant underperformance relative to expected historical or projectedfuture operating results;

·       asignificant change in the manner of our use of the acquired asset or thestrategy for our overall business; and/or

·       asignificant negative industry or economic trend.

When we determine that thecarrying value of long-lived assets or of intangible assets are not recoverablebased upon the existence of one or more of the above indicators of impairment,we may be required to record impairment charges for these assets that have notbeen previously recorded.

***Acquired In-ProcessTechnology***

In-process technologyexpense for significant technology acquisitions is determined based on ananalysis using risk-adjusted cash flows expected to be generated by productsthat may result from in-process technologies which have been acquired. Thisanalysis includes forecasting future cash flows that are expected to resultfrom the progress made on each in-process project prior to the acquisitiondate. Cash flows are estimated by first forecasting, on a product-by-productbasis, net revenues expected from the sales of the first generation of eachin-process project and risk adjusting these revenues to reflect the probabilityof advancing to the next stage of the FDA approval process. The forecast datain the analysis is based on internal product level forecast informationmaintained by us in the ordinary course of business. The inputs used inanalyzing in-process technology are based on assumptions, which we believe tobe reasonable but which are inherently uncertain and unpredictable. Theseassumptions may be incomplete or inaccurate, and unanticipated events andcircumstances may occur. Appropriate operating expenses are deducted fromforecasted net revenues on a product-by-product basis to establish a forecastof net returns on the completed portion of the in-process technology. Finally,net returns are discounted to a present value using discount rates thatincorporate the weighted average cost of capital relative to the biotechindustry and us as well as product specific risks associated with the acquiredin-process research and development products. The product specific risk factorsinclude the product’s phase of development, type of product candidate underdevelopment, likelihood of regulatory approval, manufacturing processcapability, scientific rationale, preclinical safety and efficacy data, targetproduct profile, and development plan. In addition to the product specific riskfactors, a discount rate is used for the valuation, which represents a considerablerisk premium to our weighted average cost of capital. The valuations used toestimate in-process technology require us to use significant estimates andassumptions that if changed, may result in a different valuation for in-processtechnology.

***Loss Contingenciesand Litigation Reserves***

We assess potential lossesin relation to legal proceedings and other pending or threatened legal or taxmatters based upon the application of Statement of Financial AccountingStandards No. 5, *Accounting for Contingencies*.If a loss is considered probable and the amount can be reasonably estimated, werecognize an expense for the estimated loss. If a loss is considered possibleand the amount can be reasonably estimated, we disclose such loss if material. Litigationby its nature is uncertain and the determination of whether any particular caseinvolves a probable loss or the amount thereof requires the exercise ofconsiderable judgment, which is applied as of a certain date. Required reservesand estimates may change in the future due to new matters, developments inexisting matters or if we determine to change our strategy with respect to anyparticular matter.

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**Results ofOperations**

***Years Ended December 31, 2006, 2005 and 2004***

***Contract and License Revenues***

Contract and licenserevenues totaled $26.7 million, $30.2 million and $9.1 million for the yearsended December 31, 2006, 2005 and 2004, respectively. Contract and licenserevenues for 2006 decreased by $3.5 million or 12% as compared to 2005. Thisdecrease relates principally to $4.0 million in milestone payments receivedfrom our contract and licensing business in 2005 for which no comparablepayments were received in 2006. Contract and license revenues for 2005increased by $21.1 million or 231% as compared to 2004. This increase relatesprincipally to a total of approximately $13.8 million of increased revenuerecognized from our collaborations with Pfizer, BMS, Lilly and the NationalInstitutes of Health, or NIH, in accordance with an NIH grant we received, as wellas $4.0 million in milestone payments received from our contract and licensingbusiness. Because contract and license revenues depend to a large extent on theproduct development efforts of our partners and licensees, our year-to-yearcontract and license revenues can fluctuate significantly and are inherentlydifficult to predict.

***Contract and License Revenues from Genmab***

Contract and licenserevenues from Genmab were $1.6 million, $4.1 million and $3.4 million for theyears ended December 31, 2006, 2005 and 2004, respectively. Contract andlicense revenues from Genmab for 2006 decreased by $2.5 million or 62% ascompared to 2005. This decrease is primarily the result of a decrease inantibody exclusive licenses granted to Genmab in 2006 as compared to 2005.Contract and license revenues from Genmab for 2005 increased by $0.7 million or21% as compared to 2004. This increase is primarily the result of paymentsreceived from Genmab for the licensing of European and Asian rights to developand commercialize antibodies raised against the CD4 antigen, partially offsetby a decrease in antibody exclusive licenses granted to Genmab in 2005 ascompared to 2004.

***Reimbursement of Development Costs***

Revenues derived from thereimbursement of costs associated with the development of our productcandidates are recorded in compliance with EITF Issue 99-19. Reimbursementof development costs totaled $20.4 million in 2006 and $17.2 million in 2005and related primarily to the development of ipilimumab with BMS. There were nosuch reimbursements in 2004.

***Research and Development Expenses***

Research and development expenses for our products indevelopment were $194.5 million, $136.9 million and $123.0 million for theyears ended December 31, 2006, 2005 and 2004, respectively. Research anddevelopment expenses in 2006 increased by $57.6 million, or 42% as compared to2005 and research and development expenses in 2005 increased by $13.9 million,or 11% as compared to 2004. Historically, due to the limited number of ourproduct candidates in clinical trials, we have not accounted for our researchand development expenses on a project-by-project basis. We track our costs inthe categories discussed below, namely, “research” and “product development”and by the types of costs as outlined below.

Our research costs consist of costs associated withthe breeding, care and continued development of the HuMAb-Mouse® and KM-Mouse®, as well as costs associated withresearch and testing of our product candidates prior to reaching thepreclinical stage. Such research costs primarily include personnel costs,facilities (including depreciation), research supplies, funding of outsideresearch and license and technology access fees.

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Our product development costs consist of costs ofpreclinical development (including manufacturing) and conducting andadministering clinical trials (including manufacturing). Such productdevelopment costs also include personnel costs, facilities (includingdepreciation), supply expense related to antibody manufacturing and clinicaltrial expenses.

Thefollowing table sets forth a breakdown of our research and development expensesby those associated with research and those associated with product developmentfor the periods indicated.

| ** **           | ** ** | **Year Ended December 31,** | ** ** |
|----------------------|------------|--------------------------------------------|------------|
| ** **           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Research             |       | $                                          | 66,391     |   | $ | 46,568 |   | $ | 53,616 |   |
| Product  Development |       | 128,121                                    |       | 90,372 |   | 69,396 |   |
| Total                |       | $                                          | 194,512    |   | $ | 136,940 |   | $ | 123,012 |   |

 

***Research Costs***

Research costs in2006 increased by $19.8 million, or 43% as compared to 2005. Research costs in 2005decreased by $7.0 million, or 13% as compared to 2004. The changes in researchcosts primarily relate to the following.

·       Personnelcosts in 2006 were $21.5 million, an increase of $6.6 million or 44% ascompared to 2005. Personnel costs in 2005 were $14.7 million, an increase of$1.5 million or 11% as compared to 2004. Approximately $3.3 million of the 2006increase is the result of the adoption of Statement No. 123(R), effectiveJanuary 1, 2006. In addition, the increased personnel costs are attributableto staff needed to support higher levels of new product developmentopportunities, the continued development of our UltiMAb® system, and the performance of contractservices for our collaborative partners. Personnel costs include primarilysalary, benefits, payroll taxes, stock option compensation and recruitingcosts. We expect personnel costs to continue to increase as we continue toincrease our research activities.

·       An$8.5 million expense representing a liability to Gilead Sciences, Inc., orGilead, for the reduction of future royalty obligations relating to certainintellectual property rights regarding anti-CTLA-4 product candidates in2004 for which no comparable expenses were incurred in 2006 or 2005. The totalconsideration of $8.5 million was paid to Gilead in eight equal quarterlyinstallments. As of December 31, 2006, no installments remained due toGilead under this obligation.

·       Licenseand technology access fees in 2006 were $12.7 million, an increase of $7.3million or 134% as compared to 2005. License and technology access fees in 2005were $5.4 million, a decrease of $1.5 million or 22% as compared to 2004.Increases and decreases in license and technology access fees are primarily theresult of the timing of such agreements. These costs represent fees paid tocertain partners and research organizations in connection with certain of ourcollaboration and license agreements. Included in the costs for 2006, 2005 and2004 are payments to certain companies and research and academic institutionsand other entities for licenses to certain technologies for which there are nocomparable payments. We expect license fees, including funds paid to certainpartners, to increase in the future.

·       Supply costs in 2006 were$8.2 million, an increase of $2.0 million or 32% as compared to 2005. Supplycosts in 2005 were $6.2 million, an increase of $1.1 million or 23% as comparedto 2004. The increased supply costs in 2006 and 2005 are primarily attributableto the continued development of our UltiMAb® system, and theperformance of contract services for our collaborative partners. Included inthese costs are materials, chemicals and disposables. We expect these costs toincrease as we continue to expand our research efforts.

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***Product Development Costs***

Product developmentcosts in 2006 increased by $37.7 million, or 42% as compared to 2005. Productdevelopment costs in 2005 increased by $21.0 million, or 30% as compared to2004. The increases in product development costs primarily relate to thefollowing:

·       Contractmanufacturing costs in 2006 were $7.9 million, a decrease of $2.4 million or24% as compared to 2005. Contract manufacturing costs in 2005 were $10.3million, an increase of $1.2 million or 12% as compared to 2004. The decreasein third party contract manufacturing costs in 2006 primarily represents adecrease in 2006 production and packaging expenses for a Phase III pivotaltrial of ipilimumab in combination with MDX-1379, which began in thethird quarter of 2004 and was transferred to BMS in the second half of 2005. Weexpect costs to third party manufacturers will increase in the future in orderto support the advancement of our clinical pipeline.

·       Personnelcosts in 2006 were $36.8 million, an increase of $10.5 million or 40% ascompared to 2005. Personnel costs in 2005 were $26.3 million, an increase of$2.7 million or 12% as compared to 2004. Approximately $5.8 million of the 2006increase is the result of the adoption of Statement No. 123(R), effective January 1,2006. The increased personnel costs are a result of the increased staff neededto support more extensive clinical trial activities primarily for ipilimumab.Personnel costs primarily include salary, benefits, payroll taxes andrecruiting costs. We expect personnel costs to continue to increase as wecontinue to increase our product development activities and progress ourproduct candidates through clinical trials.

·       Clinicalresearch fees in 2006 were $15.2 million, an increase of $3.7 million or 32% ascompared to 2005. Clinical research fees in 2005 were $11.5 million, anincrease of $6.8 million or 145% as compared to 2004. The 2006 increaseresulted primarily from the continuing MDX-060 Phase II trial. The 2005increase resulted primarily from the continued enrollment of patients in thePhase III clinical trial for ipilimumab in combination with MDX-1379 andthe initiation of additional sites for this trial. As of December 31, 2005sites participating in this Phase III clinical trial are located in NorthAmerica, Europe and Latin America. The continued enrollment of patients in thePhase III trial and the initiation of additional sites resulted in increasedmonitoring costs and increased investigator site fees. These costs representedthe conclusion of certain Phase II clinical trials for ipilimumab offset by theinitiation of the Phase III clinical trial for ipilimumab in combination withMDX-1379 which began in the third quarter of 2004. Clinical research feesinclude clinical investigator site fees, external trial monitoring costs anddata accumulation costs. We expect expenses related to clinical trials toincrease in the future as we continue to develop our therapeutic productpipeline.

·       Reimbursementof our share (35%) of the BMS costs for the development of ipilimumab were$23.3 million, an increase of $17.0 million or 270% as compared to 2005. Nocomparable expense was incurred in 2004. We expect our 35% share of BMS’s costsrelated to the development of ipilimumab to increase in the future as BMS continuesto increase its development activities related to ipilimumab.

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Weexpect product development costs to increase in the future as more of ourproduct candidates enter clinical trials. In addition, we may be obligated tomake milestone payments on certain of our product candidates as they progressthrough the clinical trial process. Completion of clinical trials may takeseveral years or more. The length of time varies according to the type,complexity and intended use of the product candidate. We estimate that clinicaltrials of the type we generally conduct are typically completed over thefollowing periods:

| **Clinical Phase** | ** ** | ** ** | ** ** | **Estimated  Completion  Period** | ** ** |
|-------------------------|------------|------------|------------|-----------------------------------|------------|
| Phase I                 |       | 1-2 Years  |       |
| Phase II                |       | 1-2 Years  |       |
| Phase III               |       | 2-4 Years  |       |

 

The duration and cost of clinical trials may varysignificantly over the life of a particular project as a result of, among otherthings, the following factors:

·       the length of time requiredto recruit qualified patients for clinical trials;

·       the duration of patientdosing and follow-up in light of trial results;

·       the number of clinicalsites required for trials; and

·       the number of patients thatultimately participate.

We continue to explore new collaborative arrangementsthat may affect future spending for research and development. As part of ourpartnering strategy, a significant portion of the research and developmentexpenses incurred in connection with products using our technology is expectedto be borne by our partners. We believe this allows us to participate in theresearch and development of substantially more potential product candidatesthan we could develop on our own if we bore the entire cost of development.Products using our technology are currently in various stages of developmentfrom preclinical to Phase III. The successful development of these productcandidates is dependent on many factors, including among other things, theefforts of our partners, unforeseen delays in, or expenditures relating to,preclinical development, clinical testing, manufacturing or regulatoryapproval, failure to receive regulatory approval, failure to receive marketacceptance, the emergence of competitive products and the inability to produceor market our products due to third-party proprietary rights.

***Generaland Administrative Expenses***

General and administrative expenses includecompensation, professional services, consulting, travel and facilities(including depreciation) and other expenses related to legal, businessdevelopment, finance, information systems and investor relations. General andadministrative expenses totaled $51.9 million, $29.0 million and $25.3 millionfor the years ended December 31, 2006, 2005 and 2004, respectively. Generaland administrative expenses increased by $22.9 million in 2006, or 79% ascompared to 2005. The 2006 increase is primarily attributable to the following;(i) approximately $9.4 million in legal fees associated with the Company’sinvestigation of its prior stock option grant practices, (ii) approximately$5.6 million attributable to the operations of Celldex Therapeutics, Inc.,or Celldex, (iii) approximately $6.5 million is the result of the adoptionof Statement No. 123(R), effective January 1, 2006 and (iv) approximately$3.7 million in non-cash stock based compensation expense associated with oneof our officers stepping down in November 2006. The 2005 increase wasprimarily attributable to the operations of Celldex, including the write-off ofdeferred offering costs (legal, accounting and printing) of $1.9 million. Suchcosts were written off in 2005 as a result of Celldex terminating its initialpublic offering and withdrawing its registration statement with the Securitiesand Exchange Commission due to unfavorable market conditions. General andadministrative expenses are expected to increase in the future as our productcandidates are developed and we expand our business activities.

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***Acquisitionof In-Process Technology***

Acquisitionof in-process technology for the year ended December 31, 2005 related toacquisition of all of the outstanding capital stock of Lorantis Limited, orLorantis, a privately held biotechnology company based in Cambridge, U.K. andthe acquisition of substantially all assets of Alteris Therapeutics, Inc.,or Alteris, a privately held biotechnology company based in Philadelphia, PA,in each case by Celldex. These acquisitions were completed in October 2005.The total cost of these acquisitions (including transaction costs) was $42.8million, of which approximately $8.4 million (based upon independentthird-party valuations) of in-process research and development was determinednot to be technologically feasible and had no alternative future uses at thetime of the respective acquisitions, and, as a result, was charged tooperations as acquisition of in-process technology during 2005.

Acquisition of in-process technology for the yearended December 31, 2004 related to our acquisition of all of theoutstanding capital stock not already owned by us of Ability BiomedicalCorporation, or Ability Biomedical, a privately held Canadian biotechnologycompany, in August 2004. The total cost of the acquisition (includingtransaction costs), discussed more fully under the section herein entitled “Liquidityand Capital Resources,” was $5.7 million, of which approximately $5.5 millionof in-process research and development was determined not to be technologicallyfeasible and had no alternative future uses at the time of acquisition, and, asa result, was charged to operations as acquisition of in-process technologyduring 2004.

***Equityin Net Loss of Affiliate***

Equityin net loss of affiliate represents our share of Genmab’s net loss for theyears ended December 31, 2006, 2005 and 2004. Genmab is an affiliatedcompany and during these periods was accounted for using the equity method ofaccounting (see Note 10 to the consolidated financial statements). Therecognition of our share of Genmab’s net losses reduces the carrying value, orbasis, of our investment in Genmab.

Equityin net loss of affiliate was $1.0 million, $6.3 million and $19.8 million forthe years ended December 31, 2006, 2005 and 2004, respectively.

Equityin net loss of affiliate in 2006 decreased by $5.3 million, or 84% as comparedto 2005. The 2006 decrease was primarily related to the suspension of our shareof Genmab’s net losses effective February 1, 2006. On February 1,2006, Genmab completed the private placement of 5.75 million shares of itsstock. As a result of this private placement, our ownership percentage ofGenmab was reduced to approximately 18.9%. Beginning February 1, 2006 webegan accounting for its investment in Genmab as a marketable security inaccordance with SFAS No. 115 *Accountingfor Certain Investments in Debt and Equity Securities.*In February 2007, we sold 2,578,500shares of Genmab thereby reducing our ownership percentage to approximately10.8%. See further discussion under “Other Liquidity Matters.” Equity innet loss of affiliate in 2005 decreased by $13.5 million, or 68% as compared to2004. The decrease was primarily related to the suspension of our share ofGenmab’s net losses for a portion of 2005. See Note 10 to the consolidatedfinancial statements for further explanation. The 2005 decrease reflects areduction in our ownership percentage, resulting from Genmab’s 2004 privateplacement of its ordinary shares (discussed below), and therefore a reductionof our share of Genmab’s net loss for the second half of 2004.

In August 2005,Genmab sold approximately 2.5 million shares of its stock to a corporatepartner in connection with a global development and commercializationagreement. As a result of this sale of stock, our ownership percentage inGenmab was reduced from approximately 24.7% to approximately 22.2%. Thedifference between our proportionate share of the equity and our carrying valueafter completion of Genmab’s sale of stock to the corporate partner wasapproximately $8.0 million and was accounted for in accordance with APB OpinionNo. 18, *The Equity Method of Accountingfor Investment in Common Stock*and Staff Accounting Bulletin No. 51,*Accounting for Sales of Stock by aSubsidiary*increasing our investment in Genmab and capital in excessof par value*.*

In July 2004, Genmab completed a privateplacement of 5.6 million shares of its stock. As a result of this privateplacement, our ownership percentage of Genmab was reduced from approximately30.9% to 

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24.7%. The differencebetween our proportionate share of the equity and our carrying value aftercompletion of the private placement was approximately $9.7 million and wasaccounted for in accordance with APB Opinion No. 18, *The EquityMethod of Accounting for Investment in Common Stock,*and StaffAccounting Bulletin No. 51, *Accounting for Sales ofStock by a Subsidiary*increasing our investment in Genmab andcapital in excess of par value.

***Interest,Dividend Income and Realized Gains***

Interest, dividend income and realized gains consistsprimarily of interest earned from our cash, cash equivalents and marketablesecurities. Interest, dividend income and realized gains was $17.4 million,$14.7 million and $9.2 million for the years ended December 31, 2006, 2005and 2004, respectively. Interest, dividend income and realized gains in 2006increased by $2.6 million, or 18% as compared to 2005. The increase primarilyreflects higher interest rates earned on our investment portfolio. In addition,we have higher interest and dividend income in 2006 as the result of higheraverage cash balances reflecting the proceeds received (approximately $128.0million) from our April 2006 public offering of 11.5 million shares ofcommon stock (see further discussion under Liquidity and Capital Resources).  Interest, dividend income and realized gainsin 2005 increased by $5.5 million, or 60% as compared to 2004. Included ininterest, dividend income and realized gains for the year ended December 31,2005 is a gain on the sale of common stock of one of our partners ofapproximately $3.3 million and included in interest, dividend income andrealized gains for the year ended December 31, 2004 is a gain on the saleof common stock of one of our partners of approximately $1.7 million. Excludingthe impact of these gains, interest and dividend income in 2005 would haveincreased by $3.9 million. This increase primarily relates to a higher averagebalance and higher returns on our investment portfolio as well as decreasedamortization of premiums on debt securities.

***ImpairmentLoss on Investments in Partners***

Werecorded impairment charges of $5.2, $0 and $0.2 million for the years ended December 31,2006, 2005 and 2004, respectively, related to investments in certain of ourpartners (other than Genmab) whose securities are publicly traded. The 2006impairment charge was the result of losses on one of our investments which wereconsidered to be other than temporary. The 2004 impairment charge was theresult of losses on another of these investments which were considered to beother than temporary. If we deem these investments to be further impaired atthe end of any future period, we may incur additional impairment charges on theseinvestments.

In addition, we have investments in several partnerswhose securities are not publicly traded. Because these securities are notpublicly traded, the value of these investments is more difficult to estimatethan investments in publicly traded companies. We recorded impairment chargesof $0 million, $33.3 million and $7.1 million for the years ended December 31,2006, 2005 and 2004, respectively, related to investments in certain of ourpartners whose securities are not publicly traded. Approximately $29.3 millionof the 2005 impairment charge related to our investment in IDM prior to itsbusiness combination with Epimmune, Inc. The amount of the IDM impairmentcharge was calculated as the difference between (i) the estimated pershare value expected to be received by IDM shareholders upon completion of itsmerger with Epimmune, publicly announced on March 16, 2005, and (ii) ourcarrying value. This transaction closed in the third quarter of 2005 and ourinvestment in IDM was reclassified to marketable securities. The 2004impairment charge is primarily comprised of a $7.0 million impairment relatedto our investment in IDM. The amount of the IDM impairment charge wascalculated as the difference between the per share price received by IDM in a December 2004private placement of its equity securities and our cost basis.   If we deem these investments to be furtherimpaired at the end of any future period, we may incur additional impairmentcharges on these investments.

