As filed with the Securities and Exchange Commission on November 18, 1997
Registration No. 333-38861
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CELGENE CORPORATION
(Exact name of Registrant as specified in its charter)
---------------
DELAWARE 8731 22-2711928
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
7 Powder Horn Drive, Warren, New Jersey 07059
(732) 271-1001
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------
JOHN W. JACKSON
Chairman of the Board and Chief Executive Officer
Celgene Corporation
7 Powder Horn Drive
Warren, New Jersey 07059
(732) 271-1001
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies of Communications to:
Robert A. Cantone, Esq. Richard R. Plumridge, Esq.
Proskauer Rose LLP Brobeck, Phleger & Harrison LLP
1585 Broadway 1633 Broadway
New York, New York 10036-8299 New York, New York 10019
(212) 969-3000 (212) 581-1600
Fax (212) 969-2900 Fax (212) 586-7878
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest investment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS Subject to Completion, Dated November 18, 1997
[Celgene Logo]
2,600,000
Celgene Corporation
Common Stock
- --------------------------------------------------------------------------------
All of the 2,600,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Celgene
Corporation ("Celgene" or the "Company").
The Common Stock is quoted on the Nasdaq National Market under the symbol
"CELG." On November 17, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market was $10-1/8 per share. See "Price Range of Common
Stock."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 7-12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Common Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
390,000 additional shares of Common Stock on the same terms per share
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public will be $ , total Underwriting Discounts
and Commissions will be $ and the total Proceeds to the Company will be
$ . See "Underwriting."
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of SBC Warburg Dillon Read Inc., New York,
New York, on or about , 1997. The Underwriters include:
SBC Warburg Dillon Read Inc.
Prudential Securities Incorporated
Loewenbaum & Company
Incorporated
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[CELGENE LOGO] IMMUNOTHERAPEUTIC PLATFORM
Thalomid(TM)
[Photo of Thalomid Thalomid, Celgene's formulation of thalidomide, is a potent
blister pack and yet selective inhibitor of excess production of TNF[alpha].
STEPS educational An approvable letter from the FDA has been received for
literature] Thalomid in the treatment of inflammatory complications of
leprosy. In addition, Celgene expects to file an NDA in
early 1998 for the treatment of AIDS cachexia (wasting).
Working with the FDA, Celgene has proposed and implemented
the STEPS program, a comprehensive education program and
distribution system designed to support the safe and
effective dispensing of Thalomid.
------------------------------------------------------------
[PHOTO OF "Celgene SelCID Molecule"]
Celgene is developing two new classes of
proprietary compounds, thalidomide
analogues and SelCIDs (Selective
Cytokine Inhibitory Drugs), which have
been shown in in vitro studies to be
highly specific for the suppression of
TNF[alpha]. The Company's first SelCID was
found to be well tolerated in a recently
completed Phase I trial in the United
Kingdom.
Diseases Involving
I Excess TNF[alpha]
N --------------------------
-------------- H ----- Diabetes (Non-Insulin Dependent)
I - Alzheimer's
[PHOTO of TNF[alpha] B - Inflammatory Bowel Disease
TNF[alpha] I - Rheumatoid Arthritis
molecule] -------------- T ----- Cancer Cachexia
O Parkinson's Disease
R Multiple Sclerosis
Lupus
TNF[alpha], a It is widely
protein essential to believed that
the mounting of a selective inhibition
normal immune of TNF[alpha]
response, can be represents a
overproduced leading promising new
to chronic strategy for
inflammatory treating chronic
diseases and other inflammatory
disorders. diseases and other
disorders caused by
excess production of
TNF[alpha].
All of the products under development by the Company will require further
development, testing, and/or regulatory approval. There can be no assurance that
commercially viable products will result from these efforts or that resulting
products that receive regulatory approval will achieve market acceptance.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN THE
COMMON STOCK AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Celgro(TM), SelCIDs(TM) and THALOMID(TM) are trademarks of the Company.
Ritalin(R) is a registered trademark of Novartis AG. All other Trademarks,
service marks, and tradenames referred to in this Prospectus are the property of
their owners.
- --------------------------------------------------------------------------------
2
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus or incorporated herein by reference, including the
information under "Risk Factors." Unless otherwise indicated, all information
in this Prospectus assumes that the Underwriters' over-allotment option is not
exercised.
THE COMPANY
Celgene Corporation ("Celgene" or the "Company") is a specialty pharmaceutical
company engaged in the development and commercialization of human
pharmaceuticals and agrochemicals, and is employing two broad technology
platforms: (i) small molecule immunotherapeutic compound development and (ii)
biocatalytic chiral chemistry synthesis. The initial therapeutic focus of the
immunology program is the development of small molecule pharmaceuticals that
have the potential to selectively regulate Tumor Necrosis Factor[alpha]
("TNF[alpha]"), a protein whose overproduction has been linked to many chronic
inflammatory and immunological diseases. The Company's lead compound in
immunology is THALOMID[TM], its formulation of thalidomide, a potent yet
selective inhibitor of TNF[alpha]. On September 19, 1997, the Company received
an approvable letter from the U.S. Food and Drug Administration ("FDA") for
THALOMID for the treatment of erythema nodosum leprosum ("ENL"), an
inflammatory complication of leprosy. The Company expects to submit an
additional New Drug Application ("NDA") in early 1998 for THALOMID in the
treatment of cachexia (wasting) in patients with Acquired Immune Deficiency
Syndrome ("AIDS"). Celgene has further applied its expertise in small molecule
chemistry to develop a class of novel and proprietary thalidomide analogues, as
well as a class of proprietary immunotherapeutic pharmaceutical compounds
called SelCIDs[TM] ("Selective Cytokine Inhibitory Drugs"). These two classes
of compounds are orally administered small molecules that are highly specific
for the suppression of TNF[alpha] and are intended to treat chronic
inflammatory diseases and other disorders.
The initial therapeutic focus of the biocatalytic chiral chemistry synthesis
program is the development of chirally pure pharmaceuticals designed to have
greater efficacy and fewer side effects than existing racemic versions. The
Company's lead compound in this area is a chirally pure version of
dl-methylphenidate (currently marketed under the trade name Ritalin[RegTM]).
The Company recently completed a Phase I/II trial and announced that its
chirally pure version demonstrated statistically significant efficacy versus a
placebo and preliminary indications of longer duration of action relative to
the racemic version. The Company is also employing its biocatalytic chiral
chemistry synthesis technology to develop chirally pure agrochemicals with
superior attributes and/or lower manufacturing costs than the conventional,
non-chirally pure equivalent, as well as to support its established business of
supplying chirally pure intermediates to other pharmaceutical companies for
drug development.
The Company is currently developing THALOMID for the treatment of a variety of
serious disease states for which there are currently no adequate therapies. The
Company recently received an approvable letter from the FDA for THALOMID to
treat ENL. In April 1997, the Company announced that data from its Phase II/III
trial of thalidomide for the treatment of cachexia in patients with AIDS showed
a statistically significant positive result in a primary endpoint, weight gain.
The Company expects to submit an NDA for this indication by early 1998. Celgene
is also studying thalidomide in clinical trials for the treatment of three
other disease states:
[bullet] AIDS--Recurrent Aphthous Stomatitis ("RAS"): Phase II/III Trial
[bullet] AIDS--Chronic Diarrhea: Phase II Trial
[bullet] Behcet's disease/Complex Aphthosis: Phase II/III Trial.
In addition, the Company expects to commence clinical trials in 1998 to study
thalidomide for the treatment of graft versus host disease and various
oncological applications. Working with the FDA, Celgene has proposed a
comprehensive education program and distribution system designed to support the
safe and appropriate use of thalidomide due to the drug's history of
teratogenicity (capacity to cause birth defects) and other side effects.
Celgene is employing its small molecule immunotherapeutics platform to develop
compounds with the objective of producing an array of novel, highly potent,
selective, safe, orally administered drugs that have the potential to regulate
the overproduction of TNF[alpha], which has been implicated in certain chronic
inflammatory and immunological diseases. Chronic inflammatory diseases
collectively afflict millions of patients, and are inadequately treated with
existing therapies. The Company has developed two classes of compounds,
thalidomide analogues and SelCIDS, which have been demonstrated in in vitro
tests using human cells to be significantly more capable than thalidomide at
suppressing
3
<PAGE>
TNF[alpha] production and, in preclinical tests, have not demonstrated
teratogenicity. The initial therapeutic indications targeted for the
thalidomide analogues are rheumatoid arthritis and oncological applications,
and for the SelCIDs, inflammatory bowel disease and oncological applications.
The Company's first SelCID was found to be well tolerated in a recently
completed Phase I clinical trial in the United Kingdom. The United States
Patent and Trademark Office ("U.S. PTO") has issued composition of matter
patents to the Company relating to certain of its novel thalidomide analogues
and SelCIDs.
Celgene's core chiral technology involves a biocatalytic process. Biocatalysis
involves the identification and manipulation of enzymes to perform specialized
chemical reactions to produce chirally pure compounds. Chirality refers to the
property of many chemical compounds to exist in two or more different
conformations that are mirror images of each other. While one conformation may
have beneficial effects, the other or others may be inactive or produce
undesirable effects. Chirally pure compounds contain only one of these
conformations, and thus may have attributes superior to those of the racemic
mixture.
Since 1991, Celgene has manufactured and sold chirally pure intermediates to
major pharmaceutical companies for use in the development of chirally pure
pharmaceuticals, and a number of these companies are conducting advanced
clinical trials of pharmaceuticals that incorporate the Company's chirally pure
intermediates. The Company recently entered into a letter of intent regarding
the sale of its chiral intermediates business. See "Recent Developments."
The Company is employing its biocatalytic chiral chemistry synthesis technology
to develop its own chirally pure versions of existing pharmaceutical products
that may demonstrate greater efficacy and/or fewer side effects than existing
racemic products. The Company filed Investigational New Drug applications
("INDs") in the United States and Canada for a chirally pure version of
dl-methylphenidate, which has been used for decades in formulations such as
Ritalin[RegTM], for the treatment of Attention Deficit Hyperactivity Disorder
("ADHD") in children. The Company recently completed its Phase I/II clinical
trial of the drug and announced that its chirally pure version demonstrated
statistically significant efficacy versus a placebo and preliminary indications
of longer duration of action relative to the racemic version. The Company is
also developing a chirally pure formulation of mexiletine for the treatment of
neuropathic pain, a chronic pain state frequently associated with trauma,
spinal cord injury, and complications of diabetes. Celgene recently reported
that its chirally pure formulation of mexiletine substantially reduced severe
neuropathic pain in established animal models.
Celgene, through its Celgro[TM] subsidiary, is also applying its chiral
technology to the production of chirally pure agrochemicals, in which the
Company's biocatalytic process can add significant value by substantially
lowering manufacturing costs and reducing environmental impact. Since 1994, the
Company has been developing a process to manufacture a chirally pure version of
a currently marketed crop protection agent under a research and development
agreement, initially with Sandoz and subsequently with BASF AG ("BASF"), which
acquired Sandoz' agrochemical business. The Company has successfully scaled up
its process technology to demonstrate ability to produce commercial quantities
of the BASF product, and a commercial agreement is being negotiated.
Celgene has established a sales and marketing organization to commercialize
THALOMID (subject to regulatory approval of the product), and intends to employ
approximately 25 persons in this capacity. The Company intends to develop and
market its own pharmaceuticals for indications with smaller patient
populations. For drugs with indications with larger patient populations, the
Company anticipates partnering with pharmaceutical companies. The Company also
anticipates partnering with companies for the development and commercialization
of the Company's chirally pure pharmaceutical and agrochemical products.
Celgene expects that these arrangements typically will include milestone
payments, reimbursement of research and development expenses and royalty
arrangements.
---------------
The Company was incorporated in Delaware in 1986. The Company's principal
executive offices are located at 7 Powder Horn Drive, Warren, New Jersey 07059.
Its telephone number is (732) 271-1001 and its fax number is (732) 271-4184.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors," beginning on page 7.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered .............................. 2,600,000 shares
Common Stock Outstanding after the Offering ....... 15,789,596 shares (1)
Use of Proceeds ................................... Development and commercialization of the
Company's immunotherapeutic products and chiral
products, the introduction of THALOMID, and for other
working capital and general corporate purposes.
Nasdaq National Market Symbol ..................... CELG
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------
Actual Pro Forma
Statement of Operations Data: 1992 1993 1994 1995 1996 1996 (2)
- ------------------------------------------- ----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues .......................... $ 722 $ 1,807 $ 2,256 $ 1,173 $ 2,502 882
Total expenses .......................... 7,548 9,615 10,720 11,833 21,305 18,924
-------- --------- --------- --------- --------- --------
Loss from operations .................... (6,826) (7,808) (8,464) (10,660) (18,803) (18,042)
Other income, net ....................... 1,597 800 587 143 984 984
-------- --------- --------- --------- --------- --------
Loss from continuing operations ......... (5,229) (7,008) (7,877) (10,517) (17,819) --
Loss from discontinued operations ....... (1,918) (3,318) (2,336) -- -- --
-------- --------- --------- --------- --------- --------
Net loss ................................ (7,147) (10,326) (10,213) (10,517) (17,819) (17,058)
Accretion of premium payable on
preferred stock and warrants ........... -- -- -- -- 1,013 1,013
Deemed dividend for preferred stock
conversion discount .................... -- -- -- -- 2,778 2,778
-------- --------- --------- --------- --------- --------
Net loss applicable to common
stockholders ........................... $ (7,147) $(10,326) $(10,213) $ (10,517) $ (21,610) (20,848)
======== ========= ========= ========= ========= ========
Per share net loss applicable to common
stockholders ........................... $ (0.92) $ (1.32) $ (1.30) $ (1.30) $ (2.29) (2.21)
======== ========= ========= ========= ========= ========
Weighted average number of shares of
common stock outstanding ............... 7,789 7,841 7,853 8,073 9,450 9,450
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
(Unaudited)
Actual Pro Forma
Statement of Operations Data: 1996 1997 1997 (2)
- ------------------------------------------- ------------ ------------ ----------
<S> <C> <C> <C>
Total revenues .......................... $ 1,808 $ 1,816 807
Total expenses .......................... 14,403 19,708 17,953
--------- --------- --------
Loss from operations .................... (12,595) (17,892) (17,146)
Other income, net ....................... 734 337 337
--------- --------- --------
Loss from continuing operations ......... (11,861) (17,555) --
Loss from discontinued operations ....... -- -- --
--------- --------- --------
Net loss ................................ (11,861) (17,555) (16,809)
Accretion of premium payable on
preferred stock and warrants ........... 764 475 474
Deemed dividend for preferred stock
conversion discount .................... 2,778 953 953
--------- --------- --------
Net loss applicable to common
stockholders ........................... $ (15,403) $ (18,983) (18,237)
========= ========= ========
Per share net loss applicable to common
stockholders ........................... $ (1.67) $ (1.63) (1.57)
========= ========= ========
Weighted average number of shares of
common stock outstanding ............... 9,227 11,647 11,647
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
--------------------------------
Balance Sheet Data: Actual As Adjusted (3)
- ----------------------------------------------------------- ------------- ----------------
<S> <C> <C>
Cash, cash equivalents, and marketable securities ....... $ 5,003 29,017
Total assets ............................................ 8,410 32,424
Accumulated deficit ..................................... (111,582) (111,582)
Total stockholders' equity .............................. 5,103 29,117
</TABLE>
-----------
(1) Excludes as of November 17, 1997: an aggregate of 474,597 shares of Common
Stock issuable upon conversion of the Company's Series A Convertible
Preferred Stock; 903,286 shares of Common Stock issuable upon exercise of
warrants, and 2,375,180 shares of Common Stock issuable upon exercise of
currently outstanding stock options granted under the Company's 1986 Stock
Option Plan, 1992 Long-Term Incentive Plan, 1992 Non-Employee Directors'
Stock Option Plan, and 1995 Non-Employee Directors' Incentive Plan
(collectively, the "Stock Plans"). See "Description of Capital Stock" and
Notes 6 and 7 to the Financial Statements.
(2) The pro forma results give effect to the expected sale of the Company's
chiral intermediates business as if such sale had occurred effective as of
January 1, 1996. See "Recent Developments" and "Unaudited Pro Forma
Financial Information."
(3) Adjusted to give effect to the receipt of the net proceeds from the sale of
2,600,000 shares of Common Stock offered by the Company hereby (at an
assumed offering price of $10-1/8 per share, after deduction of
underwriting discounts and commissions and estimated expenses payable by
the Company in connection with the Offering).
5
<PAGE>
RECENT DEVELOPMENTS
- --------------------------------------------------------------------------------
On November 17, 1997, the Company and Cambrex Corporation announced that they
have signed a letter of intent for Cambrex Corporation ("Cambrex") to acquire
Celgene's chiral intermediates business for approximately $15 million. Included
in the transaction will be the rights to Celgene's enzymatic technology for the
production of chirally pure products for the pharmaceutical industry, including
the current pipeline of third party products and the equipment and personnel
associated with the business. The proposed transaction does not include the
sale of any property or technology related to Celgene's proprietary chiral
pharmaceutical products or its Celgro agrochemical businesses.
Proposed terms provide for a payment of $7.5 million upon the closing of the
transaction, plus future royalties of up to a present value of $7.5 million,
with certain minimum royalty payments in the third through sixth year following
the closing of the transaction. The closing of the transaction is subject to
the execution of definitive documentation, which would require approval by
Celgene's and Cambrex's Boards of Directors, the completion of confirmatory due
diligence and the obtaining of all necessary and/or appropriate consents. There
can be no assurance that a transaction will be consummated in accordance with
the terms of the letter of intent, or at all.
Since 1990, Celgene's revenues have been generated primarily through sales of
chirally pure intermediates to pharmaceutical companies for use in new drug
development. Celgene believes that, even in the absence of a sale of the
business, chiral intermediates will account for a less significant portion of
its overall revenues in the future as Celgene continues to develop and, subject
to the receipt of regulatory approvals, begins to generate revenues from
THALOMIDTM, its formulation of thalidomide, and from its pipeline of
immunotherapeutic, chirally pure pharmaceutical and agrochemical products.
Celgene's chiral intermediates business produced a net loss for the nine months
ended September 30, 1997 and for the year ended December 31, 1996. If the
transaction is consummated in accordance with the proposed terms, Celgene
expects to record an undetermined gain on the transaction.
- --------------------------------------------------------------------------------
6
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, as well as the other information
contained in the Prospectus, or incorporated by reference herein before
purchasing any of the Common Stock offered hereby.
Uncertainty of Product Development. Many of the Company's products and
processes are in the early or mid-stages of development and will require the
commitment of substantial resources, extensive research, development,
preclinical testing, clinical trials, manufacturing scale-up, and regulatory
approval prior to commercialization. To date, the Company has produced and sold
only small quantities of chirally pure intermediates and the Company recently
entered into a letter of intent regarding the sale of its chiral intermediates
business. The Company has not yet commercialized any immunotherapeutic
pharmaceuticals, chirally pure pharmaceuticals, or chirally pure agrochemicals.
All of the products under development by the Company, and the products under
development by other companies in which the Company's chirally pure
intermediates are being used, will require further development, clinical
testing, and regulatory approvals, and there can be no assurance that
commercially viable products will result from these efforts. See "Recent
Developments" and "Business."
Uncertainty Associated with Clinical Trials; Extensive Government Regulation;
No Assurance of Regulatory Approval. The preclinical development, clinical
trials, manufacturing, marketing, and labeling of pharmaceuticals are all
subject to extensive regulation by numerous governmental authorities and
agencies in the United States and other countries. There can be no assurance
that the Company will be able to obtain the necessary approvals required to
market its products in any of these markets. Substantially all of the Company's
current chirally pure intermediates may be components of pharmaceutical and
agrochemical products developed and marketed by others. The testing, marketing,
and manufacturing of such pharmaceutical and agrochemical products, as well as
of the Company's proprietary products, will require regulatory approval,
including approval from the FDA, and, in certain cases, from the U.S.
Environmental Protection Agency (the "EPA"), or governmental authorities
outside of the United States that perform roles similar to those of the FDA and
EPA. It is not possible to predict how long the approval processes for any of
the Company's products will take or whether any such approvals ultimately will
be granted. Positive results in preclinical testing and/or early phases of
clinical studies are no assurance of success in later phases of the approval
process. In general, preclinical tests and clinical trials can take many years,
and require the expenditure of substantial resources, and the data obtained
from such tests and trials can be susceptible to varying interpretation that
could delay, limit, or prevent regulatory approval. Also, delays or rejections
may be encountered during any stage of the regulatory approval process based
upon the failure of the clinical or other data to demonstrate compliance with,
or upon the failure of the product to meet, the regulatory agency's
requirements for safety, efficacy, and quality or, in the case of a product
seeking an orphan drug indication, because another designee received approval
first; and those requirements may become more stringent due to changes in
regulatory agency policy, or the adoption of new regulations. Clinical trials
may also be delayed due to unanticipated side effects, the inability to locate,
recruit and qualify sufficient numbers of patients, lack of funding, the
inability to locate or recruit scientists, the redesign of clinical trial
programs, the inability to manufacture or acquire sufficient quantities of the
particular product candidate or any other components required for clinical
trials, changes in focus of the Company's or its collaborative partner's
development focus, and the disclosure of trial results by competitors. Even if
regulatory approval is obtained for any of the Company's pharmaceutical
products or products manufactured with the Company's chirally pure
intermediates or using the Company's biocatalytic chiral processes, the scope
of the approval may significantly limit the indicated uses for which such
products may be marketed. Further, in connection with its NDA application for
THALOMID, the Company is conducting a Phase IV trial. Approved drugs and
agrochemicals, as well as their manufacturers, are subject to on-going review,
and discovery of previously unknown problems with such products may result in
restrictions on their manufacture, sale or use or in their withdrawal from the
market. Delays in obtaining, or the failure to obtain and maintain, necessary
approvals from the FDA, EPA, or other regulatory agencies for the Company's
proprietary products, or the products in which the Company's products are to be
included, would have a material adverse effect on the Company's business,
financial condition, and results of operations. See "Business--Governmental
Regulation."
No Assurance of Market Acceptance. There can be no assurance that those of the
Company's products which receive regulatory approval, or for which no
regulatory approval is required, will achieve market acceptance. A number of
factors render the degree of market acceptance of the Company's products
uncertain, including the extent to which the Company can demonstrate such
products' efficacy, safety, and advantages over competing products, as well as
the reimbursement policies of third party payors, such as government and
private insurance plans. In addition, there can be no assurance that the
Company's Celgro subsidiary will be able to negotiate a licensing agreement
with BASF or any other agrochemical manufacturer on terms acceptable to the
Company, or at all. Failure of the Company's products to achieve market
acceptance would have a material adverse effect on the Company's business,
financial condition, and results of operations. See "Business--Competition."
- --------------------------------------------------------------------------------
7
<PAGE>
Risks of Product Liability and Availability of Insurance. The Company may be
subject to product liability or other claims based on allegations that the use
of its technology or products has resulted in adverse effects, whether by
participants in the Company's clinical trials or by patients (if and when such
products are approved). Thalidomide, when used by pregnant women, has resulted
in serious birth defects. Therefore, necessary and strict precautions must be
taken by physicians prescribing the drug to women with childbearing potential,
and there can be no assurance that such precautions will be observed in all
cases or, if observed, will be effective. Use of thalidomide has also been
associated, in a limited number of cases, with other side effects, including
nerve damage. Although the Company has product liability insurance in force
that it believes to be appropriate, there can be no assurance that it will be
able to obtain additional coverage as required, or that such coverage will be
adequate to protect the Company in the event claims are asserted against it.
The obligation to defend against or pay any product liability claim may have a
material adverse effect on the Company's business, financial condition, and
results of operations. See "Business."
Dependence on Patent and Proprietary Rights. The Company's success will depend,
in part, on its ability to obtain and enforce patents, protect trade secrets,
obtain licenses to technology owned by third parties when necessary, and
conduct its business without infringing the proprietary rights of others. The
patent positions of pharmaceutical and biotechnology firms, including the
Company, can be uncertain and involve complex legal and factual questions. In
addition, the coverage sought in a patent application can be significantly
reduced before the patent is issued. Consequently, the Company does not know
whether any of its pending applications will result in the issuance of patents
or, if any patents are issued, whether they will provide significant
proprietary protection or commercial advantage, or will be circumvented by
others. Since patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, the
Company cannot be certain that it was the first to make the inventions covered
by each of its pending patent applications, or that it was the first to file
patent applications for such inventions. In the event a third party has also
filed a patent for any of its inventions, the Company may have to participate
in interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention, which could result in the loss of any
opportunity to secure patent protection for the invention and the loss of any
right to use the invention, and even if the eventual outcome is favorable to
the Company, such interference proceedings could result in substantial cost to
the Company. Protection of patent applications and litigation to establish the
validity and scope of patents, to assert patent infringement claims against
others and to defend against patent infringement claims by others can be
expensive and time-consuming. There can be no assurance that in the event that
any claims with respect to any of the Company's patents, if issued, are
challenged by one or more third parties, that any court or patent authority
ruling on such challenge will determine that such patent claims are valid and
enforceable. An adverse outcome in such litigation could cause the Company to
lose exclusivity relating to such patent claims. If a third party is found to
have rights covering products or processes used by the Company, then the
Company could be forced to cease using the technologies covered by the disputed
rights, could be subject to significant liabilities to such third party, and
could be required to license technologies from such third party. Also,
different countries have different procedures for obtaining patents, and
patents issued by different countries provide different degrees of protection
against the use of a patented invention by others. There can be no assurance,
therefore, that the issuance to the Company in one country of a patent covering
an invention will be followed by the issuance in other countries of patents
covering the same invention, or that any judicial interpretation of the
validity, enforceability, or scope of the claims in a patent issued in one
country will be similar to the judicial interpretation given to a corresponding
patent issued in another country. Furthermore, even if the Company's patents
are determined to be valid, enforceable, and broad in scope, there can be no
assurance that competitors will not be able to design around such patents and
compete with the Company using the resulting alternative technology. The
Company does not currently have, nor does it intend to seek, patent protection
relating to the use of THALOMID to treat erythema nodosum leprosum, an
inflammatory complication of leprosy, which is the only indication with respect
to which the Company has received an approvable letter from the U.S. Food and
Drug Administration. The Company also relies upon unpatented proprietary and
trade secret technology that it seeks to protect, in part, by confidentiality
agreements with its collaborative partners, employees, consultants, outside
scientific collaborators, sponsored researchers, and other advisors. There can
be no assurance that these agreements provide meaningful protection or that
they will not be breached, that the Company would have adequate remedies for
any such breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known to others. In addition,
there can be no assurance that, despite precautions taken by the Company,
others have not and will not obtain access to the Company's proprietary
technology. See "Business--Patents and Proprietary Technology."
History of Operating Losses; Accumulated Deficit; Uncertainty of Future
Profitability; Capital Requirements; Uncertainty of Additional Funding. The
Company has sustained losses in each year since its incorporation in 1986. The
Company sustained a net loss of approximately $17.6 million for the nine months
ended September 30, 1997 and $17.8 million for the year ended December 31,
1996, and had an accumulated deficit of approximately $111.6 million at
September 30, 1997. The
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8
<PAGE>
Company expects to make substantial expenditures to further develop its
immunotherapeutic and chiral products, and, based on these expenditures, it is
probable that losses will continue for at least the next 18 to 24 months. The
Company is currently utilizing its cash resources at a rate of approximately
$2,000,000 per month. The Company expects that its rate of spending generally
will remain high as the result of increased clinical trial costs and expenses
associated with the regulatory approval process and commercialization of
products now in development. In order to assure funding for the Company's
future operations the Company is seeking additional capital resources. These
may include the sale of additional securities under appropriate market
conditions, alliances or other partnership agreements with entities interested
in and possessing resources to support the Company's immunotherapeutic or
chiral programs, or other business transactions which would generate sufficient
resources to assure continuation of the Company's operations and research
programs in the long-term. However, no assurances can be given that the Company
will be successful in raising such additional capital or entering into a
business alliance. Further, there can be no assurance, assuming the Company
successfully raises additional funds or enters into a business alliance, that
the Company will achieve profitability or positive cash flow.
