FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to _____________
Commission File Number 0-16132
CELGENE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-2711928
- -------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
7 Powder Horn Drive, Warren, NJ 07059
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 732-271-1001.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |x| No ___
At October 31, 1998, 16,413,059 shares of Common Stock par value $.01 per share,
were outstanding.
<PAGE>
CELGENE CORPORATION
INDEX TO FORM 10-Q
Page No.
PART I FINANCIAL INFORMATION
Item I Unaudited Condensed Financial Statements
Condensed Balance Sheets as of
September 30, 1998 (unaudited)
and December 31, 1997 3
Condensed Statements of
Operations - Nine-month Periods Ended
September 30, 1998 and 1997 (unaudited) 4
Condensed Statements of
Operations - Three-month Periods Ended
September 30, 1998 and 1997 (unaudited) 5
Condensed Statements of
Cash Flows - Nine-month Periods Ended
September 30, 1998 and 1997 (unaudited) 6
Notes to Unaudited Condensed Financial
Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative disclosures about 15
Market Risk
PART II OTHER INFORMATION 16
Signatures
2
<PAGE>
CELGENE CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30,1998 Dec. 31, 1997
------------------------ ------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,267,833 $ 13,583,445
Marketable securities available for sale 3,030,340 -
Accounts receivable 1,042,321 1,430,384
Inventory 317,437 -
Other current assets 223,618 353,266
Assets held for disposal - 485,170
------------------------ -----------------------
Total current assets 13,881,549 15,852,265
Plant and equipment, net 2,355,553 2,286,024
Other assets 79,167 79,167
------------------------ -----------------------
Total assets $ 16,316,269 $ 18,217,456
======================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,975,067 $ 842,262
Accrued expenses 2,080,458 1,248,762
Capitalized lease obligations 225,372 210,499
Other Current Liabilities 159,710 140,171
------------------------ -----------------------
Total current liabilities 4,440,607 2,441,694
Capitalized lease obligation-net of current portion 266,376 350,670
Long Term Debt 8,312,500 -
------------------------ -----------------------
Total liabilities 13,019,483 2,792,364
------------------------ -----------------------
Stockholders' equity:
Preferred stock, $.01 par value per share
5,000,000 shares authorized; Series
A convertible, redeemable, cumulative
preferred; none outstanding at
September 30,1998 and 74 shares issued
and outstanding at December 31, 1997 plus
$329,455 accretion premium. - 4,029,455
Common stock, $.01 par value per share
30,000,000 shares authorized at
September 30,1998 and 20,000,000 shares
authorized at December 31,1997;
issued and outstanding 16,413,059
and 15,427,949 shares at September 30,
1998 and December 31,1997, respectively. 164,131 154,279
Common stock in treasury, at cost - none at
September 30,1998 and 22,888 at
December 31,1997. - (76,535)
Additional paid-in capital 139,370,358 130,838,433
Accumulated deficit (136,237,703) (119,520,540)
------------------------ -----------------------
Total stockholders' equity 3,296,786 15,425,092
------------------------ -----------------------
Total liabilities and stockholders' equity $ 16,316,269 $ 18,217,456
======================== =======================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CELGENE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended September 30,
-------------------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Revenues:
Product Sales $ 1,030,838 $ -
Research contracts 105,000 807,068
--------------------- ---------------------
Total Revenues $ 1,135,838 $ 807,068
Expenses:
Cost of Goods Sold 59,270 -
Research and development 13,968,657 12,419,691
Selling, general and administrative 11,207,326 5,533,113
--------------------- ---------------------
Total Expenses 25,235,253 17,952,804
Operating Loss (24,099,415) (17,145,736)
Interest income 497,100 441,436
Interest expense 45,192 104,866
--------------------- ---------------------
Loss from continuing operations (23,647,507) (16,809,166)
Discontinued Operations: (Note 6)
Loss from operations (59,837) (746,075)
Gain on sale of chiral assets 7,014,830 -
--------------------- ---------------------
Net income (loss) (16,692,514) (17,555,241)
Accretion of premium payable on preferred
stock 24,648 474,317
Deemed dividend on preferred shares - 953,077
--------------------- ---------------------
Net income (loss) applicable to common
shareholders $(16,717,162) $(18,982,635)
===================== =====================
Per share basic and diluted :
Loss from continuing operations $ (1.47) $ (1.44)
Discontinued operations:
Loss from operations $ (0.00) $ (0.06)
Gain on sale of chiral assets $ 0.44 $ -
Net income (loss) applicable to common
shareholders per basic share of common stock $ (1.04) $ (1.63)
===================== =====================
Weighted average number of shares of
common stock outstanding 16,062,000 11,647,000
===================== =====================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CELGENE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended September 30,