***InterestExpense***

Interest expense was primarily related to interest andamortization of issuance costs on our 4.50% Convertible Subordinated Notesissued in June 2001, or the 4.50% notes, our 4.25% Convertible SeniorNotes issued in July 2003, or the 4.25% notes, and our 2.25% ConvertibleSenior Notes issued in 

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May 2004, or the2.25% notes. Interest expense was $4.7 million, $4.2 million and $12.8 millionfor the years ended December 31, 2006, 2005 and 2004, respectively.Interest expense in 2006 increased by $0.5 million, or 12%, as compared to 2005.Interest expense in 2005 decreased by $8.6 million, or 67% as compared to 2004.Interest expense in 2006 and 2005 relates to interest and amortization ofissuance costs on our 2.25% notes. The 2005 decrease reflects the January 2005conversion of all of our 4.25% notes ($146.986 million) into a total of21,875,353 shares of our common stock. The 2.25% notes are due in May 2011and interest is payable semi-annually on May 15 and November 15 ofeach year.

***MinorityInterest—Celldex***

Minority interest in lossof Celldex was $6.9 million and $4.4 million for the years ended December 31,2006 and  2005, respectively. Minority interest in loss of Celldexrepresents 40% of Celldex’s net loss for 2006 and for the period from October 12,2005 through December 31, 2005. Priorto October 12, 2005 we owned 100% of the outstanding capital stock ofCelldex.  As a result of certainacquisitions by Celldex (see Note 14 to the consolidated financial statements)our ownership percentage was reduced from 100% to approximately 60%. Celldex’sresults of operations for 2006 and 2005 have been consolidated for reportingpurposes and the $6.9 million and $4.4 million (the portion of Celldex’s netloss for 2006 and the period from October 12, 2005 through December 31,2005 not attributable to us) is recorded as a reduction of our expenses.

***DebtConversion Expense***

Debt conversion expense of $10.2 million for the yearended December 31, 2004 related to the make-whole payment associated withthe December 2004 decision calling for the redemption of our 4.25% notes.Such amount was accrued as of December 31, 2004 and was paid in January 2005(see further information under the section entitled *“CashProvided By Financing Activities”*). There were no comparable chargesfor the years ended December 31, 2006 and 2005.

***NetLoss on Extinguishment of Debt***

Inconnection with a private placement of $150.0 million of our 2.25% notes (seefurther discussion under the section entitled *“Liquidityand Capital Resources”*) we repurchased and redeemed $142.0 millionin aggregate principal amount of our 4.50% notes for cancellation in January 2005.As a result of this repurchase and cancellation we recorded a loss on the earlyextinguishment of debt of approximately $4.5 million for the year ended December 31,2004.

In January 2004, we and certain holders of our4.50% notes completed an exchange and cancellation of $33.0 million inaggregate principal amount of the 4.50% notes, for the issuance of $21.986million in aggregate principal of a new series of 4.25% notes and, inconnection therewith, we recorded a gain of approximately $0.3 million for2004. We calculated the gain in accordance with EITF 96-19, *Debtor’s Accounting for a Modification or Exchange of**Debt Instruments*, or EITF 96-19. EITF 96-19requires that the gain on the early extinguishment of debt be computed usingthe fair value of the newly issued convertible debt which, at the time of thedebt exchange, was trading at a premium to the principal amount of the notes.We classified the premium associated with the newly issued 4.25% notes ofapproximately $10.2 million as capital in excess of par value in accordancewith APB 14, *Accounting for Convertible Debt and DebtIssued with Stock Purchase Warrants*.

***Non-Cash Gain on Investment in Genmab***

Non-cash gain on investment in Genmab for 2006 of $3.2million was recorded in accordance with FASB Staff Position APB 18-1, *Accounting by an Investor for Its Proportionate Share of AccumulatedOther Comprehensive Income of an Investee Accounted for under the Equity Methodin Accordance with APB Opinion No. 18 upon a Loss of Significant Influence(FSP APB 18-1).* As a result of Genmab’s private placement of5.75 million shares of its common stock in February 2006 and thecorresponding reduction of our ownership percentage below 20%, our accumulatedother comprehensive income associated with our investment in Genmab was firstoffset against the remaining carrying value of our investment in Genmab 

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($2.2 million), reducingour investment in Genmab to zero, with the remaining balance ($3.2 million)recorded as a non-cash gain in the consolidated statement of operations for2006.

***Provision for Income Taxes***

Our provision for income taxes of $0.4 million, $0.4million and $31 thousand for the years ended December 31, 2006, 2005 and2004, respectively, relates primarily to the New Jersey alternative minimum taxassessment.

**Liquidity andCapital Resources**

We require cash to fund our operations, to makecapital expenditures and strategic investments, and to pay debt service on ourconvertible notes. Since inception, we have financed our operations through thesale of our securities in public and private placements, sales of our productsfor research purposes, development and manufacturing services, technology transferand license fees and milestone payments. We expect to continue to fund our cashrequirements from these sources in the future. In 2006, 2005, and 2004, wereceived net proceeds of $343.1 million from sales of our equity and debtsecurities.

At December 31, 2006 and 2005, we had $339.5million and $351.3 million, respectively, in cash, cash equivalents andmarketable securities. Approximately $14.0 million and $25.2 million of cashand cash equivalents included in the December 31, 2006 and 2005 balance sheetsrelates to Celldex and is consolidated for accounting purposes. We primarilyinvest our cash equivalents and marketable securities in highly liquid,interest-bearing, investment grade and government securities in order topreserve principal. In addition, as of December 31, 2006, the fair valueof our investment in Genmab, which is classified as marketable securities wasapproximately $494.4 million.

In February 2007, we completed the sale of2,578,500 shares of Genmab through a block trade. We received net proceeds ofapproximately $152.1 million from such block trade. As a result of thistransaction our ownership percentage in Genmab was reduced to approximately10.8%.

***Cash Used in Operating Activities***

Cash used in operating activities was $138.3 million,$88.9 million and $6.0 million for the years ended December 31, 2006, 2005and 2004, respectively. This reflects an increase of $49.4 million in 2006 ascompared to 2005 and an increase of $82.9 million in 2005 as compared to 2004.

The 2006 increase was primarily due to increasedresearch and development expenses ($57.6 million) and increased general andadministrative expenses ($22.9 million) as a result of the factors discussedabove. The 2005 increase is primarily due to a decrease in deferred contractrevenue (approximately $72.9 million) resulting from less up-front paymentsassociated with collaborations in 2005 as compared to 2004.

We have incurred and will continue to incursignificant costs in the area of research and development, including preclinicaland clinical trials, as our products are developed. We plan to spendsignificant amounts to progress our current products through clinical trialsand the commercialization process as well as to develop additional productcandidates on our own or with our partners. As our products progress throughthe clinical trial process, we may be obligated to make significant milestonepayments on certain of our products. We also expect to incur future facilitycosts as a result of our continued capital expansion, renovations andreplacements. To a lesser extent, we expect our general and administrativecosts to increase as we expand our administrative and business developmentactivities. Furthermore, we expect our investment income to decrease as we fundour future operations and capital expenditures from our cash reserves. Weanticipate that our operating expenditures may be partially offset by revenuesfrom partners for license fees, milestone payments, and development andmanufacturing services.

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***Cash Provided by (Used in) Investing Activities***

Net cash used in investingactivities was $55.1 million in 2006 and $33.8 million in 2004, respectively.Net cash provided by investing activities was $84.1 million in 2005. Cash wasprovided by and used in investing activities primarily as follows:

·       Capitalexpenditures of $13.5 million, $9.3 million and $9.1 million in 2006, 2005 and2004, respectively. The capital expenditures for these periods reflect aninvestment in laboratory automation as well as the addition of machinery andequipment.

·       Netsales of marketable securities were $65.9 million in 2005. The net sales ofmarketable securities in 2005 were primarily to fund operations and capitalexpenditures offset in part, by the proceeds received from the BMS collaboration($50.0 million).

·       Netpurchases of marketable securities were $41.6 million and $27.9 million in 2006and 2004, respectively. The 2006 net purchases were the result of proceedsreceived from our April 2006 public offering (see further discussionbelow). The 2004 net purchases were the result of the proceeds received fromthe Pfizer collaboration ($110.0 million), the MedImmune collaboration ($15.0million) and the net proceeds ($145.2 million) received for the privateplacement of our 2.25% notes, offset in part, by sales of marketable securities($242.6 million) to fund operations and capital expenditures as well as torepurchase and redeem our 4.50% notes.

·       Netcash of approximately $29.7 million in 2005 provided through the acquisition ofLorantis by Celldex (see further explanation in the section entitled *“Other Liquidity Matters”*).

We expect 2007 capital expenditures to beapproximately $14.0 million representing the purchase of machinery andscientific equipment and additional investment in lab automation.

***Cash Provided by Financing Activities***

Cash provided by financing activities was $134.9million $31.1 million and $31.6 million in 2006, 2005 and 2004, respectively.In 2006, cash provided by financing activities consisted primarily ofapproximately $128.0 million in net proceeds received from our April 2006public offering (see further discussion below). In 2005, cash provided byfinancing activities consisted primarily of proceeds received ($25.0 million)from the sale of common stock to BMS in connection with our collaboration. In2004, cash provided by financing activities consisted primarily of $145.2million in net proceeds received from the sale of our 2.25% notes inMay 2004 and $31.8 million from sales of common stock primarily to Pfizer($30.0 million) and the issuance of common stock under our employee stockpurchase plan ($1.1 million), offset in part, by the repurchase, redemption andcancellation of our 4.50% notes ($144.6 million).

In April 2006, we completed a public offering of10 million shares of common stock at a public offering price of $11.75 pershare. In May 2006, the underwriters exercised in full their option topurchase an additional 1.5 million shares of common stock at the publicoffering price of $11.75 per share. The exercise of the option to purchase theadditional 1.5 million shares increased the size of the public offering to atotal of 11.5 million shares of common stock resulting in net proceeds to us ofapproximately $128.0 million.

In January 2005, we completed the provisionalredemption of all of our 4.25% notes which was previously announced inDecember 2004. Holders of all of the outstanding 4.25% notes ($146.986million) converted their notes into a total of 21,875,353 shares of our commonstock prior to the redemption date. In connection with the redemption, we paidapproximately $12.5 million in cash representing the “make-whole” payment of$10.2 million and accrued interest of $2.3 million. We accrued the $10.2million “make-whole” payment in the quarter ended December 31, 2004, atthe time the redemption was announced.

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In May 2004, we completed a private placementpursuant to Rule 144A of the Securities Act of 1933, as amended, of $150.0million in aggregate principal amount of our 2.25% notes to qualifiedinstitutional investors. The 2.25% notes are initially convertible into sharesof our common stock at the rate of 72.9129 shares per each $1,000 principalamount of notes, which is equivalent to an initial conversion price ofapproximately $13.72 per share, subject to anti-dilution adjustments. Interestis payable on May 15 and November 15 of each year. The first interestpayment was made on November 15, 2004.

The 2.25% notes mature on May 15,2011 and are redeemable at our option on or after May 15, 2010. Holders ofthe 2.25% notes may require us to repurchase the notes if we undergo a “changein control” as defined in the indenture. We received net proceeds from theprivate placement of the 2.25% notes of approximately $145.2 million (afterdeducting the initial purchasers’ discounts and offering expenses). The costsof issuance of the 2.25% notes of approximately $4.8 million have been deferredand are being amortized over the term of the 2.25% notes. In May 2011, orearlier if we undergo a change in control, we may be required to use asignificant portion of our cash to repay the remaining balance ($150.0 million)of the 2.25% notes. If our cash is not sufficient to meet our obligations underthe 2.25% notes, we would be required to seek additional financing.

***Other Liquidity Matters***

As of December 31, 2006, we had federal netoperating loss (NOL) carryforwards of approximately $561.6 million. These NOLcarryforwards will expire in the years 2007-2026 (as more fully describedin Note 5 to the consolidated financial statements), if not utilized. During2000 we determined that an ownership change under Section 382 of theInternal Revenue Code of 1986, as amended, occurred during 1998. The effect ofthis ownership change was the imposition of a $3.2 million annual limitation onthe use of NOL carryforwards attributable to periods before the change. Thisannual limitation will result in the expiration of some NOL carryforwardsbefore they become available for utilization. At December 31, 2006 theamount of NOL subject to the limitation was $42.3 million and the amount notsubject to limitation was $519.4 million.

In August 2004, we completed the acquisition ofall of the outstanding capital stock not already owned by us of AbilityBiomedical. Pursuant to this transaction, we acquired Ability Biomedical’sintellectual property related to IP-10, a protein believed to beassociated with a variety of immune disorders, including multiple sclerosis,rheumatoid arthritis, inflammatory bowel disease, chronic obstructive pulmonarydisease and type I diabetes.

Under the terms of the share purchase agreement withAbility Biomedical, we made cash payments totaling approximately $606 thousandand issued a total of 731,823 shares of our common stock valued atapproximately $4.3 million in exchange for all of Ability Biomedical’s issuedand outstanding stock not already owned by us.

Upon achievement of certain development milestoneswith respect to our anti-IP-10 antibody program, but no later than September 4,2007, we may be required to pay the former shareholders of Ability Biomedicalan additional amount of approximately $3.65 million subject to an interestcomponent in cash and/or common stock subject to fluctuations in currencyexchange rates. In lieu of such additional payment, we also have the option torevert to the original joint collaboration agreement with the formershareholders of Ability Biomedical whereby each party would be responsible for50% of the costs associated with the anti-IP-10 antibody.

In September 2004, we entered into a series ofagreements with Pfizer. The first agreement amended our existing collaborativeresearch and license and royalty agreements with Pfizer to provide for thediscovery and development of up to 50 antibody products over ten years. Thesecond and third agreements were a sublicense from us to Pfizer and across-license of certain patents and patent applications, in each case solelyrelating to our respective anti-CTLA-4 antibody programs. The fourthagreement was a stock purchase agreement also related to the anti-CTLA-4programs. Pursuant to certain of these agreements, 

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Pfizer made a totalinitial cash payment to us of $80.0 million and purchased 4,827,808 shares ofour common stock at a purchase price equal to $6.21 per share for an aggregatepurchase price of $30.0 million. These shares were issued in a privateplacement pursuant to an exemption from registration provided by Section 4(2) ofthe Securities Act of 1933, as amended, or the Securities Act. The purchaseprice represented a small premium to market price at the time we entered intothe collaboration. Pfizer agreed to a two-year lock-up with respect to thesales of such stock. We have no further obligation to register such stock.

In January 2005, we announced the closing of acollaboration and co-promotion agreement and a related securities purchaseagreement with BMS. Under the terms of the collaboration, we and BMS eachgranted the other certain intellectual property licenses and product rights ona worldwide basis in order to enable us to collaborate in research anddevelopment of certain therapeutic antibody-based products for the treatment ofcancer and other diseases, and, in the event that further development work issuccessful, to commercialize any resulting products. In particular, thecollaboration includes a grant by us to BMS of a license to commercializeipilimumab, a fully human antibody product candidate developed using ourUltiMAb Human Antibody Development System® . Ipilimumab is currently underinvestigation for the treatment of a broad range of cancers. The collaborationalso includes the grant by us to BMS of a sub-license to MDX-1379, agp100 peptide vaccine licensed by us from the U.S. Public Health Service, foruse with ipilimumab for the treatment of metastatic melanoma. We and BMS arecurrently conducting three separate registrational studies of ipilimumab formetastatic melanoma under three separate Special Protocol Assessment agreementswith the FDA. One is a monotherapy study of ipilimumab in second-line(previously treated with melanoma therapy other than ipilimumab) metastaticmelanoma that completed enrollment in 2006. This monotherapy study is thesubject of a potential BLA filing in 2007**.**A Phase III clinical trial of ipilimumab used in combination with chemotherapyin first-line (previously untreated) patients with metastatic melanoma wasinitiated in June 2006 and is currently underway. The third study is anongoing Phase III clinical trial with ipilimumab and MDX-1379 combinationtherapy in Stage III and Stage IV metastatic melanoma patients. Each of thesetrials is being conducted at multiple sites worldwide.

As part of the collaboration, we and BMS committed toan initial multi-year budget of approximately $192.0 million to fund thedevelopment of ipilimumab as a potential treatment for a broad range ofcancers. BMS is responsible for 65% of all development costs related toclinical trials intended to support regulatory approval in both the U.S. andEurope, with the remaining 35% to be paid by us. We and BMS will share equallythe costs of any clinical trials of products intended solely for regulatoryapproval in the U.S., and BMS will be fully responsible for all developmentcosts that relate solely to regulatory approval in Europe and other parts ofthe world.

Under the terms of the collaboration, we have the optionto co-promote any product in the U.S. If we exercise a co-promotion option withrespect to a product for use inthe first cancer indication for which aninitial regulatory approval filing is accepted by the FDA, we will have the right and obligation to co-promotesuch product for use in all cancer indications, even if such indications arethe subject of additional filings or approvals, and even if we opted-out of thedevelopment of any such indication. Evenif we elect to co-promote a product for cancer indications, however, we would need toexercise a separate optionto co-promote that product withrespect to any indication otherthan cancer. If we do not exercise our co-promotion option with respect to aproduct for use in the firstcancer indication for which an initialregulatory approval filing is accepted by the FDA,then we will not have the right or obligation to co-promote such product forany cancer indications, unless the filing for that first cancer indication is not approved by FDA.

Under the terms of the collaboration, we could receiveup to $205.0 million from BMS if all regulatory milestones are met, plus up toan additional $275.0 million in sales-related milestones. If we exercise ourco-promotion option with respect to ipilimumab for the metastatic melanomaindication, and regulatory approval is obtained, we would receive 45% of anyprofits from commercial sales of such product in the U.S. In the event wechoose not to exercise our co-promotion rights with respect to a product, BMSwill 

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have exclusive commercialrights in the U.S. and will pay us royalties on commercial sales. Regardless ofwhether or not we exercise our co-promotion option outside the U.S., BMS willhave exclusive commercial rights for products and will pay us royalties oncommercial sales.

Pursuant to these agreements, BMS made an initial cashpayment to us on January 21, 2005 of $25.0 million. In addition, BMSpurchased a total of 2,879,223 unregistered shares of our common stock at apurchase price equal to $8.6829 per share for an aggregate purchase price of$25.0 million. These shares were issued in a private placement pursuant to theexemption from registration provided by Section 4(2) of theSecurities Act of 1933. The purchase price represented a small premium to themarket price on the date we entered into the collaboration. BMS agreed to atwo-year lock-up period with respect to any sales of such stock.  The lock-up period expired in January 2007,and BMS may now sell such shares pursuant to the provisions of Rule 144under the Securities Act. We have no future obligation to register such stock.

In October 2005, Celldex completed theacquisition of all of the issued and outstanding shares of capital stock ofLorantis and substantially all of the assets of Alteris.

The purchase price of Lorantis consisted of 6.8million shares of Celldex Class A common stock (valued at $34.0 million).

The purchase price for substantially all of theAlteris assets consisted of 1.2 million shares of Celldex common stock (valuedat $6.0 million) and approximately $1.6 million in cash. Celldex may berequired to pay Alteris up to $5.0 million upon obtaining the first approvalfor commercial sale of an EGFRvIII product.

***Contractual Obligations***

Our material contractual obligations under lease, debtand research funding agreements for the next five years, and thereafter, as of December 31,2006, are as follows:

| ** **                           | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------|------------|-------------------------------------------|------------|
| ** **                           | ** ** | **Less Than  1 Year**           | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After  5 Years** | ** ** | **Total** | ** ** |
| ** **                           | ** ** | **(in thousands)**                   | ** ** |
| **Contractual Obligations(1)**       | ** ** |                                      | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| Convertible  notes(2)                |       |                                      | $          | 3,375 | ** ** |   | $ | 6,750 |   | $ | 153,375 |   |   | $ | — | ** ** |   | $ | 163,500 |   |
| Research and  development funding(3) |       |                                      | 42,331     | ** ** |   | 1,620 |   | 60 |   |   | — | ** ** |   | 44,011 |   |
| Operating leases  and other          |       |                                      | 2,979      | ** ** |   | 6,145 |   | 4,734 |   |   | 690 | ** ** |   | 14,548 |   |
| Total contractual cash  obligations  |       |                                      | $          | 48,685 | ** ** |   | $ | 14,515 |   | $ | 158,169 |   |   | $ | 690 | ** ** |   | $ | 222,059 |   |

----

(1)          This table does notinclude (a) any milestone payments which may become payable to thirdparties under research collaborations or license agreements as the timing andlikelihood of such payments are not known, (b) any royalty payments tothird parties as the amounts of such payments, timing and/or the likelihood ofsuch payments are not known, (c) amounts, if any, that may be committed inthe future to construct additional facilities, and (d) contracts that areentered into in the ordinary course of business which are not material in theaggregate in any period presented above.

(2)          Our convertible notesmay be converted to common stock prior to the maturity date and, therefore, maynot require the use of our capital resources.

(3)          Researchand development funding for “Less than 1 year” includes up to $38.9 millionthat we anticipate may be used under our collaboration agreement with BMS tofund our share of the expected costs of the development of ipilimumab during2007. This amount represents our costs; net of reimbursement of 65% from ourpartner BMS, as well as our share (35%) of the BMS development costs during2007. The amounts that we actually spend during 2007  for the development of ipilimumab may varysignificantly depending on numerous factors, including the outcome of ourmeetings with regulatory authorities, results from current and future clinicaltrials, the continued 

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analysis of theclinical trial data for ipilimumab, actions taken by our partner BMS under thecollaboration agreement and technological developments.

***Off-Balance Sheet Arrangements***

We do not have anyoff-balance sheet arrangements.

***Financial Uncertainties Related to Potential FutureMilestone Payments***

Effective September 4, 2002, we entered into acollaboration and license agreement with Kirin, which provides for us toexchange with Kirin certain cross-licenses for each other’s technology for thedevelopment and commercialization of human antibody products. Pursuant to aletter of intent that was superseded by the collaboration and licenseagreement, we and Kirin developed the KM-Mouse®, a unique crossbred mouse that combinesthe traits of our HuMAb-Mouse® with Kirin’s TC MouseTM. Under the collaboration and licenseagreement, we have exchanged cross-licenses with Kirin with respect to the KM-Mouse® and other antibody-generating mice. Inaddition, certain of the cross-licenses granted under the Collaboration andLicense Agreement are subject to license, milestone and royalty payments by oneparty to the other.