If the Company is unable to raise additional funds, the Company believes that
its current financial resources, including its option to issue and sell an
additional $5,000,000 of Series B Preferred Stock (which is subject to the
satisfaction of certain customary conditions), could fund operations through
early 1998. The Company's actual cash requirements may vary materially from
those now planned and will depend upon numerous factors, including the results
of the Company's development and commercialization programs, the timing and
results of preclinical and clinical trials, the timing and costs of obtaining
regulatory approvals, the level of resources that the Company commits to the
development of manufacturing, marketing, and sales capabilities, the ability of
the Company to license its biocatalytic chiral process technology to
agrochemical companies, the technological advances and activities of
competitors, and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Intense Competition and Rapid Technological Change. The pharmaceutical and
agrochemical businesses in which the Company operates are highly competitive
and subject to rapid and profound technological change. The Company's present
and potential competitors include major chemical and pharmaceutical companies,
as well as specialized biotechnology firms in the United States and in other
countries. Most of these companies have considerably greater financial,
technical, and marketing resources than the Company. The Company also
experiences competition in the development of its products and processes from
universities and other research institutions and, in some instances, competes
with others in acquiring technology from such sources. The pharmaceutical and
agrochemical industries have undergone, and are expected to continue to
undergo, rapid and significant technological change, and the Company expects
competition to intensify as technical advances in each field are made and
become more widely known. There can be no assurance that others will not
develop products or processes with significant advantages over the products and
processes that the Company is seeking to develop. Any such development could
have a material adverse effect on the Company's business, financial condition,
and results of operations. See "Business--Competition."
Dependence on Sole Supplier of Raw Material and Sole Encapsulator for
THALOMID. The Company obtains all of its bulk drug material for THALOMID from a
single source. In addition, the Company currently relies on a single
manufacturer to encapsulate THALOMID. Because the FDA requires that all
suppliers of pharmaceutical bulk material and all manufacturers of
pharmaceuticals for sale in the United States achieve and maintain compliance
with current Good Manufacturing Practice regulations and guidelines ("GMP"), if
the operations of the sole supplier or the sole encapsulator were to become
unavailable for any reason, the required FDA review of the operations of a new
supplier or new encapsulator could cause a delay in the manufacture of
THALOMID. Such a delay could have a material adverse effect on the Company's
business, financial condition, and results of operations. See
"Business--Government Regulation" and "Business--Manufacturing."
Dependence on Collaborations and Licenses with Third Parties. The Company's
ability to fully commercialize its proprietary products, if developed, may
depend to some extent upon the Company's ability to enter into joint ventures
or other arrangements with established pharmaceutical companies with the
requisite experience and financial and other resources to obtain regulatory
approval, and to manufacture and market such products. Accordingly, the
Company's success will depend, in part, upon the subsequent success of such
third parties in performing preclinical testing and clinical trials, obtaining
the requisite regulatory approvals, scaling up manufacturing, successfully
commercializing the licensed product candidates and otherwise performing their
obligations. There can be no assurance that the Company will be able to enter
into acceptable collaborative and licensing arrangements on acceptable terms,
if at all, that such arrangements will be successful, that the parties with
which the Company may establish arrangements will perform their obligations, or
that potential collaborators will not compete with the Company by seeking
alternative means of developing therapeutics for the diseases targeted by the
- --------------------------------------------------------------------------------
9
<PAGE>
Company. There can be no assurance that the Company's existing or future
arrangements will lead to the development of product candidates or compounds
with commercial potential, that the Company will be able to obtain or maintain
proprietary rights or licenses for the proprietary rights with respect to any
technology or product candidates or compounds developed in connection with
these arrangements, or that the Company will be able to ensure the
confidentiality of any proprietary rights and information developed in such
arrangements or prevent the public disclosure thereof.
Under an agreement with The Rockefeller University ("Rockefeller"), the Company
has obtained certain exclusive rights and licenses to manufacture, use, and
sell products that are based on compounds identified in research carried out by
Rockefeller and the Company that can be used for treating toxicity associated
with high concentrations of TNF[alpha] (the "Rockefeller License"). The
Rockefeller License is terminable by Rockefeller in the event of a material
breach of the agreement's terms by Celgene, which breach shall fail to be
remedied for more than sixty days after notice thereof. In addition, the
Company's chirally pure intermediates are components of pharmaceutical or
agrochemical products that are developed and marketed by others, and therefore
the success of the Company's chirally pure intermediates is dependent upon the
efforts of third parties over which the Company has no control. Such third
parties may fail to pursue or fund those products that include the Company's
chirally pure intermediates. See "Business--Patents and Proprietary
Technology."
Lack of Manufacturing Capabilities. The manufacture of large quantities of
pharmaceuticals is a complex process, and all pharmaceutical manufacturing
facilities must comply with applicable regulations of the FDA. While the
Company has developed expertise in the production of certain of its chirally
pure intermediates in developmental quantities, the Company currently has no
experience in, or its own facilities for, manufacturing any products on a
commercial scale. The Company currently utilizes an outside manufacturer for
the production of THALOMID, and currently intends to utilize outside
manufacturers if and when needed to produce the Company's other products on a
commercial scale. There can be no assurance that such manufacturers will meet
the Company's requirements for quality, quantity, or timeliness, or that these
manufacturers will achieve and maintain compliance with all applicable
regulations.
Limited Marketing Capabilities. The Company has established a sales and
marketing organization to commercialize THALOMID (subject to regulatory
approval of the product), and with respect to certain other products, it may
seek a corporate partner to provide such services. Any delay in developing
these resources for THALOMID may have an adverse impact on potential sales of
THALOMID. The Company has contracted with a specialty distributor to distribute
THALOMID if and when approved. Failure of such specialty distributor to
properly and continuously perform its obligations under such agreement could
have a material adverse effect on the Company. In addition, the Company employs
a three-person direct sales staff to market and provide technical support to
customers for its chirally pure intermediates. See "Business--Sales and
Marketing."
Dependence on Third-Party Reimbursement; Uncertainty of Product Pricing. Sales
of the Company's pharmaceutical products, and sales of pharmaceutical products
of other companies of which the Company's chirally pure intermediates may be a
component, will depend, in part, on the extent to which the costs of such
products will be paid by health maintenance, managed care, pharmacy benefit and
similar health care management organizations, or reimbursed by government
health administration authorities, private health coverage insurers, and other
third party payors. These health care management organizations and third party
payors are increasingly challenging the prices charged for medical products and
services. Additionally, the containment of health care costs has become a
priority, and the prices of pharmaceutical and biotechnology drugs have been
targeted in this effort. If the Company succeeds in bringing any pharmaceutical
products to market, there can be no assurance that such products will be
considered cost effective by payors, that reimbursement will be available or,
if available, that the level of reimbursement will be sufficient to allow the
Company to sell its products on a profitable basis.
Dependence on Key Personnel. The success of the Company will depend, in large
part, on its ability to continue to attract and retain highly skilled
scientific and management personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to attract and
retain such persons. The loss of the Company's executive officers or scientific
personnel, or the failure of the Company to attract and retain other highly
skilled personnel would have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company does not
maintain key man life insurance coverage on the lives of any of its officers or
key employees. See "Management."
Environmental/Safety Hazards. The Company uses certain hazardous materials in
its research and development activities. While the Company believes it is
currently in substantial compliance with the federal, state, and local laws and
regulations governing such use, there can be no assurance that accidental
injury or contamination will not occur. Any such accident or contamination
could result in substantial liabilities, which could exceed the Company's
resources. Additionally, there can be
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10
<PAGE>
no assurance that the cost of compliance with environmental and safety laws and
regulations will not be greater than currently expected.
Shares Eligible for Future Sale. Future sales of substantial amounts of Common
Stock could adversely affect the prevailing market price of the Company's
Common Stock. If all of the shares of the Series A Convertible Preferred Stock
outstanding on November 17, 1997 (including shares issuable in payment of
accretion through that date) had been converted on that date at conversion
prices based on the closing price of the Common Stock for the seven trading
days preceding November 17, 1997, approximately 474,597 shares of Common Stock
would have been issued. Furthermore, should the trading price of the Common
Stock decline prior to the conversion of all shares of the Preferred Stock, the
number of shares of Common Stock issuable upon conversion thereof may increase
proportionately. In addition, as of November 17, 1997, there were outstanding
stock options for approximately 2,375,180 shares of Common Stock, of which
approximately 1,462,879 were currently exercisable, and warrants either
outstanding or issuable upon demand that are exercisable for 903,286 shares of
Common Stock. All shares of Common Stock referred to in this paragraph would be
freely tradeable upon issuance. See "Description of Capital Stock."
Potential Fluctuations in Quarterly Operating Results. The Company has
historically experienced, and expects to continue for the foreseeable future to
experience, significant fluctuations in its quarterly operating results. This
fluctuation is due to a number of factors, many of which are outside the
Company's control, including the timing of orders for chirally pure
intermediates and the timing of receipt of certain research and development
payments. Future operating results will depend on many factors, including
demand for the Company's products, regulatory approvals, the timing of the
introduction and market acceptance of new products by the Company or competing
companies, the Company's ability to control costs and its ability to attract
and retain highly qualified scientific and management personnel. Such quarterly
fluctuations in operating results may result in increased volatility of the
Company's stock price. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results."
Volatility of Stock Price. There has been significant volatility in the market
prices for publicly traded shares of specialty pharmaceuticals companies,
including those of the Company. There can be no assurance that the price of the
Common Stock will remain at or exceed current levels. Factors such as
announcements of technical or product developments by the Company or its
competitors, market conditions for specialty pharmaceuticals stocks in general,
governmental regulation, healthcare legislation, public announcements regarding
medical advances in the treatment of the disease states that the Company is
targeting, or patent or proprietary rights developments may have a significant
impact on the market price of the Common Stock. See "Price Range of Common
Stock."
Anti-Takeover Effects of Shareholder Rights Plan; Certain Charter and By-law
Provisions; Delaware Law. The Board of Directors has adopted a shareholder
rights plan (the "Rights Plan"), the purpose of which is to protect
stockholders against unsolicited attempts to acquire control of the Company
that do not offer a fair price to all stockholders. The Plan is not intended to
prevent, and should not prevent, an offer to acquire the Company at a price and
on terms that are in the best interests of all stockholders, or a negotiated
transaction to sell the Company for a purchase price determined by the Board to
be in the Company's and its stockholders' best interests, nor should it have a
material adverse affect on the ability of a person or group to obtain
representation on or control of the Board through a proxy contest. Nonetheless,
the Rights Plan may have the effect of dissuading a potential acquiror from
making an offer for all the outstanding shares of Common Stock at a price that
represents a premium to the then current trading price.
Moreover, the Board of Directors has the authority to issue, at any time,
without further stockholder approval, up to 5,000,000 shares of preferred
stock, and to determine the price, rights, privileges, and preferences of those
shares. Such issuance could adversely affect the holders of Common Stock, and
could discourage a third party from acquiring a majority of the Company's
outstanding voting stock.
Additionally, the Board of Directors of the Company has adopted certain
amendments to the Company's By-laws intended to strengthen the Board's position
in the event of a hostile takeover attempt. The By-law provisions have the
following effects: (1) they provide that only persons who are nominated in
accordance with the procedures set forth in the By-laws shall be eligible for
election as directors of the Corporation, except as may be otherwise provided
in the By-laws; (2) they provide that only business brought before the annual
meeting by the Board of Directors or by a stockholder who complies with the
procedures set forth in the By-laws may be transacted at an annual meeting of
stockholders; (3) they provide that only the Chairman of the Board, if any, the
Chief Executive Officer, the President, the Secretary, or a majority of the
Board of Directors may call special meetings of the stockholders of the
Company; (4) they establish a procedure for the Board of Directors to
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11
<PAGE>
fix the record date whenever stockholder action by written consent is
undertaken, and (5) they require a vote of holders of two-thirds of the
outstanding shares of Common Stock to amend certain By-law provisions.
Furthermore, the Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
Immediate and Substantial Dilution. The offering price of the securities issued
in this offering is substantially higher than the book value per share of
Common Stock. Investors purchasing securities in this offering therefore will
incur immediate, substantial dilution. See "Dilution."
Absence of Cash Dividends on Common Stock. The Company has never declared or
paid cash dividends on its Common Stock, and does not anticipate doing so in
the foreseeable future. See "Dividend Policy."
Forward-Looking Statements
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements, other than statements of historical facts,
included or incorporated by reference in this Prospectus which address
activities, events or developments which the Company expects or anticipates
will or may occur in the future, including such things as the attainment of
pharmaceutical development milestones or the receipt of regulatory approval or
the entering into of licensing or partnership arrangements and other similar
matters, are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results and developments will conform
with the Company's expectations and predictions is subject to a number of risks
and uncertainties which could cause actual results to differ materially from
the Company's expectations, including the risk factors discussed in this
Prospectus and other factors, many of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this
Prospectus are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations. The Company assumes no obligation to update publicly any such
forward-looking statements, whether as a result of new information, future
events or otherwise.
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12
<PAGE>
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The net proceeds to the Company from the sale of shares of Common Stock offered
by the Company hereby are estimated to be approximately $24,014,000
($27,706,000 if the Underwriters' over-allotment option is exercised in full),
based on the assumed public offering price of $10-1/8 per share, and after
deduction of the underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to use the net proceeds for the further development and
commercialization of the Company's immunotherapeutic products, including
THALOMID, and the Company's chiral products and for other working capital and
general corporate purposes, including administrative and overhead expenses. The
Company may also use a portion of the net proceeds to acquire or license
products or technologies complementary to the Company's business, although the
Company has no agreements or commitments for any such acquisition or license.
Pending such use, the Company expects to invest the net proceeds in short-term,
interest-bearing, investment grade securities.
The Company anticipates that its current resources, together with the proceeds
of the Offering, continued revenue from sales of chirally pure intermediates at
present levels and revenues under existing research contracts, will be
sufficient to meet the Company's operating and capital requirements for
approximately 12 months. However, there can be no assurance that the Company
will not need to obtain additional financing prior to such time, or that such
financing will be available on terms acceptable to the Company, or at all. The
Company's actual cash requirements may vary materially from those now planned,
and will depend upon numerous factors, including the results of the Company's
development and commercialization programs, the timing and results of
preclinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the level of resources that the Company commits to the development
of manufacturing, marketing, and sales capabilities, the ability of the Company
to license its biocatalytic chiral process technology to agrochemical
companies, the technological advances and activities of competitors, and other
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Risk Factors --
History of Operating Losses; Capital Requirements; Uncertainty of Additional
Funding."
PRICE RANGE OF COMMON STOCK
- --------------------------------------------------------------------------------
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CELG." The following table sets forth, for the periods, indicated the
intra-day high and low sale prices per share of Common Stock on the Nasdaq
National Market:
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1997
Fourth Quarter (through November 17, 1997) ........ $13-3/8 $ 8-3/4
Third Quarter ..................................... 12-1/2 6-3/4
Second Quarter .................................... 7-7/8 4-7/8
First Quarter ..................................... 12-3/8 7
1996
Fourth Quarter .................................... 12-1/4 7-7/8
Third Quarter ..................................... 11-7/8 6
Second Quarter .................................... 18-1/8 11-1/8
First Quarter ..................................... 19 11-1/8
1995
Fourth Quarter .................................... 13-1/2 8-1/4
Third Quarter ..................................... 11-1/4 7-1/4
Second Quarter .................................... 11-1/2 4-7/8
First Quarter ..................................... 6-1/4 4-3/8
</TABLE>
The last reported sales price per share for the Common Stock on the Nasdaq
National Market on November 17, 1997 was $10-1/8. As of November 17, 1997, there
were approximately 467 holders of record of the Company's Common Stock.
DIVIDEND POLICY
- --------------------------------------------------------------------------------
The Company has never declared or paid any cash dividends on its Common Stock.
The Company currently intends to retain any future earnings for funding growth
and therefore, does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.
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<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
The following table sets forth at September 30, 1997 (i) the actual
capitalization of the Company, and (ii) the capitalization as adjusted to
reflect the receipt of the estimated net proceeds, based on an assumed public
offering price of $10-1/8 per share, from the sale of 2,600,000 shares of Common
Stock being offered by the Company hereby after deduction of the underwriting
discounts and commissions and estimated offering expenses payable by the
Company. This table should be read in conjunction with the Financial Statements
of the Company and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------
Actual As Adjusted
----------------- ----------------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value per share; authorized 5,000,000 shares:
Series A convertible, redeemable 4.9% cumulative preferred; issued and
outstanding 80 shares; includes $306,633 accretion premium. ........... 4,306,633 4,306,633
Series B convertible redeemable 9% cumulative preferred; authorized
20,000 shares; issued and outstanding, 0 shares. ...................... -- --
Common stock, $.01 par value per share; authorized 20,000,000 shares;
13,191,278 shares issued and outstanding; 15,791,278 shares issued and
outstanding as adjusted (1) ............................................ 131,913 157,913
Additional paid-in capital ............................................. 112,322,889 136,310,889
Common stock in treasury, at cost; 22,888 shares ....................... (76,534) (76,534)
Accumulated deficit .................................................... (111,581,674) (111,581,674)
Net unrealized gain (loss) on marketable securities available for sale 128 128
-------------- --------------
Total stockholders' equity ............................................ 5,103,355 29,117,355
-------------- --------------
Total capitalization ................................................. $ 5,103,355 $ 29,117,355
============== ==============
</TABLE>
- -----------
(1) Excludes shares of Common Stock reserved for issuance upon conversion of
the Company's Series A Convertible Preferred Stock, upon exercise of
warrants, and upon exercise of stock options granted under the Stock
Plans. See "Description of Capital Stock" and Notes 6 and 7 to the
Financial Statements.
DILUTION
- --------------------------------------------------------------------------------
As of September 30, 1997, the Company had a net tangible book value of $5.1
million, or $0.39 per share of Common Stock. Net tangible book value per share
is determined by dividing the net tangible book value (tangible assets less
liabilities) of the Company by the 13,168,390 shares of Common Stock
outstanding at such date. Net tangible book value dilution per share represents
the difference between the amount per share paid by purchasers of Common Stock
in this Offering, and the net tangible book value per share of Common Stock
immediately after the completion of this Offering. Without taking into account
any changes in net tangible book value after September 30, 1997 other than to
give effect to the sale by the Company of the 2,600,000 shares of Common Stock
offered hereby (based upon an assumed offering price of $10-1/8 per share), and
the receipt by the Company of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company as of September 30, 1997 would
have been $1.85 per share. This represents an immediate increase in the pro
forma net tangible book value of $1.46 per share to existing investors, and an
immediate dilution in net tangible book value of $8.28 per share to new
investors purchasing shares of Common Stock in this Offering.
The following table presents this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share ............................. $ 10.13
Net tangible book value per share as of September 30, 1997 ......... $ 0.39
Increase per share attributable to this Offering ................... 1.46
-------
Pro forma net tangible book value per share after this Offering ...... 1.85
--------
Dilution per share to new investors .................................. $ 8.28
========
</TABLE>
The preceding table excludes shares of Common Stock reserved for issuance upon
conversion of the Company's Series A Convertible Preferred Stock, upon exercise
of warrants, and upon exercise of stock options granted under the Stock Plans.
To the extent that the conversion price or exercise price of the Preferred
Stock, warrants or stock options is less than the offering price for the shares
of Common Stock offered hereby, furth dilution will result. See "Description of
Capital Stock" and Notes 6 and 7 to the Financial Statements.
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14
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following pro forma financial information for the year ended December 31,
1996 and the nine months ended September 30, 1997 are unaudited. The unaudited
Pro Forma Statements of Operations for the year ended December 31, 1996 and the
nine months ended September 30, 1997 were prepared as if the sale of the chiral
intermediate business had occurred effective as of January 1, 1996. The
unaudited pro forma statements do not purport to represent what the Company's
results of operations would actually have been if the chiral intermediate
transaction had in fact occurred on such date or to project the Company's
results of operations for any future period.
The unaudited pro forma financial statements show how the transaction might
have affected the historical results of operations if the chiral intermediate
transaction had been consummated at an earlier time, and show the possible
scope of the change to results of operations caused by the chiral intermediate
transaction.
The unaudited pro forma financial statements do not include an unaudited pro
forma balance sheet, because the value of the assets expected to be sold in the
transaction is not material and any accounting gain cannot yet be determined
until the sale of the assets is finalized.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------------------
Actual Adjustment Pro Forma
----------------- --------------------- ----------------
<S> <C> <C> <C>
Revenues:
Chirally pure intermediates .................................. $ 1,465,715 $ 1,400,715 (1) $ 65,000
Research contracts ........................................... 1,036,665 220,000 (2) 816,665
-------------- -------------- -------------
Total revenues ............................................. 2,502,380 1,620,715 881,665
Expenses:
Cost of goods sold ............................................. 981,448 981,448 (3) --
Research and development ..................................... 16,322,825 1,170,090 (4) 15,152,735
Selling, general and administrative .......................... 4,001,419 230,638 (5) 3,770,781
-------------- -------------- -------------
Total expenses ............................................. 21,305,692 2,382,176 18,923,516
-------------- -------------- -------------
Loss from operations ........................................... (18,803,312) (761,461) (18,041,851)
Other Income and Expense:
Interest income .............................................. 1,308,244 -- 1,308,244
Interest expense ............................................. 323,913 -- 323,913
-------------- -------------- -------------
Net loss ....................................................... (17,818,981) (761,461) (17,057,520)
Accretion of premium payable on preferred stock and
warrants ...................................................... 1,012,881 -- 1,012,881
Deemed dividend for preferred stock conversion discount ........ 2,777,777 -- 2,777,777
-------------- -------------- -------------
Net loss applicable to common stockholders ..................... (21,609,639) (761,461) (20,848,178)
============== ============== =============
Net loss applicable to common stockholders per share of
common stock ................................................. (2.29) (0.08) (2.21)
============== ============== =============
Weighted average number of shares of common
stock outstanding ............................................. 9,450,000 9,450,000
</TABLE>
-----------
(1) Eliminate sales of chirally pure intermediates.
(2) Eliminate revenues for chiral intermediates sold under research contracts.
(3) Eliminate cost of goods sold associated with chirally pure intermediate
sales.
(4) Eliminate research and development expenses associated with the chiral
chemistry business.
(5) Eliminate sales and marketing expenses associated with the chiral chemistry
business.
- --------------------------------------------------------------------------------
15
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
---------------------------------------------------------
Actual Adjustment Pro Forma
------------- ------------ -------------
<S> <C> <C> <C>
Revenues:
Chirally pure intermediates ................................... $ 896,870 $ 896,870 (1) $ --
Research contracts ............................................ 919,068 112,000 (2) 807,068
------------- ------------ -------------
Total revenues .............................................. 1,815,938 1,008,870 807,068
Expenses:
Cost of goods sold .............................................. 641,862 641,862 (3) --
Research and development ...................................... 13,285,060 865,370 (4) 12,419,690
Selling, general and administrative ........................... 5,780,827 247,714 (5) 5,533,113
------------- ------------ -------------
Total expenses .............................................. 19,707,749 1,754,946 17,952,803
------------- ------------ -------------
Loss from operations ............................................ (17,891,811) (746,076) (17,145,735)
Other Income and Expense:
Interest income ............................................... 441,436 -- 441,436
Interest expense .............................................. 104,866 -- 104,866
------------- ------------ -------------
Net loss ....................................................... (17,555,241) (746,076) (16,809,165)
Accretion of premium payable on preferred stock and
warrants ...................................................... 474,317 -- 474,317
Deemed dividend for preferred stock conversion discount ........ 953,077 -- 953,077
------------- ------------ -------------
Net loss applicable to common stockholders ..................... (18,982,635) (746,076) (18,236,559)
============= ============ =============
Net loss applicable to common stockholders per share of
common stock .................................................. (1.63) (0.06) (1.57)
============= ============ =============
Weighted average number of shares of common stock
outstanding ................................................... 11,647,000 11,647,000
</TABLE>
-----------
(1) Eliminate year to date sales of chirally pure intermediates.
(2) Eliminate year to date revenues for chiral intermediates sold under
research contracts.
(3) Eliminate year to date cost of goods sold associated with chirally pure
intermediate sales.
(4) Eliminate year to date research and development expenses associated with
the chiral chemistry business.
(5) Eliminate year to date research and development expenses associated with
the chiral chemistry business.
- --------------------------------------------------------------------------------
16
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following Selected Financial Data should be read in conjunction with the
Company's Financial Statements and the Notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this Prospectus. The data set forth
below with respect to the Company's Statement of Operations for the years ended
December 31, 1994, 1995 and 1996, are derived from the Company's financial
statements which have been audited by KPMG Peat Marwick LLP, independent
accountants, and which are included elsewhere in this Prospectus and are
qualified by reference to such Financial Statements and Notes thereto. Other
information has been derived from other audited financial statements. The data
set forth below with respect to the Company's Statement of Operations for the
nine months ended September 30, 1996 and 1997, and the balance sheet data as of
September 30, 1997 have been derived from the Company's unaudited financial
statements which are included elsewhere in this Prospectus and are qualified by
reference to such Financial Statements and Notes thereto. The historical
results are not necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ------------ ------------
Statement of Operations Data: (in thousands, except per share amounts)
- ----------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Chirally pure intermediates ................... $ 272 $ 1,652 $ 1,998 $ 658 $ 1,466
Research contracts ............................ 450 155 258 515 1,036
-------- --------- --------- --------- ---------
Total Revenues ................................ 722 1,807 2,256 1,173 2,502
Expenses:
Cost of goods sold ............................ 304 1,445 1,097 792 981
Research and development ...................... 3,876 4,762 6,492 8,183 16,323
Selling, general and administrative ........... 3,368 3,408 3,131 2,858 4,001
-------- --------- --------- --------- ---------
Total Expenses ................................ 7,548 9,615 10,720 11,833 21,305
-------- --------- --------- --------- ---------
Loss from operations ............................ (6,826) (7,808) (8,464) (10,660) (18,803)
Other Income and Expense:
Interest income ............................... 1,597 993 587 568 1,308
Interest expense .............................. -- 193 -- 425 324
-------- --------- --------- --------- ---------
Loss from continuing operations ................. (5,229) (7,008) (7,877) (10,517) (17,819)
Loss from discontinued operations ............... (1,918) (3,318) (2,336) -- --
-------- --------- --------- --------- ---------
Net loss ........................................ (7,147) (10,326) (10,213) (10,517) (17,819)
Accretion of premium payable on preferred
stock and warrants ............................. -- -- -- -- 1,013
Deemed dividend for preferred stock
conversion discount ............................ -- -- -- -- 2,778
-------- --------- --------- --------- ---------
Net loss applicable to common stockholders . $ (7,147) $(10,326) $(10,213) $ (10,517) $ (21,610)
======== ========= ========= ========= =========
Per share of Common Stock:
Loss from continuing operations ............... (0.67) ( 0.89) ( 1.00) ( 1.30) ( 1.89)
Loss from discontinued operations ............. (0.25) ( 0.43) ( 0.30) -- --
Net loss applicable to
common stockholders .......................... $ (0.92) $ (1.32) $ (1.30) $ (1.30) $ (2.29)
======== ========= ========= ========= =========
Weighted average number of shares of
common stock outstanding ....................... 7,789 7,841 7,853 8,073 9,450
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1997
------------ ------------
Statement of Operations Data: (Unaudited)
- ----------------------------- -------------------------
<S> <C> <C>
Revenues:
Chirally pure intermediates ................... $ 1,096 $ 897
Research contracts ............................ 712 919
--------- ---------
Total Revenues ................................ 1,808 1,816
Expenses:
Cost of goods sold ............................ 683 642
Research and development ...................... 10,982 13,285
Selling, general and administrative ........... 2,738 5,781
--------- ---------
Total Expenses ................................ 14,403 19,708
--------- ---------
Loss from operations ............................ (12,595) (17,892)
Other Income and Expense:
Interest income ............................... 990 442
Interest expense .............................. 256 105
--------- ---------
Loss from continuing operations ................. (11,861) (17,555)
Loss from discontinued operations ............... -- --
--------- ---------
Net loss ........................................ (11,861) (17,555)
Accretion of premium payable on preferred
stock and warrants ............................. 764 475
Deemed dividend for preferred stock
conversion discount ............................ 2,778 953
--------- ---------
Net loss applicable to common stockholders . $ (15,403) $ (18,983)
========= =========
Per share of Common Stock:
Loss from continuing operations ............... (1.29) (1.51)
Loss from discontinued operations ............. -- --
Net loss applicable to
common stockholders .......................... (1.67) (1.63)
========= =========
Weighted average number of shares of
common stock outstanding ....................... 9,227 11,647
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
- ----------------------------------------- (in thousands)
Cash and cash equivalents, and marketable
securities .............................. $ 28,266 $ 17,900 $ 8,500 $ 11,713 $ 17,815
Total assets ............................. 31,751 21,822 11,548 14,211 20,938
Convertible debentures ................... -- -- -- 4,592 2,026
Accumulated deficit ...................... (39,934) (50,260) (60,473) (70,989) (92,599)
Total stockholders' equity ............... 30,375 20,296 10,004 7,143 16,065
<CAPTION>
September 30, 1997
-----------------------------
Actual As Adjusted(1)
------------- ---------------
<S> <C> <C>
Balance Sheet Data:
- -----------------------------------------
Cash and cash equivalents, and marketable
securities .............................. $ 5,003 $ 29,017
Total assets ............................. 8,410 32,424
Convertible debentures ................... -- --
Accumulated deficit ...................... (111,582) (111,582)
Total stockholders' equity ............... 5,103 29,117
</TABLE>
-----------
(1) Adjusted to give effect to the receipt of the net proceeds from the sale of
2,600,000 shares of Common Stock offered by the Company hereby (at an
assumed offering price of $10-1/8 per share, after deduction of
underwriting discounts and commissions and estimated expenses payable by
the Company in connection with the Offering).