------------------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Revenues:
Product Sales $ 1,030,838 $ -
Research contracts 25,000 283,986
---------------------- ----------------------
Total Revenues 1,055,838 283,986
Expenses:
Cost of Goods Sold 59,270 -
Research and development 5,238,106 3,899,085
Selling, general and administrative 3,876,150 2,165,978
---------------------- ----------------------
Total Expenses 9,173,526 6,065,063
Operating Loss (8,117,688) (5,781,077)
Interest income 136,262 99,034
Interest expense 39,086 10,377
---------------------- ----------------------
Loss from continuing operations (8,020,512) (5,692,420)
Discontinued Operations: (Note 6)
Loss from operations - (406,490)
---------------------- ----------------------
Net income (loss) (8,020,512) (6,098,910)
Accretion of premium payable on preferred
stock - 158,675
Deemed dividend on preferred shares - 893,510
Net income (loss) applicable to common
shareholders ---------------------- ----------------------
$ (8,020,512) $ (7,151,095)
====================== ======================
Per share basic and diluted :
Loss from continuing operations $ (0.49) $ (0.46)
Discontinued operations:
Loss from operations $ 0.00 $ (0.03)
Net income (loss) applicable to common
shareholders per basic share of common stock $ (0.49) $ (0.58)
====================== ======================
Weighted average number of shares of
common stock outstanding 16,399,000 12,362,000
====================== ======================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASHFLOW
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended September 30,
--------------------------------------------------------
1998 1997
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $(23,647,507) $(16,809,166)
Depreciation 575,575 530,815
Amortization of deferred compensation - 1,133
Interest on convertible debentures - 68,736
Issuance of stock award - 55,625
Shares issued for employee benefit plans 463,606 78,955
Change in current assets & liabilities:
Increase in Inventory (317,437) -
Increase in accounts payable
and accrued expenses 1,984,036 65,151
Decrease in accounts receivable 388,063 290,893
Decrease in other assets 129,648 58,376
shareholders ---------------------- ----------------------
Net cash used in continuing operations (20,424,016) (15,659,482)
Net cash used in discontinued operations (59,837) (920,668)
---------------------- ----------------------
Net cash used in operating activities (20,483,853) (16,580,150)
---------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (645,104) (990,123)
Proceeds from sales and maturities of marketable
securities available for sale 7,086,154 41,750,254
Purchases of marketable securities
available for sale (10,116,494) (29,390,956)
Proceeds from sale of chiral assets 7,500,000 -
---------------------- ----------------------
Net cash provided by (used in) investing activities 3,824,556 11,369,175
---------------------- ----------------------
Cash Flows from financing activities:
Costs related to secondary public offering (73,136) -
Proceeds from sale of stock 2,500,000 -
Net proceeds from exercise of common stock
options and warrants 1,673,740 12,695
Redemption of Series A preferred stock - (721,287)
Proceeds from sale of preferred stock, net - 4,840,748
Capital lease buyout (329,614) -
Capital lease funding 260,195 631,496
Proceeds from convertible note, net 8,312,500 -
---------------------- ----------------------
Net cash provided by financing activities 12,343,685 4,763,652
---------------------- ----------------------
Net (decrease) increase in cash and cash
equivalents (4,315,612) (447,323)
Cash and cash equivalents at beginning of period 13,583,445 922,961
---------------------- ----------------------
Cash and cash equivalents at end of period $ 9,267,833 $ 475,638
====================== ======================
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASHFLOW (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended September 30,
--------------------------------------------------------
1998 1997
---------------------- ----------------------
<S> <C> <C>
Non - cash financing activities:
Issuance of common stock upon the conversion
of Series A convertible preferred stock and
accretion thereon, net $4,054,103 $14,329,972
====================== ======================
Accretion of premium payable on preferred
stock and warrants $ 24,648 $ 474,317
====================== ======================
Accretion of deemed dividend and warrants on
Series B preferred stock $ - $ 953,077
====================== ======================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements
September 30, 1998
1. Basis of Presentation
The unaudited condensed financial statements have been prepared from the
books and records of Celgene Corporation (the "Company") in accordance with
generally accepted accounting principles for interim financial information
pursuant to Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Interim results may not be indicative of the results that may be
expected for the year. During the quarter ended September 30,1998, the
Company commenced shipments of its first FDA approved product. The Company
recognizes revenue upon product shipment.