Through December 31,2006, we have not made any milestone payments to Kirin although approximately$2.8 million has been paid to Kirin as of December 31, 2006 representing apayment due Kirin as a result of our collaboration with Pfizer. Based on atotal of four products we are developing which use or, we believe may use,Kirin technology that (i) are currently in clinical trials, or (ii) weanticipate may enter clinical trials through the end of 2008, we may berequired to make milestone payments to Kirin aggregating up to approximately $17.0million with respect to such products, or a maximum of approximately $4.25million per product. Our future milestone payment obligations to Kirin may ormay not be triggered, and may vary in size, depending on a number of variables,almost all of which are currently unknown, including the following:

·       whetheror not a decision is made to request a license from Kirin;

·       thetype of license requested (research or commercial);

·       thesuccess and timing of development efforts and clinical trials of productcandidates covered by any such licenses;

·       thetype of product developed (paymentobligations differ depending on whether a product is an *ex vivo* therapeutic, *in vivo* therapeutic, research reagent ordiagnostic); and

·       otherfinancial provisions of the Kirin agreement that provide for variations in feelevels and netting of certain payments over specified periods of time that mayimpact the total amount potentially payable to Kirin for any particular licensefee or milestone payment.

We have alsoentered into a number of other agreements that contain licenses of third-partytechnology which may be used together with our own platform technologies forthe generation, development and/or manufacture of our antibody products. Inaddition, we have entered into other third-party agreements that containlicenses associated with antibody products that target specific antigens. Manyof these agreements contain milestone payments that are due with respect toproducts using/targeting the licensed technology/antigen only if and whencertain specified pre-commercialization events occur. Not all of our productscurrently under development trigger such milestone payments. Through December 31,2006, we had made milestone payments of approximately $0.3 million under theseagreements. In addition, under the agreements we currently have in place (otherthan with Kirin), based on a total of nine products we are developing for whichmilestones are potentially due and that (i) are now in clinical trials, or(ii) which we anticipate may enter clinical trials before the end of 2008,we may be obligated to make future milestone payments aggregating up toapproximately $59.6 millionwith respect to 

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suchproducts. In general, potential milestone payments for our antibody productsmay or may not be triggered under these licenses, and may vary in size,depending on a number of variables, almost all of which are currently uncertain.Typically, the events that trigger these payments per product include:

·       submissionof IND(s) or foreign equivalents;

·       commencementof Phase I, Phase II and/or Phase III clinical trials or foreign equivalents;

·       submissionof BLA(s) or foreign equivalents; and

·       receiptof marketing approval(s) to sell products in a particular country orregion.

Inaddition, the licenses above may trigger royalty payments in connection withthe commercialization of certain of our products. To date, we have not made anyroyalty payments on sales of our products and believe we are at least a yearaway from selling any products that would require us to make any such royaltypayments. Whether we will be obligated to make milestone or royalty payments inthe future is subject to the success of our product development efforts and,accordingly, is inherently uncertain.

***Future Liquidity Resources***

Our current sources ofliquidity are our cash, cash equivalents and marketable securities, interestand dividends earned on such cash, cash equivalents and marketable securities,contract and licensing revenue and sales of our products for research. Webelieve that such sources of liquidity will be sufficient to meet ouroperating, debt service, and capital requirements for at least the next 24months. To the extent our 2.25% notes are converted into shares of our commonstock on or before their maturity date, we will have use of that portion of theprincipal amount of the notes to fund our on-going operations. In any event, wemay require additional financing within this time frame and may raise fundsthrough public or private financings, sales of stock of partners in which wehave an equity ownership, line of credit arrangements, collaborativerelationships and/or other methods. The use of cash on hand or other financialalternatives will depend on several factors including, but not limited to, thefuture success of our products in clinical development, the prevailing interestrate environment, and access to the capital markets. We cannot assure you thatwe will be able to raise such additional funds. We may be unable to raisesufficient funds to complete development of any of our product candidates or tocontinue operations. As a result, we may face delay, reduction or eliminationof research and development programs or preclinical or clinical trials, inwhich case our business, financial condition or results of operations may bematerially harmed.

**Item 7A.**                Quantitativeand Qualitative Disclosures about Market Risks

We do not use derivative financial instruments in ourinvestment portfolio. We regularly invest excess operating cash in depositswith major financial institutions, money market funds, notes issued by the U.S. Government,as well as fixed income investments and U.S. bond funds both of which can bereadily purchased or sold using established markets. We believe that the marketrisk arising from our holdings of these financial instruments is minimal. We donot have exposure to market risks associated with changes in interest rates aswe have no variable interest rate debt outstanding. We do not believe we haveany material exposure to market risks associated with interest rates, however,we may experience reinvestment risk as fixed income securities mature and arereinvested in securities bearing lower interest rates.

We may be exposed to exchange conversion differencesin translating the foreign results of our investment in Genmab to U.S. dollars.Depending upon the relative strengthening or weakening of the U.S. dollar, theconversion difference could be significant.

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**Item 8.**                        ConsolidatedFinancial Statements and Supplementary Data

**Index toConsolidated Financial Statements**

|                                                                                                                  | ** ** | **Page** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **Medarex, Inc.**                                                                                           |       |     |       |
| Report of Independent Registered Public Accounting  Firm                                                         |       | F-2      |       |
| Consolidated  Balance Sheets as of December 31, 2006 and 2005                                               |       | F-3      |       |
| Consolidated Statements of Operations for the years  ended December 31, 2006, 2005 and 2004                 |       | F-4      |       |
| Consolidated Statements  of Shareholders’ Equity for the years ended December 31, 2006, 2005 and  2004 |       | F-5      |       |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2006, 2005 and 2004                 |       | F-7      |       |
| Notes to Consolidated Financial Statements                                                                       |       | F-8      |       |
| **Genmab A/S (A development stage company)**                                                                     |       |     |       |
| Report of Independent Registered Public Accounting  Firm                                                         |       | F-36     |       |

 

F-1

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**Report ofIndependent Registered Public Accounting Firm**

The Board of Directors and ShareholdersMedarex, Inc. 

We have audited the accompanying consolidated balancesheets of Medarex, Inc. and subsidiaries as of December 31, 2006 and2005, and the related consolidated statements of operations, shareholders’equity and cash flows for each of the three years in the period ended December 31,2006. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits. The financial statements of Genmab A/S (acorporation in which the Company has an 22% interest at December 31,2004), have been audited by other auditors whose report for December 31,2004 and the year then ended has been furnished to us, and our opinion on the2004 consolidated financial statements, insofar as it relates to the amountsincluded for Genmab A/S, is based solely on the report of the other auditors. Inthe consolidated financial statements, the Company’s equity in the net loss ofGenmab A/S represents 10% in 2004 of pre-tax loss. 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits and the report of other auditors provide a reasonablebasis for our opinion.

In our opinion based on our audits and the report ofother auditors, the financial statements referred to above present fairly, inall material respects, the consolidated financial position of Medarex, Inc.and subsidiaries at December 31, 2006 and 2005, and the consolidatedresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2006 in conformity with U.S. generallyaccepted accounting principles. 

As discussed in Note 2 to the consolidated financialstatements, effective January 1, 2006, the Company adopted Statement ofFinancial Accounting Standards No. 123(R), “Share-Based Payments” applyingthe modified prospective method. 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of Medarex, Inc.’sinternal control over financial reporting as of December 31, 2006, basedon criteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission, and ourreport dated February 28,2007 expressed an unqualified opinion thereon.

|                         | /s/ ERNST &  YOUNG LLP |   |
|-------------------------|--------------------------------------|--------|
| MetroPark, New  Jersey  |                                 |
| February 28,  2007 |                                 |

 

F-2

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**MEDAREX, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share data)**

| ** **                                                                                                                                                                                                                                 | ** ** | **December 31** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                                                                 | ** ** | **2006**             | ** ** | **2005** | ** ** |
| ASSETS                                                                                                                                                                                                                                     |       |                 |       |   |   |
| Current assets:                                                                                                                                                                                                                            |       |                 |       |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                                 |       | $                    | 34,511     |   | $ | 90,602 |   |
| Marketable securities                                                                                                                                                                                                                      |       | 304,983              |       | 260,705 |   |
| Marketable securities—Genmab                                                                                                                                                                                                          |       | 150,000              |       | — |   |
| Prepaid expenses and  other current assets                                                                                                                                                                                                 |       | 22,271               |       | 31,608 |   |
| Total current assets                                                                                                                                                                                                                       |       | 511,765              |       | 382,915 |   |
| Property, buildings and equipment:                                                                                                                                                                                                         |       |                 |       |   |   |
| Land                                                                                                                                                                                                                                       |       | 6,780                |       | 6,795 |   |
| Buildings and leasehold  improvements                                                                                                                                                                                                      |       | 85,123               |       | 82,338 |   |
| Machinery and equipment                                                                                                                                                                                                                    |       | 61,076               |       | 54,130 |   |
| Furniture and fixtures                                                                                                                                                                                                                     |       | 5,025                |       | 4,553 |   |
|                                                                                                                                                                                                                                       |       | 158,004              |       | 147,816 |   |
| Less accumulated  depreciation and amortization                                                                                                                                                                                            |       | (73,663              | )          | (61,832 | ) |
|                                                                                                                                                                                                                                       |       | 84,341               |       | 85,984 |   |
| Marketable securities—Genmab                                                                                                                                                                                                          |       | 344,382              |       | — |   |
| Investment in Genmab                                                                                                                                                                                                                       |       | —               |       | 3,255 |   |
| Investments in, and  advances to, other partners                                                                                                                                                                                           |       | 8,141                |       | 6,400 |   |
| Segregated securities                                                                                                                                                                                                                      |       | 1,477                |       | 2,033 |   |
| Other assets                                                                                                                                                                                                                               |       | 4,587                |       | 6,289 |   |
| Total assets                                                                                                                                                                                                                               |       | $                    | 954,693    |   | $ | 486,876 |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                  |       |                 |       |   |   |
| Current liabilities:                                                                                                                                                                                                                       |       |                 |       |   |   |
| Trade accounts payable                                                                                                                                                                                                                     |       | $                    | 7,154      |   | $ | 4,939 |   |
| Accrued liabilities                                                                                                                                                                                                                        |       | 42,250               |       | 29,371 |   |
| Deferred contract  revenue—current                                                                                                                                                                                                    |       | 21,032               |       | 20,872 |   |
| Total current  liabilities                                                                                                                                                                                                                 |       | 70,436               |       | 55,182 |   |
| Deferred contract  revenue—long-term                                                                                                                                                                                                  |       | 94,115               |       | 106,827 |   |
| Other long-term  liabilities                                                                                                                                                                                                               |       | 3,689                |       | 4,032 |   |
| 2.25% Convertible senior  notes due May 15, 2011                                                                                                                                                                                      |       | 141,581              |       | 150,000 |   |
| Minority interest                                                                                                                                                                                                                          |       | 4,699                |       | 11,590 |   |
| Commitments and  contingencies                                                                                                                                                                                                             |       | —               |       | — |   |
| Shareholders’ equity:                                                                                                                                                                                                                 |       |                 |       |   |   |
| Preferred stock, $1.00  par value, 2,000,000 shares authorized; none issued and outstanding                                                                                                                                                |       | —               |       | — |   |
| Common stock, $.01 par  value; 200,000,000 shares authorized; 124,288,191 shares issued and  124,244,059 outstanding at December 31, 2006 and 111,773,230 shares  issued and 111,687,930 shares outstanding at December 31, 2005 |       | 1,243                |       | 1,118 |   |
| Capital in excess of par  value                                                                                                                                                                                                            |       | 1,107,487            |       | 943,245 |   |
| Treasury stock, at cost  44,132 shares in 2006 and 85,300 shares in 2005                                                                                                                                                                   |       | (111                 | )          | (215 | ) |
| Deferred compensation                                                                                                                                                                                                                      |       | —               |       | (599 | ) |
| Accumulated other  comprehensive income                                                                                                                                                                                                    |       | 495,208              |       | (2,351 | ) |
| Accumulated deficit                                                                                                                                                                                                                        |       | (963,654             | )          | (781,953 | ) |
| Total shareholders’  equity                                                                                                                                                                                                           |       | 640,173              |       | 159,245 |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                                            |       | $                    | 954,693    |   | $ | 486,876 |   |

 

F-3

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**MEDAREX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)**

| ** **                                                                   | ** ** | **For the Year Ended December 31** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Contract and  license revenues                                               |       | $                                                           | 26,736     |   | $ | 30,226 |   | $ | 9,119 |   |
| Contract and  license revenues from Genmab                                   |       | 1,553                                                       |       | 4,067 |   | 3,355 |   |
| Reimbursement of  development costs                                          |       | 20,357                                                      |       | 17,162 |   | — |   |
| Total revenues                                                               |       | 48,646                                                      |       | 51,455 |   | 12,474 |   |
| Costs and  expenses:                                                         |       |                                                        |       |   |   |   |   |
| Research and development                                                     |       | 194,512                                                     |       | 136,940 |   | 123,012 |   |
| General and administrative                                                   |       | 51,928                                                      |       | 28,969 |   | 25,259 |   |
| Acquisition of in-process technology                                         |       | —                                                      |       | 8,447 |   | 5,455 |   |
| Total costs and expenses                                                     |       | 246,440                                                     |       | 174,356 |   | 153,726 |   |
| Operating loss                                                               |       | (197,794                                                    | )          | (122,901 | ) | (141,252 | ) |
| Equity in net loss of affiliate                                              |       | (1,037                                                      | )          | (6,323 | ) | (19,791 | ) |
| Interest, dividend  income and realized gains                                |       | 17,352                                                      |       | 14,740 |   | 9,228 |   |
| Impairment loss  on investments in partners                                  |       | (5,170                                                      | )          | (33,347 | ) | (7,309 | ) |
| Interest expense                                                             |       | (4,709                                                      | )          | (4,233 | ) | (12,845 | ) |
| Minority interest—Celldex                                               |       | 6,891                                                       |       | 4,410 |   | — |   |
| Debt conversion  expense                                                     |       | —                                                      |       | — |   | (10,151 | ) |
| Net loss on  extinguishment of debt                                          |       | —                                                      |       | — |   | (4,241 | ) |
| Non-cash gain on  loss of significant influence in Genmab                    |       | 3,202                                                       |       | — |   | — |   |
| Pre tax loss                                                                 |       | (181,265                                                    | )          | (147,654 | ) | (186,361 | ) |
| Provision for  income taxes                                                  |       | 436                                                         |       | 358 |   | 31 |   |
| Net loss                                                                     |       | $                                                           | (181,701   | ) | $ | (148,012 | ) | $ | (186,392 | ) |
| Basic and diluted net loss per share                                         |       | $                                                           | (1.50      | ) | $ | (1.34 | ) | $ | (2.29 | ) |
| Weighted average  number of common shares outstanding—basic and diluted |       | 121,126                                                     |       | 110,309 |   | 81,494 |   |

 

See notes to these consolidated financial statements.

F-4

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**MEDAREX,INC. AND SUBSIDIARIES**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(Dollars in thousands)

| ** **                                                                               | ** ** | **Common Stock**      | ** ** | **Capital in** | ** ** | **Treasury Stock**            | ** ** | ** **                 | ** ** | **Accumulated Other** | ** ** | ** **                 | ** ** | **Total**                             | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------|------------|---------------------|------------|------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|---------------------------------------|------------|
| ** **                                                                               | ** ** | **Number of  Shares** | ** ** | **Amount**          | ** ** | **Excess of par  Value** | ** ** | **Number of  Shares** | ** ** | **Amount**                 | ** ** | **Deferred  Compensation** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Accumulated  Deficit** | ** ** | **Shareholders’  Equity** | ** ** |
| Balance at December 31, 2003                                                        |       |                       | 79,501,080 |                |       |                               | $          | 795                        |       |                       |       | $                          | 671,338    |                                  |       |   | (493,516 | ) |   |   | $ | (1,242 | ) |   |   | $ | 994 |   |   |   | $ | 8,627 |   |   |   | $ | (447,549 | ) |   |   | $ | 232,963 |   |   |
| Issuance of common stock for exercise of options                                         |       |                       | 201,450    |                |       |                               | 2          |                       |       |                       | 779        |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 781 |   |   |
| Stock based compensation                                                                 |       |                       |       |                |       |                               |       |                       |       |                       | 2,188      |                       |       |                                  |       |   |   |   |   |   |   |   | 138 |   |   |   |   |   |   |   |   |   |   |   | 2,326 |   |   |
| Issuance of vested restricted stock units under  deferred compensation plan         |       |                       |       |                |       |                               |       |                       |       |                       | 722        |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 722 |   |   |
| Withdrawal from executive deferred compensation plan                                     |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  | 301,876    |   |   |   | 760 |   |   |   | (760 | ) |   |   |   |   |   |   |   |   |   |   | — |   |   |
| Issuance of common stock as partial consideration for  acquisition of Ability Biomedical |       |                       | 731,823    |                |       |                               | 7          |                       |       |                       | 4,274      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,281 |   |   |
| Issuance of common stock in connection with license  agreements, net                     |       |                       | 426,547    |                |       |                               | 5          |                       |       |                       | 2,556      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,561 |   |   |
| Issuance of common stock under the employee  stock purchase plan                    |       |                       | 176,625    |                |       |                               | 2          |                       |       |                       | 1,067      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,069 |   |   |
| Issuance of common stock in connection with Pfizer  collaboration                        |       |                       | 4,827,808  |                |       |                               | 48         |                       |       |                       | 29,952     |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 30,000 |   |   |
| Premium associated with convertible notes exchange                                       |       |                       |       |                |       |                               |       |                       |       |                       | 10,154     |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 10,154 |   |   |
| Appreciation of equity method investee                                                   |       |                       |       |                |       |                               |       |                       |       |                       | 9,748      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 9,748 |   |   |
| Net loss                                                                                 |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (186,392 | ) |   |   | (186,392 | ) |   |
| Other comprehensive income (loss)                                                        |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| foreign currency translation adjustment                                                  |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   | 724 |   |   |   |   |   |   |   | 724 |   |   |
| unrealized loss on securities                                                            |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   | (2,702 | ) |   |   |   |   |   |   | (2,702 | ) |   |
| Comprehensive loss                                                                       |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (188,370 | ) |   |
| Balance at December 31, 2004                                                        |       |                       | 85,865,333 |                |       |                               | 859        |                       |       |                       | 732,778    |                       |       |                                  | (191,640   | ) |   |   | (482 | ) |   |   | 372 |   |   |   | 6,649 |   |   |   | (633,941 | ) |   |   | 106,235 |   |   |
| Issuance of common stock for exercise of options                                         |       |                       | 904,067    |                |       |                               | 9          |                       |       |                       | 4,481      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,490 |   |   |
| Stock based compensation                                                                 |       |                       | 15,000     |                |       |                               |       |                       |       |                       | 2,739      |                       |       |                                  |       |   |   |   |   |   |   |   | (704 | ) |   |   |   |   |   |   |   |   |   |   | 2,035 |   |   |
| Issuance of vested restricted stock units under  deferred compensation plan         |       |                       |       |                |       |                               |       |                       |       |                       | 1,246      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,246 |   |   |
| Withdrawal from executive deferred compensation plan                                     |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  | 106,340    |   |   |   | 267 |   |   |   | (267 | ) |   |   |   |   |   |   |   |   |   |   | — |   |   |
| Issuance of common stock in connection with  collaboration agreements, net               |       |                       | 2,879,223  |                |       |                               | 29         |                       |       |                       | 24,971     |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 25,000 |   |   |
| Issuance of common stock in connection with the  redemption of convertible  note    |       |                       | 21,875,353 |                |       |                               | 219        |                       |       |                       | 143,564    |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 143,783 |   |   |
| Issuance of common stock under the employee  stock purchase plan                    |       |                       | 234,254    |                |       |                               | 2          |                       |       |                       | 1,427      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,429 |   |   |
| Appreciation of equity method investee                                                   |       |                       |       |                |       |                               |       |                       |       |                       | 8,039      |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 8,039 |   |   |

 

F-5

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**MEDAREX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued) (Dollars in thousands)**

| ** **                                                                  | ** ** | **Common Stock**      | ** ** | **Capital in** | ** ** | **Treasury Stock**            | ** ** | ** **                 | ** ** | **Accumulated Other** | ** ** | ** **                 | ** ** | **Total**                             | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------|------------|---------------------|------------|------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|---------------------------------------|------------|
| ** **                                                                  | ** ** | **Number of  shares** | ** ** | **Amount**          | ** ** | **excess of par  value** | ** ** | **Number of  shares** | ** ** | **Amount**                 | ** ** | **Deferred  Compensation** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Accumulated  deficit** | ** ** | **shareholders’  equity** | ** ** |
| Subsidiary stock issuance                                                   |       |                       |       |                |       |                               |       |                       | 24,000     |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 24,000 |   |   |
| Net loss                                                                    |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (148,012 | ) |   |   | (148,012 | ) |   |
| Other comprehensive income  (loss)                                          |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (610 | ) |   |
| foreign currency translation adjustment                                     |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   | (610 | ) |   |   |   |   |   |   | (8,390 | ) |   |
| unrealized loss on securities                                               |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   | (8,390 | ) |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                                                          |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (157,012 | ) |   |
| Balance at December 31, 2005                                           |       | 111,773,230                |       |                | 1,118      |                               |       |                       | 943,245    |                       |       |                       | (85,300    | )                                     |       |   | (215 | ) |   |   | (599 | ) |   |   | (2,351 | ) |   |   | (781,953 | ) |   |   | 159,245 |   |   |
| Issuance of common stock for exercise of options                            |       | 883,149                    |       |                | 9          |                               |       |                       | 5,976      |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,985 |   |   |
| Stock based compensation                                                    |       | (15,000                    | )          |                |       |                               |       |                       | 19,343     |                       |       |                       |       |                                  |       |   |   |   |   |   | 703 |   |   |   |   |   |   |   |   |   |   |   | 20,046 |   |   |
| Issuance of vested restricted stock units under  deferred compensation plan |       |                       |       |                |       |                               |       |                       | 1,194      |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,194 |   |   |
| Withdrawal from executive deferred compensation plan                        |       |                       |       |                |       |                               |       |                       |       |                       |       |                       | 41,168     |                                  |       |   | 104 |   |   |   | (104 | ) |   |   |   |   |   |   |   |   |   |   | — |   |   |
| Modification of conversion feature of 2.25% notes                      |       |                       |       |                |       |                               |       |                       | 8,900      |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 8,900 |   |   |
| Issuance of common stock under the employee stock  purchase plan            |       | 146,812                    |       |                | 1          |                               |       |                       | 895        |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 896 |   |   |
| Issuance of common stock in a public offering, net                          |       | 11,500,000                 |       |                | 115        |                               |       |                       | 127,934    |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 128,049 |   |   |
| Net loss                                                                    |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (181,701 | ) |   |   | (181,701 | ) |   |
| Other comprehensive income  (loss)                                          |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| foreign currency translation adjustment                                     |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   | (3,123 | ) |   |   |   |   |   |   | (3,123 | ) |   |
| unrealized gain on securities                                               |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   | 500,682 |   |   |   |   |   |   |   | 500,682 |   |   |
| Comprehensive income                                                        |       |                       |       |                |       |                               |       |                       |       |                       |       |                       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 315,858 |   |   |

| Balance at  December 31, 2006 |   | 124,288,191 |   |   | $ | 1,243 |   |   |   | $ | 1,107,487 |   |   |   | (44,132 | ) |   |   | $ | (111 | ) |   |   | $ | — |   |   |   | $ | 495,208 |   |   |   | $ | (963,654 | ) |   |   | $ | 640,173 |   |   |
|------------------------------------|--------|-------------|--------|--------|---|-------|--------|--------|--------|---|-----------|--------|--------|--------|---------|---|--------|--------|---|------|---|--------|--------|---|--------|--------|--------|--------|---|---------|--------|--------|--------|---|----------|---|--------|--------|---|---------|--------|--------|

 

See notes to these consolidated financial statements.