- --------------------------------------------------------------------------------
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion of the financial condition and results of operations
of Celgene should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Celgene was organized in 1980 as a unit of Celanese, a major chemical company.
Celgene's initial mandate was to apply biotechnology to the production of fine
and specialty chemicals. Following the 1986 merger of Celanese Corporation with
Hoechst AG, Celgene was spun out as a separate company. In 1987, Celgene
completed an initial public offering of its common stock, and commenced the
development of biotreatment processes for the chemical industry. Celgene
discontinued these operations in 1994 to focus on its targeted small molecule
immunotherapeutic compound development and biocatalytic chiral chemistry
synthesis platforms.
Since 1990, the Company's revenues have been generated primarily through the
research and development relating to, and supply of, chirally pure
intermediates to pharmaceutical companies for use in new drug development and,
to a lesser degree, from an agrochemical research and development contract. The
Company believes that sales of chirally pure intermediates will account for a
less significant portion of the Company's overall revenues as the Company
continues to develop, and, subject to receipt of required regulatory approvals,
begins to generate revenues from THALOMID[TM] and from its chirally pure
pharmaceutical and agrochemical products. The Company recently entered into a
letter of intent regarding the sale of its chiral intermediates business. See
"Recent Developments."
The Company has sustained losses in each year since its incorporation in 1986.
The Company had a net loss of $17,600,000 for the nine months ended September
30, 1997, and an accumulated deficit of $111,600,000 at September 30, 1997. The
Company expects to make substantial expenditures to further its
immunotherapeutic program, to commercialize THALOMID and to expand its chiral
business, and, based on these expenditures, it is likely that losses will
continue for at least the next 18 to 24 months.
Subject to the risks described elsewhere in this Prospectus, the Company
believes that there are significant market opportunities for the products and
processes under development by the Company. To address these opportunities in a
timely and effective manner, the Company intends to rely on collaborations and
licensing arrangements with third parties. To date, the Company has entered
into agreements covering the manufacture for the Company of certain compounds,
such as THALOMID, and research and development by the Company covering chirally
pure intermediates for use in new drug development and processes for producing
chirally pure crop protection agents for license to agrochemical manufacturers.
Celgene has established a sales and marketing organization to commercialize
THALOMID (subject to regulatory approval of the product), and intends to employ
approximately 25 persons in this capacity. The Company intends to develop and
market its own pharmaceuticals for indications with smaller patient
populations. For drugs with indications with larger patient populations, the
Company anticipates partnering with pharmaceutical companies. The Company also
anticipates partnering with companies for the development and commercialization
of the Company's chirally pure pharmaceutical and agrochemical products.
Celgene expects that these arrangements typically will include milestone
payments, reimbursement of research and development expenses and royalty
arrangements.
Future operating results will depend on many factors, including demand for the
Company's products, regulatory approvals, the timing of the introduction and
market acceptance of new products by the Company or competing companies, the
Company's ability to control costs, and its ability to attract and retain
highly qualified scientific and management personnel.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 vs. Nine Months Ended September 30, 1996
Total Revenues; Revenue Backlog. Revenues for the nine months ended September
30, 1997 were $1,816,000, which was an increase of $8,000, or less than 1%, as
compared to the same period in 1996. The Company's order backlog for chirally
pure intermediates and research contracts at September 30, 1997 was
approximately $797,000.
Sales of Chirally Pure Intermediates. Sales of chirally pure intermediates for
the nine months ended September 30, 1997 were $897,000, which was a decrease of
$200,000, or 18%, as compared to the same period in 1996. The decrease in
revenues for chirally pure intermediates was due primarily to the variant
nature of orders resulting from the cyclicality of customer research programs.
- --------------------------------------------------------------------------------
18
<PAGE>
Research Contracts. Chiral research contract revenues for the nine months ended
September 30, 1997 were $919,000, which was an increase of $207,000, or 29%, as
compared to the same period in 1996. The increase in research contract revenues
was due to the Company entering into research contracts to expand development
of existing compounds. During the 1997 period, the Company received increased
research and development support payments from BASF, a major multinational
agrochemical customer.
Cost of Goods Sold. Costs of goods sold (which includes certain fixed
manufacturing costs) for the nine months ended September 30, 1997 were
$642,000, which was a decrease of $41,000, or 6%, as compared to the same
period in 1996, due to decreased sales of chirally pure intermediates.
Research and Development Expenses. Research and development expenses for the
nine months ended September 30, 1997 were $13,300,000, which was an increase of
$2,300,000 or 21%, as compared to the same period in 1996. This increase was
due to an increase in expense of $787,000 associated with the Company's
immunotherapeutic and THALOMID programs, $1,100,000 of expenses associated with
the new Celgro subsidiary and $687,000 of expenses associated with the chiral
pharmaceutical development program. The increased cost of the Company's
immunotherapeutic and THALOMID programs included increases in manufacturing
costs for developmental quantities of THALOMID of $990,000 and personnel
related expenses of $625,000. These expenses were partially offset by the
absence of expenses associated with preparing the NDA filed in 1996 and by
lower preclinical and clinical trial expenses ($828,000). Major components
contributing to the increased costs of the new Celgro[TM] subsidiary are
personnel related expenses of $464,000; facilities-related spending of
$303,000; and other ongoing research expenses of $333,000. The higher costs
associated with the Company's chiral pharmaceutical program are due primarily
to higher preclinical and clinical trial expenses of $282,000; personnel
related costs of $148,000 and other ongoing research expenses of $257,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1997 were
$5,800,000, which was an increase of $3,100,000, or 115%, as compared to the
same period in 1996, due to the formation of a small sales and marketing group
and associated expenses for market research and the development of a launch
program and materials, all in anticipation of approval of thalidomide by the
FDA, of approximately $1,600,000; development of a Medical Affairs Department
costing $230,000 (in anticipation of the THALOMID launch upon approval by the
FDA); higher legal fees of $269,000; costs associated with the formation of the
Celgro subsidiary of approximately $374,000; and higher personnel related
expenses of $676,000.
Interest Income and Interest Expense. Interest income for the nine months ended
September 30, 1997 was $441,000, which was a decrease of $549,000, or 55%, as
compared to the same period in 1996. This decrease was attributable to lower
average cash balances in 1997. Interest expense for the nine months ended
September 30, 1997 was $105,000, which was a decrease of $151,000, or 59%, as
compared to the same period in 1996. This decrease was due to the conversion to
equity of the remaining 8% Convertible Debentures.
Net Loss. The net loss for the nine months ended September 30, 1997 was
$17,600,000, which was an increase of $5,700,000, or 48%, as compared to the
same period in 1996. This increase was due primarily to higher spending on
THALOMID and the immunotherapeutics program, the creation of the Celgro
subsidiary, and the continued development of the chiral pharmaceutical
programs.
Years Ended December 31, 1996, 1995 and 1994
Total Revenues; Revenue Backlog. Revenues for the year ended December 31, 1996
were $2,502,000, which was an increase of $1,329,000, or 113%, as compared to
the same period in 1995. Revenues for the year ended December 31, 1995 were
$1,173,000, which was a decrease of $1,083,000, or 48%, as compared to the same
period in 1994. Revenue backlog for chirally pure intermediates and research
contracts amounted to $742,000, $777,000, and $0 at December 31, 1996, 1995 and
1994, respectively.
Sales of Chirally Pure Intermediates. Sales of chirally pure intermediates for
the year ended December 31, 1996 were $1,466,000, which was an increase of
$808,000, or 123%, as compared to the same period in 1995. The increase in
sales of chirally pure intermediates was due primarily to the addition of new
customers and the increased volume of orders from existing customers for their
ongoing clinical trials. Sales of chirally pure intermediates for the year
ended December 31, 1995 were $658,000, which was a decrease of $1,340,000 or
67%, as compared to the same period in 1994. The decrease in sales was due
primarily to the halting of clinical trials of a major pharmaceutical product
that incorporated the Company's chirally pure intermediates.
- --------------------------------------------------------------------------------
19
<PAGE>
Research Contracts. Chiral research contract revenues for the year ended
December 31, 1996 were $1,037,000, which was an increase of $522,000, or 101%,
as compared to the same period in 1995. The increase in research contract
revenues was due to the Company entering into research contracts to expand
development of existing compounds. Chiral research contract revenues for the
year ended December 31, 1995 were $515,000, which was an increase of $257,000,
or 100%, as compared to the same period in 1994. This increase in research
contract revenues was also due to the Company entering into research contracts
for new compounds and for expanding development of existing compounds.
Cost of Goods Sold. Costs of goods sold (which includes certain fixed
manufacturing costs) for the year ended December 31, 1996 were $981,000, an
increase of $189,000, or 24%, as compared to the same period in 1995, due to
increased sales of chirally pure intermediates. Costs of goods sold for the
year ended December 31, 1995 were $792,000, a decrease of $304,000, or 28%, as
compared to the same period in 1994, due to reduced sales of chirally pure
intermediates.
Research and Development Expenses. Research and development expenses for the
year ended December 31, 1996 were $16,323,000, which was an increase of
$8,140,000, or 99%, as compared to the same period in 1995. This increase was
due to an increase of approximately $6,500,000 in expenses associated with
THALOMID and the immunotherapeutics program and $1,700,000 of expenses
associated with the Company's chiral pharmaceutical development initiative. The
increased costs in THALOMID and the immunotherapeutics program was attributable
to preclinical and clinical trial expenses, which increased by approximately
$2,900,000; regulatory and compliance expenses, which rose by approximately
$1,300,000; manufacturing costs for developmental quantities of THALOMID, which
increased $925,000; and other ongoing research expenses, which increased by
$1,400,000. Research and development expenses for the year ended December 31,
1995 were $8,183,000, which was an increase of $1,691,000, or 26%, as compared
to the same period in 1994. This increase was due to an increase of
approximately $2,300,000 in expenses associated with THALOMID and the
immunotherapeutics program, partially offset by a decrease of $600,000 in
personnel and related expenses for the chiral research group. The increase in
expenses associated with THALOMID and the immunotherapeutics program was
attributable to preclinical and clinical trial expenses, which increased by
approximately $1,000,000; regulatory and compliance expenses, which rose by
approximately $600,000; other ongoing research expenses, which increased by
$450,000, and expenses associated with The Rockefeller University program and
other university immunotherapeutic research programs, which increased by
approximately $250,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 were $4,001,000,
which was an increase of $1,144,000, or 40%, as compared to the same period in
1995, due to the formation of a small sales and marketing group in anticipation
of the THALOMID product launch, the addition of product liability insurance,
recruiting expenses and higher consulting and legal expenses associated with
the shareholder rights agreement. Selling, general and administrative expenses
for the year ended December 31, 1995 were $2,858,000, which was a decrease of
$273,000, or 9%, as compared to the same period in 1994 due to generally lower
spending across most expense categories, partially offset by amortization of
debt offering costs.
Interest Income and Interest Expense. Interest income for the year ended
December 31, 1996 was $1,308,000, which was an increase of $740,000, or 130%,
as compared to the same period in 1995, due to the increase of funds available
from the proceeds of the Series A Preferred Stock offering in March 1996.
Interest expense for the year ended December 31, 1996 was $324,000, which was a
decrease of $101,000, or 24%, as compared to the same period in 1995 due to
fewer convertible debentures outstanding. Interest income for the year ended
December 31, 1995 was $569,000, which was a decrease of $18,000, or 3%, as
compared to the same period in 1994 due to the decrease in funds available for
investment during the first half of 1995. Interest expense for the year ended
December 31, 1995 was $425,000, due to the issuance of convertible debentures
in July 1995. There was no interest expense in 1994.
Net Loss. The net loss for the year ended December 31, 1996 was $17,819,000, an
increase of $7,302,000 or 69%, over the year ended December 31, 1995. The
increased net loss was due primarily to higher spending on THALOMID and the
immunotherapeutics program. The net loss for the year ended December 31, 1995
was $10,517,000, an increase of $303,000, or 3%, over the year ended December
31, 1994. Net loss for the year ended December 31, 1994 included the operating
loss of the Company's discontinued biotreatment operations of $2,336,000. Loss
from continuing operations during 1995 increased $2,639,000 due primarily to
lower sales of chirally pure intermediates and higher spending on THALOMID.
Quarterly Results
The following table presents selected unaudited quarterly statement of
operations data for each of the seven quarters in the period ended September
30, 1997. In the opinion of management, this information has been prepared on
the same basis as the audited consolidated financial statements appearing
elsewhere in the Prospectus, and all necessary adjustments (consisting
- --------------------------------------------------------------------------------
20
<PAGE>
only of normal recurring adjustments) have been included to present fairly the
unaudited quarterly results. The results for any quarter are not necessarily
indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------
1996
-----------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
---------- ------------ ---------- ------------
(in thousands)
(Unaudited)
Revenues:
<S> <C> <C> <C> <C>
Chirally pure intermediates ................ $ 517 $ 502 $ 78 $ 369
Research contracts ......................... 150 185 376 325
-------- -------- -------- --------
Total revenues ............................ 667 687 454 694
Expenses:
Cost of goods sold ......................... 270 179 234 298
Research and development ................... 2,738 3,582 4,662 5,341
Selling, general and administrative ........ 659 805 1,274 1,263
-------- -------- -------- --------
Total expenses ............................ 3,667 4,566 6,170 6,902
-------- -------- -------- --------
Loss from operations ....................... (3,000) (3,879) (5,716) (6,208)
Other Income and Expense:
Interest Income ............................ 152 478 359 319
Interest expense ........................... 110 77 68 69
-------- -------- -------- --------
Net loss .................................. (2,958) (3,478) (5,425) (5,958)
Accretion of premium payable on preferred
stock and warrants ........................ 76 306 382 249
Deemed dividend for preferred stock
conversion discount ....................... -- -- 2,778 --
-------- -------- -------- --------
Net loss applicable to common stockholders $(3,034) $ (3,784) $(8,585) $ (6,207)
======== ======== ======== ========
<CAPTION>
1997
------------------------------------
March 31 June 30 Sept. 30
---------- ------------ ------------
Revenues:
<S> <C> <C> <C>
Chirally pure intermediates ................ $ 505 $ 255 $ 137
Research contracts ......................... 250 385 284
-------- -------- --------
Total revenues ............................ 755 640 421
Expenses:
Cost of goods sold ......................... 211 251 180
Research and development ................... 4,273 4,837 4,175
Selling, general and administrative ........ 1,366 2,161 2,254
-------- -------- --------
Total expenses ............................ 5,850 7,249 6,609
-------- -------- --------
Loss from operations ....................... (5,095) (6,609) (6,188)
Other Income and Expense:
Interest Income ............................ 208 135 99
Interest expense ........................... 68 26 10
-------- -------- --------
Net loss .................................. (4,955) (6,501) (6,099)
Accretion of premium payable on preferred
stock and warrants ........................ 137 179 159
Deemed dividend for preferred stock
conversion discount ....................... -- 60 893
-------- -------- --------
Net loss applicable to common stockholders $(5,092) $ (6,739) $ (7,151)
======== ======== ========
</TABLE>
The Company has historically experienced, and expects to continue for the
foreseeable future to experience, significant fluctuation in its quarterly
operating results. This fluctuation is due to a number of factors, many of
which are outside the Company's control, including the timing of orders for
chirally pure intermediates and the timing of receipt of certain research and
development payments. Future operating results will depend on many factors,
including demand for the Company's products, regulatory approvals, the timing
of the introduction and market acceptance of new products by the Company or
competing companies, the Company's ability to control costs and its ability to
attract and retain highly qualified scientific and management personnel.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its working capital requirements
primarily through private and public sales of its debt and equity securities,
income earned on the investment of the proceeds from the sale of such
securities, and revenues from product sales. The Company has raised
approximately $81,000,000 through the net proceeds of two public and three
private offerings, including its initial public offering in July 1987.
In July 1995, the Company issued and sold in a private placement offering
$12,000,000 aggregate principal amount of 8% Convertible Debentures due July
31, 1997 for total net proceeds, after offering costs, of approximately
$11,000,000. As of September 30, 1997, the entire $12,000,000 principal amount
of the 8% Convertible Debentures had been converted into Common Stock.
In March 1996, the Company issued and sold in a private placement offering 503
shares of Series A Convertible Preferred Stock at $50,000 per share, for total
gross proceeds of $25,200,000. The Company received net proceeds, after
offering costs, of approximately $23,800,000. (See Footnote 6 to the Financial
Statements).
In June 1997, the Company issued and sold in a private placement offering 5,000
shares of Series B Convertible Preferred Stock at $1,000 per share, for total
gross proceeds of $5,000,000 and net proceeds, after offering costs, of
approximately $4.8 million. See Note 6 to the Financial Statements.
On September 30, 1997, the Company had available cash, cash equivalents and
marketable securities of approximately $5,000,000. In the nine months ended
September 30, 1997, working capital decreased approximately $13,500,000, or
82%,
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21
<PAGE>
from December 31, 1996, which was attributable to the cash used in operations
which more than offset receipt of funds from the sale of Series B Convertible
Preferred Stock.
During the nine months ended September 30, 1997, capital expenditures totaled
approximately $1,200,000, primarily for equipment and leasehold improvements to
expand its research development and manufacturing capabilities.
In September 1997, the Company received from the FDA an approvable letter for
its NDA for THALOMID for the treatment of ENL, a disease state associated with
leprosy. At present, the Company cannot estimate the impact of potential sales
of THALOMID on future revenues.
The Company expects to make substantial expenditures to further its
immunotherapeutic program, to commercialize THALOMID and to expand its chiral
business and, based on these expenditures, it is probable that losses will
continue for at least the next 18 to 24 months.
The Company is currently utilizing its cash resources at a rate of
approximately $2,000,000 per month. The Company expects that its rate of
spending will remain high as the result of increased clinical trial costs and
expenses associated with the regulatory approval process and commercialization
of products now in development. In order to assure funding for the Company's
future operations the Company is seeking additional capital resources. These
may include the sale of additional securities under appropriate market
conditions, alliances or other partnership agreements with entities interested
in and possessing resources to support the Company's immunotherapeutic or
chiral programs, or other business transactions which would generate sufficient
resources to assure continuation of the Company's operations and research
programs in the long-term. In particular, each of the persons who purchased
Series B Preferred also agreed to purchase, at the option of the Company and
subject to the satisfaction of certain conditions, an aggregate of up to 15,000
additional shares of Series B Preferred Stock for an aggregate purchase price
of $15 million at subsequent closings. However, no assurances can be given that
the Company will be successful in raising such additional capital or entering
into a business alliance. Further, there can be no assurance, assuming the
Company successfully raises additional funds or enters into a business
alliance, that the Company will achieve profitability or positive cash flow.
If the Company is unable to raise additional funds, the Company believes that
its current financial resources, including its option to issue and sell an
aditional $5,000,000 of Series B Preferred Stock (which is subject to the
satisfaction of certain customary conditions), could fund operations through
early 1998. The Company's actual cash requirements may vary materially from
those now planned and will depend upon numerous factors, including the results
of the Company's development and commercialization programs, the timing and
results of preclinical and clinical trials, the timing and costs of obtaining
regulatory approvals, the level of resources that the Company commits to the
development of manufacturing, marketing and sales capabilities, the ability of
the Company to license its biocatalytic chiral process technology to
agrochemical companies, the technological advances and activities of
competitors, and other factors.
As of September 30, 1997, the Company had for Federal income tax purposes a net
operating loss carryforward of approximately $104,000,000. If not utilized to
offset future taxable income, such loss carryforward will expire between 2001
and 2012. Certain events, including any sales by the Company of shares of its
stock, including pursuant to this Offering, and/or transfers of a substantial
number of shares of Common Stock by the current stockholders, may partially
restrict the ability of the Company to utilize its net operating loss
carryforward.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("EPS"), which is
effective as of December 31, 1997. This standard changes the way companies
compute EPS to require all companies to show "basic" and "dilutive" EPS and is
to be retroactively applied, including each 1997 interim quarter. The statement
is not expected to have a material effect on the Company's calculation of EPS.
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22
<PAGE>
BUSINESS
- --------------------------------------------------------------------------------
OVERVIEW
Celgene Corporation ("Celgene" or the "Company") is a specialty pharmaceutical
company engaged in the development and commercialization of human
pharmaceuticals and agrochemicals, and is employing two broad technology
platforms: (i) small molecule immunotherapeutic compound development and (ii)
biocatalytic chiral chemistry synthesis. The initial therapeutic focus of the
immunology program is the development of small molecule pharmaceuticals that
have the potential to selectively regulate Tumor Necrosis Factor[alpha]
("TNF[alpha]"), a protein whose overproduction has been linked to many chronic
inflammatory and immunological diseases. The Company's lead compound in
immunology is THALOMID[TM], its formulation of thalidomide, a potent yet
selective inhibitor of TNF[alpha]. On September 19, 1997, the Company received
an approvable letter from the U.S. Food and Drug Administration ("FDA") for
THALOMID for the treatment of erythema nodosum leprosum ("ENL"), an
inflammatory complication of leprosy. The Company expects to submit an
additional New Drug Application ("NDA") in early 1998 for THALOMID in the
treatment of cachexia (wasting) in patients with Acquired Immune Deficiency
Syndrome ("AIDS"). Celgene has further applied its expertise in small molecule
chemistry to develop novel and proprietary thalidomide analogues, as well as a
class of proprietary immunotherapeutic pharmaceutical compounds called
SelCIDs[TM] ("Selective Cytokine Inhibitory Drugs"). These two classes of
compounds are orally administered small molecules that are highly specific for
the suppression of TNF[alpha] and are intended to treat chronic inflammatory
diseases and other disorders.
The initial therapeutic focus of the biocatalytic chiral chemistry synthesis
program is the development of chirally pure pharmaceuticals designed to have
greater efficacy and fewer side effects than existing racemic versions. The
Company's lead compound in this area is a chirally pure version of
dl-methylphenidate (currently marketed under the trade name Ritalin[RegTM]).
The Company recently completed a Phase I/II trial and announced that its
chirally pure version demonstrated statistically significant efficacy versus a
placebo and preliminary indications of longer duration of action relative to
the racemic version. The Company is also employing its biocatalytic chiral
chemistry synthesis technology to develop chirally pure agrochemicals with
superior attributes and/or lower manufacturing costs than the conventional,
non-chirally pure equivalent, as well as to support its established business of
supplying chirally pure intermediates to other pharmaceutical companies for
drug development.
The Company is currently developing THALOMID for the treatment of a variety of
serious disease states for which there are currently no adequate therapies. The
Company recently received an approvable letter from the FDA for THALOMID to
treat ENL. In April 1997, the Company announced that data from its Phase II/III
trial of thalidomide for the treatment of cachexia (wasting) in patients with
AIDS showed a statistically significant positive result in a primary endpoint,
weight gain. The Company expects to submit an NDA for this indication by early
1998. Celgene is also studying thalidomide in clinical trials for the treatment
of three other disease states:
[bullet] AIDS--Recurrent Aphthous Stomatitis ("RAS"): Phase II/III Trial
[bullet] AIDS--Chronic Diarrhea: Phase II Trial
[bullet] Behcet's disease/Complex Aphthosis: Phase II/III Trial.
In addition, the Company expects to commence clinical trials in 1998 to study
thalidomide for the treatment of graft versus host disease and various
oncological applications. Working with the FDA, Celgene has proposed a
comprehensive education program and distribution system designed to support the
safe and appropriate use of thalidomide due to the drug's history of
teratogenicity (capacity to cause birth defects).
Celgene is employing its small molecule immunotherapeutics platform to develop
compounds with the objective of producing an array of novel, highly potent,
selective, safe, orally administered drugs that have the potential to regulate
the overproduction of TNF[alpha], which has been implicated in certain chronic
inflammatory diseases. Chronic inflammatory and immunological diseases
collectively afflict millions of patients, and are inadequately treated with
existing therapies. The Company has developed two classes of compounds,
thalidomide analogues and SelCIDS, which have been demonstrated in in vitro
tests using human cells to be significantly more capable than thalidomide at
suppressing TNF[alpha] production and, in preclinical tests, have not
demonstrated teratogenicity. The initial therapeutic indications targeted for
the thalidomide analogues are rheumatoid arthritis and oncological
applications, and for the SelCIDs, inflammatory bowel disease and oncological
applications. The Company's first SelCID was found to be well tolerated in a
recently completed Phase I clinical trial in the United Kingdom. The United
States Patent and Trademark Office ("U.S. PTO") has issued composition of
matter patents to the Company relating to certain of its novel thalidomide
analogues and SelCIDs.
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23
<PAGE>
Celgene's core chiral technology involves a biocatalytic process. Biocatalysis
involves the identification and manipulation of enzymes to perform specialized
chemical reactions to produce chirally pure compounds. Chirality refers to the
property of many chemical compounds to exist in two or more different
conformations that are mirror images of each other. While one conformation may
have beneficial effects, the other or others may be inactive or produce
undesirable effects. Chirally pure compounds contain only one of these
conformations, and thus may have attributes superior to those of the racemic
mixture.
Since 1991, Celgene has manufactured and sold chirally pure intermediates to
several major pharmaceutical companies for use in the development of chirally
pure pharmaceuticals, and a number of these companies are conducting advanced
clinical trials of pharmaceuticals that incorporate the Company's chirally pure
intermediates. The Company recently entered into a letter of intent regarding
the sale of its chiral intermediates business. See "Recent Developments."
The Company is employing its biocatalytic chiral chemistry synthesis technology
to develop its own chirally pure versions of existing pharmaceutical products
that may demonstrate greater efficacy and/or fewer side effects than existing
racemic products. The Company filed Investigational New Drug applications
("INDs") in the United States and Canada for a chirally pure version of
dl-methylphenidate, which has been used for decades in formulations such as
Ritalin[RegTM], for the treatment of Attention Deficit Hyperactivity Disorder
("ADHD") in children. The Company recently completed its Phase I/II clinical
trial of the drug and announced that its chirally pure version demonstrated
statistically significant efficacy versus a placebo and preliminary indications
of longer duration of action relative to the racemic version. The Company is
also developing a chirally pure formulation of mexiletine for the treatment of
neuropathic pain, a chronic pain state frequently associated with trauma,
spinal cord injury, and complications of diabetes. Celgene recently reported
that its chirally pure formulation of mexiletine substantially reduced severe
neuropathic pain in established animal models.