The interim condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
latest annual report on Form 10K.
2. Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock ("Preferred Stock"), plus
accretion at a rate of 4.9% per year, was 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.
As of February 23, 1998, all 503 shares of the Series A Preferred Stock,
with their respective accretion, had been converted or redeemed into
3,342,202 shares of Common Stock. Through February 23, 1998 the Company had
accrued $1,420,770 representing accretion of the premium on the Preferred
Stock.
3. Warrants to Acquire Common Stock
Under the terms of a private placement of Series B Preferred Stock with
Chancellor LGT Asset Management, Inc. ("Chancellor") entered into on June
9, 1997, the Company is obligated to issue warrants to Chancellor to
acquire a number of shares of Common Stock equal to (i) 1,500,000 divided
by the Conversion Price ($6.50 at September 30, 1998) in effect on the
issuance date (230,769 warrants as of September 30, 1998) 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, 1998). 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. As of December
31, 1997 all shares of Series B Preferred Stock had been converted to
shares of Common Stock.
8
<PAGE>
4. Convertible Note
On September 16, 1998, the Company issued to an institutional investor an
$8,750,000 convertible note due September 16, 2003. The proceeds were net
of a 5% fee or $437,500, the cost of which will be amortized over a three
year period. The note bears interest at 9.25% which is payable
semi-annually on March 16 and September 16 each year. The Company may, at
its election, pay all or a portion of the interest on this security in
shares of Common Stock. The note is convertible into 795,463 shares of
Common Stock at a price equal to $11 per share, which was 125% of the fair
market value of the Company's Common Stock at the date of issuance. The
Company can, at its election, redeem the Security in three years, (two
years under certain conditions) at 103% of the principal amount.
5. Marketable Securities Available for Sale
Marketable securities available for sale at September 30,1998 include debt
securities with maturities ranging from November,1998 to March, 1999. A
summary of marketable securities at September 30, 1998 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Commercial Paper $ 976,973 $ - $ - $ 976,973
Government Bonds & Notes 1,048,007 - - 1,048,007
Corporate Bonds 1,005,360 - - 1,005,360
------------------ ------------------ ------------------ -------------------
Total $3,030,340 $ - $ - $3,030,340
================== ================== ================== ===================
</TABLE>
6. Discontinued Operations
On January 9, 1998, the Company sold its chiral intermediates business to
Cambrex Corporation for approximately $15.0 million. The terms of the
agreement provided for the sale of chiral assets of approximately $485,000
for proceeds of $7.5 million on the contract date plus future royalties
with a present value not exceeding $7.5 million, with certain minimum
royalty payments in the third through sixth year following the closing of
the transaction. Included in the transaction are the rights to the
Company's enzymatic technology for the production of chirally pure
intermediates for the pharmaceutical industry, including the current
pipeline of third party products and the equipment and personnel associated
with the business.
7. New Accounting Pronouncement
Effective January 1, 1998, the Company adopted Statement of Financial
Standards (SFAS) No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive income,
which consists of all changes in equity from non-shareholder sources. Prior
year financial statements conform to the requirements of SFAS No. 130.
Comprehensive income includes net income and other comprehensive income
which refers to those revenues, expenses, gains and losses which are
excluded from net income. Other comprehensive income includes unrealized
gains and losses on marketable securities classified as
9
<PAGE>
available-for-sale, which prior to adoption were reported separately in
shareholders' equity.
<TABLE>
<CAPTION>
Three Months ended
------------------------------------------------------------------
September 30, 1998 September 30, 1997
------------------------------- ------------------------------
<S> <C> <C>
Net Loss $(8,020,512) $(7,151,095)
Other Comprehensive Loss - (182)
------------ ------------
Total Comprehensive Loss $(8,020,512) $(7,151,277)
============ ============
<CAPTION>
Nine Months ended
-------------------------------------------------------------------
September 30, 1998 September 30, 1997
------------------------------ --------------------------------
<S> <C> <C>
Net Loss $(16,717,162) $(18,982,635)
Other Comprehensive Loss - (5,586)
------------ ------------
Total Comprehensive Loss $(16,717,162) $(18,988,221)
============ ============
</TABLE>
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued and is effective for financial statements
beginning January 1, 2000. SFAS No. 133 requires derivative instruments to
be recognized as Assets and Liabilities and be recorded at Fair Value. The
Company is currently not party to any Derivative Instruments. Any future
transactions involving Derivative Instruments will be evaluated based on
SFAS No.133.