F-6

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**MEDAREX, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)**

| ** **                                                                   | ** ** | **For the Year Ended  December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Operating activities:                                                        |       |                                                     |       |   |   |   |   |
| Net loss                                                                     |       | $                                                        | (181,701   | ) | $ | (148,012 | ) | $ | (186,392 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |       |                                                     |       |   |   |   |   |
| Depreciation                                                                 |       | 13,117                                                   |       | 12,737 |   | 12,020 |   |
| Amortization                                                                 |       | 3,575                                                    |       | 5,627 |   | 6,847 |   |
| Loss on sale of  assets—Celldex                                         |       | 655                                                      |       | — |   | 105 |   |
| Stock based  compensation and vesting of restricted stock units              |       | 21,240                                                   |       | 1,890 |   | 3,047 |   |
| Write-off of  deferred offering costs—Celldex                           |       | —                                                   |       | 978 |   | — |   |
| Non cash revenue                                                             |       | (1,339                                                   | )          | — |   | (1,166 | ) |
| Licenses fees paid  with stock                                               |       | —                                                   |       | — |   | 2,560 |   |
| Acquisition of  in-process technology                                        |       | —                                                   |       | 8,447 |   | 5,455 |   |
| Equity in net loss  of Genmab                                                |       | 1,037                                                    |       | 6,323 |   | 19,791 |   |
| Impairment losses  on investments in partners and other assets               |       | 5,170                                                    |       | 36,120 |   | 7,309 |   |
| Non-cash gain on  loss of significant influence in Genmab                    |       | (3,202                                                   | )          | — |   | — |   |
| Gain on exchange  of convertible debt                                        |       | —                                                   |       | — |   | (325 | ) |
| Loss on redemption  convertible debt                                         |       | —                                                   |       | — |   | 4,566 |   |
| Gain on sale of  partners’ stock                                        |       | —                                                   |       | (3,315 | ) | (1,664 | ) |
| Minority interest—Celldex                                               |       | (6,891                                                   | )          | (4,410 | ) | — |   |
| Changes in operating  assets and liabilities                                 |       |                                                     |       |   |   |   |   |
| Other current  assets                                                        |       | 9,337                                                    |       | (24,900 | ) | (458 | ) |
| Trade accounts  payable                                                      |       | 2,215                                                    |       | (59 | ) | 2,801 |   |
| Accrued  liabilities                                                         |       | 11,003                                                   |       | (6,088 | ) | 20,875 |   |
| Deferred contract  revenue                                                   |       | (12,552                                                  | )          | 25,748 |   | 98,649 |   |
| Net cash used in  operating activities                                       |       | (138,336                                                 | )          | (88,914 | ) | (5,980 | ) |
| Investing activities:                                                        |       |                                                     |       |   |   |   |   |
| Purchase of  property and equipment                                          |       | (13.521                                                  | )          | (9,312 | ) | (9,074 | ) |
| Proceeds from sale  of land and equipment                                    |       | —                                                   |       | — |   | 600 |   |
| Increase in  investments and advances to affiliates and partners             |       | (500                                                     | )          | — |   | (581 | ) |
| Release of  restriction of segregated cash                                   |       | 556                                                      |       | — |   | 3,195 |   |
| Investment in  Lorantis, net of acquired cash                                |       | —                                                   |       | 29,742 |   | — |   |
| Investment in  Alteris, net of acquired cash                                 |       | —                                                   |       | (2,208 | ) | — |   |
| Purchase of marketable  securities                                           |       | (195,973                                                 | )          | (56,108 | ) | (270,500 | ) |
| Sales and  maturities of marketable securities                               |       | 154,386                                                  |       | 121,999 |   | 242,573 |   |
| Net cash provided  by (used in) investing activities                         |       | (55,052                                                  | )          | 84,113 |   | (33,787 | ) |
| Financing activities:                                                        |       |                                                     |       |   |   |   |   |
| Cash received from  sales of securities and exercise of stock options, net   |       | 134,930                                                  |       | 31,061 |   | 31,850 |   |
| Proceeds from sale  of convertible subordinated notes, net                   |       | —                                                   |       | — |   | 145,217 |   |
| Repurchase of  4.50% convertible notes                                       |       | —                                                   |       | — |   | (144,585 | ) |
| Deferred offering  costs—Celldex                                        |       | —                                                   |       | — |   | (692 | ) |
| Debt exchange  costs                                                         |       | —                                                   |       | — |   | (100 | ) |
| Principal payments  under capital lease obligations                          |       | (27                                                      | )          | (9 | ) | (78 | ) |
| Net cash provided  by financing activities                                   |       | 134,903                                                  |       | 31,052 |   | 31,612 |   |
| Effect of exchange  rate differences on cash and cash equivalents            |       | 2,394                                                    |       | (492 | ) | — |   |
| Net increase  (decrease) in cash and cash equivalents                        |       | (56,091                                                  | )          | 25,759 |   | (8,155 | ) |
| Cash and cash  equivalents at beginning of period                            |       | 90,602                                                   |       | 64,843 |   | 72,998 |   |
| Cash and cash  equivalents at end of period                                  |       | $                                                        | 34,511     |   | $ | 90,602 |   | $ | 64,843 |   |
| Non-cash investing and  financing activities:                                |       |                                                     |       |   |   |   |   |
| Unrealized gain on  investment in Genmab                                     |       | $                                                        | 494,382    |   | $ | — |   | $ | — |   |
| Supplemental disclosures  of cash flow information                           |       |                                                     |       |   |   |   |   |
| Cash paid during period  for:                                                |       |                                                     |       |   |   |   |   |
| Income taxes                                                                 |       | $                                                        | 414        |   | $ | 365 |   | $ | 3 |   |
| Interest                                                                     |       | $                                                        | 3,391      |   | $ | 5,717 |   | $ | 10,789 |   |

 

See notes to these consolidated financial statements.

F-7

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

**1.**                 Organizationand Description of Business

Medarex, Inc. (“Medarex” or the “Company”),incorporated in July 1987, is a biopharmaceutical company developingtherapeutic products for cancer, inflammation, autoimmune disorders and otherlife-threatening and debilitating diseases based on its proprietary technology.The Company’s therapeutic products are currently under development and willneed the approval of the U.S. Food and Drug Administration (“FDA”) prior tocommercial distribution in the United States.

The Company’s financialstatements consolidate all of its subsidiaries, including those that itcontrols and those in which it holds a majority voting interest. As of December 31,2006, Medarex owns approximately 60% of the outstanding common stock of CelldexTherapeutics, Inc. (“Celldex”) (see Note 14). As of December 31,2006, the Company has significant investments in Genmab A/S (“Genmab”) (seeNote 10) and IDM Pharma, Inc. (“IDM Pharma”) (see Note 11). The Company’soperations constitute one business segment. All significant intercompanybalances and transactions have been eliminated in consolidation.

**2.**                 SignificantAccounting Policies

***Cash Equivalents***

The Company considers allhighly liquid investments with an original maturity of three months or less whenpurchased to be cash equivalents. The Company invests its cash in deposits withmajor financial institutions, money market funds and notes issued by the U. S.government.

***Marketable Securities and Long-Term Non-MarketableInvestments***

Marketable securities consist of fixed incomeinvestments with a maturity of greater than three months and other highlyliquid investments that can be readily purchased or sold using establishedmarkets. Under SFAS No. 115, *Accounting for CertainInvestments in Debt and Equity Securities* (“SFAS No. 115”),these investments are classified as available-for-sale and are reported at fairvalue on the Company’s consolidated balance sheet. Unrealized holding gains andlosses are reported within accumulated other comprehensive income as a separatecomponent of shareholders’ equity. Under the Company’s accounting policy, adecline in the fair value of marketable securities is deemed to be “other thantemporary” and such marketable securities are generally considered to beimpaired if their fair value is less than the Company’s cost basis for morethan six months, or some other period in light of the particular facts andcircumstances surrounding the investment. If a decline in the fair value of amarketable security below the Company’s cost basis is determined to be otherthan temporary, such marketable security is written down to its estimated fairvalue as a new cost basis and the amount of the write-down is included inearnings as an impairment charge.

In addition, the Company has investments in several ofits partners whose securities are not publicly traded. These investments areaccounted for under the cost basis. Because these securities are not publiclytraded, the Company values these investments by using information acquired fromindustry trends, management of these companies, such companies’ financialstatements, and other external sources. Specifically, the Company’sdetermination of any potential impairment of the value of privately heldsecurities includes an analysis of the following for each company on a periodicbasis: review of interim and year-end financial statements, cash position andoverall rate of cash used to support operations, the 

F-8

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

progress and developmentof technology and product platform, the per share value of subsequentfinancings, and potential strategic alternatives. Based on the informationacquired through these sources, the Company records an investment impairmentcharge when it believes an investment has experienced a decline in value thatis considered to be other than temporary.

The Company recordedinvestment impairment charges of $5.2 million, $0 and $0.2 million related toinvestments in partners whose securities are publicly traded for the yearsended December 31, 2006, 2005 and 2004, respectively. In addition, theCompany recorded investment impairment charges of $0, $33.3 million and $7.1million in partners whose securities are privately held for the years ended December 31,2006, 2005 and 2004, respectively. Approximately $29.3 million and $7.1 millionof investments impairment charges in partners whose securities are privatelyheld for the years ended December 31, 2005 and 2004, respectively, relatedto the Company’s investment in Immuno-Design Molecules, S.A. (“IDM”) prior toits business combination with Epimmune, Inc. (“Epimmune”) (see Note 11).

***Financial Instruments***

The fair values of cashand cash equivalents, marketable securities, accounts payable, accruedliabilities and convertible subordinated notes payable are not materiallydifferent from their carrying amounts as of December 31, 2006 and 2005.Receivables from partners are concentrated primarily in the pharmaceutical andbiotechnology industries. Although the Company’s partners are concentratedprimarily within these two industries, management considers the likelihood ofmaterial credit risk as remote.

***Property, Buildings and Equipment***

Property, buildings andequipment are stated at cost. Depreciation is determined using straight-linemethods over the estimated useful lives of the various asset classes. Usefullives for buildings and building improvements, furniture and fixtures andmachinery and equipment principally range from fifteen to thirty years, fiveyears and three to five years, respectively. Leasehold improvements are amortizedover the estimated useful lives of the assets or the initial lease terms,whichever is shorter.

***Impairment of Long-Lived Assets***

Long-lived assets andcertain identifiable intangible assets to be held and used are reviewed forimpairment when events or changes in circumstances indicate that the carryingamount of such assets may not be recoverable. Determination of recoverabilityis based on an estimate of undiscounted future cash flows resulting from theuse of the asset and its eventual disposition. In the event that such cashflows are not expected to be sufficient to recover the carrying amount of theassets, the assets are written down to their estimated fair values. Long-livedassets and certain identifiable intangible assets to be disposed of are reportedat the lower of carrying amount or fair value less cost to sell.

***Transactionsin Equity Method Investee Stock***

At the time an equity method investee sells its stockto unrelated parties at a price in excess of its book value, the Company’s netinvestment in that equity method investee increases proportionately to itsequity basis in the equity method investee. If at that time the equity methodinvestee is a newly-formed start-up, a research and development or adevelopment stage company, the Company’s proportionate share of the 

F-9

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

equity method investees’equity resulting from the additional equity raised is accounted for as anincrease to capital in excess of par value under Accounting Principles Board (“APB”)Opinion No. 18 and Staff Accounting Bulletin (“SAB”) No. 51.

***AssetRetirement Obligations***

The Company has assetretirement obligations relating to one of its leased facilities.  This lease requires the Company restore thefacility to its original condition at the end of the lease term.  The following summarizes the Company’s assetretirement obligation liability as of December 31:
|                                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Asset retirement  obligation at beginning of year |       | $        | 2,690      |     | $          | 2,526 |   |
| Liabilities  incurred                             |       | 77       |       | -        |       |
| Accretion expense                                 |       | 182      |       | 164      |       |
| Asset retirement  obligation at end of year       |       | $        | 2,949      |     | $          | 2,690 |   |

 

***ForeignCurrency Translation***

Investments in foreign affiliates accounted for underthe equity method have been translated into U.S. dollars in accordance with theFinancial Accounting Standards Board (“FASB”) Statement No. 52, *Foreign Currency Translation*. All assetand liability accounts have been translated using the exchange rates in effectat the balance sheet date. Income statement amounts have been translated usingthe average exchange rate for the year. The gains and losses resulting from thechanges in exchange rates from year to year have been reported in othercomprehensive income (loss). As of December 31, 2006 and 2005, theaccumulated unrealized foreign exchange translation gain (loss) included inother comprehensive income was approximately $(3.1) million and $4.9 million,respectively.

***RevenueRecognition***

The Company receives payments from customers andpartners from the sale of antibodies, for licenses to its proprietary technologyfor product development, for services and from the achievement of productdevelopment milestones. These payments are generally non-refundable and arereported as deferred revenue until they are recognizable as revenue. TheCompany follows the following principles in recognizing revenue:

·       Fees received from thelicensing of the Company’s proprietary technologies for research anddevelopment performed by its customers and partners is recognized generally ona straight line basis over the term of the respective license period beginningafter both the license period has begun and the technology has been delivered.

·       Fees received for productdevelopment services are recognized ratably over the period during which theservices are performed.

·       Milestone payments arerecognized as revenue upon the achievement of mutually agreed milestones,provided that (i) the milestone event is substantive and its achievementis not reasonably assured at the inception of the agreement, and (ii) thereare no continuing performance obligations associated with the milestonepayment.

F-10

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

·       Revenue arrangements thatinclude multiple deliverables are divided into separate units of accounting ifthe deliverables meet certain criteria, including whether the fair value of thedelivered items can be determined and whether there is evidence of fair valueof the undelivered items. In addition, the consideration is allocated among theseparate units of accounting based on their fair values, and the applicablerevenue recognition criteria are considered separately for each of the separateunits of accounting.

·       Revenues derived fromreimbursements of costs associated with the development of product candidatesare recorded in compliance with EITF Issue 99-19, *ReportingRevenue Gross as a Principal Versus Net as an Agent* (“EITF 99-19”).According to the criteria established by EITF 99-19, in transactionswhere the Company acts as a principal, with discretion to choose suppliers,bears credit risk and performs part of the services required in the transaction,the Company believes it has met the criteria to record revenue for the grossamount of the reimbursements.

·       The Company sellsantibodies primarily to partners in the United States and overseas. Revenuefrom these sales is recognized when the antibodies are shipped and the Companyhas no further obligations related to the development of the antibodies.

·       Grantrevenues are recognized as the Company provides the services stipulated in theunderlying grant based on the time and materials incurred. Amounts received inadvance of services provided are recorded as deferred revenue and amortized asrevenue when the services are provided.

***Researchand Development***

Research and development costs are expensed asincurred and primarily consist of personnel costs, facilities (includingdepreciation), research and laboratory supplies, funding of outside research,license and technology access fees, expenses related to antibody manufacturingand clinical trial expenses. Costs to acquire technologies that are utilized inresearch and development that have no alternative future use are expensed asincurred.

***Useof Estimates***

The preparation of the financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Actual resultscould differ from those estimates.

***Stock-BasedCompensation***

TheCompany’s stock awards are governed by its 2005 Equity Incentive Plan, asamended (the “Plan”), which is described more fully in Note 7. Prior to January 1, 2006, the Companyaccounted for the Plan under the recognition and measurement provisions of APBOpinion No. 25, *Accounting for StockIssued to Employees* (“APB No. 25”) and related Interpretations,as permitted by FASB Statement No. 123, *Accountingfor Stock-Based Compensation* (“Statement No. 123”). Compensationexpense was recognized in the consolidated statement of operations for thosestock option grants under the Plan that had an exercise price which was lessthan the fair market value of the underlying common stock on the grant date.

Effective January 1, 2006, the Company adoptedthe fair value recognition provisions of FASB Statement No. 123(R), *Share-Based Payment* (“Statement No. 123(R)”), using themodified prospective transition method. Under the modified prospectivetransition method, compensation expense is recognized 

F-11

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

in the financialstatements on a prospective basis for (i) all share based payments grantedprior to, but not vested as of January 1, 2006, based upon the grant datefair value estimated in accordance with the original provisions of Statement No. 123,and (ii) share based payments granted on or subsequent to January 1,2006, based upon the grant date fair value estimated in accordance with theprovisions of Statement No. 123(R). The grant date fair value of awardsexpected to vest is expensed on a straight line basis over the vesting periodsof the related awards. Under the modified prospective transition method,results for prior periods are not restated.

***IncomeTaxes***

The Company uses the asset and liability method toaccount for income taxes, including the recognition of deferred tax assets anddeferred tax liabilities for the anticipated future tax consequencesattributable to differences between financial statements amounts and theirrespective tax bases. The Company reviews its deferred tax assets for recovery.A valuation allowance is established when the Company believes that it is morelikely than not that its deferred tax assets will not be realized. Changes invaluation allowances from period to period are included in the Company’s taxprovision in the period of change.

***LossContingencies and Litigation Reserves***

The Company assesses potential losses in relation tolegal proceedings and other pending or threatened legal or tax matters basedupon the application of Statement of Financial Accounting Standards No. 5,*Accounting for Contingencies*. If a lossis considered probable and the amount can be reasonably estimated, the Companyrecognizes an expense for the estimated loss. If a loss is considered possibleand the amount can be reasonably estimated, the Company discloses such loss ifmaterial. Litigation by its nature is uncertain and the determination ofwhether any particular case involves a probable loss or the amount thereofrequires the exercise of considerable judgment, which is applied as of acertain date. Required reserves and estimates may change in the future due tonew matters, developments in existing matters or if the Company determines tochange its strategy with respect to any particular matter and such changes, ifany, may be material.

***NetLoss Per Share***

Basic and diluted net lossper share are calculated in accordance with SFAS No. 128, *Earnings Per Share*. Basic net loss pershare is based upon the number of weighted average shares of common stockoutstanding. Diluted net loss per share is based upon the weighted averagenumber of shares of common stock and dilutive potential shares of common stockoutstanding. Potential shares of common stock result from the assumed exerciseof outstanding stock options, as well as the assumed conversion of convertiblesenior notes. Potentially dilutive securities have been excluded from thecomputation of diluted net loss per share for all years presented, as theireffect is antidilutive. A summary of such potentially dilutive securities is asfollows:

| ** **        | ** ** | **Year ended December 31** | ** ** |
|-------------------|------------|-------------------------------------------|------------|
| ** **        | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Convertible notes |       | 10,936,935                                |       | 10,936,935 |   | 29,161,546 |   |
| Stock options     |       | 17,736,930                                |       | 16,803,728 |   | 14,245,187 |   |
|              |       | 28,673,865                                |       | 27,740,663 |   | 43,406,733 |   |

 

F-12

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

**3.**                 Availablefor Sale Investments

Availablefor sale investments consist of the following as of December 31:

| ** **                                                       | ** ** | **2006** | ** ** | **2005**             | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------------------|------------|
| ** **                                                       | ** ** | **Cost** | ** ** | **Unrealized  Gain** | ** ** | **Unrealized  Loss** | ** ** | **Fair Value** | ** ** | **Cost** | ** ** | **Unrealized  Gain** | ** ** | **Unrealized  Loss** | ** ** | **Fair Value** | ** ** |
| Money market funds (included in cash and cash  equivalents) |       | $        | 19,447     |                 |       | — |   |   |   | — |   |   |   | $ | 19,447 |   |   | $ | 62,315 |   |   | — |   |   |   | — |   |   |   | $ | 62,315 |   |   |
| U.S. Treasury Obligations                                        |       | 36,028   |       |                 | 44         |   |   |   | (127 | ) |   |   | 35,945 |   |   | 41,938 |   |   | — |   |   |   | (342 | ) |   |   | 41,596 |   |   |
| U.S. Corporate Debt Securities                                   |       | 263,162  |       |                 | 102        |   |   |   | (1,049 | ) |   |   | 262,215 |   |   | 214,105 |   |   | 32 |   |   |   | (1,851 | ) |   |   | 212,286 |   |   |
| Equity Securities                                                |       | 6,771    |       |                 | 52         |   |   |   | — |   |   |   | 6,823 |   |   | 11,940 |   |   | — |   |   |   | (5,117 | ) |   |   | 6,823 |   |   |
| Equity Securities—Genmab                                    |       | —   |       |                 | 494,382    |   |   |   | — |   |   |   | 494,382 |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                                                                  |            |          |            |                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

|   |   | $ | 325,408 |   |   | $ | 494,580 |   |   |   | $ | (1,176 | ) |   |   | $ | 818,812 |   |   | $ | 330,298 |   |   | $ | 32 |   |   |   | $ | (7,310 | ) |   |   | $ | 323,020 |   |   |
|--------|--------|---|---------|--------|--------|---|---------|--------|--------|--------|---|--------|---|--------|--------|---|---------|--------|--------|---|---------|--------|--------|---|----|--------|--------|--------|---|--------|---|--------|--------|---|---------|--------|--------|

 

Approximately$5.2 million was reclassified from accumulated other comprehensive incomeand recorded as an other than temporary investment impairment loss for the yearended December 31, 2006.