Celgene, through its Celgro[TM] subsidiary, is also applying its chiral
technology to the production of chirally pure agrochemicals, in which the
Company's biocatalytic process can add significant value by substantially
lowering manufacturing costs and reducing environmental impact. Since 1994, the
Company has been developing a process to manufacture a chirally pure version of
a currently marketed crop protection agent under a research and development
agreement, initially with Sandoz and subsequently with BASF, which acquired
Sandoz' agrochemical business. The Company has successfully scaled up its
process technology to demonstrate ability to produce commercial quantities of
the BASF product, and a commercial agreement is being negotiated.
Celgene has established a sales and marketing organization to commercialize
THALOMID (subject to regulatory approval of the product), and intends to employ
approximately 25 persons in this capacity. The Company intends to develop and
market its own pharmaceuticals for indications with smaller patient
populations. For drugs with indications with larger patient populations, the
Company anticipates partnering with pharmaceutical companies. The Company also
anticipates partnering with companies for the development and commercialization
of the Company's chirally pure pharmaceutical and agrochemical products.
Celgene expects that these arrangements typically will include milestone
payments, reimbursement of research and development expenses and royalty
arrangements.
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<PAGE>
Products
The Company has exploited its expertise in both small molecule
immunotherapeutic and biocatalytic chiral chemistry to develop a series of
products that the Company believes are approaching commercialization either by
the Company or through partnering arrangements. Celgene's portfolio of products
and product candidates currently under development is set forth in the
following table and further described below:
<TABLE>
<CAPTION>
Product Indication/ Intended Use Status(1)
- -------------------------------------- --------------------------------------------------- -----------------------------------
<S> <C> <C>
IMMUNOTHERAPEUTIC PLATFORM
THALOMID[TM] Erythema Nodosum Leprosum ("ENL") in leprosy Approvable Letter received
AIDS--Cachexia Phase II/III Trial completed
AIDS--Recurrent Aphthous Stomatitis ("RAS") Phase II/III Trial
AIDS--Chronic diarrhea Phase II Trial
Behcet's disease/Complex aphthosis Phase II/III Trial to be commenced
shortly
Graft versus host disease Protocol in development
Various oncological applications Protocols in development
Novel Thalidomide Analogues Rheumatoid arthritis and oncological applications Preclinical development
SelCIDs[TM] (Selective Cytokine Inflammatory bowel disease and oncological Phase I Trial completed (in U.K.)
Inhibitory Drugs) applications
CHIRAL CHEMISTRY PLATFORM
Chirally Pure Intermediates Building blocks for active ingredients for drugs Sales to pharmaceutical companies
under development by pharmaceutical companies
Chirally Pure Pharmaceuticals
d-MPH (Chirally pure version of Attention Deficit Hyperactivity Disorder ("ADHD") Phase I/II Trial completed
dl-methylphenidate)(2)
Chirally pure version of mexiletine Neuropathic pain Preclinical Testing
Chirally Pure Agrochemicals
Chiral biocatalytic synthesis Reduced manufacturing costs and reduced First application in advanced
technology environmental impact stage of evaluation by BASF
</TABLE>
- -----------
(1) See--"Government Regulation" for a description of the meaning of terms used
to describe the status of the Company's product development activities.
(2) One commercial formulation of dl-methylphenidate is Ritalin[RegTM].
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25
<PAGE>
IMMUNOLOGY
General
Celgene is applying its small molecule immunotherapeutics platform to develop
compounds with the objective of producing an array of novel, highly potent,
selective, safe, orally administered drugs that have the potential to regulate
the overproduction of TNF[alpha], which has been implicated in certain chronic
inflammatory and immunological diseases. The Company believes that it is close
to commercialization of THALOMID, its first pharmaceutical product, for the
treatment of ENL, and has made significant progress in the clinical trial study
of thalidomide for several other indications. The Company is also developing
two new classes (novel thalidomide analogues and SelCIDs) of orally available
small molecules that are intended to treat chronic inflammatory diseases and
other disorders through the suppression of TNF[alpha].
TNF[alpha], produced primarily by certain white blood cells, is one of a number
of proteins called cytokines, which act as chemical messengers throughout the
body to regulate many aspects of the immune system. TNF[alpha] is essential to
the mounting of an inflammatory response, which is the normal immune system
reaction to infection or injury, and rids the body of foreign agents and
promotes tissue repair. However, chronic or excessive production of TNF[alpha]
has been implicated in the pathophysiology of a number of acute and chronic
inflammatory diseases. These disease states are inadequately treated with
existing therapies.
The following table sets forth the estimated U.S. patient populations for
several common inflammatory diseases and other disorders whose
pathophysiologies are believed to be associated with excess levels of
TNF[alpha]:
Estimated U.S.
Disease Patient Population
Diabetes (non-insulin dependent) ....... 13,500,000
Alzheimer's Disease .................... 2,500,000
Inflammatory Bowel Disease ............. 2,000,000
Rheumatoid Arthritis ................... 2,000,000
Cancer Cachexia ........................ 500,000
Parkinson's Disease .................... 500,000
Multiple Sclerosis ..................... 300,000
Lupus .................................. 250,000
Traditional therapies for these disease states include anti-inflammatory drugs
and immunosuppressive agents. These therapies, however, often fail to achieve
significant clinical benefits and can cause serious side effects such as severe
drops in certain blood counts, liver toxicity, osteoporosis, teratogenicity,
and various endocrine abnormalities. Newer therapies, which include monoclonal
antibodies and receptor-based therapies, also have not adequately addressed
these diseases. It is widely believed that selective inhibition of TNF[alpha]
represents a promising new strategy for treating chronic inflammatory diseases.
In pursuit of this strategy, two broad classes of compounds have been
investigated: proteins and small synthetic molecules.
Investigational anti-TNF[alpha] proteins, including anti-TNF[alpha] antibodies
and TNF[alpha] receptors, have demonstrated efficacy in such chronic
inflammatory diseases as rheumatoid arthritis, inflammatory bowel disease,
Crohns' disease (a severe manifestation of inflammatory bowel disease), and
graft versus host disease. While initial doses of these anti-TNF[alpha]
proteins have been well tolerated and reduced disease activity has been
observed in clinical studies, they do exhibit certain shortcomings linked to
their nature as proteins. First, they are relatively larger molecules that must
be injected. Second, the period of efficacy of a given dosage of a
protein-based drug often declines with repeated administration, rendering
protein-based drugs more suitable for treatment of acute pathological
conditions rather than chronic disease states. This limitation is due in part
to increasing production by the patient's immune system of antibodies that
neutralize administered proteins. Varying degrees of this immunogenic response
have been observed in clinical trials of anti-TNF[alpha] antibodies for the
treatment of rheumatoid arthritis and Crohn's disease.
There are a number of large protein based therapeutic products under
development for TNF[alpha] modulation. Several pharmaceutical and biotechnology
companies have either antibody or receptor-based products under development for
rheumatoid arthritis, Crohn's disease, asthma, and non-insulin dependent
diabetes mellitus. However, small molecule drugs exhibit important advantages
in the treatment of chronic inflammatory diseases, including oral dosing versus
injection, avoiding the undesirable immune response leading to side effects and
reduced efficacy, and lower cost of therapy. The Company believes its small
molecule immunotherapeutic compounds have the potential to selectively modulate
TNF[alpha] while affording these benefits.
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26
<PAGE>
In addition, preliminary research has indicated that Celgene's small molecule
immunotherapeutic compounds may be anti-angiogenic. Angiogenesis is the
fundamental biological process by which new blood vessels are formed. Cancer
cells require oxygen and nutrients which they receive from the body's blood
supply. Cancer cells initiate a biochemical mechanism that stimulates
angiogenesis, which in turn provides the cancerous cells with the blood supply
that they need. Celgene's small molecule immunotherapeutic compounds appear to
have the potential to inhibit such angiogenesis.
Thalidomide
The Company is currently developing THALOMID, its formulation of thalidomide, a
potent yet selective inhibitor of TNF[alpha], for the treatment of a variety of
serious disease states for which there are currently no adequate therapies. The
Company's work with thalidomide is based on a scientific collaboration with The
Rockefeller University's Laboratory of Cellular Physiology and Immunology
("Rockefeller"). In the early 1990s, researchers at Rockefeller discovered that
thalidomide is a selective modulator of TNF[alpha], and therefore could be of
potential benefit in many serious immune related disease states, including
AIDS-related conditions. The Company believes that, in serious and debilitating
disease states, the risk of thalidomide's teratogenicity and other potential
side effects is outweighed by the gravity of the disease and the drug's
potential clinical benefits. Rockefeller has granted Celgene certain exclusive
rights and licenses to manufacture, use and sell thalidomide for treating the
toxicity associated with high concentrations of TNF[alpha] in septic shock,
cachexia and HIV infection.
Thalidomide was developed initially as a sedative, and was also widely
prescribed by doctors in Europe in the late 1950s and early 1960s to pregnant
women for relief of morning sickness. After severe birth defects were later
observed with use of the drug, it was virtually removed from the world market.
Thalidomide was later discovered to have therapeutic effects in the treatment
of ENL in leprosy, a disease that is rare in the United States but common in
many parts of the developing world. Although the FDA has never approved the
marketing of thalidomide, the U.S. Public Health Service has been dispensing
the drug for the treatment of ENL for the past 25 years.
STEPS Program
Working with the FDA and other governmental agencies as well as certain
advocacy groups, the Company has taken measures to institute a program, known
as System for Thalidomide Education and Prescription Safety ("STEPS") for the
safe and effective dispensing of thalidomide. This program will include
comprehensive physician, pharmacist, and patient education. No patient will be
prescribed the drug unless the patient is fully participating in the system,
which includes pregnancy testing and contraception for women, as well as
informed consent and participation in a mandatory and confidential outcomes
registry managed by an academic epidemiology research group. No physician will
be able to prescribe thalidomide unless he or she has agreed to comply with the
educational, contraception counseling, informed consent, and pregnancy testing
requirements. No pharmacy will be able to purchase the drug unless the pharmacy
has agreed to confirm that the physician is a registered participant in the
program, and that the patient has signed an informed consent form. The program
does not allow for automatic refills, and no prescription will be filled for
more than four weeks dosing. Every prescription will be recorded to promote
complete compliance.
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27
<PAGE>
Target Disease States for Thalidomide
The primary indications for which the Company is currently testing or about to
commence testing THALOMID are set forth in the following table. The table
summarizes the completed, ongoing and planned clinical trials for THALOMID.
There can be no assurance that the Company will eventually commercialize or
pursue regulatory approval for THALOMID for any of these indications.
<TABLE>
<CAPTION>
Indication Status Trial Endpoint
- ------------------------------ -------------------------------------------- -------------------------------------
<S> <C> <C>
AIDS-related
Cachexia Phase II/III trial completed; NDA Increase in body weight at 8 weeks
expected to file early 1998
Recurrent aphthous Phase II/III trial commenced Complete healing of all ulcers
stomatitis ("RAS") first half 1997
Chronic diarrhea Phase II/III trial commenced 1996 Reduction in frequency of bowel
movements (>50%)
Non AIDS-related
Erythema nodosum Approvable Letter received
leprosum in leprosy ("ENL") September 1997
Behcet's disease/ Phase II/III expected to commence 1998 Reduction in existing ulcers;
complex aphthosis inhibition of new ulcerations
Graft versus host Phase II/III trial protocol in development Under discussion with FDA
disease
Various oncological Protocols in design
applications
</TABLE>
AIDS-Related Conditions
The Company is studying thalidomide in the treatment of several AIDS-related
conditions, including cachexia, RAS and chronic diarrhea. Competing therapies
have demonstrated beneficial effects in some of these conditions, but only
thalidomide has shown indications of efficacy in each of these indications. The
Company believes that thalidomide's broad applicability may result in patients
taking fewer pharmaceuticals each day, thus reducing side effects and potential
drug interaction problems.
Cachexia. Cachexia is clinically defined as the involuntary loss of more than
10% of baseline body weight in the previous six months. Based on available
information, the Company believes that an estimated 50% of AIDS patients (or
approximately 50,000 to 100,000 persons in the United States) suffer from
cachexia at some point in the progression of AIDS. The condition can result
from HIV infection itself, or as a consequence of AIDS-related illnesses.
Cachexia markedly diminishes a patient's quality of life, may contribute
directly to disease progression, the continuing loss of immune function, and to
the development of opportunistic infections and even death.
The Company announced in April 1997 that data from its Phase II/III trial of
THALOMID in HIV-associated weight loss showed "a statistically significant
positive result" in reaching the trial's primary endpoint, i.e. increase in
body weight after eight weeks of therapy. The double-blind placebo-controlled
trial evaluated 102 AIDS patients who had lost an average of more than 10
percent of their body weight. The Company is in advanced discussions with the
FDA regarding the submission of an NDA for this indication which is expected in
early 1998. In December 1995, the FDA permitted the Company to commence an
expanded-access program to dispense thalidomide for the treatment of cachexia.
This program is still ongoing and permits persons with AIDS cachexia access to
the drug.
Recurrent Aphthous Stomatitis. RAS, which is characterized by lesions of the
oral cavity, esophagus, and gastrointestinal tract, which the Company believes
afflicts an estimated 10,000 AIDS patients and may interfere with normal
eating. Positive results have been reported in a study conducted by the AIDS
Clinical Trials Group of the National Institutes of Health using a formulation
of thalidomide manufactured by a third party. In mid-1997, the Company began a
pivotal clinical trial involving 84 patients for the evaluation of thalidomide
in the treatment of RAS, using the same principal investigator as the AIDS
Clinical Trials Group study.
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28
<PAGE>
Chronic Diarrhea. Frequent intractable diarrhea is a clinically important
condition in AIDS patients. There currently is no effective treatment for this
condition, which results in restricted lifestyle and significant morbidity,
such as weight loss, and which the Company believes may afflict as many as
50,000 patients in the United States. The Company is currently sponsoring a
double-blind, placebo controlled Phase II/III clinical trial involving 120 AIDS
patients at three centers in London, the U.S. and Mexico, for 28 days of
therapy, to determine the safety and efficacy of a single dose of 100 mg of
thalidomide in the symptomatic treatment of AIDS patients with severe diarrhea
in the presence of two common bowel pathogens.
Effect of Protease Inhibitors and Triple Combination Therapy on Need for
THALOMID. Triple combination therapy, which involves the use of a protease
inhibitor in conjunction with two reverse transcriptase inhibitors, has proven
effective at reducing the HIV viral load in HIV+ or AIDS patients and may also
reduce the number of complications per patient. However, the Company believes
there will be continuing need for THALOMID among AIDS patients because: (i)
triple combination therapy does not lead to a short-term restoration of the
immune system, and thus many patients receiving triple combination therapy,
especially those who have suffered from AIDS for an extended period of time,
continue to be prone to opportunistic infections, and (ii) there is growing
evidence that mutations of the AIDS virus may render protease inhibitors less
effective. This is supported by empirical evidence recently presented at
scientific conferences which suggest that protease inhibitors may become less
effective over an extended period of time.
Non AIDS-Related Conditions
Erythema Nodosum Leprosum. ENL, a complication of leprosy, is a chronic
bacterial disease. Leprosy afflicts millions worldwide, although the disease is
relatively rare in the United States. Celgene does not plan to market THALOMID
outside the United States and Canada in the near term. ENL occurs in about 30%
of leprosy patients, and is characterized by cutaneous lesions, acute
inflammation, fever, and anorexia. On September 19, 1997, the Company received
an "approvable" letter from the FDA with respect to the Company's NDA for
THALOMID in the treatment of ENL, setting forth certain prerequisites, upon the
satisfaction of which the FDA will approve the NDA.
Behcet's Disease and Complex Aphthosis. In September 1997, the Company filed an
IND with the FDA for the study of thalidomide for potential use in the
treatment of Behcet's disease and complex aphthosis, which are chronic
autoimmune disorders that together affect approximately 15,000 people in the
United States, and are characterized by eye inflammation, oral and genital
ulcers and other skin lesions. The disease can also damage joints, blood
vessels, the central nervous system and the gastrointestinal tract.
Investigators at the Bowman Gray School of Medicine and the Mayo Clinic will
conduct the two-phase, double-blind study, to determine whether there is a
statistically significant reduction in existing ulcers and whether the drug
inhibits the formation of new ulcerations. Thalidomide is generally regarded as
the treatment of choice for severe Behcet's disease and complex aphthosis.
Graft Versus Host Disease. Graft versus host disease is a disorder of the
immune system that is the most common complication and cause of death following
bone marrow transplants. There have been individual cases in which
comprehensive and intensive thalidomide therapy at high doses has successfully
reversed this disease. The Company is developing a protocol for a study of
thalidomide in the treatment of graft versus host disease.
Various Oncological Applications. Cachexia is a prevalent complication of late
stage cancer and is often associated with the after-effects of chemotherapy.
The Company is currently evaluating a number of protocols for studying the
effects of thalidomide on wasting associated with several cancer conditions.
Compassionate Use Programs. Since 1995, the Company has been providing
thalidomide under physician-directed emergency INDs. The Company has fulfilled
over 600 separate requests (each of which may represent a multiple number of
patients being treated) for supplies of thalidomide to treat more than 30
different indications.
Novel Thalidomide Analogues
Celgene has designed and synthesized a number of novel structural analogues of
thalidomide which have demonstrated in in vitro tests to be substantially more
potent than thalidomide, including some with equivalent ability to inhibit
TNF[alpha] overproduction but in a dose as low as 1/100,000 of the dose of
thalidomide. There can be no assurance, however, that the same effect can be
duplicated in in vivo tests. Research on these compounds is now focused on
increasing the immunological and anti-angiogenic activity and the potential
elimination of thalidomide's side effects including teratogenicity. Certain
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29
<PAGE>
analogues are now being evaluated in preclinical toxicology. The Company
anticipates filing IND applications for novel thalidomide analogues to treat
selected inflammatory and oncological disease states in 1998.
SelCIDs
The Company has designed, synthesized and tested several hundred SelCIDs
("Selective Cytokine Inhibitory Drugs"). These compounds have demonstrated the
ability to be highly specific suppressors of TNF[alpha] in in vitro bioassays
of human cells. In April 1997, the Company announced that its SelCIDs appear to
have a highly specific inhibitory effect on the phosphodiesterase type 4 enzyme
(PDE-4), which is linked to the overproduction of TNF[alpha]. Studies have
determined that many of the SelCIDs decrease synthesis of TNF[alpha] through
selective inhibition of PDE-4. The Company believes that control of TNF[alpha]
at its source, versus simple removal of circulating levels of the cytokine, may
facilitate more effective therapy without immune suppression. There can be no
assurance, however, that the same effect can be duplicated in in vivo tests.
The Company's first SelCID was found to be well tolerated in a recently
completed Phase I trial in the United Kingdom. The Company aims to file an IND
for inflammatory bowel disease in the United States in 1998. The SelCIDs have
not shown any evidence of emesis (nausea and vomiting) in animal tests. If
confirmed in humans, this would indicate that they are a unique class of PDE-4
inhibitors. Ths U.S. PTO has issued composition of matter patents to the
Company relating to certain of its novel thalidomide analogues and SelCIDs.
CHIRAL CHEMISTRY
Celgene is applying its biocatalytic chiral chemistry synthesis technology and
seven years of experience in developing chirally pure intermediates towards the
development of substantial business opportunities in human pharmaceuticals and
agrochemicals. The Company believes it has made significant progress over the
past two years towards the development of three principal opportunities: (i)
the supply of custom chirally pure intermediates to other pharmaceutical
companies for use in new drug development; (ii) the development of chirally
pure versions of existing racemic drugs (drugs containing equal quantities of
the mirror image conformations of an active ingredient that exhibits chirality)
whose performance and/or safety profiles may be enhanced by eliminating chiral
impurities; and (iii) the development and production of chirally pure
agrochemicals.
Chirality
Many human pharmaceuticals and agrochemicals exist in two or more different
three dimensional configurations that are identical in chemical structure but
are mirror images of each other. These conformations, known as stereoisomers,
generally interact differently with biological targets. In clinical
applications, one stereoisomer may result in the desired therapeutic effect by
stimulating or inhibiting a targeted biological function, while the other
stereoisomer may be inactive or cause undesirable side effects. In contrast to
racemic pharmaceuticals, the use of chirally pure pharmaceuticals may result in
significant clinical benefits such as reduced toxicity and increased efficacy.
In agrochemical applications, the use of chirally pure chemicals can result in
a substantially reduced volume of product required, thereby lowering
manufacturing costs and reducing the environmental burden as compared with
racemic chemicals.
The worldwide market value of drugs marketed in their chirally pure form
increased from approximately $7 billion in 1985 to approximately $50 billion in
1995. This increase was driven, in large part, by the FDA's movement towards
requiring applicants, in connection with the submission of NDAs for racemic
compounds, to evaluate the racemic mixture as well as each stereoisomer. In
addition, in February 1997 the FDA requested public comment on whether and how
it should create incentives, including periods of market exclusivity, for the
development of chirally pure drugs. Similarly, agrochemicals are subject to
complex and evolving environmental regulation in the United States and abroad,
including regulations establishing usage levels. The Company believes that such
regulatory constraints increase the commercial opportunity for chirally pure
agrochemicals which cause less environmental impact, in terms of both their
manufacture and use.
Celgene's Core Chiral Technology: Biocatalysis
Celgene's biocatalytic process enables the efficient production of chirally
pure compounds. The Company's biocatalytic process is based primarily on the
use of enzymes called aminotransaminases, which are optimized by the Company
through genetic engineering techniques. These enzymes catalyze the production
of only the desired stereoisomer of a chiral compound, and can be used in
conventional chemical synthesis reactors at room temperature.
The Company's biocatalytic process for producing chirally pure compounds
differs from the more common approach of producing racemic mixtures followed by
separation of the desired stereoisomer through resolution techniques such as
crystallization or chromatography. These traditional approaches to producing
chirally pure compounds can be cumbersome,
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result in low yields, use more raw materials, and are generally less economical
than the Company's process. The Company believes that its biocatalytic process
can be applied to the manufacture of a wide variety of organic chemicals, and
provides the Company with three business opportunities.
Chirally Pure Intermediates
Since 1990, the Company has applied its chiral technology to the development
and supply of chirally pure intermediates as building blocks to make active
ingredients for use in new drug development. The Company focuses on chemical
compounds known as amines, including amino acids and ethanolamines, which are
typically critical components of a broad spectrum of pharmaceuticals, including
therapeutics for cardiovascular, respiratory, anti-infective, endocrine,
cancer, and central nervous system applications. Celgene has developed a
substantial knowledge base relating to transaminases. These two factors
facilitate the rapid production of a wide variety of chirally pure compounds to
meet individual customer requirements. In addition, the Company's biocatalytic
process technology can be implemented on a commercial scale using equipment
common to the chemical processing industry with limited additional capital
expenditures. Celgene's principal customers in 1997 for chirally pure
intermediates included Sanofi SA, Novartis AG, Johnson and Johnson, Sepracor,
Inc. and Smith-Kline Beecham Pharmaceuticals plc. The Company recently entered
into a letter of intent regarding the sale of its chiral intermediates
business. See "Recent Developments."
Chirally Pure Pharmaceuticals
Celgene believes there is a significant opportunity in developing chirally pure
versions of approved drugs sold in racemic form. Compounds that have been
approved and marketed have a significant body of information regarding their
safety and efficacy, and consequently: (i) the cost and duration of clinical
trials may be reduced if reference may be made to data used in the course of
obtaining regulatory approval for the racemic parent compound; (ii) the risk of
not obtaining regulatory approval may be reduced, and (iii) marketing risks may
be reduced due to the established market for the parent compound.
The Company is developing chirally pure versions of currently marketed racemic
drugs as potentially improved pharmaceuticals with reduced side effects, lower
dosage requirements, enhanced specificity, and applications in new indications.
The Company filed IND applications with the FDA and the Health Protection
Branch of Canada and initiated a Phase I/II clinical trial for a chirally pure
version of dl-methylphenidate ("dl-MPH"), which has been used for decades in
formulations such as Ritalin for the treatment of ADHD in children. One million
American children are estimated to be treated with dl-MPH in its racemic form.
Total U.S. sales in 1997 of the racemic version of the drug are projected to be
greater than $400 million. The Company's study was designed to evaluate the
pharmacokinetics and potential benefits of its chirally pure version of dl-MPH.
The Company recently completed this trial of its chirally pure version of
dl-MPH and announced that its chirally pure version demonstrated statistically
significant efficacy versus a placebo and preliminary indications of longer
duration of action relative to the racemic version. In addition, the Company
has commenced development of a controlled release version of its chirally pure
version of dl-MPH, which may substantially improve administration of the drug.
The Company has applied for use and process patents for both its chirally pure
and controlled release versions of dl-MPH.
The Company is also developing a chirally pure formulation of mexiletine for
the treatment of neuropathic pain, a chronic pain state frequently associated
with trauma, spinal cord injury, and complications of diabetes. Neuropathic
pain generally arises from injury to the peripheral or central nervous tissue.
In most cases, chronic neuropathic pain responds poorly to treatment with
opiates or nonsteroidal anti-inflammatory analgesics. High doses of racemic
oral mexiletine are sometimes used by physicians as an adjuvant pain treatment
for the condition, presumably due to its ability to block sodium channels that
communicate pain signals through the nervous system. However, this off-label
use has been limited, due to the racemate's effect on sodium channels in the
heart and the central nervous system that can lead to significant side effects.
Celgene recently reported that its chirally pure formulation of mexiletine
substantially reduced severe neuropathic pain in established animal models. The
study examined the effect of each of the two isomers of mexiletine, racemic
mexiletine, and lidocaine, a prototypical sodium channel blocker, on allodynia
(pain response elicited by light touch stimuli), in two established preclinical
models. Celgene, in collaboration with researchers at the Anesthesiology
Research Laboratory at the University of California in San Diego, determined
that one isomer of mexiletine is active in the reduction of neuropathic pain.
Formulation of a pharmaceutical with this single, selective isomer may help
avoid adverse effects on cardiac and other tissues. A racemic formulation of
mexiletine is marketed by several companies as an orally active anti-arrhythmic
agent. Celgene's preliminary research indicates that the anti-arrhythmic effect
is resident in one stereoisomer and the pain suppression capability in the
other. The Company has filed for appropriate patent coverage for chirally pure
mexiletine for neuropathic pain.
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<PAGE>
Chirally Pure Agrochemicals
In June 1996, the Company announced the formation of its Celgro subsidiary,
which is marketing the Company's proprietary biocatalytic synthesis technology
to agrochemical companies. Celgro's approach is to work with agrochemical
companies to adapt the Company's biocatalytic technology to the manufacture of
chirally pure versions of these companies' crop protection agents, and then
license the technology to these companies in exchange for royalties. Celgro
will also seek to develop chirally pure versions of existing agrochemicals on
its own, and then enter into license agreements with third parties, who will
manufacture and sell the agrochemicals and pay the Company royalties. The
Company believes that the agrochemical market presents a substantial
opportunity because many agrochemicals produced in racemic form, with annual
worldwide sales totaling $5 billion, could be manufactured in chirally pure
form.
Since 1994, the Company has been developing a process to manufacture a chirally
pure version of a currently marketed racemic crop protection agent under a
research and development agreement with BASF, and presently is successfully
scaling up the process to produce commercial quantities of the products. The
Company has received milestone research and development payments in excess of
$2 million under this agreement, and a commercial licensing agreement is under
negotiation. The Company is also actively pursuing several similar arrangements
with other major agrochemical companies.
The Company also believes that its chiral technology is enabling in
agrochemical applications because it has the potential to significantly lower
manufacturing costs compared to conventional technologies and other chiral
technologies. Compared to the Company's biocatalytic process, conventional
technologies require more raw materials and greater plant capacity to produce
the same effective quantity of product, while other chiral technologies require
specialized equipment, more expensive chiral agents, more raw material, and
greater capacity for handling hazardous wastes produced in the separation
process. In addition, it is anticipated that the required application amount of
a chirally pure form of an agrochemical is substantially less than the racemic
form, thereby reducing environmental burden. Agrochemicals are highly price
sensitive, and, therefore, a process that produces chirally pure products at
significant cost savings could be in substantial demand.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to the Company's business.