TheCompany’s available for sale U.S. Treasury Obligations and U.S. Corporate DebtSecurities have the following maturities at December 31, 2006:

| Due in one year  or less                  |   | $       | 58,311 |   |
|-------------------------------------------|--------|---------|--------|--------|
| Due after one  year, less than five years |   | 168,276 |   |
| Due after five years                      |   | 71,573  |   |

 

For the years ended December 31, 2006, 2005 and2004, realized gains totaled $0, $3.3 million and $2.3 million, respectively,and realized losses totaled $0, $0 and $0, respectively. The cost of securitiessold is based on the specific identification method.

Unrealized loss positions for whichother-than-temporary impairments have not been recognized at December 31,2006, is summarized as follows:

| ** **                             | ** ** | **Fair  Value** | ** ** | **Unrealized  Loss** | ** ** |
|----------------------------------------|------------|-----------------|------------|----------------------|------------|
| Purchased and  held less than one year |       | $               | 201,963    |                 |       | $ | (1,176 | ) |   |
|                                        |            |                 |            |                      |            |  |  |  |  |

 

Unrealized losses in the portfolio relate to variousdebt securities including U.S. treasury obligations, asset backed securitiesand corporate bonds. The unrealized losses relating to debt securities wereprimarily due to changes in interest rates. The Company has concluded thatunrealized losses in its debt securities are not other-than-temporary as theCompany has the ability to hold securities to maturity date or the recoveryperiod.

F-13

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

**4.**                 BalanceSheet Detail

Othercurrent assets consist of the following as of December 31:

| ** **                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Interest and  dividends receivable |       | $        | 1,799      |     | $          | 1,893 |   |
| Employee  receivables              |       | 1,082    |       | 520      |       |
| Prepaid insurance                  |       | 2,176    |       | 2,067    |       |
| Receivables from  partners         |       | 10,356   |       | 22,416   |       |
| Other                              |       | 6,858    |       | 4,712    |       |
|                               |       | $        | 22,271     |     | $          | 31,608 |   |

 

Otherassets consist of the following as of December 31:

| ** **                                                                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred debt  issuance costs, net of accumulated amortization of $1,776 in 2006 and $1,111  in 2005 |       | $        | 2,921      |     | $          | 3,586 |   |
| Patents, net of  accumulated amortization of $4,491 in 2006 and $3,571 in 2005                       |       | 516      |       | 1,436    |       |
| Acquired  technology—Celldex, net of accumulated amortization of $146 in 2006 and $29  in 2005  |       | 1,150    |       | 1,267    |       |
|                                                                                                 |       | $        | 4,587      |     | $          | 6,289 |   |

 

Accruedliabilities consist of the following as of December 31:

| ** **                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Accrued  construction and equipment costs |       | $        | 285        |     | $          | 312 |   |
| Accrued interest                          |       | 450      |       | 450      |       |
| Accrued  compensation                     |       | 10,720   |       | 8,206    |       |
| Accrued  research—3rd parties   |       | 346      |       | 895      |       |
| Accrued license  and royalty fees         |       | 659      |       | 3,143    |       |
| Accrued  professional fees                |       | 4,579    |       | 2,993    |       |
| Due to Essex  Chemical Corp.              |       | 667      |       | 667      |       |
| Accrued clinical  trial expenses          |       | 4,823    |       | 2,917    |       |
| Accrued partner  reimbursements           |       | 15,377   |       | 6,439    |       |
| Other                                     |       | 4,344    |       | 3,349    |       |
|                                      |       | $        | 42,250     |     | $          | 29,371 |   |

 

F-14

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

**5.**                 Taxes

Theprovision (benefit) for income taxes is as follows:

| ** **    | ** ** | **Year ended December 31** | ** ** |
|---------------|------------|-------------------------------------------|------------|
| ** **    | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Federal       |       |                                      |       |   |   |   |   |   |   |
| Current       |       | $                                         | —     |   | $ | — |   |   | $ | — |   |   |
| Deferred      |       | —                                    |       | — |   |   | — |   |   |
| Total federal |       | —                                    |       | — |   |   | — |   |   |
| State         |       |                                      |       |   |   |   |   |   |   |
| Current       |       | 272                                       |       | 333 |   |   | 21 |   |   |
| Deferred      |       | —                                    |       | — |   |   | — |   |   |
| Total state   |       | 272                                       |       | 333 |   |   | 21 |   |   |
| Foreign       |       |                                      |       |   |   |   |   |   |   |
| Current       |       | 164                                       |       | 25 |   |   | 10 |   |   |
| Deferred      |       | —                                    |       | — |   |   | — |   |   |
| Total foreign |       | 164                                       |       | 25 |   |   | 10 |   |   |
| Total         |       | $                                         | 436        |   | $ | 358 |   |   | $ | 31 |   |   |

 

The current foreign tax provision relates to foreignwithholding taxes. The current state tax provision is attributable to the NewJersey alternate minimum tax assessment.

Areconciliation of the provision for income taxes and the amount computed byapplying the federal income rate of 34% to loss before provision for income taxis as follows:

| ** **                                            | ** ** | **Year ended December 31** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Computed at  statutory rate                           |       | $                                         | (61,630    | ) | $ | (50,202 | ) | $ | (63,363 | ) |
| State income  taxes, net of federal tax effect        |       | (10,573                                   | )          | (8,594 | ) | (10,832 | ) |
| Minority  interest—Celldex                       |       | (2,343                                    | )          | (1,477 | ) | — |   |
| In-process technology                                 |       | —                                    |       | 359 |   | 1,836 |   |
| Loss of foreign  subsidiary                           |       | 407                                       |       | 770 |   | 64 |   |
| Foreign  withholding taxes                            |       | 108                                       |       | 17 |   | 7 |   |
| Research and  development credit carryforward benefit |       | (3,527                                    | )          | (3,068 | ) | (2,922 | ) |
| Other                                                 |       | 57                                        |       | 51 |   | 54 |   |
| Other change in  deferred tax valuation reserve       |       | 77,937                                    |       | 62,502 |   | 75,187 |   |
|                                                  |       | $                                         | 436        |   | $ | 358 |   | $ | 31 |   |

 

F-15

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

Thecomponents of deferred tax assets and liabilities consist of the following asof December 31:

| ** **                                             | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:                                  |       |     |       |     |       |
| Net operating loss carryforwards                       |       | $        | 231,339    |     | $          | 180,029 |   |
| Stock-based compensation                               |       | 19,719   |       | 11,701   |       |
| Accrued compensation                                   |       | 499      |       | 25       |       |
| Research and development capitalized for tax  purposes |       | 4,217    |       | 4,217    |       |
| Deferred revenue                                       |       | 45,705   |       | 38,835   |       |
| Research credits                                       |       | 16,018   |       | 12,656   |       |
| Impairment loss on investments                         |       | 45,029   |       | 42,546   |       |
| License fees capitalized for tax purposes              |       | 6,265    |       | 6,265    |       |
| In-process technology capitalized for tax purposes     |       | 8,690    |       | 11,269   |       |
| Accrued royalty                                        |       | —   |       | 2,692    |       |
| Cumulative effect—asset retirement obligation     |       | 332      |       | 332      |       |
| Other                                                  |       | 6,854    |       | 1,896    |       |
| Total deferred tax assets                              |       | 384,667  |       | 312,463  |       |
| Deferred tax  liabilities:                             |       |     |       |     |       |
| Unrealized gain from available for sale securities     |       | 200,273  |       | —   |       |
| Net deferred tax assets before valuation allowance     |       | 184,394  |       | 312,463  |       |
| Valuation allowance                                    |       | (184,394 | )          | (312,463 | )          |
| Net deferred tax  assets                               |       | $        | —     |     | $          | — |   |

 

At December 31, 2006, approximately $28.5 millionof gross deferred tax assets related to net operating loss (“NOL”)carryforwards representing tax benefits associated with the exercise ofnon-qualified stock options and the disqualifying disposition of stock acquiredwith incentive stock options. Such benefits, when realized, will be credited toadditional paid-in capital.

At December 31, 2006, the Company had federal NOLcarryforwards of approximately $561.6 million. The NOL carryforwards expire in2007 ($4.0 million), 2008 ($5.5 million), 2009 ($7.6 million), 2010 ($6.4 million),2011 ($7.0 million), 2012 ($9.6 million), 2018 ($23.9 million), 2020 ($13.7million), 2021 ($19.2 million), 2022 ($87.6 million), 2023 ($109.8 million),2024 ($94.4 million), 2025 ($47.0 million) and 2026 ($125.9 million). TheCompany determined that an ownership change under Section 382 of theInternal Revenue Code of 1986, as amended, occurred during 1998. The effect ofthe ownership change is the imposition of a $3.2 million annual limitation onthe use of NOL carryforwards attributable to periods before the change. At December 31,2006, the amount of NOL subject to the limitation was $42.3 million and theamount not subject to limitation was $519.3 million.

The Company had federal research tax creditcarryforwards at December 31, 2006 of approximately $16.0 million whichexpire between 2007 and 2026. As a result of the 1998 ownership change under Section 382,the use of approximately $1.2 million of these carryforwards is subject tolimitation.

At December 31, 2006**,**the Company had state NOL carryforwards of approximately$341.2 million. These NOL carryforwards will expire in varying amounts between2007 and 2013.

F-16

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

**6.**                 ConvertibleNotes

***4.50% Convertible Subordinated Notes***

On June 26, 2001, the Company completed a publicoffering of $175.0 million of 4.50% Convertible Subordinated Notes due 2006(the “4.50% Notes”). The 4.50% Notes were convertible into shares of commonstock at a ratio of 34.6789 shares per each $1,000 principal amount of thenotes ($28.84 per share), subject to adjustment, and were scheduled to maturein July 2006.

During 2004 the Company repurchased, redeemed andcancelled the entire outstanding principal amount of its 4.50% Notes ($142.0million).

The total chargeassociated with the Company’s repurchase, redemption and cancellation of its4.50% Notes for the year ended December 31, 2004 was $4.5 million.

***4.25% Convertible Senior Notes***

On July 23, 2003, the Company completed a privateplacement pursuant to Rule 144A of the Securities Act of 1933, as amended(the “Securities Act”), of $125.0 million of 4.25% Convertible Senior Notes dueAugust 15, 2010 (the “4.25% Notes”) to qualified institutional investors.The 4.25% Notes were initially convertible into shares of the Company’s commonstock at the rate of 148.8261 per each $1,000 principal amount of notes, whichis equivalent to an initial conversion price of approximately $6.72 per share,subject to anti-dilution adjustments.

In January 2004, the Company and certain holdersof its 4.50% Notes completed an exchange and cancellation of $33.0 millionprincipal amount of the 4.50% Notes for the issuance of $21.986 million inaggregate principal of a new series of the Company’s 4.25% Notes, in a limitednumber of transactions. As a result of this exchange and cancellation, theCompany’s total convertible debt was reduced by $11.014 million. In addition,the Company recorded a gain on the early extinguishment of debt ofapproximately $0.3 million in connection with the exchange and cancellation.Such gain is included within net loss on the extinguishment of debt for theyear ended December 31, 2004 in the Company’s consolidated statement ofoperations.

In January 2005, theCompany completed the provisional redemption of all of its outstanding 4.25%Notes which was previously announced in December 2004. Prior to theredemption date, holders of all of the outstanding 4.25% Notes ($146.986million) converted their notes into a total of 21,875,353 shares of the Company’scommon stock. In connection with the redemption, the Company paid approximately$12.5 million in cash representing primarily the “make-whole” payment of $10.2million as well as accrued interest of $2.3 million. The Company accrued the$10.2 million “make-whole” payment in the quarter ended December 31, 2004,at the time the redemption was announced. In connection with the completion ofthis transaction, unamortized debt issuance costs of approximately $3.2 millionwere reclassified to capital in excess of par value at the time the 4.25% Noteswere converted to common stock.

***2.25% Convertible Senior Notes***

On May 3, 2004, the Company completed a privateplacement pursuant to Rule 144A of the Securities Act of $150.0 million of2.25% Convertible Senior Notes due May 15, 2011 (the “2.25% Notes”) to 

F-17

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

qualified institutionalinvestors. The 2.25% Notes are initially convertible into shares of the Company’scommon stock at the rate of 72.9129 per each $1,000 principal amount of the2.25% Notes, which is equivalent to an initial conversion price ofapproximately $13.72 per share, subject to anti-dilution adjustments.

The Company pays interest on the 2.25% Notes on May 15and November 15 of each year beginning on November 15, 2004. Interestpayable per $1,000 principal amount of the 2.25% Notes for the period fromissue date to November 15, 2004 was approximately $12.00. Interest payableper $1,000 amount of the 2.25% Notes for each subsequent interest payment is$11.25.

The Company received net proceeds from the privateplacement of the 2.25% Notes of approximately $145.2 million (after deductingthe initial purchasers’ discounts and offering expenses).

As of December 31, 2006, the Company had10,936,935 shares of common stock reserved for issuance pursuant to theconversion of the 2.25% Notes.

The holders of the 2.25% Notes have the option,subject to certain conditions, to require the Company to repurchase the notesin the event of a “change in control”, as defined in the indenture, at a priceequal to 100% of the principal amount of the notes plus accrued and unpaidinterest to the date of repurchase. The Company may pay the repurchase price incash or, at the Company’s option, in shares of its common stock. Payments madein shares of the Company’s common stock will be valued at 95% of the average ofthe closing sales prices of the Company’s common stock for the five tradingdays immediately preceding the third trading day prior to the repurchase date.

On August 25, 2006, the Company received a noticeof default relating to the 2.25% Notes in the aggregate principal amount of$150.0 million due May 15, 2011. The notice of default under the Indenturegoverning the 2.25% Notes cited the Company’s failure to file its QuarterlyReport on Form 10-Q for the quarter ended June 30, 2006 as thebasis for the notice of default. The notice of default further provided that ifthe Company did not file its June 30, 2006 Form 10-Q by October 24,2006, an event of default under the Indenture would exist.

On October 4, 2006, the Company announced that itreceived the requisite consent to adopt the proposed amendments to theIndenture governing its 2.25% Notes, pursuant to a previously announced consentsolicitation statement dated September 22, 2006 as supplemented by asupplement dated October 2, 2006. The Company and the trustee of the 2.25%Notes entered into a supplemental indenture effecting amendments to theIndenture. As consideration for the amendments to the Indenture and waiver ofrelated defaults and events of defaults, the Company will no longer have theright to redeem the 2.25% Notes prior to May 15, 2010. At any time on orafter May 15, 2010 and until May 14, 2011, the Company will have theright to redeem the 2.25% Notes in cash, in whole or in part, but only if theclosing sale price of the Company’s common stock for at least 20 of the 30consecutive trading days immediately prior to the day the Company gives noticeof redemption is greater than 150% of the applicable conversion price on thatdate of the notice. The cash redemption price for the period from May 15,2010 to May 14, 2011 will equal 100.3% of the principal amount of the2.25% Notes to be redeemed plus accrued and unpaid interest, if any, to, butnot including, the date of redemption.

F-18

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

The increase in the fairvalue of the embedded conversion option resulting from the modification reducedthe carrying amount of the 2.25% Notes by approximately $8.9 million inaccordance with the provisions of EITF Issue No. 06-6, *Debtor’s Accounting for a Modification (or Exchange) of ConvertibleDebt Instruments*. The carrying amount of the 2.25% Notes will beincreased to $150.0 million over the remaining life of the 2.25% Notes (throughMay 15, 2011). The total amount charged to interest expense for the yearended December 31, 2006 resulting from amortization of debt discount wasapproximately $0.5 million and is reflected in interest expense.

**7.**                 Shareholders’Equity

**Common Stock**

In April 2006, theCompany completed a public offering of 10 million shares of common stock at apublic offering price of $11.75 per share. In May 2006, the underwritersexercised in full their option to purchase an additional 1.5 million shares ofcommon stock at the public offering price of $11.75 per share. The exercise ofthe option to purchase the additional 1.5 million shares increased the size ofthe public offering to a total of 11.5 million shares of common stock resultingin net proceeds to the Company of approximately $128.0 million.

**Stock CompensationPlans**

***2005 Equity Incentive Plan***

The Company’s equity awards are governed by the Plan.The purchase price of stock options under the Plan is determined by theCompensation and Organization Committee of the Board of Directors of theCompany (the “Committee”). The term is fixed by the Committee, but no incentivestock option is exercisable after 10 years from the date of grant. Stockoptions generally vest over a four year period. At December 31, 2006, atotal of 7,779,734 shares were available for future grants under the Plan.

On January 1, 2006, the Company adopted the fairvalue recognition provisions of Statement No. 123(R), using the modifiedprospective transition method. Under the modified prospective transitionmethod, compensation expense is recognized in the financial statements on aprospective basis for (i) all share based payments granted prior to, butnot vested as of January 1, 2006, based upon the grant date fair valueestimated in accordance with the original provisions of  Statement No. 123, and (ii) sharebased payments granted on or subsequent to January 1, 2006, based upon thegrant date fair value estimated in accordance with the provisions of Statement No. 123(R).The grant date fair value of awards expected to vest is expensed on a straightline basis over the vesting periods of the related awards. Under the modifiedprospective transition method, results for prior periods are not restated.

F-19

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

Thefollowing table illustrates the impact of the adoption of StatementNo. 123(R) on reported amounts:

| ** **                            | ** ** | **Year Ended  December 31, 2006** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|
| ** **                            | ** ** | **As  reported**                                 | ** ** | **Impact of  Adoption of  Statement  No. 123(R)** | ** ** |
| Net loss                              |       | $                                                | (181,701   | ) |   | $ | (16,550 | ) |   |
| Basic and diluted net  loss per share |       | $                                                | (1.50      | ) |   | (0.14 | ) |   |

 

Total stock based compensation expense ofapproximately $21.1 million for the year ended December 31, 2006has been included in the consolidated statement of operations within researchand development expenses ($9.5 million) and general and administrative expenses($11.6 million). Included in totalstock based compensation expense for the year ended December 31, 2006 isapproximately $3.2 million associated with the modification of the vestingperiod of stock options for the Company’s former Chief Executive Officer and approximately$1.3 million primarily associated with the Company’s deferred compensationprograms.

Thefollowing summarizes all stock option transactions for the Company under thePlan for the period from January 1, 2006 through December 31, 2006.

| ** **                                                      | ** ** | **Common Stock  Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  January 1, 2006                            |       |                           | 16,803,728 |                                   |       |                                                | $          | 8.47                            |       |   |   |   |   |   |   |   |
| Granted                                                         |       |                           | 2,254,994  |                                   |       |                                                | $          | 10.03                           |       |   |   |   |   |   |   |   |
| Exercised                                                       |       |                           | (883,149   | )                                      |       |                                                | $          | 5.10                            |       |   |   |   |   |   |   |   |
| Canceled                                                        |       |                           | (108,767   | )                                      |       |                                                | $          | 4.87                            |       |   |   |   |   |   |   |   |
| Forfeited                                                       |       |                           | (329,876   | )                                      |       |                                                | $          | 8.35                            |       |   |   |   |   |   |   |   |
| Outstanding at  January 1, 2006                            |       |                           | 17,736,930 |                                   |       |                                                | $          | 8.87                            |       |   |   | 6.6 years |   |   | $ | 120,083 |   |
| Exercisable at end of period                                    |       |                           | 11,608,725 |                                   |       |                                                | $          | 8.87                            |       |   |   | 5.6 years |   |   | $ | 85,976 |   |
| Vested and  unvested expected to vest at December 31, 2006 |       |                           | 17,162,103 |                                   |       |                                                | $          | 8.86                            |       |   |   | 6.6 years |   |   | $ | 117,063 |   |

 

The weighted-average grant-date fair value of optionsgranted during the years ended December 31, 2006, 2005 and 2004 were$7.25, $7.95 and $2.99, respectively.

F-20

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

Thefollowing table sets forth the aggregate intrinsic value of options exercisedand the aggregate grant date fair value of shares which vested during 2006,2005 and 2004:

| ** **                                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Aggregate  intrinsic value of options exercised   |       | $        | 6,451      |     | $          | 4,106    |       | $ | 688 |   |
| Aggregate grant date  fair value of shares vested |       | $        | 24,061     |     | $          | 20,728   |       | $ | 18,099 |   |

 

Cash proceeds from stock options exercised during theyears ended December 31, 2006, 2005 and 2004 totaled $6.0 million, $4.5million and $0.8 million, respectively.

Thefair value of each option grant is estimated using the Black-Scholes optionpricing method. The fair value is then amortized on a straight-line basis overthe requisite service periods of the awards, which is generally the vestingperiod (generally 4 years). Use of a valuation model requires management tomake certain assumptions with respect to selected model inputs. In order toestimate the grant date fair value, option pricing models require the use ofestimates and assumptions as to (i) the expected term of the option, (ii) theexpected volatility of the price of the underlying stock, (iii) the riskfree interest rate for the expected term of the option and (iv) pre-vestingforfeiture rates. The expected term of the option is based upon the contractualterm, taking into account expected employee exercise and expected post-vestingtermination behavior. The expected volatility of the price of the underlyingstock is based on the historical volatility of the Company’s common stock. Therisk free interest rate is based on U.S. Treasury zero-coupon issues with aremaining term equal to the expected life assumed on the date of grant. Pre-vestingforfeiture rates are estimated based on past voluntary termination behavior, aswell as an analysis of actual option forfeitures. The Company is currentlyusing an estimated forfeiture rate of 13.7%. The following table sets forth theweighted average assumptions used to calculate the fair value of optionsgranted for the years ended December 31, 2006, 2005 and 2004:

| ** **                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Expected dividend  yield          |       | 0        | %          | 0        | %          | 0        | %          |
| Expected stock  price volatility  |       | 82.8     | %          | 99.1     | %          | 55.0     | %          |
| Risk free  interest rate          |       | 4.62     | %          | 4.29     | %          | 3.60     | %          |
| Expected life of options  (years) |       | 6.25     |       | 6.25     |       | 5.0      |       |

 

As of December 31,2006, the total unrecognized compensation cost related to non-vested stockoptions was approximately $28.4 million. This cost is expected to be recognizedover a weighted average period of 2.7 years.

*Fair ValueDisclosures—Prior to Adopting Statement No. 123(R)*

Prior to January 1,2006, the Company followed the disclosure-only provisions of Statement No. 123and accordingly, accounted for equity awards pursuant to the recognition andmeasurement principles of APB No. 25 and related Interpretations, aspermitted by Statement No. 123. Under APB No. 25, compensationexpense was recognized in the consolidated statement of operations for some ofthe stock option grants under the Plan that had an exercise price which wasless than the fair market value of the underlying common stock on the grantdate. The following table illustrates the effect on net loss and net 

F-21

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

loss pershare for the years ended December 31, 2005 and 2004 had the Companyapplied the fair value recognition provisions of Statement No. 123.

| ** **                                                                                     | ** ** | **Year Ended**  | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                     | ** ** | **December 31** | ** ** |
| ** **                                                                                     | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Net loss, as  reported                                                                         |       | $                    | (148,012   | ) | $ | (186,392 | ) |
| Add: Non-cash  employee compensation                                                           |       | 1,890                |       | 3,047 |   |
| Less: Total stock-based  employee compensation expense determined under fair value method |       | (17,437              | )          | (17,204 | ) |
| Net loss, pro  forma                                                                           |       | $                    | (163,559   | ) | $ | (200,549 | ) |
| Loss per share:                                                                                |       |                 |       |   |   |
| Basic and  diluted, as reported                                                                |       | $                    | (1.34      | ) | $ | (2.29 | ) |
| Basic and diluted, pro  forma                                                                  |       | $                    | (1.48      | ) | $ | (2.46 | ) |

 

***EmployeeStock Purchase Plan***

In May 2002, the Company adopted an EmployeeStock Purchase Plan (the “ESPP”) which currently authorizes the issuance of1,500,000 shares of its common stock pursuant to purchase rights granted toeligible employees of the Company. The ESPP provides a means by which employeespurchase common stock of the Company through payroll deductions of up to 10% oftheir base compensation. In general, at the end of each of two purchase periodsduring the calendar year, the Company uses accumulated payroll deductions topurchase, on behalf of participating employees, shares of common stock at aprice equal to the lower of 85% of the fair market value of a share of commonstock (i) on the first day of the applicable ESPP offering period or (ii) atthe end of each six month purchase period. Historically, the purchase periodsunder the ESPP have ended on June 30 and December 31 of each year. Priorto the December 31, 2006 purchase date, the Company terminated the thencurrent offering and returned all employee contributions. Generally allemployees, including executive officers, who work at least 20 hours per weekand five months per year may participate in the ESPP. Employees who are deemedto own greater than 5% of the combined voting power of all classes of stock ofthe Company are not eligible for participation in the ESPP. During the yearsended December 31, 2006, 2005 and 2004, 146,812, 234,254 and 176,625shares of common stock were issued under the ESPP resulting in net proceeds tothe Company of $0.9 million, $1.4 million and $1.1 million, respectively. Asof December 31, 2006, the Company had reserved 619,372 shares of commonstock for issuance pursuant to the ESPP, however, there was no active offeringperiod as of such date.

**8.**                 DeferredCompensation

The Company maintains deferred compensation programs,under which each of the Company’s executive officers elected to have a portionof his bonuses, which were otherwise payable in cash, converted to restrictedstock units representing shares of the Company’s common stock. Participants inthe deferred compensation programs could elect to defer up to 50% of theirrespective bonuses. The number of restricted stock units awarded upon suchconversion was determined by dividing (i) the amount of the bonus to beconverted by (ii) the fair market value of the Company’s common stock onthe grant date. Participants in the deferred compensation programs elected todefer receipt of the common stock portion of their bonuses until the earlier ofthree years from the grant date or the participant’s termination from theCompany. The bonus portion deferred by each of the participants is matched on a1:1 basis by the Company and 25% of the match is vested as of the respectivegrant dates. So long as a participant remains 

F-22

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

employed by the Company,an additional 25% of the Company’s matching contribution vests on eachanniversary of the respective grant dates for the next three years. Allbenefits under the deferred compensation programs are distributed in a singlepayment and will be paid exclusively in the form of shares of the Company’scommon stock. The Company’s matching contribution was approximately $1.0 million,$0.5 million and $0.3 million for the years ended December 31, 2006, 2005and 2004, respectively. Included in the expense for the year ended December 31,2006 is approximately $0.5 million associated with the accelerated vesting ofthe Company’s match for the Company’s former CEO.

**9.**                 CollaborationAgreements

***Bristol-MyersSquibb Collaboration***

In January 2005,the Company announced the closing of a collaboration and co-promotion agreementand a related securities purchase agreement with Bristol-Myers Squibb Co. (“BMS”),pursuant to which the Company and BMS each granted the other certainintellectual property licenses and product rights on a worldwide basis in orderto enable the parties to collaborate in research and development of certainantibody-based product candidates for the treatment of cancer and otherdiseases, and, in the event that further development work is successful, tocommercialize any resulting products. In particular, the collaboration includesa grant by the Company to BMS of a license to commercialize ipilimumab, a fullyhuman antibody product developed using the Company’s UltiMAb Human AntibodyDevelopment System®,that is antagonistic to cytotoxic T-lymphocyte antigen 4 (CTLA-4).Ipilimumab is currently under investigation for the treatment of a broad rangeof cancers and other diseases. The collaboration also includes the grant by theCompany to BMS of a license to MDX-1379, a gp100 peptide vaccine, for usewith ipilimumab for the treatment of metastatic melanoma.

Aspart of the collaboration, the two companies have committed to an initialmulti-year budget of approximately $192.0 million to fund their development ofipilimumab as a potential treatment for a broad range of cancers. BMS will beresponsible for 65% of all development costs related to clinical trialsintended to support regulatory approval in both the United States and Europe,with the remaining 35% to be paid by the Company. The parties will shareequally the costs of any clinical trials of products intended solely forregulatory approval in the United States, and BMS will be fully responsible forall development efforts that relate solely to regulatory approval in Europe andother parts of the world. Approximately $15.0 million and $14.7 million of theCompany’s revenue for the years ended December 31, 2006 and 2005represented the reimbursement of 65% of the Company’s costs associated with thedevelopment of ipilimumab recorded in accordance with EITF 99-19. TheCompany’s 35% share of the BMS development costs for the years ended December 31,2006 and 2005 was approximately $23.3 million and $6.4 million.

Underthe terms of the collaboration, the Company could receive up to $205.0 millionfrom BMS if all regulatory milestones are met, plus up to an additional $275.0million in sales-related milestones. The Company will also have the option toco-promote any products in the United States, and, if the Company elects toexercise this option and has participated in the funding of the applicablePhase III clinical trial(s), the Company will receive 45% of any profits fromcommercial sales in the United States. In the event the Company chooses not toexercise its co-promotion rights, BMS will have exclusive commercial rights inthe United States and will pay the Company royalties on any commercial sales.Outside the United States, BMS will have exclusive commercial rights and willpay the Company royalties on any commercial sales.

Pursuantto these agreements, BMS made an initial cash payment to the Company of $25.0million. In addition, BMS purchased a total of 2,879,223 unregistered shares ofthe Company’s common stock at a purchase price equal to $8.6829 per share foran aggregate purchase price of $25.0 million. The purchase price represented asmall premium to the market price on the date the Company entered into thecollaboration.

F-23

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

The Company determined that all elements under thecollaboration and co-promotion agreement should be accounted for as a singleunit of accounting under EITF 00-21, *Accountingfor Revenue Arrangements with Multiple Deliverables* (“EITF 00-21”). In accordancewith SAB No. 104 (Topic 13, *Revenue**Recognition*), deferral of revenueis appropriate regarding nonrefundable, upfront fees received in single unit ofaccounting arrangements. As the Company has continuing obligations under thecollaboration and co-promotion agreement, and as significant development riskremains, the Company recorded the $25.0 million upfront fee as deferred revenueand the Company is recognizing this amount over the enforceable term of thetechnology sublicensed to BMS under the collaboration and co-promotionagreement of approximately 11 years, as well as the technology and know-how tobe delivered in connection therewith.

The BMS collaborationbecame effective in January 2005, and unless terminated earlier, willcontinue for as long as development and/or commercialization of anycollaboration product continues. BMS, however, may terminate the collaborationon a country-by-country basis at any time and, under certain conditions, on aproduct-by-product basis, resulting in the return of all rights to the Companywith respect to such country and/or product. In addition, BMS may terminate theCompany’s co-promotion rights in the U.S. in the event that the Company failsto satisfy certain performance criteria. The Company may terminate the BMS collaborationin the event of certain specified material breaches by BMS (in which caseproduct rights would revert to the Company), and the Company may terminate BMS’sco-promotion rights in the event that BMS fails to satisfy certain performancecriteria.

***Pfizer***

In September 2004, the Company entered into aseries of agreements with Pfizer, Inc. (“Pfizer”) The first agreementamended the Company’s existing collaborative research and license and royaltyagreements with Pfizer to provide for the discovery and development of up to 50antibody products over ten years. The second and third agreements were asublicense from the Company to Pfizer and a cross-license of certain patentsand patent applications solely relating to the companies’ respective anti-CTLA-4antibody programs. The fourth agreement was a stock purchase agreement alsorelated to the anti-CTLA-4 programs. Pursuant to certain of theseagreements, Pfizer made a total initial cash payment to the Company of $80.0million and purchased 4,827,808 unregistered shares of the Company’s commonstock at a purchase price equal to $6.21 per share for an aggregate purchaseprice of $30.0 million. The purchase price represented a small premium tomarket price at the time the Company entered into the collaboration.

The Company accounts forrevenue arrangements that include multiple deliverables in accordance with EITF00-21. The Company has concluded that because the Pfizer collaborationcontains multiple deliverables (licenses to technology and research services)EITF 00-21 applies. The Company considers the arrangement with Pfizer tobe a single unit of accounting under EITF 00-21 for purposes ofrecognizing the initial $80.0 million payment. For the years ended December 31,2006, 2005 and 2004, the Company recognized $10.5 million, $9.3 million and$2.6 million of revenue under the agreements with Pfizer.

F-24

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

***MedImmune***

In November 2004, the Company entered into anexclusive license and collaboration agreement with MedImmune, Inc. todevelop antibodies targeting inteferon-alpha and the type I inteferon receptor1. The collaboration focuses on two fully human antibodies, MEDI-545(previously known as MDX-1103) and MDX-1333, that are currently inclinical and preclinical development, respectively, by MedImmune for the treatmentof autoimmune diseases.

Under the terms of theagreement, the Company received a payment of $15.0 million from MedImmune andhas the ability to receive potential milestone payments for product candidatesdeveloped by the collaboration that enter into clinical development. MedImmuneis fully responsible for all development costs up to the point of initiatingpivotal trials of any product candidates. At that point, the Company has achoice for each potential product candidates. The Company can elect to enterinto a profit sharing arrangement in the United States whereby the Company willpay its proportionate share of the future development costs and reimburseMedImmune for a proportionate share of MedImmune’s previous development costsplus interest. In addition, the Company would also have the option to enterinto a co-promotion relationship with MedImmune in the United States for eachsuch product. In the alternative, the Company can elect to forego any furtherfunding for the product candidates, and MedImmune will be responsible for allcosts of development and commercialization. In that case, the Company will beentitled to milestone payments and substantial royalties on any sales in theUnited States. The Company is also entitled to milestone payments andsubstantial royalties on any product sales in the rest of the world.

**10.**          Transactionswith Genmab

In August 2000, the Company entered into abinding memorandum of understanding, or the Genomics Agreement, with Genmab,pursuant to which the Company granted Genmab rights to market its transgenicmouse technologies for multi-target (five or more targets) genomicspartnerships to certain pharmaceutical and biotechnology companies whoseheadquarters are located in Europe.

The Genomics Agreement had an initial term of fiveyears with a right exercisable by Genmab to extend the term for an additionaltwo years. The initial term of the agreement expired in August 2005 andwas not extended. For each year of the agreement, the Company received $2.0million per year from Genmab. At Genmab’s option, these amounts were paid ineither cash or capital stock. During the years ended December 31, 2006,2005 and 2004, the Company recognized $0, $1.3 million and $2.0 million,respectively, of revenue from this agreement.

As of January 1, 2004, the Company ownedapproximately 32.0% of the outstanding stock of Genmab.

In July 2004 Genmab completed a private placementof 5.6 million shares of its stock. As a result of this private placement, theCompany’s ownership percentage of Genmab was reduced to approximately 24.7%.The difference between the Company’s proportionate share of the equity and itscarrying value at the time the private placement was completed wasapproximately $9.7 million and was accounted for in accordance with APB OpinionNo.18, *The Equity Method of Accounting forInvestment in Common Stock*, and Staff Accounting Bulletin No. 51,*Accounting for Sales of Stock by aSubsidiary.* This transaction is reflected as an increase to capitalin excess of par value in the Company’s consolidated financial statements as ofand for the year ended December 31, 2004.

F-25

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

During the first quarter of 2005, the remaining basisof the Company’s investment in Genmab was reduced to zero and accordingly,recognition of the Company’s share of Genmab’s net losses for the remainder ofthe first quarter of 2005, the second quarter of 2005 and a portion of thethird quarter of 2005 was suspended.

In August 2005, Genmab sold approximately 2.5million shares of its stock to a corporate partner in connection with a globaldevelopment and commercialization agreement. As a result of this sale of stock,the Company’s ownership percentage in Genmab was reduced to approximately22.2%. The difference between the Company’s proportionate share of the equityand its carrying value after completion of Genmab’s sale of stock to thecorporate partner was approximately $8.0 million and was also accounted for inaccordance with APB Opinion No.18, *TheEquity Method of Accounting for Investment in Common Stock*, andStaff Accounting Bulletin No. 51, *Accountingfor Sales of Stock by a Subsidiary.* This transaction is reflected as an increase to capital in excess ofpar value in the Company’s consolidated financial statements as of and for theyear ended December 31, 2005.

As a result of the increase in carrying value of theCompany’s investment in Genmab of approximately $8.0 million in August 2005and in accordance with EITF 02-18, *Accounting for SubsequentInvestments in an Investee after Suspension of Equity Method Loss Recognition,*theCompany was required to resume the recognition of its share of Genmab’s netlosses in the third quarter of 2005. During the three month period ended March 31,2006, the Company’s investment in Genmab was adjusted to reflect its share(22.2%) of Genmab’s net loss ($1.0 million) prior to Genmab’s February 1,2006 private placement.

On February 1, 2006, Genmab completed the privateplacement of 5.75 million shares of its stock. As a result of this privateplacement, the Company’s ownership percentage of Genmab was reduced toapproximately 18.9%. As a result of a decrease in the Company’s ownership below20%, on February 1, 2006 the Company began accounting for its investmentin Genmab as a marketable security in accordance with SFAS No. 115*.*Accounting for the Company’s investmentin Genmab as a marketable security in accordance with SFAS No. 115resulted in an unrealized gain of approximately $494.4 million as of December 31,2006. Such unrealized gain is also included within accumulated othercomprehensive income classified within shareholders’ equity in the December 31,2006 consolidated balance sheet.

In addition, the Company recorded a non-cash gain onloss of significant influence in Genmab for the year ended December 31,2006 of $3.2 million in accordance with FASB Staff Position APB 18-1, *Accounting by an Investor for Its Proportionate Shareof Accumulated Other Comprehensive Income of an Investee Accounted for underthe Equity Method in Accordance with APB Opinion No. 18 upon a Loss ofSignificant Influence (FSP APB 18-1)*. As a result of Genmab’sprivate placement of 5.75 million shares of its stock in February 2006 andthe corresponding reduction of the Company’s ownership percentage below 20%,the Company’s net foreign translation gains of approximately $5.4 millionassociated with its investment in Genmab and reflected in accumulated othercomprehensive income as December 31, 2005 was first offset against theremaining carrying value of its investment in Genmab ($2.2 million) reducingthe Company’s investment in Genmab to zero with the remaining balance ($3.2million) recorded as a non-cash gain in the consolidated statement ofoperations for the year ended December 31, 2006.

F-26

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

The Company’s Interim President and Chairman of theBoard of Directors was also on the board of directors of Genmab as of December 31,2006 and resigned from Genmab’s board of directors effective January 31,2007.

As of December 31,2006, the market value of the Company’s investment in Genmab was approximately$494.4 million.

**11.**          Transactionswith Immuno-Designed Molecules S.A. (“IDM”)

On August 16, 2005Epimmune, Inc. and IDM announced the completion of their previouslyannounced business combination. In connection with the business combination allof the Company’s Class A (503,400 shares), Class B (713,576 shares)and (192,278) units of IDM were converted into approximately 2.6 million sharesof common stock of the combined entity, IDM Pharma, Inc. (“IDM Pharma”), apublicly traded company. As of December 31, 2006 and 2005, the Company’sinvestment in IDM Pharma is included within marketable securities in theCompany’s consolidated balance sheet.

**12.**          Commitmentsand contingencies

TheCompany is obligated under non-cancelable operating leases for laboratory, productionand office space in New Jersey and California. These leases expire on variousdates between September 2008 and February 2013. The Company is alsoobligated under certain research and license agreements. A summary of theCompany’s commitments as of December 31, 2006 is as follows:

| ** **       | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
|------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Operating leases |       | $        | 2,979      |     | $          | 3,105    |       | $        | 3,040      |     | $          | 2,361    |       | $ | 2,373 |   | $ | 551 |   |
| Research funding |       | 3,409    |       | 1,560    |       | 60       |       | 60       |       | —   |       | —   |       |
| Total            |       | $        | 6,388      |     | $          | 4,665    |       | $        | 3,100      |     | $          | 2,421    |       | $ | 2,373 |   | $ | 551 |   |

 

The Company incurred rent expense of $4.1 million in2006, $4.0 million in 2005 and $3.9 million in 2004.

The Company has secured abank letter of credit pursuant to the requirements of its Annandale, New Jerseylease. This letter of credit in the amount of $1.3 million is fully cashcollateralized and the cash is categorized as segregated securities in theconsolidated balance sheets.

**Contingencies**

***Kirin Collaboration***

Effective September 4, 2002, the Company enteredinto a Collaboration and License Agreement with Kirin Brewery Co., Ltd. (“Kirin”)which provides for the exchange by Kirin and the Company of certaincross-licenses for each other’s technology for the development andcommercialization of human antibody products. The Collaboration and LicenseAgreement supersedes a previous binding letter of intent. Pursuant to theletter of intent, the Company and Kirin developed the KM-Mouse®, a uniquecrossbred mouse which combines the traits of the Company’s HuMAb-Mouse® withKirin’s TC MouseTM. Under the Collaboration and License Agreement, the Companyand Kirin are exchanging cross-licenses with respect 

F-27

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

to the KM-Mouse and otherantibody-generating mice. In addition, each of the cross-licenses granted underthe Collaboration and License Agreement are subject to certain license,milestone and royalty payments by each party to the other.

Through December 31,2006, the Company has not made any milestone payments to Kirin. However,approximately $2.8 million has been paid to Kirin as of December 31, 2006representing a payment due Kirin as a result of the Company’s collaborationwith Pfizer. Based on a total of four products the Company is developing, whichuse or the Company believes may use Kirin technology and that (i) arecurrently in clinical trials, or (ii) the Company anticipates may enterclinical trials through the end of 2008, the Company may be required to makemilestone payments to Kirin aggregating up to approximately $17.0 million with respect to suchproducts, or a maximum of approximately $4.25 million per product. The Company’s futuremilestone payment obligations to Kirin may or may not be triggered, and mayvary in size, depending on a number of variables, almost all of which arecurrently unknown, including the following:

·       whetheror not a decision is made to request a license from Kirin;

·       thetype of license requested (research or commercial);

·       thesuccess and timing of development efforts and clinical trials of productcandidates covered by any such licenses;

·       thetype of product developed, (paymentobligations differ depending on whether a product is an *ex vivo* therapeutic, *in vivo* therapeutic, research reagent ordiagnostic); and

·       otherfinancial provisions of the Kirin agreement that provide for variations in feelevels and netting of certain payments over specified periods of time that mayimpact the total amount potentially payable to Kirin for any particular licensefee or milestone payment.

Whether the Company may be obligated to make milestonepayments to Kirin in the future is subject to the success of its efforts withrespect to products the Company or its partners are developing that utilize theKirin technology and, accordingly, is inherently uncertain.

Unless terminated earlier,the Collaboration and License Agreement expires on December 31, 2014. TheCollaboration and License Agreement can be terminated by either party in theevent of a material breach by the other party if the breach is not cured duringa specified cure period. In addition, either party may terminate any commerciallicense with respect to a specific biologic target granted to it by the otherparty under the agreement at any time.

***Other Contingent Arrangements***

The Company hasentered into a number of other agreements that contain in-licenses ofthird-party technology (in addition to Kirin) which may be used together withthe Company’s own platform technologies for the generation, development and/ormanufacture of its antibody products. In addition, the Company has entered intoother third-party agreements that contain in-licenses associated with antibodyproducts that target specific antigens. Many of these agreements containmilestones payments that are due with respect to products using/targeting thelicensed technology/antigen only if and when certain specified 

F-28

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

pre-commercializationevents occur. Not all of the Company’s products currently under developmenttrigger such milestone payments. Through December 31, 2006, the Companyhad made milestone payments under these agreements of approximately $0.3million. In addition, under the agreements the Company currently has in place(other than with Kirin), based on a total of nine products the Company isdeveloping for which milestones are potentially due and that (i) arenow in clinical trials, or (ii) which the Company anticipates may enterclinical trials before the end of 2008, the Company may be obligated to makefuture milestone payments aggregating up to approximately $59.6 million with respect to suchproducts. In general, potential milestone payments for antibody products may ormay not be triggered under these licenses, and may vary in size, depending on anumber of variables, almost all of which are currently uncertain.Typically, the events that trigger these milestone payments per productinclude:

·       submissionof IND(s) or foreign equivalents;

·       commencementof Phase I, Phase II and/or Phase III clinical trials or foreign equivalents;

·       submissionof BLA(s) or foreign equivalents; and

·       receiptof marketing approval(s) to sell products in a particular country orregion.

In addition, the licensesabove may trigger royalty payments in connection with the commercialization ofcertain of the Company’s products. Whether the Company will be obligated tomake milestone or royalty payments in the future is subject to the success ofits product development efforts and, accordingly, is inherently uncertain.

***Stock Option Grant Practices***

In conjunction with the review of the Company’s stockoption grant practices, the Company has also evaluated the related tax issuesto determine if the Company may be subject to additional tax liability as aresult of the matters under review. In addition, due to revision of measurementdates, certain stock options that were previously treated as incentive stockoptions may not actually qualify for such treatment and may be treated asnon-statutory stock options. Accordingly, the Company may be subject to finesand/or penalties relating to the tax treatment of such stock options. While theCompany believes that its accrual for additional tax liabilities associatedwith the matters under review is appropriate under the circumstances, it ispossible that additional liabilities exist and the amount of such additionalliabilities could be material.