It is the Company's policy to seek patent protection for its inventions, and
also to rely upon trade secrets, know-how, continuing technological
innovations, and licensing opportunities to develop and maintain its
competitive position.
Under an agreement with The Rockefeller University ("Rockefeller"), the Company
has obtained certain exclusive rights and licenses to manufacture, use, and
sell products that are based on compounds identified in research carried out by
Rockefeller and the Company that can be used for treating toxicity associated
with high concentrations of TNF[alpha] (the "Rockefeller License"). Rockefeller
has identified a method of using thalidomide and certain thalidomide-like
compounds to treat certain symptoms associated with abnormal concentrations of
TNF[alpha], including those manifested in septic shock, cachexia and HIV
infection, and in 1995 was issued U.S. Patent No. 5,385,901 which claims such
methods. This U.S. Patent expires in 2012 and is included in the patent rights
licensed to the Company under the Rockefeller License. However, Rockefeller did
not seek corresponding patents in any other countries in respect of this
invention. Under the Rockefeller License, the Company is obligated to pay
certain specified royalties to Rockefeller on net sales of licensed products.
The Rockefeller License is coterminous with the last to expire of the licensed
patents and is terminable by Rockefeller only in the event of a breach of the
agreement's terms by Celgene which breach shall fail to be remedied for more
than sixty days after notice thereof. Any termination of the Rockefeller
License could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has been issued 26 U.S. patents and has filed 11 U.S. patent
applications. Of the issued U.S. patents, 15 relate to immunotherapeutic and
chiral amine processes, compounds and uses. The Company's U.S. patents expire
between 2001 and 2016. The Company has obtained patents in certain other
countries which correspond to some, but not all, of the Company's U.S. patents.
The Company expects to continue to file patent applications covering the use of
its proprietary inventions.
Prior to the enactment in the United States of new laws adopting certain
changes mandated by the General Agreement on Tariffs and Trade ("GATT"), the
exclusive rights afforded by a U.S. patent were for a period of 17 years
measured from the date of grant. Under these new laws, the term of any U.S.
patent granted on an application filed subsequent to June 8, 1995, will
terminate 20 years from the date on which the patent application was filed in
the United States or the first priority date, whichever occurs first. Future
patents granted on an application filed before June 8, 1995, will have a term
that terminates 20 years from such date, or 17 years from the date of grant,
whichever date is later.
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<PAGE>
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
U.S. product patent or use patent may be extended for up to five years under
certain circumstances to compensate the patent holder for the time required for
FDA regulatory review of the product. The benefits of this act are available
only to the first approved use of the active ingredient in the drug product and
may be applied only to one patent per drug product. There can be no assurance
that the Company will be able to take advantage of this law.
The Company's success will depend, in part, on its ability to obtain and
enforce patents, protect trade secrets, obtain licenses to technology owned by
third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical and
biotechnology firms, including the Company, can be uncertain and involve
complex legal and factual questions. In addition, the coverage sought in a
patent application can be significantly reduced before the patent is issued.
Consequently, the Company does not know whether any of its pending applications
will result in the issuance of patents or, if any patents are issued, whether
they will provide significant proprietary protection or commercial advantage,
or will be circumvented by others. Since patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries, the Company cannot be certain that it was the first to make the
inventions covered by each of its pending patent applications, or that it was
the first to file patent applications for such inventions. In the event a third
party has also filed a patent for any of its inventions, the Company may have
to participate in interference proceedings declared by the U.S. PTO to
determine priority of invention, which could result in the loss of any
opportunity to secure patent protection for the invention and the loss of any
right to use the invention, and even if the eventual outcome is favorable to
the Company, such interference proceedings could result in substantial cost to
the Company. Protection of patent applications and litigation to establish the
validity and scope of patents, to assert patent infringement claims against
others and to defend against patent infringement claims by others can be
expensive and time-consuming. There can be no assurance that in the event that
any claims with respect to any of the Company's patents, if issued, are
challenged by one or more third parties, that any court or patent authority
ruling on such challenge will determine that such patent claims are valid and
enforceable. An adverse outcome in such litigation could cause the Company to
lose exclusivity relating to such patent claims. If a third party is found to
have rights covering products or processes used by the Company, then the
Company could be forced to cease using the technologies covered by the disputed
rights, could be subject to significant liabilities to such third party, and
could be required to license technologies from such third party. Also,
different countries have different procedures for obtaining patents, and
patents issued by different countries provide different degrees of protection
against the use of a patented invention by others. There can be no assurance,
therefore, that the issuance to the Company in one country of a patent covering
an invention will be followed by the issuance in other countries of patents
covering the same invention, or that any judicial interpretation of the
validity, enforceability, or scope of the claims in a patent issued in one
country will be similar to the judicial interpretation given to a corresponding
patent issued in another country. Furthermore, even if the Company's patents
are determined to be valid, enforceable, and broad in scope, there can be no
assurance that competitors will not be able to design around such patents and
compete with the Company using the resulting alternative technology. The
Company does not currently have, nor does it intend to seek, patent protection
relating to the use of THALOMID to treat erythema nodosum leprosum, an
inflammatory complication of leprosy, which is the only indication with respect
to which the Company has received an approvable letter from the FDA.
The Company also relies upon unpatented proprietary and trade secret technology
that it seeks to protect, in part, by confidentiality agreements with its
collaborative partners, employees, consultants, outside scientific
collaborators, sponsored researchers, and other advisors. There can be no
assurance that these agreements provide meaningful protection or that they will
not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known to others. In addition,
there can be no assurance that, despite precautions taken by the Company,
others have not and will not obtain access to the Company's proprietary
technology.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and non-U.S.
countries is a significant factor in the manufacture and marketing of
pharmaceuticals and in the Company's ongoing research and development
activities. All of the Company's therapeutic products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical testing and
clinical trials and other pre-market approval requirements by the FDA and
regulatory authorities in other countries. In the United States, various
federal, and in some cases state, statutes and regulations also govern or
impact upon the manufacturing, safety, labeling, storage, record keeping, and
marketing of such products. The lengthy process of seeking required approvals,
and the continuing need for compliance with applicable statutes and regulations
require the expenditure of substantial resources. Even if regulatory approval
is obtained for any of the pharmaceutical products manufactured by or for the
Company, or with the Company's chirally pure
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intermediates, or using the Company's biocatalytic chiral processes, the scope
of the approval may significantly limit the indicated uses for which such
products may be marketed. Further, approved drugs, as well as their
manufacturers, are subject to ongoing review, and discovery of previously
unknown problems with such products may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market. Any failure by
the Company or its collaborators or licensees to obtain or maintain, or any
delay in obtaining regulatory approvals could adversely affect the marketing of
any products developed by the Company, and its ability to receive product
revenue, royalty revenue, or profit sharing payments.
The activities required before a pharmaceutical may be marketed in the United
States begin with preclinical testing not involving human subjects. Preclinical
tests include laboratory evaluation of product chemistry and animal studies to
assess the potential safety and efficacy of product and its formulations. The
results of these studies must be submitted to the FDA as part of an
Investigational New Drug Application ("IND"), which must be reviewed by the FDA
primarily for safety considerations before proposed clinical trials in humans
can begin. Typically, clinical trials involve a three-phase process.
In Phase I, clinical trials are conducted with a small number of individuals to
determine the early safety and tolerability profile and the pattern of drug
distribution and metabolism within the body. In Phase II, clinical trials are
conducted with groups of patients in order to determine preliminary efficacy,
dosing regimes, and expanded evidence of safety. In Phase III, large-scale,
multi-center, adequate and well-controlled, comparative clinical trials are
conducted with patients in order to provide enough data for the statistical
proof of efficacy and safety required by the FDA and others, however in some
limited circumstances Phase III trials may be modified to allow evaluation of
safety and efficacy in a less regimented manner, which may allow the Company to
rely on historical data relating to the previous use of certain
pharmaceuticals. In Phase IV, confirmatory trials are conducted after the FDA's
approval of an NDA or issuance of an approvable letter in order to resolve any
open issues. Monitoring of all aspects of the study to minimize risks is a
continuing process. Reports of all adverse events must be made to the FDA.
The results of the preclinical testing and clinical trials are then submitted
to the FDA in the form of an NDA for approval to commence commercial sales. In
responding to an NDA, the FDA may grant marketing approval, request additional
information, or deny the application if it determines that the application does
not satisfy its regulatory approval criteria. If an NDA is approved, the
Company will have to establish a system for obtaining reports of experience and
side effects that are associated with the drug and make appropriate submissions
to the FDA.
Pursuant to the Orphan Drug Act, a sponsor may request the FDA to designate a
drug intended to treat a "rare disease or condition" as an "orphan drug." A
"rare disease or condition" is defined as one which affects less than 200,000
people in the United States, or which affects more than 200,000 people, but for
which the cost of development and making available the drug is not expected to
be recovered from sales of the drug in the United States. Upon the approval of
the first NDA for a drug designated as an orphan drug for a specified
indication, the sponsor of the NDA is entitled to exclusive marketing rights in
the United States for such drug for that indication for seven years. Orphan
drugs may also be eligible for federal income tax credits for costs associated
with the drug's development. Possible amendment of the Orphan Drug Act by the
United States Congress and possible reinterpretation by the FDA are the subject
of frequent discussion. FDA regulations reflecting certain definitions,
limitations and procedures went into effect in January 1993. Therefore, there
is no assurance as to the precise scope of protection that may be afforded by
orphan drug status in the future, or that the current level of exclusivity and
tax credits will remain in effect. The Company has received from the FDA orphan
drug designation for thalidomide for the treatment of ENL, AIDS cachexia,
mycobacterial infections and RAS. However, there can be no assurance that
another company also holding orphan drug designation will not receive approval
prior to Celgene for the use of thalidomide for the treatment of one or more of
these indications. If such were to happen, Celgene's applications for that
indication could not be approved until the competing company's seven year
period of exclusivity expired.
Among the conditions for NDA approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures continually conform
with the FDA's current Good Manufacturing Practice regulations and guidelines
("GMP"). In complying with GMP, manufacturers must devote extensive time,
money, and effort in the area of production and quality control and quality
assurance to maintain full technical compliance. Manufacturing facilities and
company records are subject to periodic inspections by the FDA to ensure
compliance.
Steps similar to those in the United States must be undertaken in virtually
every other country comprising the market for the Company's products before any
such product can be commercialized in those countries. The approval procedure
and the time required for approval varies from country to country and may
involve additional testing. There can be no assurance that approvals will be
granted on a timely basis, or at all. In addition, regulatory approval of
prices is required in most countries other than the United States. There can be
no assurance that the resulting prices would be sufficient to generate an
acceptable return to the Company.
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COMPETITION
The pharmaceutical and agrochemical businesses in which the Company competes
are each highly competitive. The Company's competitors include major
pharmaceutical and chemical companies, many of which have considerably greater
financial, technical, and marketing resources than the Company. The Company
also experiences competition in the development of its products and processes
from universities and other research institutions and, in some instances,
competes with others in acquiring technology from such sources.
Competition in the pharmaceutical industry, and specifically in the
immunotherapeutic areas being addressed by the Company, is particularly
intense. Numerous companies, including Immunex Corp., and Centocor Corp., are
pursuing techniques to modulate TNF[alpha] production through various
combinations of monoclonal antibodies, TNF[alpha] receptors, and small molecule
approaches. In addition, a number of other companies are attempting to address,
with other technologies and products, the disease states currently being
targeted by the Company. Other companies are attempting to develop thalidomide
for AIDS-related and non AIDS-related indications. EntreMed, Inc. is
researching the effectiveness of thalidomide and its own thalidomide analogues
as anti-angiogenic agents in the treatment of retinal disease and cancer.
EntreMed has advised the Company that EntreMed has an exclusive license under
several issued patents and patent applications covering these uses. Andrulis
Pharmaceuticals Corp., a small privately held company, is attempting to develop
thalidomide for the treatment of AIDS-related complications.
Several companies have established chiral products and chiral technologies.
Companies that develop and manufacture chirally pure intermediates include:
Chiroscience Group Plc ("Chiroscience"); DSM Andeno B.V.; Lonza Ltd.;
Kanegafuchi Chemical Industry Co., Ltd.; Cambrex Corporation, and ChiRex Inc.
Several of these companies have established commercial scale manufacturing
facilities that are believed to be in compliance with GMP, which provides these
companies with a competitive advantage. In addition, Sepracor and Chiroscience
are actively developing chirally pure versions of pharmaceuticals currently
marketed in racemic form. Chiroscience has completed Phase I trials in the
United Kingdom for a chirally pure version of dl-MPH and is working with Medeva
Plc, the lead supplier of dl-MPH in the United States, towards full clinical
development. Chiroscience has also taken certain steps to assert patent and
proprietary rights with respect to its formulation of a chirally pure version
of dl-MPH. The agrochemical market is large and, within this market, efforts
are underway by the in-house development staffs of agrochemical companies to
produce chirally pure versions of their existing racemic crop protection
agents.
The pharmaceutical and agrochemical industries have undergone, and are expected
to continue to undergo, rapid and significant technological change, and
competition is expected to intensify as technical advances in each field are
made and become more widely known. In order to compete effectively, the Company
will be required to continually upgrade its scientific expertise and
technology, identify and retain capable management, and pursue scientifically
feasible and commercially viable opportunities.
The Company's competition will be determined in part by the indications for
which the Company's products are developed and ultimately approved by
regulatory authorities. An important factor in competition will be the timing
of market introduction of the Company's or competitors' products. Accordingly,
the relative speed with which the Company can develop products, complete
clinical trials and approval processes, and supply commercial quantities of
products to the market will be expected to be important competitive factors.
Competition among products approved for sale will be based, among other things,
on product efficacy, safety, convenience, reliability, availability, price, and
patent position.
MANUFACTURING
THALOMID is encapsulated for the Company by Penn Pharmaceuticals Ltd. of Great
Britain ("Penn") in a special facility devoted exclusively to the production of
THALOMID capsules. Both the bulk manufacturing facility that produces the drug
substance for THALOMID and the Penn facility have been certified as GMP
compliant. The Company currently produces chirally pure intermediates in its
own facilities, which are adequate to produce the developmental quantities of
product currently used by the Company and its current customers. However, the
Company's existing facilities will not be adequate for the manufacture of large
scale developmental and commercial quantities of the Company's chiral products.
In order to obtain such larger quantities, the Company expects to engage third
parties through licensing agreements with customers, or by entering into an
alliance, joint venture, or other arrangement with one or more contract
manufacturers. In certain instances, the Company may be required to make
substantial capital expenditures to access additional manufacturing capacity.
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SALES AND MARKETING
The Company intends to develop and market its own pharmaceuticals for
indications with smaller patient populations. For drugs with indications with
larger patient populations, the Company anticipates partnering with
pharmaceutical companies. The Company also anticipates partnering with
companies for the development and commercialization of the Company's chirally
pure pharmaceutical and agrochemical products. Celgene expects that these
arrangements typically will include milestone payments, reimbursement of
research and development expenses and royalty arrangements.
Celgene has established a sales and marketing organization to commercialize
THALOMID (subject to regulatory approval of the product), and intends to employ
approximately 25 persons in this capacity. The Company believes that a direct
sales force for THALOMID can be effective because of the relatively small,
concentrated patient population, of which 70% resides in 20 major metropolitan
areas. Celgene has engaged a specialty contract distributor to distribute
THALOMID in strict accordance with the Company's program to promote the safe
and effective dispensing and use of the product. This program will include
comprehensive physician, pharmacist and patient education, informed consent
procedures, appropriate labeling, and frequent pregnancy testing. The Company
also employs a three person direct sales staff to market and provide technical
support to customers for its chirally pure intermediates.
EMPLOYEES
At October 24, 1997, the Company had 115 full time employees, 73 of whom were
engaged primarily in research and development activities, 23 of whom were
engaged in sales and marketing activities, and the remainder of whom were
engaged in executive and administrative activities. Of the Company's employees,
58 have advanced degrees, including 28 who have Ph.D. degrees. The Company also
maintains consulting arrangements with a number of scientists at various
universities and other research institutions in Europe and the United States.
PROPERTIES
The Company leases a 44,500 square foot laboratory and office facility in
Warren, New Jersey under a lease with an unaffiliated party which has a term
ending in May 2002 with one five-year renewal option. The Company also
sub-leases 17,500 square feet in a facility located in Annandale, New Jersey
that houses the Company's Celgro unit. The facility consists of office and
laboratory space and is leased under a sub-lease which expires in February
1999. The Company believes that its laboratory facilities are adequate for its
research and development activities for at least the next 12 months.
LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings. The Company believes it is
currently in substantial compliance with all federal, state and local
environmental laws.
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MANAGEMENT
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Directors, Officers, and Key Employees
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------- ----- --------------------------------------------------
<S> <C> <C>
John W. Jackson 53 Chairman of the Board and Chief Executive Officer
Sol J. Barer, Ph.D. 50 President, Chief Operating Officer, Director
Robert C. Butler 67 Senior Vice President and Chief Financial Officer
David I. Stirling, Ph.D. 44 Executive Vice President -- Pharmaceutical R&D
Maghsoud M. Dariani 44 Vice President -- Chiral Pharmaceuticals
Steven D. Thomas, Ph.D. 36 Vice President -- Pharmaceutical Development
Bruce A. Williams 43 Vice President -- Marketing & Sales
Jerome B. Zeldis, M.D., Ph.D. 47 Vice President -- Director of Medical Affairs
R. N. "Sam" Dryden 47 Chairman of the Board of Celgro Corporation
Steven Hayford 43 President of Celgro Corporation
George W.J. Matcham, Ph.D. 45 Vice President -- R&D of Celgro Corporation
Frank T. Cary 76 Director
Arthur Hull Hayes, Jr., M.D. 64 Director
Richard C.E. Morgan 53 Director
Walter L. Robb, Ph.D. 69 Director
Lee J. Schroeder 68 Director
</TABLE>
- -----------
John W. Jackson has been Chairman of the Board and Chief Executive Officer of
the Company since January 1996. Mr. Jackson was founder and President of Gemini
Medical, a consulting firm which specialized in services and investment advice
to start-up medical device and biotechnology companies, from February 1991 to
January 1996. Previously, Mr. Jackson had been President of the worldwide
Medical Device Division of American Cyanamid Company, a major pharmaceutical
company, from February 1986 to January 1991, and served in various
international positions, including Vice President -- International for American
Cyanamid from 1978 to 1986. Previously, Mr. Jackson served in several human
health marketing positions at Merck & Company, a major pharmaceutical company,
from 1971 to 1978.
Sol J. Barer has been President of the Company since October 1993 and Chief
Operating Officer of the Company since March 1994. Dr. Barer was Senior Vice
President -- Science and Technology and Vice President/General Manager --
Chiral Products of the Company from October 1990 to October 1993, and Vice
President -- Technology of the Company from September 1987 to October 1990. Dr.
Barer received a Ph.D. in organic and physical chemistry from Rutgers
University.
Robert C. Butler has been Chief Financial Officer of the Company since July
1996. From 1988 to 1995, Mr. Butler served as Senior Vice President and Chief
Financial Officer of International Paper Co., a manufacturer of paper, wood,
and allied products. From 1979 to 1987, Mr. Butler served as Group Executive
Vice President of the National Broadcasting Company. Mr. Butler is also a
member of the Board of Directors of Carter Holt Harvey Ltd., a major New
Zealand forest products company.
David I. Stirling has been Executive Vice President--Pharmaceutical R&D of
Celgene since 1996. Dr. Stirling has served Celgene as Senior Vice President --
Biological and Pharmaceutical R&D from 1993 to 1996, as Vice President -- New
Technology Chiral Products from 1991 to 1993, and in a variety of other
research positions from 1986 to 1991. Previously, Dr. Stirling was employed by
Celanese Research Company, a major chemical company, from 1980 to 1986. Dr.
Stirling received a Ph.D. in biochemistry from the University of Warwick.
Maghsoud M. Dariani has been Vice President -- Chiral Pharmaceuticals of
Celgene since 1996. From 1986 to 1996 Mr. Dariani served Celgene as a Director
- -- Manufacturing & Engineering/Chiral Products. Previously, Mr. Dariani was a
Senior Development Engineer at Celanese Corporation, a major chemical company.
Mr. Dariani received an M.S. in Chemistry from the University of Massachusetts.
Steven D. Thomas has been Vice President -- Pharmaceutical Development of the
Company since 1992. Previously, Dr. Thomas was a Business Unit Manager for
Enzymatix Ltd. (Chiroscience PLC), a pharmaceutical and fine chemicals company,
from 1987 to 1992. Dr. Thomas received a Ph.D. in molecular enzymology from
Southampton University.
Bruce A. Williams has been Vice President -- Marketing and Sales of Celgene
since 1996. Previously, Mr. Williams was employed by Ortho Biotech Inc., a
subsidiary of Johnson & Johnson, a major pharmaceutical and consumer products
company,
- --------------------------------------------------------------------------------
37
<PAGE>
where he held various positions from 1989 to 1996 including Executive Director
- -- Marketing. From 1984 to 1989, Mr. Williams held several posts at American
Cyanamid Company.
Jerome B. Zeldis has been Vice President--Medical Affairs of Celgene since
February 1997. Since 1996, Dr. Zeldis has also been Associate Attending
Physician at New York Hospital. Since 1995, Dr. Zeldis has also been a Clinical
Associate Professor of Medicine, Cornell University Medical School. From 1990
to 1994, Dr. Zeldis was Clinical Research Physician, Sacramento Medical
Foundation, Center for Blood Research and Associate Professor of Medicine at
the University of California at Davis. From 1988 to 1990, Dr. Zeldis was
Assistant Professor of Medicine at the University of California at Davis. From
1986 to 1988, Dr. Zeldis was Assistant Professor of Medicine, Harvard Medical
School. Dr. Zeldis was a director of Sandoz Research Foundation and Janssen
Research Foundation. Dr. Zeldis received a Ph.D. in Molecular Biophysics and
Biochemistry from Yale University. Dr. Zeldis also received an M.D. degree from
Yale Medical School.
R. N. "Sam" Dryden has been Chairman of the Board of Celgro Corporation, a
subsidiary of Celgene, since December 1996. He is also currently President of
Big Stone Inc., a private venture investment and development firm, and Managing
Partner of Big Stone Partners, a management advisory firm. Previously, Mr.
Dryden was a founder as well as a President and CEO of Agrigenetics
Corporation, a biotechnology company focusing on seeds, plants, and biocontrol.
He has also served in management positions with Union Carbide Corporation, a
diversified manufacturer of chemicals and plastics.
Steven Hayford has been President of Celgro Corporation since June 1997.
Previously, Mr. Hayford held several key management positions during a 17 year
career with Monsanto Corporation, a major chemical manufacturer, including
Senior Managing Director in Japan for Monsanto Crop Protection. Mr. Hayford
received both an M.B.A. and an M.S.B.A. from the University of Southern
California.
George W.J. Matcham has been Vice President -- R&D for the Celgro subsidiary
since 1996. Dr. Matcham joined Celgene in 1988, and became Vice President of
Chiral Amine Technology in 1991 and Vice President and General Manager of
Chiral Products in 1993. Previously, Dr. Matcham was a Senior Scientist and
Project Leader for Shell Research Ltd., UK, the physical and biological
research subsidiary of Royal Dutch/Shell, from 1981 to 1988. Dr. Matcham
received a Ph.D. in microbial enzymology from the University of Wales, and was
Director of Studies in Chemistry, and a fellow of Emmanuel College of the
University of Cambridge from 1979 to 1980.
Frank T. Cary has been Chairman of the Executive Committee of the Board of
Directors of the Company since July 1990. From 1973 to 1981, Mr. Cary was
Chairman of the Board and Chief Executive Officer of International Business
Machines Corporation, a computer and business equipment manufacturer. Mr. Cary
is also a director of: Cygnus Therapeutic Systems Inc., a manufacturer of
diagnostic and drug delivery systems; ICOS Corporation, a biotechnology
company; Lincare Inc., a provider of oxygen and other respiratory services; SPS
Transaction Services, Inc., a provider of technology outsourcing services;
Lexmark International Inc., a manufacturer of computer printers; SEER
Technologies, Inc., a software and computer services consulting company; Vion
Pharmaceuticals Inc., a biopharmaceutical company developing oncology and
antiviral products, and Teltrend, Inc., a manufacturer of telecommunications
equipment.
Arthur Hull Hayes, Jr. has been President and Chief Operating Officer of
MediScience Associates, Inc., a consulting organization that works with
pharmaceutical firms, biomedical companies, and foreign governments, since July
1991. Dr. Hayes has also been a partner in IssueSphere, a public affairs firm
that focuses on health science issues, since November 1995, as well as a
professor in medicine, pharmacology, and family and community medicine at New
York Medical College, and clinical professor of medicine and pharmacology at
the Pennsylvania State University College of Medicine. From 1986 to 1990, Dr.
Hayes was President and Chief Executive Officer of E.M. Pharmaceuticals, a
developer of pharmaceuticals and medical devices and a unit of E. Merck AG, and
from 1981 to 1983 was Commissioner of the U.S. Food and Drug Administration.
Dr. Hayes also is a director of: Myriad Genetics, Inc., a gene discovery and
genetic testing company; NaPro BioTherapeutics, Inc., a natural product
pharmaceutical company, and Premier Research Worldwide, a clinical research
organization.
Richard C.E. Morgan is a founding member of Jackson Hole Management Company,
Inc., and has been the Managing General Partner of Wolfensohn Partners, L.P., a
venture capital partnership, since 1986 and of Amphion Ventures, L.P., its
successor partnership, since August 1997. Mr. Morgan also is Chairman of the
Board of Directors and Chief Executive Officer of Lasertechnics, Inc., a
director of: SEQUUS Pharmaceuticals, Inc., a pharmaceutical development
company; Chairman of the Board of Directors of Quidel Corp., a manufacturer of
rapid immuno-diagnostic products, a director of Indigo, N.V. and a director of
ChromaVision Medical Systems, Inc.
- --------------------------------------------------------------------------------
38
<PAGE>
Walter L. Robb has been a private consultant and President of Vantage
Management Inc., a consulting and investor services company, since January
1993. Mr. Robb was Senior Vice President for Corporate Research and Development
of General Electric Company, a consumer and industrial products company and
broadcaster, and a member of its Corporate Executive Council from 1986 to
December 1992. Mr. Robb also is Chairman of the Board of Directors of Neopath,
Inc., and a director of Marquette Medical Systems, Inc., an electronic medical
equipment company, Cree Research Inc.,a developer of silicon carbide-based
semiconductors, and Mechanical Technology, Inc., a manufacturer of test
equipment.
Lee J. Schroeder has been President of Lee Schroeder & Associates, Inc., a
pharmaceutical business consulting company, since 1985. Mr. Schroeder was
President of Fox Meyer Lincoln, from 1983 to 1985. Mr. Schroeder was Executive
Vice President of Sandoz, Inc., a major pharmaceutical company, from 1981 to
1983. Mr. Schroeder is also a director of: Bryan Memorial Hospital; MGI
Pharmaceutical, Inc., a pharmaceutical company; Ascent Pediatrics, Inc., a
developer of pediatric pharmaceutical products, and Interneuron
Pharmaceuticals, Inc., a diversified biopharmaceutical company.
- --------------------------------------------------------------------------------
39
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The table below sets forth the beneficial ownership of the Common Stock as of
September 30, 1997 (i) by each director, (ii) by each of the executive officers
of the Company, (iii) by all directors and executive officers of the Company as
a group, and (iv) by the persons known by the Board of Directors to be
beneficial owners of more than five percent of the outstanding shares of Common
Stock.