The SEC is conducting aninformal inquiry into our historical stock option grants and practices andrelated accounting and disclosures. In addition, the United States Attorney’sOffice for the District of New Jersey is conducting a grand juryinvestigation relating to the same matters. At the conclusion of the SEC’sinformal inquiry and the U.S. Attorney’s Office investigation, the Companycould be subject to regulatory or other fines or penalties or other contingentliabilities, however, no outcome is determinable at this time.

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

***Derivative Shareholder Lawsuits***

In June 2006, two derivative actions relating tothe Company’s historical stock option granting practices were filed in NewJersey state court by shareholders purporting to act on behalf of Medarex,naming Medarex as a nominal defendant and certain current and former directorsas defendants. In November 2006 and January 2007, three additionalderivative complaints were filed in the United States District Court for theDistrict of New Jersey, containing nearly identical factual allegationsconcerning Medarex’s historical stock option granting practices. The complaintsallege, among other things, that certain of Medarex’s officers and directorsbreached their fiduciary duties to the Company and violated federal securitieslaws in connection with public statements made in SEC filings relating to theCompany’s historical stock option granting practices and related accounting. Thecomplaints seek unspecified damages and equitable relief. These actions are intheir preliminary stages. We could be required to pay significant legal feesand damages in connection with this litigation.

The Company is unable to reasonably estimate anypossible range of loss or liability associated with the stock option inquiryand/or derivative suits due to their uncertain resolution.

In addition to theproceedings described above, in the ordinary course of its business, theCompany is at times subject to various legal proceedings. The Company does notbelieve that any of the currently pending ordinary course legal proceedings,individually or in the aggregate, will have a material adverse effect on itsoperations or financial condition.

**13.**          SegmentInformation

The Company is an integrated monoclonal antibody-basedcompany with antibody discovery, development and clinical manufacturingcapabilities. The operations of the Company and its subsidiaries constitute onebusiness segment.

Revenuefrom partners representing 10% or more of total revenues for the years ended December 31,2006, 2005 and 2004 is as follows:

| **Partners** | ** ** | ** ** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|
| BMS          |       |       | 37         | %        |       |     | 34         | %        |       |   | 4 | % |   |
| Genmab       |       |       | 3          | %        |       |     | 8          | %        |       |   | 26 | % |   |
| Pfizer       |       |       | 21         | %        |       |     | 18         | %        |       |   | 20 | % |   |

 

**14.**            Celldex Therapeutics, Inc.

In March 2004, the Company assigned or licensedto Celldex certain intellectual property related to the Company’s vaccinetechnology, including the rights to MDX-1307, one of the Company’sproduct candidates for the treatment of cancer, as well as the InvestigationalNew Drug Application (“IND”), associated with this product candidate whichbecame effective in February 2004.

In order to complement its technology and its internalclinical pipeline, in October 2005, Celldex completed the acquisition ofall of the issued and outstanding shares of capital stock of Lorantis Limited (“Lorantis”),a privately held biotechnology company based in Cambridge, U.K. andsubstantially all of the assets of Alteris Therapeutics, Inc. (“Alteris”),a privately held biotechnology company based in 

F-30

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

Philadelphia, PA. As aresult of the Lorantis acquisition and the Alteris asset acquisition, theCompany’s ownership percentage of Celldex was reduced from 100% toapproximately 60%.

The purchase price of Lorantis consisted of 6.8million shares of Celldex Class A common stock (valued at $34.0 million).

The purchase price for substantially all of theAlteris assets consisted of 1.2 million shares of Celldex common stock (valuedat $6.0 million) and approximately $1.6 million in cash. Celldex may berequired to pay Alteris up to $5.0 million upon obtaining the first approvalfor commercial sale of an EGFRvIII product.

Thetotal cost of the Lorantis acquisition was $34.6 million, of which $0.5 millionrepresented transaction costs. The total cost of the Alteris asset acquisitionwas $8.2 million, of which $0.6 million represented transaction costs. Theseamounts have been allocated as follows based upon independent third partyvaluations using the income approach:

| ** **                                                | ** ** | **Lorantis** | ** ** | **Alteris** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------|------------|--------------|------------|-------------|------------|-----------|------------|
| Net current  assets (primarily cash and cash equivalents) |       | $            | 30,297     |        | $          | —    |       | $ | 30,297 |   |
| Fixed assets                                              |       | 2,717        |       | 6           |       | 2,723     |       |
| Acquired  technology                                      |       | —       |       | 1,296       |       | 1,296     |       |
| In-process  research and development                      |       | 1,541        |       | 6,906       |       | 8,447     |       |
|                                                      |       | $            | 34,555     |        | $          | 8,208     |       | $ | 42,763 |   |

 

The total in-process research and development of $8.4million was determined not to be technologically feasible and had noalternative future uses. The developed technology is being amortized over itsestimated useful life of 11 years.

The value of the acquired in-process research anddevelopment was determined by estimating the related probability-adjusted netcash flows, which were then discounted to a present value using a rate of 27.5%.The discount rate was based upon Celldex’s weighted average cost of capitaltaking into account the risk associated with the technologies acquired. Theprojected cash flows for such projects were based on estimated revenues andoperating profits related to such projects considering the development of eachof the technologies acquired, the time and resources needed to develop thetechnologies, the estimated life of each potential commercialized product andassociated risks, including the inherent difficulties and uncertainties indeveloping a drug compound and obtaining FDA and other regulatory approvals.

The results of operations for the Lorantis acquisitionand the Alteris asset acquisition are included in the consolidated statement ofoperations from October 12, 2005.

F-31

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

Theunaudited pro-forma results of operations for the years ended December 31,2005 and 2004, assuming the acquisition of Lorantis and the Alteris asset acquisitiontook place on January 1, 2004, are as follows:

| ** **                            | ** ** | **Year Ended December 31** | ** ** |
|---------------------------------------|------------|-------------------------------------------|------------|
| ** **                            | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Total revenue                         |       | $                                         | 51,593     |   | $ | 12,525 |   |
| Net loss                              |       | (147,628                                  | )          | (192,130 | ) |
| Basic and diluted net  loss per share |       | $                                         | (1.34      | ) | $ | (2.36 | ) |

 

The pro-forma information doesnot include the write-off of in-process technology of $8.4 million which is notexpected to recur in the future. The pro-forma unaudited financial results arenot necessarily indicative of the results of operations that would haveoccurred had the Lorantis acquisition and the Alteris asset acquisition takenplace at the beginning of the periods presented nor are they intended to beindicative of results that may occur in the future.

**15.**          Acquisitionof Ability Biomedical Corporation

On August 5, 2004, the Company completed theacquisition of all of the outstanding capital stock not already owned by theCompany of Ability Biomedical Corporation, a privately held Canadianbiotechnology company (“Ability Biomedical”). Pursuant to such acquisition, theCompany acquired Ability Biomedical’s intellectual property related to IP-10,a protein believed to be associated with a variety of immune disorders,including multiple sclerosis, rheumatoid arthritis, inflammatory bowel disease,chronic obstructive pulmonary disease and type I diabetes.

The purchase price consisted of 731,823 shares ofMedarex common stock (valued at approximately $4.3 million), cash payments ofapproximately $0.6 million and transaction costs of approximately $0.2 million.In addition, the Company had owned shares of Ability Biomedical prior to theacquisition, which were valued at approximately $0.6 million, therefore thetotal cost of the acquisition was $5.7 million. During the 60-dayperiod following the issuance of shares of the Company’s common stock to theAbility Biomedical shareholders in connection with the acquisition, certainshareholders sold all of the shares issued to them for an amount less than theamount due to them under the share purchase agreement while certain other shareholderssold shares issued to them for an amount greater than the amount due them underthe share purchase agreement. In accordance with the share purchase agreement,the Company received approximately $0.1 million representing 50% of thedifference between the actual proceeds received and the amount due under theshare purchase agreement.

Upon achievement of certain development milestoneswith respect to the Company’s anti-IP-10 antibody program, but no laterthan September 4, 2007, the Company may be required to pay the formershareholders of Ability Biomedical an additional amount of approximately $3.65million subject to an interest component in cash and/or common stock subject tofluctuations in currency exchange rates. In lieu of such additional payment,the Company also has the option to revert to the original joint collaborationagreement with the former shareholders of Ability Biomedical whereby each partywould be responsible for 50% of the costs associated with the anti-IP-10antibody.

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

Thetotal cost of the acquisition was $5.7 million. This amount has been allocatedas follows:

| In-process  technology                            |   | $   | 5.4    |   |
|---------------------------------------------------|--------|-----|--------|--------|
| Net assets  (primarily cash and cash equivalents) |   | 0.3 |   |
|                                              |   | $   | 5.7    |   |

 

The assets and liabilitiesassumed have been recorded at their estimated fair market values at the date ofacquisition. Since technological feasibility of the in-process research anddevelopment costs have not yet been established and the technology had noalternative future use at the acquisition date, the in-process research anddevelopment costs of $5.4 million were immediately written-off and included inthe results of operations for the year ended December 31, 2004.

**16.**          EmployeeBenefit Plans

***Employee Savings Plan***

The Company maintains a401(k) savings plan. Employees may contribute up to 50% of their annualsalaries up to a maximum dollar value permitted by the Internal RevenueService. The Company may make matching contributions of up to 4% of aparticipant’s annual salary. During 2006, 2005 and 2004, the Company madecontributions to the plan totaling $1.0 million, $0.7 million and $0.6 million,respectively.

**17.**          SubsequentEvents

On February 16, 2007,the Company completed the sale of 2,578,500 shares of Genmab through a blocktrade. The Company received net proceeds of approximately $152.1 million fromsuch block trade. As a result of this transaction, the Company’s ownershippercentage in Genmab was reduced to approximately 10.8%.

F-33

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

**18.**          QuarterlyFinancial Information—Unaudited

Thefollowing tables set forth a summary of the Company’s consolidated statementsof operations for each of the quarterly periods in the years ended December 31,2006 and 2005:

***2006***

| ** **                                                         | ** ** | **March 31,** | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|------------------------|------------|-----------------------|------------|
| Revenues:                                                          |       |               |       |              |       |                   |       |                  |       |   |   |   |   |
| Contract and license revenues                                      |       | $                  | 8,230      |              | $          | 5,785                  |       |                  | $          | 6,347 |   |   |   | $ | 6,374 |   |   |
| Sales, contract and license revenues from Genmab                   |       | 392                |       | 391               |       |                   | 375        |                  |       |   | 395 |   |   |
| Reimbursement of development costs                                 |       | 4,455              |       | 5,631             |       |                   | 5,714      |                  |       |   | 4,557 |   |   |
| Total revenues                                                     |       | 13,077             |       | 11,807            |       |                   | 12,436     |                  |       |   | 11,326 |   |   |
| Costs and expenses:                                                |       |               |       |              |       |                   |       |                  |       |   |   |   |   |
| Research and development                                           |       | 45,939             |       | 48,036            |       |                   | 48,350     |                  |       |   | 52,187 |   |   |
| General and administrative                                         |       | 9,518              |       | 10,158            |       |                   | 15,451     |                  |       |   | 16,801 |   |   |
| Total costs and expenses                                           |       | 55,457             |       | 58,194            |       |                   | 63,801     |                  |       |   | 68,988 |   |   |
| Operating loss                                                     |       | (42,380            | )          | (46,387           | )          |                   | (51,365    | )                     |       |   | (57,662 | ) |   |
| Equity in net loss of affiliate                                    |       | (1,037             | )          | —            |       |                   | —     |                  |       |   | — |   |   |
| Interest and dividend income                                       |       | 3,251              |       | 4,585             |       |                   | 4,841      |                  |       |   | 4,675 |   |   |
| Impairment loss on investments in partners                         |       | —             |       | —            |       |                   | —     |                  |       |   | (5,170 | ) |   |
| Interest expense                                                   |       | (1,055             | )          | (1,056            | )          |                   | (1,055     | )                     |       |   | (1,543 | ) |   |
| Minority interest—Celldex                                     |       | 1,607              |       | 1,499             |       |                   | 1,675      |                  |       |   | 2,110 |   |   |
| Non-cash gain on loss of  significant influence in Genmab          |       | 3,202              |       | —            |       |                   | —     |                  |       |   | — |   |   |
| Loss before provision for income taxes                             |       | (36,412            | )          | (41,359           | )          |                   | (45,904    | )                     |       |   | (57,590 | ) |   |
| Provision for income taxes                                         |       | 222                |       | 62                |       |                   | 37         |                  |       |   | 115 |   |   |
| Net loss                                                           |       | $                  | (36,634    | )                 | $          | (41,421                | )          |                  | $          | (45,941 | ) |   |   | $ | (57,705 | ) |   |
| Basic and diluted  net loss per share                              |       | $                  | (0.33      | )                 | $          | (0.34                  | )          |                  | $          | (0.37 | ) |   |   | $ | (0.46 | ) |   |
| Weighted average common  shares outstanding—basic and diluted |       | 112,213            |       | 122,187           |       |                   | 124,555    |                  |       |   | 124,593 |   |   |

 

Basic and diluted net loss per share are computedindependently for each of the quarters presented. Therefore, the sum of basicand diluted net loss per share information may not equal annual basic anddiluted net loss per share.

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**MEDAREX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2006, 2005 and 2004 (Dollars in thousands, unless otherwise indicated, except share data)**

***2005***

| ** **                                                         | ** ** | **March 31,** | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|------------------------|------------|-----------------------|------------|
| Revenues:                                                          |       |               |       |              |       |                   |       |                  |       |   |   |   |   |
| Contract and license revenues                                      |       | $                  | 5,932      |              | $          | 10,208                 |       |                  | $          | 6,479 |   |   |   | $ | 7,607 |   |   |
| Sales, contract and license revenues from Genmab                   |       | 600                |       | 1,508             |       |                   | 1,142      |                  |       |   | 817 |   |   |
| Reimbursement of development costs                                 |       | 1,979              |       | 6,821             |       |                   | 3,045      |                  |       |   | 5,317 |   |   |
| Total revenues                                                     |       | 8,511              |       | 18,537            |       |                   | 10,666     |                  |       |   | 13,741 |   |   |
| Costs and expenses:                                                |       |               |       |              |       |                   |       |                  |       |   |   |   |   |
| Research and development                                           |       | 29,395             |       | 36,015            |       |                   | 31,247     |                  |       |   | 40,282 |   |   |
| General and administrative                                         |       | 5,914              |       | 6,369             |       |                   | 6,396      |                  |       |   | 10,289 |   |   |
| Acquisition of in-process technology                               |       | —             |       | —            |       |                   | —     |                  |       |   | 8,447 |   |   |
| Total costs and expenses                                           |       | 35,309             |       | 42,384            |       |                   | 37,643     |                  |       |   | 59,018 |   |   |
| Operating loss                                                     |       | (26,798            | )          | (23,847           | )          |                   | (26,977    | )                     |       |   | (45,277 | ) |   |
| Equity in net loss of affiliate                                    |       | (1,657             | )          | —            |       |                   | (1,816     | )                     |       |   | (2,850 | ) |   |
| Interest and dividend income                                       |       | 2,508              |       | 2,722             |       |                   | 6,233      |                  |       |   | 3,277 |   |   |
| Impairment loss on investments in partners                         |       | (20,264            | )          | (9,001            | )          |                   | —     |                  |       |   | (4,082 | ) |   |
| Interest expense                                                   |       | (1,075             | )          | (1,052            | )          |                   | (1,053     | )                     |       |   | (1,053 | ) |   |
| Minority interest—Celldex                                     |       | —             |       | —            |       |                   | —     |                  |       |   | 4,410 |   |   |
| Loss before provision for income taxes                             |       | (47,286            | )          | (31,178           | )          |                   | (23,613    | )                     |       |   | (45,575 | ) |   |
| Provision for income taxes                                         |       | 58                 |       | 138               |       |                   | 90         |                  |       |   | 72 |   |   |
| Net loss                                                           |       | $                  | (47,344    | )                 | $          | (31,316                | )          |                  | $          | (23,703 | ) |   |   | $ | (45,647 | ) |   |
| Basic and diluted  net loss per share                              |       | $                  | (0.44      | )                 | $          | (0.28                  | )          |                  | $          | (0.21 | ) |   |   | $ | (0.41 | ) |   |
| Weighted average common  shares outstanding—basic and diluted |       | 106,999            |       | 111,059           |       |                   | 111,406    |                  |       |   | 111,688 |   |   |

 

Basic and diluted net loss per share are computedindependently for each of the quarters presented. Therefore, the sum of basicand diluted net loss per share information may not equal annual basic anddiluted net loss per share.

F-35

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**Report ofIndependent Registered Public Accounting Firm**

To the Board of Directors and Shareholders of GenmabA/S:

In our opinion, theconsolidated statements of operations, shareholders’ equity and cash flows (notpresented herein) present fairly, in all material respects, the results ofoperations of Genmab A/S and its subsidiaries (a development stage company) andtheir cash flows for the year ended December 31, 2004 and, cumulatively, forthe period from June 11, 1998 (date of inception) to December 31, 2004 inconformity with accounting principles generally accepted in the United Statesof America. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits of these statements inaccordance with standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.
| PricewaterhouseCoopers                     |   |   |
|--------------------------------------------|--------|--------|
| Statsautoriseret Revisionsinteressentskab  |   |   |
| Copenhagen, Denmark, February 8, 2005 |   |   |
| /s/ JENS RØDER                        |   |   |   |
| *State Authorized Public Accountant*       |   |   |
|                                            |        |        |  |

 

F-36

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** Item 9.**                     Changesin and Disagreements with Accountants on Accounting and Financial Disclosures

None.

**Item 9A.**                Controlsand Procedures

*SpecialInvestigation Committee Review into Stock Option Grant Practices andRestatement*

In June 2006, the Company’s Board of Directorsinitiated an investigation of the Company’s stock option grant practices from1996 through June 30, 2006 (the “Investigation”), which was conducted bythe Special Investigation Committee.

As a result of the Investigation, the Company restatedits beginning accumulated deficit as of January 1, 2003 and restated itsconsolidated financial statements as of December 31, 2005 and 2004 and for theyears ended December 31, 2005, 2004 and 2003, which are included in its amendedAnnual Report on Form 10-K/A for the year ended December 31, 2005.

Based upon information obtained in the Investigation,through July 2002, the Company had a practice, in many instances, ofselecting dates for its stock option grants and restricted stock grants as ofthe date when the stock price was the lowest during the month of grant, withoutdisclosing this practice in its public filings and without properly measuringthe compensation expense on a date that the terms of the equity awards werefinalized. Subsequent to July 2002, while the Company had made changes inits equity award granting practices in response to legal and regulatoryrequirements, there were two annual rank and file equity grants for which themeasurement dates differ from the grant dates recorded in the Company’s booksand records by a couple of days, which the Investigation revealed wereprimarily a result of administrative delays, with no apparent intent to achievefavorable exercise prices.

From July 2002through 2005, the Company implemented improvements to procedures and processesto provide greater internal control over the equity award granting andadministration function in compliance with the Sarbanes-Oxley Act of 2002 (orSOX). These improvements included:

·       Documentingand assessing the design and operation of internal controls

·       Segregatingresponsibilities, adding reviews and redefining roles and responsibilities

·       Identifyingkey controls, developing test plans, and testing controls in the equity awardgranting and administration function

·       Certifyingstock administration and other controls for SOX Section 404 compliance in2005 and 2004

*Evaluationof Disclosure Controls and Procedures:*   Ourprincipal executive officer and principal financial officer reviewed andevaluated our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))as of the end of the period covered by this Annual Report on Form 10-K.Based on that evaluation, our principal executive officer and principalfinancial officer have concluded that our disclosure controls and proceduresare effective in ensuring that all material information required to be includedin this Annual Report on Form 10-K has been made known to them in atimely fashion.

*Management’sAnnual Report on Internal Control Over Financial Reporting:**  *Our management is responsible forestablishing and maintaining adequate internal control over financial reportingas defined in Rules 13a-15(f) and 15d-15(f) underthe Securities Exchange Act of 1934. Our internal control over financialreporting is designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Ourinternal control over financial reporting includes those policies andprocedures that: (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of Medarex; (ii) provide reasonable assurancethat 

79

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transactions are recordedas necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that our receipts andexpenditures are being made only in accordance with authorizations of ourmanagement and our directors; and (iii) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use ordisposition of our assets that could have a material effect on the financialstatements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

Our management assessed the effectiveness of ourinternal control over financial reporting as of December 31, 2006. Inmaking this assessment, management used the criteria set forth by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO) in InternalControl-Integrated Framework. Based on its assessment and those criteria, ourmanagement has concluded that we maintained effective internal control overfinancial reporting as of December 31, 2006.

Our independent registered public accounting firm haveissued an attestation report on our management’s assessment of our internalcontrol over financial reporting as stated in their report which follows.

*Changesin Internal Controls Over Financial Reporting:**  *Such evaluation did not identifyany significant changes in our internal controls over financial reporting thatoccurred during the quarter ended December 31, 2006 that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

In January 2007,we adopted a new policy and procedure for the granting of stock options andother equity-based incentives. This new policy and procedure was designed toensure consistency in the granting and administration of equity awards andincludes:

·       Specificprocedures for:

·        Equity grants to newofficers, employees and members of the Board of Directors;

·        Annual equity grants tocurrent officers, employees and members of the Board of Directors; and

·        Off-cycle grants tocurrent officers, employees and members of the Board of Directors;

·       Amethodology for establishing accounting measurement dates for the foregoinggrants;

·       Proceduresfor the communication, documentation and implementation of equity awards by thestock option administrator; and

·       Training for individualsinvolved in the administration and implementation of equity award procedures.

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**Report ofIndependent Registered Public Accounting Firm**

The Board ofDirectors and Shareholders

Medarex, Inc.