<TABLE>
<CAPTION>
Percent of
Class(1)
----------------------
Amount and Nature of Before After
Name Position Beneficial Ownership Offering Offering
- ------------------------------------- ---------------------------- ---------------------- ---------- ---------
<S> <C> <C> <C> <C>
John W. Jackson Chairman of the Board and 189,066(2)(3) 1.4% 1.2%
Chief Executive Officer
Sol J. Barer, Ph.D President, Chief Operating 199,501(2)(3) 1.5% 1.2%
Officer, Director
Robert C. Butler Senior Vice President and 17,500(2) * *
Chief Financial Officer
Frank T. Cary Director 91,000(2) * *
Arthur Hull Hayes, Jr., M.D. Director 20,000(2) * *
Richard C.E. Morgan Director 315,055(2)(4) 2.4% 2.0%
Walter L. Robb, Ph.D. Director 77,000(2) * *
Lee J. Schroeder Director 26,000(2) * *
Donald P. Moriarty
c/o McGrath, Doyle & Phair
150 Broadway, #1703
New York, New York 10038 1,199,000(5) 9.1% 7.6%
All directors and current executive
officers of the Company as a
group (eight persons) 935,122(6) 7.1% 5.9%
</TABLE>
- -----------
* Less than one percent (1%).
(1) Based on 13,168,390 shares outstanding as of September 30, 1997.
(2) Includes shares of Common Stock which the directors and executive officers
have the right to acquire through the exercise of options within 60 days
of September 30, 1997, as follows: John W. Jackson -- 166,666; Sol J.
Barer -- 199,486; Robert C. Butler -- 12,500; Frank T. Cary -- 61,000;
Arthur Hull Hayes, Jr. -- 20,000; Richard C.E. Morgan -- 56,000 shares;
Walter L. Robb -- 34,000, and Lee J. Schroeder -- 26,000. Does not include
shares of Common Stock which the directors and executive officers have the
right to acquire through the exercise of options not exercisable within 60
days of September 30, 1997, as follows: John W. Jackson -- 83,334; Sol J.
Barer -- 48,334; Robert C. Butler -- 37,500; Frank T. Cary -- 20,000;
Arthur Hull Hayes, Jr. -- 20,000; Richard C.E. Morgan -- 20,000; Walter L.
Robb -- 20,000, and Lee J. Schroeder -- 20,000.
(3) Includes with respect to Mr. Jackson 400 shares owned by the son of Mr.
Jackson, as to which shares Mr. Jackson disclaims beneficial ownership;
includes with respect to Dr. Barer 15 shares owned by the daughter of Dr.
Barer, as to which shares Dr. Barer disclaims beneficial ownership.
(4) Includes 252,055 shares of Common Stock owned by Amphion Ventures, L.P. of
which Amphion Ventures, LLC is the general partner. Mr. Morgan is a member
of Amphion Ventures, LLC. Mr. Morgan's indirect pecuniary interest in
these shares of Common Stock, within the meaning of Rule
16a-1(a)(2)(ii)(B) under the Securities Exchange Act of 1934, is
significantly less than the amount disclosed. Mr. Morgan otherwise
disclaims beneficial ownership of such shares of Common Stock owned by
Amphion Ventures, L.P.
(5) Information regarding Donald P. Moriarty was obtained from a Schedule 13D,
as amended, filed by him with the Securities and Exchange Commission. Such
Schedule 13D states that Mr. Moriarty is deemed to be the beneficial owner
of and to have sole dispositive power over all such shares of Common
Stock, and that such shares are held by Mr. Moriarty, his family members,
and Twin Oaks Partners, a partnership in which he is a general partner.
(6) Includes or excludes, as the case may be, shares of Common Stock as
indicated in the preceding footnotes.
- --------------------------------------------------------------------------------
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $.01, and 5,000,000 shares of Preferred Stock, par
value $.01, of which 520 shares have been designated Series A Convertible
Preferred Stock and 20,000 shares have been designated as Series B Convertible
Preferred Stock. At the close of business on November 17, 1997, there were
13,189,596 shares of Common Stock outstanding, 76 shares Series A Convertible
Preferred Stock outstanding and no shares of Series B Convertible Preferred
Stock outstanding.
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock"). Holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of
stockholders, and do not have cumulative voting rights. Holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared by
the Board of Directors out of funds legally available therefor, and subject to
any preferential dividend rights of any then outstanding preferred stock. Upon
liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to any
liquidation preference of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive, subscription, or conversion rights. There are
no redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the shares offered by the Company
in this Offering will be, when issued and paid for, fully paid, and
non-assessable.
PREFERRED STOCK
General. The Company is authorized to issue 5,000,000 shares of preferred
stock, par value $.01 per share. The Board of Directors of the Company has the
authority, subject to certain restrictions, without further stockholder
approval, to issue, at any time and from time to time, shares of preferred
stock in one or more series. Each such series shall have such number of shares,
designations, preferences, voting powers, qualifications, and special or
relative rights or privileges as shall be determined by the Board of Directors,
which may include, among others, dividend rights, voting rights, redemption and
sinking fund provisions, liquidation preferences, conversion rights, and
preemptive rights, to the full extent now or hereafter permitted by the laws of
the State of Delaware.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock that may be
issued in the future. Such rights may include voting and conversion rights
which could adversely affect the holders of the Common Stock. Satisfaction of
any dividend preferences of outstanding preferred stock would reduce the amount
of funds available, if any, for the payment of dividends on Common Stock.
Holders of preferred stock would typically be entitled to receive a preference
payment.
Series A Convertible Preferred Stock. On March 13, 1996, in a private
placement, the Company issued and sold 503 shares of Series A Convertible
Preferred Stock, par value $.01 per share (the "Series A Preferred"), at an
issue price of $50,000 per share. The Series A Preferred, plus accretion at a
rate of 4.9% per year, is convertible into Common Stock of the Company at the
option of the holders thereof at a conversion price per share of Common Stock
equal, generally, to the lesser of (i) $18.81 or (ii) 90% of the average
closing price per share of the Common Stock for the seven trading days
immediately prior to the date of conversion. The Company may redeem the shares
in increments of no less than $1.5 million on thirty business days' written
notice to preferred stockholders, at a price that equals a specified premium,
ranging from 120% to 130%, of the purchase price plus accretion. Under certain
conditions, upon receipt of a conversion notice from a holder, the Company has
the right (i) to redeem shares presented for conversion, or (ii) to defer
conversion once, for 90 days (a "lock-up"), in which case the Company must
issue two-year warrants, exercisable at $11.50, to any holder of Preferred
Stock affected by the deferral of the conversion. As of November 17, 1997,
there were 76 shares of Series A Preferred outstanding. A holder of 58 shares
was locked-up for a period ending on December 1, 1997, pursuant to an agreement
with the Company whereby the maximum conversion price for shares held by such
holders was permanently reduced to $8.50; and holders of the remaining 18
shares are no longer subject to involuntary lock-up. Upon the liquidation,
dissolution, or winding up of the affairs of the Company, holders of the Series
A Preferred would be entitled to receive the sum of $50,000 per share of
Preferred plus unpaid accretion at the rate of 4.9% per annum. Any shares of
Series A Preferred outstanding on March 13, 1998 shall be converted
automatically into Common Stock on such date at the conversion price then in
effect. The holders of Series A Preferred have no voting rights. The Company
granted registration rights to the subscribers of Series A Preferred. A shelf
registration statement with respect to holders' resales of Common Stock upon
conversion of the Series A Preferred was filed and declared effective on June
10, 1996 and a second shelf registration statement with respect to additional
shares was filed and declared effective on August 6, 1997.
- --------------------------------------------------------------------------------
41
<PAGE>
Series B Convertible Preferred Stock. On June 9, 1997, in a private placement,
the Company completed the sale of 5,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred"), par value $.01 per share, at an
issue price of $1,000 per share. A shelf registration statement with respect to
holders' resales of Common Stock issuable upon conversion of Series B Preferred
was filed and declared effective on August 6, 1997. As of September 30, 1997,
all shares of Series B Preferred had been converted into Common Stock. Each of
the persons who purchased Series B Preferred also agreed to purchase, at the
option of the Company and subject to the satisfaction of certain conditions, an
aggregate of up to 15,000 additional shares of Series B Preferred Stock for an
aggregate purchase price of $15 million at subsequent closings.
OTHER SECURITIES OF THE COMPANY
Warrants. As of November 17, 1997, the Company had outstanding warrants to
purchase an aggregate of 384,056 shares of the Company's Common Stock. Warrants
for 50,000 shares are exercisable at a price of $6.50 per share of Common Stock
until September 1, 1999; warrants for 105,000 shares are exercisable at a price
of $9.60 per share of Common Stock until July 31, 2000; warrants for 66,853
shares are exercisable at a price of $20.52 per share of Common Stock until
March 11, 2001; and warrants for 162,203 shares are exercisable at a price of
$11.50 per share of Common Stock until various expiration dates between July
1998 and May 1999. The exercise price of all of these warrants is subject to
proportional adjustment in the event that the Company undertakes a stock split,
stock dividend, or recapitalization.
In addition, upon request of the purchasers of the Series B Preferred (but no
later than June 1, 1998) (in either case, the "Issuance Date"), the Company
will issue warrants to acquire a number of shares of Common Stock equal to (i)
1,500,000 divided by the Conversion Price (or determined in accordance with the
Certificate of Designations of Series B Preferred) in effect on the Issuance
Date (230,769 warrants as of September 30, 1997 based on a Conversion Price of
$6.50) plus (ii) 37.5% of the Conversion Shares issuable on such Issuance Date
upon conversion of all shares of Series B Preferred issued through the Issuance
Date (288,461 warrants as of September 30, 1997 based on a Conversion Price of
$6.50). All such warrants will have a term of four years from the Issuance Date
and an exercise price equal to 115% of the Conversion Price in effect on the
Issuance Date. Each purchaser of Series B Preferred has agreed to enter into
lock-up agreements in connection with this Offering with respect to all shares
issuable upon the exercise of these warrants. The Company granted certain
registration rights to the purchasers of Series B Preferred with respect to
these warrants upon issuance.
Stock Options. The Company has issued options to purchase shares of Common
Stock, restricted stock, and/or other stock-based performance awards under the
1995 Non-Employee Directors' Incentive Plan, the 1992 Long-Term Incentive Plan,
the 1992 Non-Employee Directors' Stock Option Plan, and the 1986 Stock Option
Plan (collectively, the "Stock Plans"). At November 17, 1997, options to
purchase an aggregate of 2,375,180 shares of Common Stock were outstanding
under the Stock Plans (or pursuant to grants outside the Stock Plans) with
exercise prices between $5.44 and $17.75 per share; of such options, 1,462,879
were currently exercisable.
Shareholder Rights Plan. The Board of Directors has adopted a shareholder
rights plan (the "Plan"). The Plan was adopted to give the Board increased
power to negotiate in the best interests of the Company, and to discourage
appropriation of control of the Company at a price that is unfair to the
stockholders. It is not intended to prevent fair offers for acquisition of
control determined by the Board to be in the best interests of the Company and
its stockholders, nor is it intended to prevent a person or group from
obtaining representation on or control of the Board through a proxy contest, or
to relieve the Board of its fiduciary duty to consider any proposal for
acquisition of the Company in good faith.
The Plan involved the distribution of one "Right" as a dividend on each
outstanding share of the Company's Common Stock to all holders of record on
September 26, 1996. Each Right shall entitle the holder to purchase one-tenth
of a share of Common Stock. The Rights trade in tandem with the Common Stock
until, and become exercisable upon, the occurrence of certain triggering
events, and the exercise price is based on the estimated long-term value of the
Company's Common Stock. The exercise of these rights becomes economically
attractive upon the triggering of certain "Flip-In" or "Flip-Over" Rights which
work in conjunction with the Plan's basic provisions. The Flip-In Rights will
permit their holders to purchase shares of Common Stock at a discounted rate,
resulting in substantial dilution of an acquiror's voting and economic
interests in the Company. The Flip-Over element of the Plan involves certain
mergers or significant asset purchases, which trigger certain rights to
purchase shares of the acquiring or surviving company at a discount. The Plan
contains a "Permitted Offer" exception to allow offers determined by the Board
to be in the best interests of the Company and its stockholders to take place
free of the diluting effects of the Plan's mechanisms.
The Board of Directors retains the right (at all times prior to acquisition of
15% of the voting common stock of the Company by an acquiror) to discontinue
the Plan through redemption of all Rights, or to amend the Plan in any respect.
- --------------------------------------------------------------------------------
42
<PAGE>
DELAWARE LAW AND CERTAIN BY-LAW PROVISIONS
The Board of Directors of the Company has adopted certain amendments to the
Company's By-laws intended to strengthen the Board's position in the event of a
hostile takeover attempt. The By-law provisions have the following effects: (1)
they provide that only persons who are nominated in accordance with the
procedures set forth in the By-laws shall be eligible for election as directors
of the Corporation, except as may be otherwise provided in the By-laws; (2)
they provide that only business brought before the annual meeting by the Board
of Directors or by a stockholder who complies with the procedures set forth in
the By-laws may be transacted at an annual meeting of stockholders; (3) they
provide that only the Chairman of the Board, if any, the Chief Executive
Officer, the President, the Secretary, or a majority of the Board of Directors
may call special meetings of the stockholders of the Company; (4) they
establish a procedure for the Board of Directors to fix the record date
whenever stockholder action by written consent is undertaken, and (5) they
require a vote of holders of two-thirds of the outstanding shares of Common
Stock to amend certain By-law provisions.
Furthermore, the Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company. It is located at 40 Wall St., 46th Floor, New York,
NY, 10005, and its telephone number is (718) 921-8200.
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Future sales of substantial amounts of Common Stock could adversely affect the
prevailing market price of the Company's Common Stock. If all of the shares of
the Series A Convertible Preferred Stock outstanding on November 17, 1997
(including shares issuable in payment of accretion through that date) had been
converted on that date at conversion prices based on the closing price of the
Common Stock for the seven trading days preceding November 17, 1997,
approximately 474,597 shares of Common Stock would have been issued.
Furthermore, should the trading price of the Common Stock decline prior to the
conversion of all shares of the Preferred Stock, the number of shares of Common
Stock issuable upon conversion thereof may increase proportionately. In
addition, as of November 17, 1997, there were outstanding stock options for
approximately 2,375,180 shares of Common Stock, of which approximately
1,462,879 were currently exercisable, and warrants either outstanding or
issuable upon demand that are exercisable for 903,286 shares of Common Stock.
All shares of Common Stock referred to in this paragraph would be freely
tradeable upon issuance. See "Description of Capital Stock."
- --------------------------------------------------------------------------------
43
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
The names of the Underwriters of the shares of Common Stock offered hereby and
the aggregate number of shares of Common Stock which each has severally agreed
to purchase from the Company, subject to the terms and conditions specified in
the Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
- ----------------------------------------------------------- ----------
<S> <C>
SBC Warburg Dillon Read Inc. ..............
Prudential Securities Incorporated ........
Loewenbaum & Company Incorporated ......... ---------
Total ................................... 2,600,000
=========
</TABLE>
The Managing Underwriters are SBC Warburg Dillon Read Inc., Prudential
Securities Incorporated and Loewenbaum & Company Incorporated.
If any shares of Common Stock offered hereby are purchased by the Underwriters,
all such shares will be so purchased. The Underwriting Agreement contains
certain provisions whereby if any Underwriter defaults in its obligation to
purchase such shares and if the aggregate obligations of the Underwriters so
defaulting do not exceed ten percent of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may re-allow, a
concession not to exceed $ per share on sales to certain other dealers. The
offering of the shares of Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares. After the
shares are released for sale to the public, the public offering price, the
concession and the reallowance may be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option for 30 days from the date
of the Underwriting Agreement to purchase up to an additional 390,000 shares of
Common Stock from them at the offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriters may exercise such
option only to cover over-allotments made of the shares in connection with this
Offering. To the extent the Underwriters exercise this option, each of the
Underwriters will be obligated, subject to certain conditions, to purchase the
number of additional shares proportionate to such Underwriter's initial
commitment.
The Company, each of its directors and officers and certain of its stockholders
have agreed that they will not sell, contract to sell, grant any option to sell
or otherwise dispose of, directly or indirectly, any shares of the Common Stock
or any securities convertible into or exchangeable for Common Stock or warrants
or other rights to purchase Common Stock, for a period of at least 90 days
after the date of this Prospectus, without the prior written consent of SBC
Warburg Dillon Read Inc., except for (i) the issuance of shares of Common Stock
by the Company upon the purchase of outstanding warrants or the exercise of
outstanding options, provided that the Company shall have obtained an agreement
substantially to the effect set forth in this paragraph from each such person
to whom such shares of Common Stock are issued and (iii) the grant of options
and other rights by the Company to purchase up to an aggregate of 421,115
shares of Common Stock to the Company's employees, officers and directors
pursuant to the Stock Plans.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with this Offering, the Managing Underwriters, on behalf of the
Underwriters, may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock. Specifically, the Managing Underwriters
may overallot
- --------------------------------------------------------------------------------
44
<PAGE>
the Offering, creating a syndicate short position. In addition, the Managing
Underwriters may bid for and purchase shares of Common Stock in the open market
to cover syndicate short positions or to stabilize the price of the Common
Stock. Finally, the Managing Underwriters may reclaim selling concessions from
syndicate members in the Offering if the syndicate repurchases previously
distributed Common Stock in syndicate covering transactions, in stabilizing
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Common Stock above independent market levels. The
Managing Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
In connection with this Offering, the Managing Underwriters, on behalf of the
Underwriters, may engage in passive market making on Nasdaq in accordance with
Rule 103 of Regulation M under the Exchange Act during the one day period
before the commencement of the offers or sales of the Common Stock. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such. In general, a passive market maker must display its
bid at a price not in excess of the highest independent bid for such security;
if all independent bids are lowered before the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded. Passive market making may stabilize the market price of the Common
Stock above independent market levels and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The validity of the Common Stock offered hereby is being passed upon for the
Company by Proskauer Rose LLP, New York. Certain legal matters in connection
with the Offering are being passed upon for the Underwriters by Brobeck,
Phleger & Harrison LLP, New York.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of Celgene Corporation as of December 31, 1996 and
1995, and for each of the years in the three year period ended December 31,
1996, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors --
Dependence on Patent and Proprietary Rights" and "Business -- Patents and
Proprietary Technology" have been reviewed and approved by Mathews, Collins,
Shepherd and Gould, P.A., as experts in such matters, and are included herein
in reliance upon such review and approval.
The statements in this Prospectus under the captions "Risk Factors --
Uncertainty Associated with Clinical Trials; Extensive Government Regulation"
and "Business -- Governmental Regulation" have been reviewed and approved by
Kleinfeld, Kaplan & Becker, as experts in such matters, and are included herein
in reliance upon such review and approval.
- --------------------------------------------------------------------------------
45
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Company has filed with the Commission, through the Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"), a Registration Statement on
Form S-3 under the Securities Act with respect to the Common Stock offered
hereby (the "Registration Statement"). This Prospectus, filed as part of the
Registration Statement, does not contain all of the information included in the
Registration Statement and the exhibits and schedules thereto, certain portions
of which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement
and the exhibits and schedules filed therewith. Statements contained in this
Prospectus by reference as to the contents of any contract, agreement, or other
document referred to are not necessarily complete and in each such instance,
reference is made to the copy of such contract, agreement, or other document
filed as an exhibit to the Registration Statement for a more complete
description of the matters involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge
and copied at the offices of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048;
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials may be obtained at the prescribed rates from
the Commission's Public Reference Section at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Electronic registration statements
filed through EDGAR may also be accessed electronically through the
Commission's home page on the World Wide Web at http://www.sec.gov.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and in accordance therewith, it files reports, proxy statements, and other
information required thereby to the Commission via EDGAR. Copies of such
material may be inspected and copied at the offices of the Commission and
accessed electronically through the Commission's home page on the World Wide
Web. Reports, proxy statements, other required information statements, and
other information concerning the Company may also be inspected at the Nasdaq
Stock Market, 1735 K. St., Washington, D.C. 20006-1500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
The Company's Annual Report on Form 10-K for the year ended December 31, 1996,
as amended by Form 10-K/A, its Definitive Proxy Statement dated May 30, 1997,
filed in connection with the Company's 1997 Annual Meeting of Stockholders, its
Current Reports on Form 8-K dated June 10, 1997, September 19, 1997, September
23, 1997 and November 18, 1997, its Quarterly Reports on Form 10-Q for the
periods ending March 31, 1997, June 30, 1997 and September 30, 1997, and the
description of the Company's Common Stock contained in its registration
statement on Form 8-A, File No. 0-16132, including any amendment or report
filed for the purpose of updating such description, are hereby incorporated by
reference in this Prospectus, except as superseded or modified herein. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
All documents filed by the Company with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act after the date of the initial Registration
Statement and prior to the effectiveness of the Registration Statement shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such documents.
The Company will provide, upon written or oral request, without charge to each
person to whom a copy of this Prospectus has been delivered, including any
beneficial owner, a copy of any or all of the documents which have been or may
be incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to: Secretary,
Celgene Corporation, 7 Powder Horn Drive, Warren, New Jersey 07059, (732)
271-1001.
- --------------------------------------------------------------------------------
46
<PAGE>
CELGENE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report ............................................................. F-2
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (Unaudited) ....... F-3
Statements of Operations--Years Ended December 31, 1994, 1995 and 1996 and Nine Months
Ended September 30, 1996 and 1997 (Unaudited) ........................................... F-4
Statements of Stockholders' Equity--Years Ended December 31, 1994, 1995 and 1996 ......... F-5
Statements of Stockholders' Equity--Nine Months Ended September 30, 1997 (Unaudited) ..... F-6
Statements of Cash Flows--Years Ended December 31, 1994, 1995 and 1996 and Nine Months
Ended September 30, 1996 and 1997 (Unaudited) ........................................... F-7
Notes to Financial Statements ............................................................ F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CELGENE CORPORATION:
We have audited the accompanying balance sheets of Celgene Corporation as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Celgene Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Short Hills, New Jersey
February 27, 1997
F-2
<PAGE>
CELGENE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
----------------------------------- -----------------
1995 1996 1997
---------------- ---------------- -----------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 337,165 $ 922,961 $ 475,638
Marketable securities available for sale .................. 11,375,740 16,892,023 4,527,139
Accounts receivable ....................................... 397,241 378,595 168,426
Other current assets ...................................... 404,011 635,841 638,017
------------- ------------- --------------
Total current assets .................................... 12,514,157 18,829,420 5,809,220
Plant and equipment, net .................................... 1,207,805 1,940,615 2,521,901
Other assets ................................................ 41,250 41,250 79,167
Deferred debt costs ......................................... 448,006 126,577 --
------------- ------------- --------------
Total assets ................................................ $ 14,211,218 $ 20,937,862 $ 8,410,288
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 607,206 $ 1,552,674 $ 1,308,110
Accrued expenses .......................................... 1,610,846 881,604 1,367,327
Capitalized lease obligation .............................. -- -- 210,499
------------- ------------- --------------
Total current liabilities ............................... 2,218,052 2,434,278 2,885,936
Capitalized lease obligation--net of current portion ........ -- -- 420,997
Convertible debentures ...................................... 4,592,366 2,026,043 --
Convertible debentures-accrued interest ..................... 258,299 412,532 --
------------- ------------- --------------
Total liabilities ........................................... 7,068,717 4,872,853 3,306,933
------------- ------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value per share; 5,000,000 shares
authorized, Series A convertible, redeemable 4.9%
cumulative preferred; 267 shares issued and outstanding
at December 31, 1996; includes $533,416 accretion
premium. 80 shares issued and outstanding at
September 30, 1997, includes 306,633 accretion ........... -- 13,883,416 4,306,633
Series B Convertible, redeemable, 9% cumulative
preferred, par value $.01 per share. Authorized 20,000
shares; issued 5,000 shares; outstanding at September
30, 1997-0 ............................................... -- -- --
Common stock, $.01 par value per share; 20,000,000
shares authorized; 8,807,863 and 10,611,422 shares
issued and outstanding at December 31, 1995 and 1996,
respectively. 13,191,278 issued and outstanding at
September 30, 1997 ....................................... 88,079 106,114 131,913
Common stock in treasury, at cost -- 24,271 and 29,985
shares at December 31, 1995 and December 31, 1996,
respectively. 22,888 shares at September 30, 1997 ........ (243) (100,239) (76,534)
Additional paid-in capital ................................. 78,064,288 94,770,176 112,322,889
Unamortized deferred compensation-restricted stock ......... (7,085) (1,133) --
Accumulated deficit ........................................ (70,989,400) (92,599,039) (111,581,674)
Net unrealized gain (loss) on marketable securities
available for sale ....................................... (13,138) 5,714 128
------------- ------------- --------------
Total stockholders' equity ................................ 7,142,501 16,065,009 5,103,355
------------- ------------- --------------
Total liabilities and stockholders' equity .................. $ 14,211,218 $ 20,937,862 $ 8,410,288
============= ============= ==============
</TABLE>
See Accompanying Notes to Financial Statements.
F-3
<PAGE>
CELGENE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
For Nine Months Ended
For Years Ended December 31, September 30,
------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
--------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Chirally pure intermediates ........... $ 1,997,636 $ 657,753 $ 1,465,715 $ 1,096,605 $ 896,870
Research contracts .................... 258,000 515,000 1,036,665 711,666 919,068
------------- ------------- ------------- ------------- -------------
Total revenues ........................ 2,255,636 1,172,753 2,502,380 1,808,271 1,815,938
Expenses:
Cost of goods sold .................... 1,096,687 792,251 981,448 683,005 641,862
Research and development .............. 6,492,468 8,183,045 16,322,825 10,981,813 13,285,060
Selling, general and
administrative ...................... 3,130,551 2,857,758 4,001,419 2,738,528 5,780,827
------------- ------------- ------------- ------------- -------------
Total expenses ........................ 10,719,706 11,833,054 21,305,692 14,403,346 19,707,749
------------- ------------- ------------- ------------- -------------
Loss from operations ................... (8,464,070) (10,660,301) (18,803,312) (12,595,075) (17,891,811)
Other Income and Expense:
Interest income ....................... 586,931 568,516 1,308,244 989,751 441,436
Interest expense ...................... -- 424,738 323,913 255,535 104,866
------------- ------------- ------------- ------------- -------------
Loss from continuing operations ........ (7,877,139) (10,516,523) (17,818,981) (11,860,859) (17,555,241)
Discontinued operations (note 9):
Loss from operations .................. (1,497,088) -- -- -- --
Loss on disposal ...................... (839,000) -- -- -- --
------------- ------------- ------------- ------------- -------------
Loss from
discontinued operations ............... (2,336,088) -- -- -- --
------------- ------------- ------------- ------------- -------------
Net loss .............................. (10,213,227) (10,516,523) (17,818,981) (11,860,859) (17,555,241)
Accretion of premium payable on
preferred stock and warrants
(note 6) .............................. -- -- 1,012,881 764,138 474,317
Deemed dividend for preferred
stock conversion discount Series
A&B (note 6) .......................... -- -- 2,777,777 2,777,777 953,077
------------- ------------- ------------- ------------- -------------
Net loss applicable to
common stockholders ................... $(10,213,227) $ (10,516,523) $ (21,609,639) $ (15,402,774) $ (18,982,635)
============= ============= ============= ============= =============
Per share of Common Stock
(note 2):
Loss from continuing operation ........ $ (1.00) $ (1.30) $ (1.89) $ (1.29) (1.51)
Loss from discontinued operation ...... (.30) -- -- -- --
Net loss applicable to
common stockholders ................. $ (1.30) $ (1.30) $ (2.29) (1.67) (1.63)
============= ============= ============= ============= =============
Weighted average number of shares
of common stock outstanding ........... 7,853,000 8,073,000 9,450,000 9,227,000 11,647,000
</TABLE>
See Accompanying Notes to Financial Statements.
F-4
<PAGE>
CELGENE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
----------------------- ------------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------ ---------- -------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 .......... 7,864,538 $78,646 -- $ -- (21,604) $ (217)
Repurchase of shares ................... (2,667) (26)
Restricted stock forfeited ............. (4,000) (40)
Exercised stock options ................ 26,422 264
Amortization of deferred compensation
Change in net unrealized gain (loss)
on marketable securities ..............
Net loss ...............................
---------- -------- ----- ------------- ------- ---------
Balances at December 31, 1994 .......... 7,886,960 78,870 -- -- (24,271) (243)
Exercised stock options ................ 24,987 250
Amortization of deferred compensation
Discount for convertible debentures to
adjust to market yield ................
Conversion of convertible debentures . 895,916 8,959
Cost associated with conversion of
convertible debentures, net ...........
Change in net unrealized gain (loss)
on marketable securities ..............
Net loss ...............................
---------- -------- ----- ------------- ------- ---------
Balances at December 31, 1995 .......... 8,807,863 88,079 -- -- (24,271) (243)
Exercised stock options ................ 42,069 420
Repurchase of shares ................... (5,714) (99,996)
Amortization of deferred compensation
Conversion of convertible debentures . 372,681 3,727
Issuance of preferred stock, net ....... 503 25,150,000
Conversion of preferred stock .......... 1,388,809 13,888 (236) (12,141,309)
Preferred stock lock-up warrants .......
Accretion of premium on preferred
stock ................................. 874,725
Deemed dividend for preferred stock
conversion discount ...................
Change in net unrealized gain (loss)
on marketable securities ..............
Net loss ...............................
---------- -------- ----- ------------- ------- ---------
Balances at December 31, 1996 .......... 10,611,422 $106,114 267 $ 13,883,416 (29,985) $(100,239)
========== ======== ====== ============== ======== ==========
<CAPTION>
Net Unrealized
Gain (Loss) on
Marketable
Securities
Additional Unamortized Available
Paid-in Deferred Accumulated For
Capital Compensation Deficit Sale Total
--------------- -------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ......... $ 70,554,294 $ (77,459) $(50,259,650) $ -- $ 20,295,614
Repurchase of shares .................. (134) (160)
Restricted stock forfeited ............ (44,960) 15,627 (29,373)
Exercised stock options ............... 175,568 175,832
Amortization of deferred compensation 42,658 42,658
Change in net unrealized gain (loss)
on marketable securities ............ (267,278) (267,278)
Net loss .............................. (10,213,227) (10,213,227)
------------ ---------- ------------ ----------- ------------
Balances at December 31, 1994 ......... 70,684,768 (19,174) (60,472,877) (267,278) 10,004,066
Exercised stock options ............... 170,638 170,888
Amortization of deferred compensation 12,089 12,089
Discount for convertible debentures to
adjust to market yield ............... 1,194,434 1,194,434
Conversion of convertible debentures . 6,370,680 6,379,639
Cost associated with conversion of
convertible debentures, net ......... (356,232) (356,232)
Change in net unrealized gain (loss)
on marketable securities ............ 254,140 254,140
Net loss .............................. (10,516,523) (10,516,523)
------------ ---------- ------------ ----------- ------------
Balances at December 31, 1995 ......... 78,064,288 (7,085) (70,989,400) (13,138) 7,142,501
Exercised stock options ............... 337,521 337,941
Repurchase of shares .................. (99,996)
Amortization of deferred compensation 5,952 5,952
Conversion of convertible debentures . 2,645,388 2,649,115
Issuance of preferred stock, net ...... (1,320,375) 23,829,625
Conversion of preferred stock ......... 12,127,421 --
Preferred stock lock-up warrants ...... 138,156 (138,156) --
Accretion of premium on preferred
stock .............................. (874,725) --
Deemed dividend for preferred stock
conversion discount .................. 2,777,777 (2,777,777) --
Change in net unrealized gain (loss)
on marketable securities ............ 18,852 18,852
Net loss .............................. (17,818,981) (17,818,981)
------------ ---------- ------------ ----------- ------------
Balances at December 31, 1996 ......... $ 94,770,176 $ (1,133) $(92,599,039) $ 5,714 $ 16,065,009
============ ========== ============ =========== ============
</TABLE>
See Accompanying Notes to Financial Statements.
F-5
<PAGE>
CELGENE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
----------------------- ---------------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------ ---------- ----------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 ......... 10,611,422 $106,114 267 $ 13,883,416 (29,985) $(100,239)
Exercised stock options ............... 2,033 20
Issuance of stock award ............... 5,000 50
Amortization of Deferred
Compensation ...........................
Conversion of Convertible debentures .... 441,248 4,413
Issuance of Preferred Stock (Series B)
net .................................... 5,000 4,046,923
Conversion of Preferred Stock ......... 2,131,575 21,316 (5,174) (14,329,813)
Accretion of premium or preferred
stock, net ........................... 474,317
Redemption of Preferred Shares ......... (13) (721,287)
Deemed dividend on Series B
Preferred and fair value of
warrants .............................. 953,077
Change in net unrealized gain (loss)
on marketable securities ...............
Accumulated Deficit .....................
Issuance of Stock for employee
benefits .............................. 7,097 23,705
---------- -------- ------- ------------- ------- ---------
Balances at September 30, 1997 ......... 13,191,278 $131,913 80 $ 4,306,633 (22,888) $ (76,535)
========== ======== ======= ============= ======== =========
<CAPTION>
Net Unrealized
Gain (Loss) on
Marketable
Securities
Additional Unamortized Available
Paid-in Deferred Accumulated For
Capital Compensation Deficit Sale Total
-------------- -------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 .......... $ 94,770,176 $(1,133) $ (92,599,039) $ 5,714 $ 16,065,009
Exercised stock options ................ 12,675 12,695
Issuance of stock award ................ 55,575 55,625
Amortization of Deferred
Compensation ........................... 1,133 1,133
Conversion of Convertible debentures .... 2,326,891 2,331,304
Issuance of Preferred Stock (Series B)
net .................................... 793,825 4,840,748
Conversion of Preferred Stock .......... 14,308,497 --
Accretion of premium or preferred
stock, net ............................ (474,317) --
Redemption of Preferred Shares .......... (721,287)
Deemed dividend on Series B
Preferred and fair value of
warrants ............................... (953,077) --
Change in net unrealized gain (loss)
on marketable securities ............... (5,586) (5,586)
Accumulated Deficit ..................... (17,555,241) (17,555,241)
Issuance of Stock for employee
benefits ............................... 55,250 78,955
------------ -------- -------------- --------- -------------
Balances at September 30, 1997 .......... $112,322,889 $ -0- $ (111,581,674) $ 128 $ 5,103,355
============= ======== ============== ========= =============
</TABLE>
See Accompanying Notes to Financial Statements.
F-6
<PAGE>
CELGENE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1995 1996
---------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from Continuing Operations ........ $ (7,877,139) $ (10,516,523) $ (17,818,981)
Adjustments to reconcile loss from
continuing operations to net cash
used in operating activities:
Depreciation ......................... 675,352 776,741 685,351
Amortization of convertible debt
costs ............................... -- 173,192 234,540
Amortization of deferred
compensation ........................ 58,285 12,089 5,952
Interest on convertible
debentures .......................... -- 424,738 323,914
Issuance of stock for employee
benefits .............................. -- -- --
Issuance of stock Award ................ -- -- --
Change in current assets and liabilities:
Increase in accounts payable and
accrued expenses .................... 17,253 674,188 216,226
(Increase) decrease in accounts
receivable .......................... (262,368) 225,843 18,646
(Increase) decrease in other
assets .............................. 60,381 24,833 (231,830)
-------------- ------------- ---------------
Net cash used in continuing
operations ........................... (7,328,236) (8,204,899) (16,566,182)
Net cash used in discontinued
operation ............................ (1,736,054) -- --
-------------- ------------- ---------------
Net cash used in operating
activities ........................... (9,064,290) (8,204,899) (16,566,182)
-------------- ------------- ---------------
Cash flows from investing activities:
Capital expenditures ................... (198,964) (29,880) (1,418,161)
Proceeds from sales and maturities
of marketable securities available
for sale ............................. 19,314,158 22,185,466 137,051,037
Purchases of marketable securities
available for sale ................... (10,678,498) (25,099,905) (142,548,468)
-------------- ------------- ---------------
Net cash provided by (used in)
investing activities ................. 8,436,696 (2,944,319) (6,915,592)
Cash flows from financing activities:
Net proceeds from exercise of
common stock options ................. 130,672 170,888 237,945
Capital lease funding .................. -- -- --
Net proceeds from issuance of
convertible debentures ............... -- 11,022,570 --
Redemption of Preferred Shares &
cumulative dividend ...................
Net proceeds from issuance of
preferred stock ...................... -- -- 23,829,625
-------------- ------------- ---------------
Net cash provided by financing
activities ........................... 130,672 11,193,458 24,067,570
-------------- ------------- ---------------
Net increase (decrease) in cash and
cash equivalents ..................... (496,922) 44,240 585,796
Cash and cash equivalents at
beginning of period .................. 789,847 292,925 337,165
-------------- ------------- ---------------
Cash and cash equivalents at end
of period ............................ $ 292,925 $ 337,165 $ 922,961
============== ============= ===============
<CAPTION>
(Unaudited)
Nine Months Ended
September 30
-----------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Loss from Continuing Operations ........ $ (11,860,859) $ (17,555,241)
Adjustments to reconcile loss from
continuing operations to net cash
used in operating activities:
Depreciation ......................... 684,983 747,096
Amortization of convertible debt
costs ............................... -- --
Amortization of deferred
compensation ........................ 4,818 1,133
Interest on convertible
debentures .......................... 255,535 68,736
Issuance of stock for employee
benefits .............................. -- 78,955
Issuance of stock Award ................ -- 55,625
Change in current assets and liabilities:
Increase in accounts payable and
accrued expenses .................... 187,199 65,152
(Increase) decrease in accounts
receivable .......................... 146,969 210,169
(Increase) decrease in other
assets .............................. (317,570) (40,093)
--------------- -------------
Net cash used in continuing
operations ........................... (10,898,925) (16,368,468)
Net cash used in discontinued
operation ............................ -- --
--------------- -------------
Net cash used in operating
activities ........................... (10,898,925) (16,368,468)
--------------- -------------
Cash flows from investing activities:
Capital expenditures ................... (1,186,284) (1,201,805)
Proceeds from sales and maturities
of marketable securities available
for sale ............................. 117,485,212 41,750,254
Purchases of marketable securities
available for sale ................... (126,698,269) (29,390,956)
--------------- -------------
Net cash provided by (used in)
investing activities ................. (10,399,341) 11,157,493
Cash flows from financing activities:
Net proceeds from exercise of
common stock options ................. 237,946 12,695
Capital lease funding .................. -- 631,496
Net proceeds from issuance of
convertible debentures ............... -- --
Redemption of Preferred Shares &
cumulative dividend ................... (721,287)
Net proceeds from issuance of
preferred stock ...................... 23,829,625 4,840,748
--------------- -------------
Net cash provided by financing
activities ........................... 24,067,571 4,763,652
--------------- -------------
Net increase (decrease) in cash and
cash equivalents ..................... 2,769,305 (447,323)
Cash and cash equivalents at
beginning of period .................. 337,165 922,961
--------------- -------------
Cash and cash equivalents at end
of period ............................ $ 3,106,470 $ 475,638
=============== =============
</TABLE>
(continued)
See Accompanying Notes to Financial Statements.
F-7
<PAGE>
CELGENE CORPORATION
STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
Years Ended December 31, September 30
--------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
-------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Non-cash investing activity:
Change in net unrealizable gain
(loss) on marketable securities
available for sale .................. $ (267,278) $ 254,140 $ 18,852 $ 13,791 $ (5,586)
========== =========== ============ =========== ===========
Non-cash financing activities:
Issuance of common stock upon
the conversion of convertible
debentures and accrued interest
thereon, net ........................ -- $5,928,907 $ 2,649,115 $2,649,115 $ 2,331,304
========== =========== ============ =========== ===========
Accretion of premium payable
on preferred stock and warrants . -- -- $ 1,012,881 $ 764,138 $ 474,317
========== =========== ============ =========== ===========
Deemed dividend for preferred
stock conversion discount ........... -- -- $ 2,777,777 $2,777,777 $ 953,077
========== =========== ============ =========== ===========
Issuance of warrants for services
rendered in connection
with the issuance of convertible
debentures .......................... -- $ 94,500 -- -- --
========== =========== ============ =========== ===========
Issuance of common stock upon
the conversion of convertible
preferred stock and accrued
accretion thereon, net .............. -- -- $12,141,309 $3,818,627 $14,329,813
========== =========== ============ =========== ===========
Issuance of common stock upon
exercise of options
through the return of common
stock previously outstanding ........ $ -- $ -- $ 99,996 $ 99,996 $ --
========== =========== ============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-8
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(1) NATURE OF BUSINESS AND LIQUIDITY
Celgene Corporation ("Celgene" or the "Company") is engaged in the development
and commercialization of human pharmaceuticals and agrochemicals, and is
employing two broad technology platforms: (i) small molecule immunotherapeutic
compound development and (ii) biocatalytic chiral chemistry synthesis. The
initial therapeutic focus of the immunology program is the development of small
molecule pharmaceuticals that have the potential to selectively regulate Tumor
Necrosis Factor[alpha] ("TNF[alpha]"), a protein whose overproduction has been
linked to many chronic inflammatory and immunological diseases. The Company's
lead compound in immunology is THALOMID[TM], its formulation of thalidomide, a
potent yet selective inhibitor of TNF[alpha]. On September 19, 1997, the
Company received an approvable letter from the U.S. Food and Drug
Administration ("FDA") for THALOMID for the treatment of erythema nodosum
leprosum ("ENL"), an inflammatory complication of leprosy. The Company expects
to submit an additional New Drug Application ("NDA") in early 1998 for THALOMID
in the treatment of cacexia (wasting) in patients with Acquired Immune
Deficiency Syndrome ("AIDS"). Celgene has further applied its expertise in
small molecule chemistry to develop novel and proprietary thalidomide
analogues, as well as a class of proprietary immunotherapeutic pharmaceutical
compounds called SelCIDs[TM] ("Selective Cytokine Inhibitory Drugs"). These two
classes of compounds are orally administered small molecules that are highly
specific for the suppression of TNF[alpha] and are intended to treat chronic
inflammatory diseases and other disorders. The initial therapeutic focus of the
biocatalytic chiral chemistry synthesis program is the development of chirally
pure pharmaceuticals designed to have greater efficacy and fewer side effects
than existing racemic versions. The Company's lead compound in this area is
chirally pure dl-methylphenidate (currently marketed under the trade name
Ritalin[RegTM]). The Company recently completed a Phase I/II trial and
announced that its chirally pure version demonstrated statistically significant
efficacy versus a placebo and preliminary indications of longer duration of
action relative to the racemic version. The Company is also employing its
biocatalytic chiral chemistry synthesis technology to develop chirally pure
agrochemicals with superior attributes and/or lower manufacturing costs than
the conventional, non-chirally pure equivalent, as well as to support its
established business of supplying chirally pure intermediates to other
pharmaceutical companies for drug development.
The Company expects that its rate of spending will increase as the result of
increased clinical trial costs and expenses associated with the regulatory
approval process and commercialization of products now in development. In order
to assure funding for the Company's future operations, the Company needs to
seek additional capital resources. However, no assurances can be given that the
Company will be successful in raising additional capital. If the Company is
unable to raise additional funds through these means, the Company believes that
its current financial resources including its option to issue and sell
$5,000,000 of Series B preferred stock at a second closing, which is subject to
certain customary conditions, could fund operations through early 1998.
The preparation of the financial statements requires management to make
estimates and assumptions that affect reported amounts and disclosures in these
financial statements. Actual results could differ from those estimates. The
Company is subject to certain risks and uncertainties such as uncertainty of
product development, uncertainties regarding regulatory approval, no assurance
of market acceptance of products, risk of product liability, uncertain scope of
patent and proprietary rights, intense competition, and rapid technological
change.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
At December 31, 1995 and 1996 and September 30, 1997, cash equivalents
consisted principally of funds invested in overnight repurchase agreements,
money market funds, and United States government securities such as treasury
bills and notes.
(b) Marketable Securities
The Company has classified all of its marketable securities as securities
available for sale. Such securities are to be held for an indefinite period of
time and are intended to be used to meet the ongoing liquidity needs of the
F-9
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Company. Realized gains and losses are included in operations and are measured
using the specific cost identification method.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation of plant and equipment is
provided using the straight-line method. The estimated useful lives of fixed
assets are as follows:
<TABLE>
<S> <C>
Laboratory equipment and machinery ....... 5-10 years
Furniture and fixtures ................... 5-10 years
</TABLE>
Amortization of leasehold improvements is calculated using the straight-line
method over the term of the lease or the life of the asset, whichever is
shorter. Maintenance and repairs are charged to operations as incurred, while
renewals and improvements are capitalized.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In accordance
with SFAS No. 121, the Company reviews long-lived assets for impairment
whenever events or changes in business circumstances occur that indicate that
the carrying amount of the assets may not be recoverable. The Company assesses
the recoverability of long-lived assets held and to be used based on
undiscounted cash flows and measures the impairment, if any, using discounted
cash flows. Adoption of SFAS No. 121 did not have a material impact on the
Company's financial position, operating results or cash flows.
(d) Research and Development Costs
All research and development costs are expensed as incurred.
(e) Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement carrying amounts and
tax bases of assets and liabilities using enacted tax rates in effect for all
years in which the temporary differences are expected to reverse.
Research and development tax credits will be recognized as a reduction of the
provision for income taxes when realized.
(f) Revenue Recognition
Revenue from the sale of chemical intermediates is recognized upon product
shipment. Revenue under research contracts is recorded as earned under the
contracts, generally as services are provided. Revenue is recognized
immediately for nonrefundable license fees when agreement terms require no
additional performance on the part of the Company.
(g) Stock Options
The Company generally does not record compensation cost for the issuance of
employee stock options since the options are generally issued with an exercise
price equal to the market price at the date of grant. For the fair value of the
employee stock options issued in 1995 and 1996, see note 7.
(h) Share Information
Net loss per share of common stock is based upon the weighted average number of
shares of common stock outstanding. The assumed exercise of stock options,
conversion of convertible debentures and convertible preferred stock are not
considered, as the effect would be anti-dilutive.
F-10
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Presentation
Certain prior year amounts have been reclassified to conform with the current
year presentation. In connection with the discontinuation of the Company's
biotreatment operation (see note 9), the 1994 financial results applicable to
continuing operations exclude amounts from the discontinued operation.
(j) Deferred Debt Costs
Deferred debt costs are amortized over the life of the debt.
(k) Fair Value of Financial Instruments
The fair value, which is the carrying value, of marketable securities available
for sale is based on quoted market prices. The convertible debentures
approximate fair value due to interest rates approximating market rates. For
all other financial instruments their carrying value approximates fair value
due to the short maturity of these instruments.
(3) PLANT AND EQUIPMENT
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
----------------------------- --------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Leasehold improvements ................... $ 3,113,212 $ 3,731,518 $ 3,867,709
Laboratory equipment and machinery ....... 4,946,764 5,746,619 6,147,041
Furniture and fixtures ................... 391,370 391,370 425,066
Leased Equipment ......................... -- -- 631,496
------------ ------------ ------------
8,451,346 9,869,507 11,071,312
Less: accumulated depreciation .......... 7,243,541 7,928,892 8,549,411
------------ ------------ ------------
$ 1,207,805 $ 1,940,615 $ 2,521,901
============ ============ ============
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
------------------------- --------------
1995 1996 1997
------------ ---------- --------------
<S> <C> <C> <C>
Professional and consulting fees ....... $ 912,400 $357,859 $ 725,396
Accrued compensation ................... 610,111 457,849 409,554
Other .................................. 88,335 65,896 232,377
----------- --------- -----------
$1,610,846 $881,604 $1,367,327
=========== ========= ===========
</TABLE>
(5) CONVERTIBLE DEBENTURES
During 1995, the Company issued and sold in an offering pursuant to Regulation
S, 8% Convertible Debentures due July 31, 1997 in the aggregate principal
amount of $12,000,000, and received net proceeds, after offering costs, of
$11,022,570. The recorded value of the debenture at the date of issuance was
discounted to produce a market interest rate of approximately 13.5%. Such
debentures are convertible into Common Stock at the option of either the
holders thereof or the Company. The holders of the convertible debentures may
convert the debentures into Common Stock of the Company at a conversion price
that varies and is based upon the market price (as defined) of Common Stock for
the five trading days preceding the date of conversion.
F-11
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(5) CONVERTIBLE DEBENTURES (Continued)
The Company may require the conversion of the convertible debentures commencing
October 15, 1995 through July 30, 1997 at a conversion price which varies and
is based upon the market price of the Common Stock on the date of conversion.
The Company also has the right to redeem any convertible debenture upon which
it has received notice of intent to convert. The redemption price is the
greater of 115% of the principal and the accrued interest on the redeemed
debenture or an amount which is based on the appreciation of the Common Stock
from the date of issuance of the debentures. The Company has classified the
debentures at December 31, 1996 as a long term liability since it has the
ability and intent to convert them into Common Stock.
As of December 31, 1996, convertible debentures in the aggregate principal
amount of $9,750,000 plus accrued interest, had been converted into a total of
1,268,597 shares of Common Stock. No interest as paid in cash.
As of September 30, 1997, all convertible debentures in the aggregate principal
amount of $12,000,000, plus accrued interest, had been converted into a total
of 1,709,845 shares of common stock. No interest was paid in cash.
(6) SERIES A CONVERTIBLE PREFERRED STOCK
Series A
On March 13, 1996, in a private placement, the company completed the sale of
503 shares of Series A Convertible Preferred Stock, par value $.01 per share
(the "Preferred Stock"), at an issue price of $50,000 per share. The Company
received net proceeds, after offering costs, of $23,829,625. The Preferred
Stock, plus accretion at a rate of 4.9% per year, is convertible into common
stock of the Company at the option of the holders thereof at a conversion price
per share of common stock equal, generally, to the lesser of (i) $18.81 or (ii)
90% of the average closing price per share of the common stock for the seven
trading days immediately prior to the date of conversion. The Preferred Stock
primarily became convertible during the third quarter of 1996. As a result of
recent guidance related to the issuance of securities with variable conversion
features the Company recognized the value of the discount to market conversion
feature as a deemed dividend. Had this been recorded in the third quarter the
net loss applicable to common stockholders would have been $(8,584,611) and the
related per share amount would have been $(.90). The average closing price per
share of common stock for the seven trading days immediately prior to December
31, 1996 was $11.25.
The Company may redeem the shares in increments of not less than $1.5 million
plus accretion commencing December 13, 1996, on thirty business days written
notice to the preferred stockholders, at a price that equals a specified
premium, ranging from 120% to 130%, of the purchase price plus accretion
premium. Under certain conditions, upon receipt of a conversion notice from the
holder, the Company has the right (i) to redeem shares presented for
conversion, or (ii) to defer conversion for 90 days in exchange for warrants to
purchase additional shares of common stock as specified in the Certificate of
Designation of Series A Convertible Preferred Stock. Any shares of Series A
Convertible Preferred Stock outstanding on March 13, 1998 shall be converted
automatically into common stock on such date at the conversion price then in
effect. The holders of Preferred Stock have no voting rights.
The Company granted registration rights to the subscribers in the Preferred
Stock private placement. A registration statement with respect to investor
resales of common shares underlying the Preferred Stock was filed and declared
effective on June 10, 1996. In connection with the private placement, the
Company also granted to certain executives and affiliates of the placement
agent warrants, valued at $60,168, to purchase an aggregate of 66,853 shares of
common Stock at an exercise price of $20.52, subject to proportional adjustment
in the event that the Company undertakes a stock split, stock dividend,
recapitalization or similar event. These warrants are exercisable for a period
of five years from the date of issuance.
F-12
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(6) SERIES A CONVERTIBLE PREFERRED STOCK (Continued)
As of December 31, 1996, 236 shares (as of January 31, 1997, 276 shares) of the
Series A Preferred Stock, with their respective accrued accretion, had been
converted into 1,388,809 (1,590,745 at January 31, 1997) shares of common
stock. Through December 31, 1996 the Company had accrued $874,725 representing
accretion of the premium on the Preferred Stock of which $533,416 relates to
preferred shares not yet tendered for conversion. As of December 31, 1996 the
Company had also issued warrants valued at $138,156, that entitle certain
stockholders of the Series A Preferred Stock to purchase 153,507 shares of
common stock at an exercise price of $11.50. The warrants were issued in
exchange for the deferral of conversion for 90 days. These warrants are
exercisable for a period of two years from the date of issuance.
As of September 30, 1997, 423 shares of the Series A Preferred Stock, with
their respective accrued accretion, had been converted or redeemed into
2,731,915 shares of common stock. Through September 30, 1997 the Company had
accrued $1,349,042 representing accretion of the premium on the Preferred Stock
of which $306,633 relates to preferred shares not yet tendered for conversion.
The company agreed to reduce the maximum conversion price of 58 shares to $8.50
per share of common stock from $18.81 for holders who agreed to a lock-up
through December 1, 1997. The previously noted warrants are still outstanding
at September 30, 1997.
Series B (Unaudited). On June 9, 1997, in a private placement, the Company
completed the sale of 5,000 shares of Series B Convertible Preferred Stock (the
"Series B Preferred"), par value $.01 per share, at an issue price of $1,000
per share. A shelf registration statement with respect to holders' resales of
Common Stock issuable upon conversion of Series B Preferred was filed and
declared effective on August 6, 1997. The Company received net proceeds, after
offering costs of $4,840,748. Subject to the satisfaction of certain
conditions, the Company may, at its option, during specified periods ending
June 9, 1998, issue and sell to such purchasers up to an additional 15,000
shares of Series B Prefered Stock, at an aggregate purchase price of $15
million, in increments of $5 million (5,000 shares). With respect to the third
and fourth increments ($10 million) certain FDA approvals are necessary before
Chancellor is obligated to buy the additional Series B Preferred Stock. As of
September 30, 1997, all shares of Series B Preferred had been converted into
Common Stock.
Upon request of the purchasers of the Series B Preferred (but no later than
June 1, 1998) (in either case, the "Issuance Date"), the Company will issue
warrants to acquire a number of shares of Common Stock equal to (i) 1,500,000
divided by the Conversion Price in effect on the Issuance Date (230,769
warrants as of September 30, 1997) plus (ii) 37.5% of the Conversion Shares
issuable on such Issuance Date upon conversion of all shares of Series B
Preferred Stock issued through the Issuance Date (288,461 warrants as of
September 30, 1997). All such warrants will have a term of four years from the
Issuance Date and an exercise price equal to 115% of the Conversion Price in
effect on the Issuance Date. The fair value of warrants at the issuance date
was $1.28 per warrant.
Through September 30, 1997, the Company had recorded $953,077 representing
accretion of the deemed dividend on the Series B Preferred Stock. The deemed
dividend represents the difference between the Series B Preferred Stock
conversion price and the Company's Common Stock fair market value at the date
of issuance. The deemed dividend and the fair value of the warrants was
accreted over the lock-up period subject to acceleration contingencies. Such
contingencies were met and the full deemed dividend was recognized at that
time.
(7) STOCK BASED COMPENSATION
(a) Stock Options
On June 16, 1995, the stockholders of the Company approved the 1995
Non-Employee Directors' Incentive Plan, which provides for the granting of
non-qualified stock options to purchase an aggregate of not more than 250,000
shares of common stock (subject to adjustment under certain circumstances) to
directors of the Company who are not officers or employees of the Company
("Non-Employee Directors"). Non-employee Directors are no longer
F-13
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(7) STOCK BASED COMPENSATION (Continued)
eligible to participate in the 1992 Non-Employee Directors' Stock Option Plan.
Each new Non-Employee Director, upon the date of his election or appointment,
receives an option to purchase 20,000 shares of common stock. Additionally,
upon the date of each annual meeting of stockholders, each continuing
Non-Employee Director receives an option to purchase 10,000 shares of common
stock (or a pro rata portion thereof if he has served less than one year),
except that at the 1995 annual meeting of stockholders the Non-Employee
Directors received an option to purchase 6,000 shares of common stock. On April
5, 1995, each Non-Employee Director received an initial grant of a
non-qualified option to purchase 20,000 shares of common stock, upon
shareholder approval of this plan, which was received June 16, 1995. The shares
subject to each non-employee director's option grant of 20,000 shares vest in
four equal annual installments commencing on the first anniversary of the date
of grant. The shares subject to an annual meeting option grant vest in full on
the date of the first annual meeting of stockholders held following the date of
grant. All options are granted at an exercise price that equates to the fair
market value of the Company's common stock at the grant date and expire 10
years after the date of grant. This plan terminates in 2005.