We have audited management’s assessment, included inthe accompanying Management’s Annual Report on Internal Control Over FinancialReporting in Item 9A that Medarex, Inc. maintained effective internalcontrol over financial reporting as of December 31, 2006, based oncriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (the COSOcriteria). Medarex, Inc.’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the company’s internal control over financialreporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the company’sassets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

In our opinion, management’s assessment that Medarex, Inc.maintained effective internal control over financial reporting as of December 31,2006, is fairly stated, in all material respects, based on the COSO criteria.Also, in our opinion, Medarex, Inc. maintained, in all respects, effectiveinternal control over financial reporting as of December 31, 2006, basedon the COSO criteria.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets ofMedarex, Inc. and subsidiaries as of December 31, 2006 and 2005, andthe related consolidated statements of operations, shareholders’ equity andcash flows for each of the three years in the period ended December 31,2006 and our report dated February 28,2007 expresses an unqualified opinion thereon.
|                         | /s/ ERNST &  YOUNG LLP |
|-------------------------|--------------------------------------|
| MetroPark, New  Jersey  |                                 |
| February 28,  2007 |                                 |

 

81

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**Item9B. Other Information**

None

**PART III**

**Item10.**                 Directors,Executive Officers and Corporate Governance of the Registrant

**Identification of Directors and Executive Officers**

The information requiredby this Item, including procedures for recommending directors, will be reportedin our definitive Proxy Statement for the Annual Meeting of Shareholders whichwe expect will be filed on or before April 27, 2007, or the ProxyStatement, under the heading “Proposal 1—Election of Directors,” and isincorporated herein by reference.

**Audit Committee**

Information concerning ourAudit Committee and Financial Expert will be reported in the Proxy Statement, underthe heading “Proposal 1—Election of Officers” and is incorporated herein byreference.

**Compliance with Section 16(a) of theExchange Act**

The information requiredby this Item will be reported in the Proxy Statement under the heading “Ownershipof Company Stock—Section 16(a) Beneficial Ownership ReportingCompliance,” and is incorporated herein by reference.

**Standards of Integrity**

The Company has adoptedthe Standards of Integrity, our code of ethics, or the Code, which applies toall directors, officers and employees. The Code is available at our website atwww.medarex.com. If the Company makes any substantive amendments to the Code orgrants any waiver from the Code to any director or executive officer, theCompany will promptly disclose the nature of the amendment or waiver on itswebsite at the address provided above.

**Item11.**                 ExecutiveCompensation

The information requiredby this Item will be reported in the Proxy Statement under the headings “Proposal1—Election of Directors—Executive Compensation,” and “Proposal 1—Election ofDirectors—Director Compensation,” and is incorporated herein by reference.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related ShareholderMatters

The information requiredby this Item will be reported in the Proxy Statement under the headings “Proposal1—Election of Directors—Security Ownership,” “Equity Compensation PlanInformation” and “Equity Compensation Plans Not Approved by Shareholders,” andis incorporated herein by reference.

**Item13.**                 CertainRelationships and Related Transactions, and Director Independence

The information requiredby this Item will be reported in the Proxy Statement under the heading “Proposal1—Election of Officers—Certain Relationships and Related Transactions, andDirector Independence,” and is incorporated herein by reference.

**Item 14.**                 PrincipalAccountant Fees and Services

The information required by this Item will be reportedin the Proxy Statement under the heading “Proposal 2—Ratification of theAppointment of Independent Registered Public Accounting Firm,” and isincorporated herein by reference.

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**PART IV**

**Item15.**                 Exhibits,Financial Statement Schedules 

| Item   Number   | ** ** | ** **                                                                                                                                                                                                                                                                                                                                      |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a).1.(a)       |       | **Consolidated Financial Statements—Medarex, Inc.**                                                                                                                                                                                                                                                                                   |
|            |       | Report of Independent Registered Public Accounting  Firm.                                                                                                                                                                                                                                                                                       |
|            |       | Consolidated Balance Sheets as of December 31,  2006 and 2005.                                                                                                                                                                                                                                                                             |
|            |       | Consolidated Statements of Operations for the Years  Ended December 31, 2006, 2005 and 2004.                                                                                                                                                                                                                                               |
|            |       | Consolidated Statements of Shareholders’ Equity for  the Years Ended December 31, 2006, 2005 and 2004.                                                                                                                                                                                                                           |
|            |       | Consolidated Statements of Cash Flows for the Years  Ended December 31, 2006, 2005 and 2004.                                                                                                                                                                                                                                               |
|            |       | Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                     |
| (a).1.(b)       |       | **Consolidated Financial Statements—Genmab A/S (A  development stage company)**                                                                                                                                                                                                                                                            |
|            |       | Report of Independent Registered Public Accounting  Firm.                                                                                                                                                                                                                                                                                       |
| (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.                                                                                                                                                                                                                                                                     |
| 2.3(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(56)         |       | Restated Certificate of Incorporation of the  Registrant.                                                                                                                                                                                                                                                                                       |
| 3.2(64)         |       | Amended and Restated By-laws of the Registrant.                                                                                                                                                                                                                                                                                                 |
| 4.1(1)          |       | Form of Specimen of Common Stock Certificate.                                                                                                                                                                                                                                                                                              |
| 4.2(74)         |       | Form of Rights Agreement (including  Form of Rights Certificate).                                                                                                                                                                                                                                                                     |
| 4.3(75)         |       | Indenture dated as of May 3, 2004 between  Registrant and Wilmington Trust Company, as trustee.                                                                                                                                                                                                                                            |
| 4.4(76)         |       | Registration Rights Agreement dated as of  May 3, 2004 by and among Registrant, Goldman, Sachs & Co. and  J.P. Morgan Securities, Inc.                                                                                                                                                                                       |
| 4.5(3)          |       | First Supplemental Indenture dated October 4,  2006 among Registrant and Wilmington Trust Company as trustee.                                                                                                                                                                                                                              |
| 10.3(1)†   |       | 1991 Employee Stock Option Plan.                                                                                                                                                                                                                                                                                                                |
| 10.29(2)†  |       | Employment Agreement between the Registrant and  Dr. Donald L. Drakeman, dated January 5, 2004.                                                                                                                                                                                                                                       |
| 10.30(77)† |       | Employment Agreement between the Registrant and  Dr. Nils Lonberg, dated January 5, 2004.                                                                                                                                                                                                                                        |
| 10.31(77)† |       | Employment Agreement between the Registrant and W.  Bradford Middlekauff, dated January 5, 2004.                                                                                                                                                                                                                                           |
| 10.32(77)† |       | Employment Agreement between the Registrant and  Dr. Geoffrey M. Nichol, dated January 5, 2004.                                                                                                                                                                                                                                       |
| 10.33(77)† |       | Employment Agreement between the Registrant and  Dr. Ronald A. Pepin, dated January 5, 2004.                                                                                                                                                                                                                                          |

83

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| 10.34(77)†   |   | Employment Agreement between the Registrant and  Christian S. Schade, dated January 5, 2004.                                                                                                                      |
|-------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.40(77)†   |   | Form of Employee Incentive Stock Option  Agreement.                                                                                                                                                               |
| 10.41(77)†   |   | Form of Employee Nonqualified Stock Option  Agreement.                                                                                                                                                            |
| 10.42(77)†   |   | Form of Non-Employee Director Nonqualified  Stock Option Agreement.                                                                                                                                               |
| 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).                                                                                                                                  |
| 10.61(9)†    |   | 1995 Stock Option Plan.                                                                                                                                                                                                |
| 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. |
| 10.84(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.                                                                                                                                                                             |
| 10.89(41)†   |   | Medarex, Inc. 1999 Stock Option Plan.                                                                                                                                                                             |
| 10.104(57)†  |   | Medarex, Inc. 2000 Stock Option Plan.                                                                                                                                                                             |
| 10.105(58)†  |   | Medarex, Inc. 2000 Non-Director/Officer  Employee Stock Option Plan.                                                                                                                                              |
| 10.106(59)†  |   | Medarex, Inc. 2001 Non-Director/Officer  Employee Stock Option Plan.                                                                                                                                              |
| 10.107(60)†  |   | Medarex, Inc. 2001 Stock Option Plan.                                                                                                                                                                             |
| 10.108(61)†  |   | Medarex, Inc. 2002 Employee Stock Purchase  Plan.                                                                                                                                                                 |
| 10.109(62)†  |   | Medarex, Inc. 2002 New Employee Stock Option  Plan.                                                                                                                                                               |
| 10.110a(65)† |   | Medarex, Inc. 2004 New Employee Stock Option  Plan.                                                                                                                                                               |
| 10.110b(63)**     |   | Collaboration and License Agreement, dated  September 4, 2002, between the Registrant, GenPharm  International, Inc. and Kirin Brewery Co., Ltd.                                                             |
| 10.111(79)†  |   | Medarex, Inc. 2004 Restricted Stock Unit Award  and Deferred Compensation Program, as amended.                                                                                                                    |
| 10.112(80)†  |   | Medarex, Inc. Second 2004 Restricted Stock Unit  Award and Deferred Compensation Program, as amended.                                                                                                             |
| 10.113(66)**      |   | License Agreement dated September 15, 2004,  between the Registrant and Pfizer, Inc.                                                                                                                         |
| 10.114(67)**      |   | Cross-License Agreement dated September 15,  2004 between the Registrant and Pfizer, Inc.                                                                                                                    |
| 10.115(68)**      |   | License and Royalty Agreement dated April 4,  2003, between the Registrant and Pfizer, Inc.                                                                                                                  |

84

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| 10.116(69)**     |   | Collaborative Research Agreement dated April 4,  2003 between the Registrant and Pfizer, Inc.                                                   |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.117(70)**     |   | Amendment No. 1 dated September 15, 2004  between the Registrant and Pfizer, Inc.                                                          |
| 10.118(71)       |   | Securities Purchase Agreement dated  September 15, 2004 between the Registrant and Pfizer, Inc.                                                 |
| 10.119(72)**     |   | Collaboration and Co-Promotion Agreement dated  November 7, 2004, between the Registrant and Bristol-Myers Squibb  Company.                          |
| 10.120(73)       |   | Securities Purchase Agreement dated November 7,  2004 between the Registrant Bristol-Myers Squibb Company.                                           |
| 10.121(78)† |   | Medarex, Inc. 2005 Equity Incentive Plan, as  amended.                                                                                               |
| 10.122(81)† |   | Letter Agreement between Registrant and Donald L.  Drakeman dated November 5, 2006.                                                                  |
| 10.123(82)† |   | Agreement between Registrant and Irwin Lerner dated  December 20, 2006.                                                                              |
| 10.124(83)† |   | Agreement between Registrant and Christian S. Schade  dated December 20, 2006.                                                                       |
| 10.125(84)† |   | Agreement between Registrant and W. Bradford  Middlekauff dated December 20, 2006.                                                                   |
| 10.126(85)† |   | Agreement between Registrant and Nils Lonberg dated  December 20, 2006.                                                                              |
| 10.127(86)† |   | Agreement between Registrant and Ronald A. Pepin  dated December 20, 2006.                                                                           |
| 10.128(87)† |   | Agreement between Registrant and Charles Schaller  dated December 20, 2006.                                                                          |
| 10.129(88)† |   | Agreement between Registrant and Julius A. Vida  dated December 20, 2006.                                                                            |
| 21               |   | Subsidiaries of the Registrant.                                                                                                                           |
| 23.1             |   | Consent of Ernst & Young LLP.                                                                                                                    |
| 23.2             |   | Consent of PriceWaterhouseCoopers.                                                                                                                        |
| 24               |   | Power of Attorney (contained on the signature  page hereto).                                                                                         |
| 31.1             |   | Rule 13a-14(a) Certification of  Chief Executive Officer of the Company in accordance with Section 302 of  the Sarbanes-Oxley Act of 2002. |
| 31.2             |   | Rule 13a-14(a) Certification of  Chief Financial Officer of the Company in accordance with Section 302 of  the Sarbanes-Oxley Act of 2002. |
| 32.1*            |   | Section 1350 Certification of Chief Executive  Officer of the Company in accordance with Section 906 of the  Sarbanes-Oxley Act of 2002.        |
| 32.2*            |   | Section 1350 Certification of Chief Financial  Officer of the Company in accordance with Section 906 of the  Sarbanes-Oxley Act of 2002.        |

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       (1) Incorporated by reference to the identically numbered exhibit to theRegistrant’s Registration Statement on Form S-1 (File No. 33-39956)filed on April 12, 1991.

       (2) Incorporated by reference to Exhibit No. 10.1 to theRegistrant’s Statement on Form S-3, as Amended (File No. 333-108325)filed on January 30, 2004.

       (3) Incorporated by referenced to Exhibit No. 10.1 to theRegistrant’s Current Report on Form 8-K filed on October 5,2006.

       (8) Incorporated by reference to the identically numbered exhibit to theRegistrant’s Annual Report on Form 10-K filed on March 15,1993.

       (9) Incorporated by reference to the identically numbered exhibit to theRegistrant’s Annual Report on Form 10-K filed on February 23,1996.

(10) Incorporated by reference to the identically numbered exhibit to theRegistrant’s Quarterly Report on Form 10-Q filed on May 17,1993.

85

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(11) Incorporated by reference to the identically numbered exhibit to theRegistrant’s Quarterly Report on Form 10-Q filed on August 13,1993.

(23) Incorporated by reference to Exhibit Number 10.44 to CellGenesys, Inc.’s Annual Report on Form 10-K/A filed on April 30,1997.

(24) Incorporated by reference to Exhibit Number 10.45 to CellGenesys, Inc.’s Annual Report on Form 10-K/A filed on April 30,1997.

(25) Incorporated by reference to Exhibit Number 10.46 to CellGenesys, Inc.’s Annual Report on Form 10-K/A filed on April 30,1997.

(28) Incorporated by reference to Exhibit Number 2.1 to theRegistrant’s Current Report on Form 8-K filed on June 17, 1997.

(30) Incorporated by reference to Exhibit Number 10.82 to theRegistrant’s Quarterly Report on Form 10-Q filed on August 13,1999.

(36) Incorporated by reference to Exhibit Number 10.80 to theRegistrant’s Current Report on Form 8-K filed on August 11,1999.

(37) Incorporated by reference to Exhibit Number 10.81 to theRegistrant’s Current Report on Form 8-K filed on August 11,1999.

(39) Incorporated by reference to Exhibit Number 10.83 to theRegistrant’s Quarterly Report on Form 10-Q filed on August 13,1999.

(40) Incorporated by reference to Exhibit Number 10.84 to theRegistrant’s Quarterly Report on Form 10-Q filed on August 13,1999.

(41) Incorporated by reference to Exhibit Number 10.85 to theRegistrant’s Quarterly Report on Form 10-Q filed on August 13,1999.

(52) Incorporated by reference to Exhibit Number 10.10 to theRegistrant’s Current Report on Form 8-K filed on January 26,2000.

(56) Incorporated by reference to Exhibit Number 3.1 to theRegistrant’s Quarterly Report on Form 10-Q filed on August 12, 2003.

(57) Incorporated by reference to Exhibit Number 10.1 to theRegistrant’s Registration Statement on Form S-8 (File Number 333-39084)filed on June 12, 2000.

(58) Incorporated by reference to Exhibit No. 10.1 toRegistrant’s Registration Statement on Form S-8 (File Number 333-55222)filed on February 8, 2001.

(59) Incorporated by reference to Exhibit No. 10.1 toRegistrant’s Registration Statement on Form S-8 (File Number 333-55224)filed on February 8, 2001.

(60) Incorporated by reference to Exhibit No. 10.1 toRegistrant’s Registration Statement on Form S-8 (File Number 333-72154)filed on October 24, 2001.

(61) Incorporated by reference to Exhibit No. 10.1 toRegistrant’s Registration Statement on Form S-8 (File Number 333-91394)filed on June 28, 2002.

(62) Incorporated by reference to Exhibit No. 10.1 toRegistrant’s Registration Statement on Form S-8 (File Number 333-101698)filed on December 6, 2002.

(63) Incorporated by reference to Exhibit No. 10.1 toRegistrant’s Current Report on Form 8-K filed on September 18,2002.

86

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(64) Incorporated by reference to Exhibit No. 99.2 toRegistrant’s Current Report on Form 8-K filed on July 29, 2005.

(65) Incorporated by reference to Exhibit 10.1 to Registrant’sRegistration Statement on Form S-8 (File Number 333-121387)filed on December 17, 2004.

(66) Incorporated by reference to Exhibit 99.2 to Registrant’sCurrent Report on Form 8-K filed on November 8, 2004.

(67) Incorporated by reference to Exhibit 99.3 to Registrant’sCurrent Report on Form 8-K filed on November 8, 2004.

(68) Incorporated by reference to Exhibit 99.5 to Registrant’sCurrent Report on Form 8-K filed on November 8, 2004.

(69) Incorporated by reference to Exhibit 99.6 to Registrant’sCurrent Report on Form 8-K filed on November 8, 2004.

(70) Incorporated by reference to Exhibit 99.1 to Registrant’sCurrent Report on Form 8-K filed on November 8, 2004.

(71) Incorporated by reference to Exhibit 99.4 to Registrant’sCurrent Report on Form 8-K filed on November 8, 2004.

(72) Incorporated by reference to Exhibit 99.1 to Registrant’sCurrent Report on Form 8-K filed on January 24, 2005.

(73) Incorporated by reference to Exhibit 99.2 to Registrant’sCurrent Report on Form 8-K filed on January 24, 2005.

(74) Incorporated by reference to Exhibit 4.1 to Registrant’sCurrent Report on Form 8-K filed on May 25, 2001.

(75) Incorporated by reference to Exhibit 4.3 to Registrant’sCurrent Report on Form 8-K filed on May 4, 2004.

(76) Incorporated by reference to Exhibit 4.2 to Registrant’s CurrentReport on Form 8-K filed on May 4, 2004.

(77) Incorporated by reference to the identically numbered exhibit toRegistrant’s Annual Report on Form 10-K filed on March 16,2005.

(78) Incorporated by reference to Exhibit 99.1 to Registrant’sCurrent Report on Form 8-K filed on January 20, 2006.

(79) Incorporated by reference to Exhibit 99.2 to Registrant’sCurrent Report on Form 8-K filed on January 20, 2006.

(80) Incorporated by reference to Exhibit 99.3 to Registrant’sCurrent Report on Form 8-K filed on January 20, 2006.

(81) Incorporated by reference to Exhibit 10.1 to Registrant’sCurrent Report on Form 8-K filed on November 6, 2006.

(82) Incorporated by reference to Exhibit 10.1 to Registrant’sCurrent Report on Form 8-K filed on December 28, 2006.

(83) Incorporated by reference to Exhibit 10.2 to Registrant’sCurrent Report on Form 8-K filed on December 28, 2006.

87

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(84) Incorporated by reference to Exhibit 10.3 to Registrant’sCurrent Report on Form 8-K filed on December 28, 2006.

(85) Incorporated by reference to Exhibit 10.4 to Registrant’sCurrent Report on Form 8-K filed on December 28, 2006.

(86) Incorporated by reference to Exhibit 10.5 to Registrant’sCurrent Report on Form 8-K filed on December 28, 2006.

(87) Incorporated by reference to Exhibit 10.6 to Registrant’sCurrent Report on Form 8-K filed on December 28, 2006.

(88) Incorporated by reference to Exhibit 10.7 to Registrant’sCurrent Report on Form 8-K filed on December 28, 2006.

*                    Thiscertification accompanies this Annual Report on Form 10-K pursuantto Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed”by the Company for purposes of Section 18 of the Securities Exchange Actof 1934, as amended. A signed original of this certification has been providedto the Company and will be retained by the Company and furnished to theSecurities and Exchange Commission or its staff upon request.

**             Confidentialtreatment has been granted with respect to specified portions of this exhibit. Omittedportions have been filed separately with the Securities and ExchangeCommission.

†                    Managementcontract or compensatory plan or arrangement required to be filed (and/orincorporated by reference) as an exhibit to this Annual Report on Form 10-Kpursuant to Item 15(c) of Form 10-K.

88

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized on  February 28,2007.

|          | MEDAREX, Inc. |
|----------|--------------------|
|     | By:                | /s/ IRWIN LERNER |
| * * |               | Irwin Lerner |
| * * | * *           | *Interim President and Chief Executive Officer* |

 

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESEPRESENTS, that each person whose signature appears below constitutes andappoints Irwin Lerner, Chairman of the Board, Interim President and ChiefExecutive Officer, and Christian S. Schade, Senior Vice President and ChiefFinancial Officer, and each of them, his true and lawful attorneys-in-fact andagents, with the full power of substitution and resubstitution, for him and inhis name, place and stead, in any and all capacities, to sign any amendments tothis report, and to file the same, with exhibits thereto and other documents inconnection therewith, with the Securities and Exchange Commission, grantingunto each said attorney-in-fact and agent full power and authority to do andperform each and every act in person, hereby ratifying and confirming all thatsaid attorney-in-fact and agent, or either of them, or their or his substituteor substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities indicated and on the dates indicated.

| **Principal Executive Officer and Director:**  |       |                          |       |                         |
|------------------------------------------------|------------|-------------------------------|------------|------------------------------|
| Chairman of the Board,  Interim President      |       | /s/ IRWIN LERNER              |       | Date: February 28, 2007      |
| and Chief  Executive Officer                   | ** ** | **Irwin  Lerner**             |       |                         |
| **Principal Financial and Accounting Officer** |       | /s/ CHRISTIAN S. SCHADE       |       | Date: February 28, 2007      |
| Senior Vice  President and                     | ** ** | **Christian  S. Schade**      | ** ** | ** **                   |
| Chief Financial  Officer                       | ** ** | ** **                    | ** ** | ** **                   |
| **Directors:**                                 |       | /s/ PATRICIA M. DANZON   |       | Date: February 26, 2007 |
| ** **                                     | ** ** | **Patricia  M. Danzon**       |       |                         |
| ** **                                     |       | /s/ ROBERT C. DINERSTEIN |       | Date: February 26, 2007 |
| ** **                                     | ** ** | **Robert  C. Dinerstein**     |       |                         |
| ** **                                     |       | /s/ ABHIJEET J. LELE     |       | Date: February 24, 2007 |
| ** **                                     | ** ** | **Abhijeet  J. Lele**         |       |                         |
| ** **                                     |       | /s/ RONALD J. SALDARINI  |       | Date: February 24, 2007 |
| ** **                                     | ** ** | **Ronald  J. Saldarini**      |       |                         |

89

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|            |       | /s/ CHARLES R. SCHALLER |       | Date: February 25, 2007  |
|------------|------------|------------------------------|------------|-------------------------------|
| ** ** | ** ** | **Charles R. Schaller**      |       |                          |
| ** ** |       | /s/ JULIUS A. VIDA      |       | Date: February 26,  2007 |
| ** ** | ** ** | **Julius  A. Vida**          | ** ** | ** **                    |

 

90

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