On May 27, 1992, the stockholders of the Company approved two new stock option
plans: the 1992 Long-Term Incentive Plan (the "1992 Incentive Plan") and the
1992 Non-Employee Directors' Stock Option Plan (the "1992 Directors' Plan").
The 1992 Incentive Plan provides for the granting of options, restricted stock
awards, stock appreciation rights, performance awards and other stock-based
awards to employees and officers of the Company to purchase not more than an
aggregate of 1,000,000 shares of common stock, subject to adjustment under
certain circumstances. The Management Compensation and Development Committee of
the Board of Directors (the "Committee") determines the type, amount and terms,
including vesting, of any awards made under the Incentive Plan. This plan
terminates in 2002.
With respect to options granted under the 1992 Incentive Plan, the 1992
Directors' Plan, and the 1986 Stock Option Plan that terminated in June 1996
(collectively, the "Plans"), the exercise price may not be less than the fair
market value of the common stock on the date of grant. In general, each option
granted under the Plans vests evenly over a three or four year period and
expires 10 years from the date of grant, subject to earlier expiration in case
of termination of employment. The vesting period for options and restricted
stock awards granted under the Plans is subject to certain acceleration
provisions if a change in control, as defined in the Plans, occurs.
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
Plans. Accordingly, no compensation expense has been recognized for its stock
based compensation plans other than for restricted stock awards. Had
compensation expense for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's net
loss and loss per share would have been increased by approximately $198,000, or
$0.02 per share in 1995 to $(10,714,694), or $(1.32) per share and
approximately $1,905,000, or $0.20 per share in 1996 to $(23,514,639), or
$(2.49) per share. The weighted average fair value of the options granted
during 1995 is estimated as $2.88 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of zero,
weighted average volatility of 47%, weighted average risk free interest rate of
6.49% and an expected term of 2.91 years. The weighted average fair value of
the options granted during 1996 is estimated as $5.01 on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield of zero, weighted average volatility of 43% weighted average
risk free interest rate ranging of 6.49%, and a weighted average expected term
of 2.22 years.
The pro forma effects on net loss and loss per share for 1995 and 1996 may not
be representative of the pro forma effects in future years since compensation
cost is allocated on a straight-line basis over the vesting periods of the
grants, which extends beyond the reported years.
F-14
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(7) STOCK BASED COMPENSATION (Continued)
The following table summarizes the stock option activity for the Plans:
<TABLE>
<CAPTION>
Options
------------------------------------------
Shares Available Weighted Average Exercise
for Grant Shares Price per Share
------------------ ------------- --------------------------
<S> <C> <C> <C>
Balance January 1, 1994 ......... 1,268,794 1,145,969 $ 8.60
Granted ...................... (418,994) 418,994 7.20
Exercised ..................... -- (26,422) 6.65
Cancelled ..................... 233,742 (233,742) 9.46
--------- --------- -------
Balance December 31, 1994 ....... 1,083,542 1,304,799 8.03
Authorized ................... 250,000 -- --
Granted ...................... (209,368) 209,368 6.49
Exercised ..................... -- (24,987) 6.84
Cancelled ..................... 78,712 (78,712) 9.24
--------- --------- -------
Balance December 31, 1995 ....... 1,202,886 1,410,468 7.75
Expired Plan .................. (139,999) -- --
Granted ...................... (678,589) 678,589 13.25
Exercised ..................... -- (42,069 8.03
Cancelled ..................... 46,095 (46,095) 6.40
--------- --------- -------
Balance December 31, 1996 ....... 430,393 2,000,893 $ 9.64
========= ========= =======
</TABLE>
The following table summarizes information concerning options outstanding under
the Plans at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------ ----------------------------------------
Range of Number Outstanding Weighted Average Number Exercisable Weighted Average
Exercise Price at 12/31/96 Remaining Term (Life) Exercise Price at 12/31/96 Exercise Price
- ---------------- -------------------- ----------------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C>
5.00-9.00 871,658 6.2 $ 6.52 675,658 $ 6.59
9.01-13.00 601,266 5.4 9.93 424,181 9.78
13.01-18.00 527,969 8.9 14.42 110,004 14.03
---------- --- ------- ---------- -------
2,000,893 6.7 $ 9.64 1,209,843 $ 8.39
========== === ======= ========== =======
</TABLE>
On February 14, 1997 the Company granted 50,000 options to a Vice President
exercisable at $10.69 (market price at the date of grant). These options vest
evenly over four years and have a ten year term.
(b) Restricted Stock Awards
Restricted stock awards granted pursuant to the Plans generally require no
payments by the grantee. All of the shares of stock subject to such restricted
stock awards are subject to forfeiture if the employee's employment, or Non-
Employee Director's association with the Company, is terminated or ended (except
under certain circumstances) prior to a vesting period of generally three to
five years from the restricted stock award grant date. The market price of the
shares on the date of the grant is recorded as a deduction from stockholders'
equity (unamortized deferred compensation--restricted stock) which is amortized
to compensation expense over the applicable vesting period. There have been no
grants of restricted stock in 1994, 1995, or 1996.
On January 1, 1997, the Company awarded 5,000 shares to the Company's Chairman
and CEO, which were immediately vested.
(c) Warrants
In connection with the retention of a financial advisor, the Company in
February 1991 granted to such financial advisor a warrant to purchase, until
January 15, 1996, 50,000 shares of common stock at a price of $6.50 per share.
This warrant expired on January 15, 1996.
F-15
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(7) STOCK BASED COMPENSATION (Continued)
In connection with the retention of an investor relations firm, the Company in
November 1994 granted to such firm a warrant to purchase until September 1,
1999, 50,000 shares of common stock at a price of $6.50 per share. This warrant
was outstanding as of December 31, 1996.
In connection with the retention of an investment firm to assist in the sale
and issuance of 8% Convertible Debentures, the Company in August, 1995 granted
to such firm warrants to purchase until July 31, 2000, 105,000 shares of common
stock at a price of $9.60 per share. These warrants were outstanding as of
December 31, 1996.
In connection with the retention of an investment firm to assist in the sale
and issuance of the Preferred Stock, the Company, in March, 1996 granted to
such firm warrants to purchase until March 10, 2001, 66,853 shares of common
stock at a price of $20.52. These warrants were outstanding as of December 31,
1996.
During 1996, the Company also issued warrants that entitled certain
stockholders of the Series A Convertible Preferred Stock Warrants valued at
$138,156, to purchase 153,507 shares of common stock at an exercise price of
$11.50. The warrants were issued in exchange for the deferral of conversion for
90 days. These warrants are exercisable for a period of two years from the date
of issuance. These warrants were outstanding as of December 31, 1996.
(d) Rights Plan
During 1996, the Company adopted a shareholder rights plan ("Rights Plan"). The
Rights Plan involves the distribution of one "Right" as a dividend on each
outstanding share of the Company's common stock to all holders of record on
September 26, 1996. Each Right shall entitle the holder to purchase one-tenth
of a share of common stock. The Rights trade in tandem with the common stock
until, and exercisable upon, certain triggering events, and the exercise price
is based on the estimated long term value of the Company's common stock.
(8) INCOME TAXES
At December 31, 1995 and 1996, the tax effects of temporary differences that
give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
<S> <C> <C>
Deferred Assets:
Federal and state net operating loss carryforwards ............. $ 26,510,000 $ 33,998,000
Research and experimentation tax credit carryforwards .......... 1,851,000 2,050,000
Plant and equipment, principally due to differences in
depreciation .............................................. 1,226,000 1,301,000
Patents, principally due to differences in amortization ....... 90,000 75,000
Accrued expenses, principally due to accrual for financial
reporting purposes ........................................... 297,000 165,000
------------- -------------
Total deferred tax assets ........................................ 29,974,000 37,589,000
Valuation allowance .............................................. (29,974,000) (37,589,000)
------------- -------------
Net deferred tax assets ........................................ $ -- $ --
============= =============
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $85,000,000 that will expire in the years 2001 to 2011. The
Company also has research and experimentation credit carryforwards of
approximately $2,050,000 that expire in the years 2001 to 2011. Ultimate
utilization/availability of such net operating losses and credits may be
curtailed if a significant change in ownership occurs.
F-16
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 (Unaudited)
(9) DISCONTINUED OPERATION
On June 16, 1994, the Company entered into an agreement with Sybron Chemicals,
Inc. ("Sybron Chemicals") pursuant to which the Company has exclusively
licensed its biotreatment technology and sold its biotreatment laboratory and
field demonstration equipment to Sybron Chemicals. Under the terms of the
agreement, Sybron Chemicals has the exclusive right to commercialize the
Company's biocatalysis technology for the removal of hazardous wastes from
manufacturing and process waste streams. During the next ten years, under the
terms of the agreement, the Company will receive royalty payments based on a
percentage of commercial net sales of biotreatment systems made by Sybron
Chemicals. The Company has not recorded any royalty revenues in 1994, 1995 and
1996.
During the second quarter of 1994, the Company recognized a charge to
discontinued operations of $839,000, or $.11 per share, for disposal of its
biotreatment business, of which $536,000 represents a non-cash loss on the sale
of capital equipment dedicated to the Company's biotreatment operations and
$303,000 relates to severance arrangements with biotreatment personnel.
For the year ended December 31, 1994, revenues relative to the biotreatment
operations were approximately $38,000. Direct expenses related to the
biotreatment operations, primarily for personnel, research and development and
depreciation, amounted to $1,535,000 for the year ended December 31, 1994.
(10) MARKETABLE SECURITIES AVAILABLE FOR SALE
Marketable securities available for sale at September 30, 1997 include debt
securities with maturities ranging from October 1997 to April 1998. A summary
of marketable securities at September 30, 1997 is as follows:
A summary of marketable securities at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
US Government and agency
obligations ................... $ 8,892,723 $ -- $ (13,301) $ 8,879,422
Certificates of deposit ....... 1,000,017 -- (22) 999,995
Asset backed security .......... 500,665 -- (509) 500,156
Commercial Paper ............. 995,473 694 -- 996,167
------------ ---------- ---------- ------------
$11,388,878 $ 694 $ (13,832) $11,375,740
============ ========== ========== ============
</TABLE>
The net change in the unrealized gain (loss) for the year ended December 31,
1995 amounted to approximately $254,000. The proceeds from sales and maturities
of marketable securities available for sale included gross realized gains and
losses of approximately $34,000 and $148,000 respectively, for the year ended
December 31, 1995.
F-17
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 (Unaudited)
(10) MARKETABLE SECURITIES AVAILABLE FOR SALE (Continued)
Marketable securities available for sale at December 31, 1996 include debt
securities with maturities ranging from January, 1997 to October, 1997. A
summary of marketable securities at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Commercial Paper ............... $ 8,369,006 $ -- $ (170) $ 8,368,836
Corporate Bonds ................ 4,015,052 6,773 -- 4,021,825
Certificates of deposit ........ 3,000,034 -- (424) 2,999,610
US Government and agency
obligations ................... $ 1,502,217 -- (465) $ 1,501,752
------------ ----------- ---------- ------------
$16,886,309 $ 6,773 $ (1,059) $16,892,023
============ =========== ========== ============
</TABLE>
The net change in the unrealized gain (loss) for the year ended December 31,
1996 amounted to approximately $19,000. The proceeds from sales and maturities
of marketable securities available for sale included gross realized gains and
losses of approximately $359,000 and $32,000 respectively, for the year ended
December 31, 1996.
Marketable securities available for sale at September 30, 1997 include debt
securities with maturities ranging from October 1997 to April 1998. A summary
of market securities at September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Commercial Paper ............... $ 733,793 $ -- $ -- $ 733,793
Corporate Bonds ................ 999,790 210 -- 1,000,000
Certificates of Deposit ........ -- -- -- --
US Government and agency
obligations ................... 2,793,428 -- (82) 2,793,346
----------- ----- ----- -----------
$4,527,011 $210 $ (82) $4,527,139
=========== ===== ===== ===========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
(a) Lease
Celgene leases its main laboratory and office facilities in Warren Township,
New Jersey. The current lease term for the main laboratory and office space
expires in 1997 and has two five-year renewal options. The Company has notified
the landlord of its intent to renew the lease for a five-year term into the
year 2002. Annual payments are $330,000. The lease provides that at the end of
each five-year term, the rent will be increased based upon the change in the
consumer price index, but in no case shall the increase be greater than 20%.
Celgene is also required to pay additional amounts for real estate taxes,
utilities, and maintenance. Total rental expense amounted to $474,000, $448,000
and $453,000 in 1994, 1995 and 1996, respectively.
In January, 1997 the Company entered into a sub-lease agreement to lease an
additional 18,000 square feet of laboratory and office space in Annandale, New
Jersey. The sub-lease agreement is for a two year term, expiring in February,
1999. Annual payments are $227,500.
In July, 1997, the Company entered into an equipment leasing agreement; under
the agreement, the Company can lease up to $1,000,000 of equipment for a three
year term after which the Company can purchase the equipment for a nominal
value. Through September 30, 1997, the Company has leased $631,000 of
laboratory equipment under this agreement. Under this capital lease, the
Company is committed to 36 monthly payments of approximately $19,000.
F-18
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 (Unaudited)
(11) COMMITMENTS AND CONTINGENCIES (Continued)
(b) Employment Agreements
Celgene has employment agreements with certain officers and employees. The
related outstanding commitments at December 31, 1996 total approximately
$692,000 for 1997. As of September 30, 1997 the Company has outstanding
commitments over the next four years of approximately $2,500,000. Employment
contracts provide for an increase in compensation reflecting annual reviews and
related salary adjustments.
(c) Contracts
The Company enters into sponsored research contracts from which certain
revenues are derived. Aggregate research and development costs incurred in
connection with such contracts totaled $247,000, $403,000, and $910,000, in
1994, 1995. For 1997 such costs are estimated to be approximately $606,000.
In August 1992, the Company entered into a two-year research and development
agreement with The Rockefeller University. Under the terms of the agreement,
the Company has the world-wide exclusive license to manufacture and market any
drugs, including Thalomid, which may result from the research performed at The
Rockefeller University. Rockefeller is entitled to receive royalties based on
commercial sales of any such drugs. In July 1994 this agreement was extended
for an additional two years and again in 1996 for an additional two years.
Under terms of the extension, the Company is committed to pay the Rockefeller
University $504,000 annually.
In December, 1995 the Company entered into an agreement with Penn
Pharmaceutical, Ltd. of Great Britain ("Penn") to build a special facility
devoted exclusively to the production of Thalomid. Under the terms of the
agreement, based on certain milestones with respect to commencing production
and U.S. Food & Drug Administration inspection, the Company is responsible for
$320,000 of start-up and validation costs. In addition, the Company will lease
the dedicated facility for a three year period. Annual facility payments are
$268,000, which began in December, 1996. Penn will manufacture Thalomid and
sell it exclusively to the Company.
(d) Contingencies
The Company believes it maintains insurance coverage adequate for its current
needs.
The Company's operations are subject to environmental laws and regulations
which impose limitations on the discharge of pollutants into the air and water
and establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company reviews the effects of such laws and regulations
on its operation and modifies its operations as appropriate. The Company
believes that it is in substantial compliance with all applicable environmental
laws and regulations.
(e) Concentration of Market Risk
During 1994, three customers accounted for approximately 83% (57%, 14% and 12%
individually) of the total revenues. During 1995, one customer accounted for
approximately 40% of the total revenues. During 1996, four customers accounted
for approximately 73% (35%, 15%, 12% and 11% individually) of the total
revenues.
Through September 30, 1997, three customers accounted for approximately 84%
(44%, 34% and 6% individually) of the total revenues.
F-19
<PAGE>
(This page intentionally left blank)
<PAGE>
[CELGENE LOGO] CHIRAL CHEMISTRY PLATFORM
[Drawing of Celgene C Molecule]
Chiral Chemistry Platform
Many compounds exist in mirror
image conformations of each
other. One conformation may
fit perfectly into a receptor
site and have desired
beneficial effects while the
other may be inactive or
produce undesirable effects.
Chirally pure versions have
only the desired conformation.
Celgene's chiral chemistry
platform, based on the
Company's biocatalytic
technology, supports three
commercial opportunities.
[Photo of [Photo of Cornfield]
various pills]
Chirally Pure Chirally Pure
Pharmaceuticals Agrochemicals
Celgene recently Celgene, through its
completed a Phase I/II Celgro subsidiary, is
clinical trial for applying its chiral
d-methylphenidate, a technology to the
chirally pure version of production of chirally
Ritalin which has been pure crop protection
used for decades in the agents. Benefits could
treatment of Attention include a significant
Deficit Hyperactivity reduction in
Disorder ("ADHD"). manufacturing costs and
Celgene is also environmental burden. The
developing a chirally first application of
pure version of Celgene's technology is
mexiletine which is the subject of an R&D
targeted at treatment of agreement with a major
neuropathic pain. agrochemical company.
[Photo of
Chiral intermediate
manufacturing process]
Chirally Pure
Intermediates
Celgene supplies chirally
pure intermediates as
building blocks to make
active ingredients for
use in new drug
development. The Company
has entered into a letter
of intent regarding the
sale of this business.
See "Recent
Developments."
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, shares of
tion to any person to whom it is not lawful to make such offer or solicitation
in such jurisdiction or in which the person making such offer or solicitation
is not qualified to do so. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create an implication that there
has been no change in the affairs of the Company since the date hereof or that
the information contained herein is correct as of any time subsequent to the
date of this Prospectus.
TABLE OF CONTENTS
-----------------
Prospectus Summary .......................... 3
2,600,000
Recent Developments ......................... 6
Risk Factors ................................ 7
Use of Proceeds ............................. 13
Price Range of Common Stock ................. 13
Dividend Policy ............................. 13
Common Stock
Capitalization .............................. 14
Dilution .................................... 14
Unaudited Pro Forma Financial Information . 15
Selected Financial Data ..................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................ 18
Business .................................... 23
Management .................................. 37
Security Ownership of Certain Beneficial
Owners and Management .................... 40
Description of Capital Stock ................ 41
Shares Eligible for Future Sale ............. 43
Underwriting ................................ 44
Legal Matters ............................... 45
Experts ..................................... 45
SBC Warburg Dillon Read Inc.
Additional Information ...................... 46
Prudential Securities Incorporated
Incorporation of Certain Documents
by Reference ............................. 46
Index to Financial Statements ............... F-1
PROSPECTUS , 1997
[Celgene Logo]
2,600,000
Celgene Corporation
Common Stock
SBC Warburg Dillon Read Inc.
Prudential Securities Incorporated
Loewenbaum & Company
Incorporated
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered, all of which will be paid by the Registrant.
<TABLE>
<S> <C>
SEC registration fee ..................... $ 9,117
NASD fee ................................. 3,864
Nasdaq additional listing ................ 17,500
Legal fees and expenses .................. 250,000
Printing and engraving expenses .......... 200,000
Accounting fees and expenses ............. 50,000
Transfer agent and registrar fees ........ 5,000
Miscellaneous ............................ 64,519
---------
Total .................................. $600,000
=========
</TABLE>
Item 15. Indemnification of Directors and Officers.
The General Corporation Law of the State of Delaware ("DGCL") permits the
Company and its stockholders to limit directors' exposure to liability for
certain breaches of the directors' fiduciary duty, either in a suit on behalf
of the Company or in an action by stockholders of the Company.
The Certificate of Incorporation of the Company (the "Charter") eliminates the
liability of directors to stockholders or the Company for monetary damages
arising out of the directors' breach of their fiduciary duty of care. The
Charter also authorizes the Company to indemnify its directors, officers,
incorporators, employees, and agents with respect to certain costs, expenses,
and amounts incurred in connection with an action, suit, or proceeding by
reason of the fact that such person was serving as a director, officer,
incorporator, employee, or agent of the Company. In addition, the Charter
permits the Company to provide additional indemnification rights to its
officers and directors, and to indemnify them to the greatest extent possible
under the DGCL. The Company has entered into indemnification agreements with
each of its officers and directors and intends to enter into indemnification
agreements with each of its future officers and directors. Pursuant to such
indemnification agreements, the Company has agreed to indemnify its officers
and directors against certain liabilities, including liabilities arising out of
the offering made by this Registration Statement.
The Company maintains a standard form of officers' and directors' liability
insurance policy which provides coverage to the officers and directors of the
Company for certain liabilities, including certain liabilities which may arise
out of this Registration Statement.
The Underwriting Agreement filed as Exhibit 1.1 hereto provides for reciprocal
indemnification between the Company and its controlling persons, on the one
hand, and the Underwriters and their controlling persons, on the other hand,
against certain liabilities in connection with this offering, including
liabilities under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<S> <C>
1.1+ Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1, dated July 24, 1987).
3.2 By-laws of the Company (Incorporated by reference to the Company's Current Report on Form
8-K, dated September 16, 1996).
4.1 Form of Certificate of Designation of Series A Convertible Preferred Stock, par value $.01 per
share (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K, dated March 13, 1996).
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.2 Form of Certificate of Designation of Series B Convertible Preferred Stock, par value $.01 per
share (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K, dated June 10, 1997).
5.1+ Opinion of Proskauer Rose LLP.
10.1 Lease Agreement, dated January 16, 1987, between the Company and Powder Horn Associates
(Incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on
Form S-1, dated July 24, 1987).
10.2 1992 Long-Term Incentive Plan (Incorporated by reference to Exhibit A to the Company's
Proxy Statement, dated May 30, 1997).
10.3 1995 Non-Employee Directors' Incentive Plan (Incorporated by reference to Exhibit B to the
Company's Proxy Statement, dated May 30, 1997).
10.4 Agent's Warrant issued in connection with the placement of 8% Convertible Debentures
(Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
10.5 Form of Registration Rights Agreement in connection with Series A Convertible Preferred Stock
(Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated March 13, 1996).
10.6 Agent's Warrant issued in connection with the placement of Series A Convertible Preferred
Stock (Incorporated by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.7+ Form of Lock-Up Warrant issued to certain holders of Series A Convertible Preferred Stock.
10.8 Form of Registration Rights Agreement in connection with the Series B Convertible Preferred
Stock (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K, dated June 10, 1997).
10.9 Form of Warrant to be issued in connection with the issuance of Series B Convertible Preferred
Stock (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated June 10, 1997).
10.10 Rights Agreement, dated as of September 16, 1996, between Celgene Corporation and
American Stock Transfer & Trust Company (Incorporated by reference to the Company's
Registration Statement on Form 8-A, filed on September 16, 1996).
10.11 Form of indemnification agreement between the Company and each officer and director of the
Company (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.12+ Form of Employment Agreement dated September 30, 1997 between the Company and John W.
Jackson.
10.13+ Form of Employment Agreement dated September 30, 1997 between the Company and Sol J.
Barer.
10.14+ Manufacturing Agreement between Penn Pharmaceuticals Limited and the Company.
23.1* Consent of KPMG Peat Marwick LLP
23.2+ Consent of Proskauer Rose LLP (included in Exhibit 5.1).
23.3* Consent of Mathews, Collins, Shepherd and Gould, P.A.
23.4* Consent of Kleinfeld, Kaplan & Becker.
24.1+ Powers of Attorney (included with signature page).
</TABLE>
*Filed herewith.
+Previously filed.
II-2
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of a
registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Warren, State of New Jersey on
November 17, 1997.
CELGENE CORPORATION
By: /s/ John W. Jackson
--------------------
John W. Jackson
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to the
Registration Statement has been signed below on November 17, 1997 by the
persons whose signatures appear below, which persons have signed such
Registration Statement in the capacities indicated:
Signature Title
- --------------------------- --------------------------
/s/ John W. Jackson Chairman of the Board and
- ------------------------- Chief Executive Officer
John W. Jackson
/s/ Sol J. Barer Director
- -------------------------
Sol J. Barer
* Director
- -------------------------
Frank T. Cary
* Director
- -------------------------
Arthur Hull Hayes, Jr.
* Director
- -------------------------
Richard C. E. Morgan
* Director
- -------------------------
Walter L. Robb
II-4
<PAGE>
*
- -------------------------
Lee J. Schroeder Director
/s/ Robert C. Butler Chief Financial Officer
- ------------------------- (Principal Financial Officer)
Robert C. Butler
/s/ James R. Swenson Controller (Principal
- ------------------------- Accounting Officer)
James R. Swenson
* = By: /s/ Sol J. Barer
- -------------------------
Sol J. Barer
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1.1+ Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1, dated July 24, 1987).
3.2 By-laws of the Company (Incorporated by reference to the Company's Current Report on Form
8-K, dated September 16, 1996).
4.1 Form of Certificate of Designation of Series A Convertible Preferred Stock, par value $.01 per
share (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K, dated March 13, 1996).
4.2 Form of Certificate of Designation of Series B Convertible Preferred Stock, par value $.01 per
share (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K, dated June 10, 1997).
5.1+ Opinion of Proskauer Rose LLP.
10.1 Lease Agreement, dated January 16, 1987, between the Company and Powder Horn Associates
(Incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on
Form S-1, dated July 24, 1987).
10.2 1992 Non-Employee Directors' Incentive Plan (Incorporated by reference to Exhibit B to the
Company's Proxy Statement, dated April 17, 1992).
10.3 1995 Non-Employee Directors' Incentive Plan (Incorporated by reference to Exhibit B to the
Company's Proxy Statement, dated May 30, 1997).
10.4 Agent's Warrant issued in connection with the placement of 8% Convertible Debentures
(Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
10.5 Form of Registration Rights Agreement in connection with Series A Convertible Preferred Stock
(Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated March 13, 1996).
10.6 Agent's Warrant issued in connection with the placement of Series A Convertible Preferred
Stock (Incorporated by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.7+ Form of Lock-Up Warrant issued to certain holders of Series A Convertible Preferred Stock.
10.8 Form of Registration Rights Agreement in connection with the Series B Convertible Preferred
Stock (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K, dated June 10, 1997).
10.9 Form of Warrant to be issued in connection with the issuance of Series B Convertible Preferred
Stock (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated June 10, 1997).
10.10 Rights Agreement, dated as of September 16, 1996, between Celgene Corporation and
American Stock Transfer & Trust Company (Incorporated by reference to the Company's
Registration Statement on Form 8-A, filed on September 16, 1996).
10.11 Form of indemnification agreement between the Company and each officer and director of the
Company (Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.12+ Form of Employment Agreement dated September 30, 1997 between the Company and John W.
Jackson.
10.13+ Form of Employment Agreement dated September 30, 1997 between the Company and Sol J.
Barer.
10.14+ Manufacturing Agreement between Penn Pharmaceuticals Limited and the Company.
23.1* Consent of KPMG Peat Marwick LLP
23.2+ Consent of Proskauer Rose LLP (included in Exhibit 5.1).
23.3* Consent of Mathews, Collins, Shepherd and Gould, P.A.
23.4* Consent of Kleinfeld, Kaplan & Becker
24.1+ Powers of Attorney (included with signature page).
</TABLE>
*Filed herewith.
+Previously filed.
II-6
CELGENE CORPORATION
- --------------------------------------------------------------------------------
Exhibit 23.1
Accountants' Consent
The Board of Directors
Celgene Corporation
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
(signed)
New York, NY
November 17, 1997
Patent Attorneys' Consent
The Board of Directors and Stockholders
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
We have reviewed and approved the statements in the prospectus (the
"Prospectus"), contained in the Registration Statement on Form S-3 of Celgene
Corporation (the "Company"), under the captions "Risk Factors--Dependence on
Patent and Proprietary Rights" and "Business--Patents and Proprietary
Technology," and we hereby consent to the reference to our firm under the
caption "Experts" in the Prospectus and any amendments thereto.
This consent may be incorporated by reference into a subsequent registration
statement pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
with respect to the registration of additional shares of Common Stock of the
Company.
/s/ Mathews, Collins, Shepherd & Gould, P.A.
--------------------------------------------
Mathews, Collins, Shepherd & Gould, P.A.
November 17, 1997
Food and Drug Regulatory Counsels' Consent
The Board of Directors and Stockholders
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
We hereby consent to be named as "Experts" in the registration statement on Form
S-3 filed contemporaneously herewith.
/s/ Kleinfeld, Kaplan & Becker
------------------------------
Kleinfeld, Kaplan & Becker
November 17, 1997