10
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Nine month period ended September 30, 1998 vs.
Nine month period ended September 30,1997
Total Revenues. The Company's total revenues for the nine months ended
September 30, 1998 increased significantly to approximately $1.1 million from
approximately $807,000 in the same period of 1997. Revenue for the current year
consisted primarily of product sales of THALOMID (thalidomide), the Company's
first FDA approved pharmaceutical product which was launched in late September.
The revenue for 1997 consisted entirely of research contracts.
Cost of Goods Sold. Cost of Goods sold for the nine months ended
September 30, 1998 was approximately $59,000 related to the initial sales of
Thalomid. The Cost of Goods was significantly lower than would normally be
anticipated as most of the inventory production cost was expensed prior to the
FDA approval of Thalomid.
Research and development expenses. Research and development expenses
increased 12%, to $14.0 million in 1998 from $12.4 million in the same period in
1997. The increase was due primarily to increased spending for university
programs, approximately $731,000, primarily The University of Glasgow and
Rockefeller University, and increased clinical trial costs, approximately
$848,000, primarily due to increased clinical trial activity for Thalomid and
d-methylphenidate
Selling, general and administrative expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1998 increased
by 103% to approximately $11.2 million from $5.5 million in the same period of
1997. The increase was due primarily to the formation of a sales force and
related expenses, approximately $4.3 million, and a medical affairs and drug
safety department, approximately $0.7 million, both in anticipation of the
commercial launch of Thalomid which was approved by the FDA on July 16, 1998,
and an increase of $0.4 in the finance and MIS departments related to the
installation of a client-server network, a new accounting system and other
system upgrades both in preparation for the transition of the Company to a
commercial operation and to resolve "Y2K" issues.
Interest income and expense. Interest income for the first nine months
of 1998 increased 13% to approximately $497,000 from $441,000 in the same period
of 1997. The increase was due to higher average cash balances in 1998. Interest
expense decreased to approximately $45,000 from $105,000 in 1997. The decrease
was due to the conversion to equity by mid 1997 of all of the 8% Convertible
Debentures.
Net loss from continuing operations. The net loss from continuing
operations for the period ended September, 1998 increased by 41% to $23.6
million from $16.8 million in the same period of 1997. The increase was due
primarily to the increased spending on the sales and marketing
11
<PAGE>
organization and the medical affairs and drug safety department as well
as increased clinical trial activity, all as described above.
Discontinued operations. The net loss from discontinued operations
decreased significantly in the first nine months of 1998 to approximately
$60,000 from $746,075 in the same period of 1997. The decrease was due to the
sale of the Chiral Intermediates business on January 9, 1998. The $60,000 loss
in 1998 represents expenses for the nine day period preceding the sale. The loss
in 1997 represents revenues of approximately $1.0 million offset by expenses of
$1.8 for the discontinued operations.
Three month period ended September 30, 1998 vs.
Three month period ended September 30, 1997
Total Revenues. Revenues for the three month period ended September 30,
1998 were $1.1 million compared with $284,000 in the same period in 1997.
Revenues in 1998 were primarily from sales of Thalomid, the Company's first FDA
approved commercial product. Revenues during the same period in 1997 were
entirely from research contracts, primarily with one customer.
Cost of Goods Sold. Cost of Goods Sold for the quarter was
approximately $59,000 related to the initial sales of Thalomid. The Cost of
Goods was significantly lower than would ordinarily be expected as most of the
production cost of the inventory was expensed prior to FDA approval.
Research and development expenses. Research and development expenses
for the third quarter 1998 increased 34% to $5.2 million from $3.9 million in
the same period in 1997. The increase in spending was due to an increase in
expenses associated with preclinical toxicology studies, approximately $366,000,
clinical trials, approximately $743,000, and expenses associated with external
process development, approximately $186,000, related primarily to increased
clinical trial activity for Thalomid and d-methylphenidate, preclinical
toxicology studies for SelCIDs and IMids and development of formulation and
dosage manufacturing procedures for d-methylphenidate.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 79% to approximately $3.9 million in the
third quarter 1998 versus $2.2 million during the same period in 1997. The
increase was primarily in sales and marketing, $1.2 million, as a full sales
staff was added and marketing activities were increased, and the medical affairs
and drug safety department was expanded, $185,000, both in preparation for the
approval and commercial launch of Thalomid. All other expenses increased
approximately $300,000 in the aggregate.
Interest income and expense. Interest income increased 37% in the third
quarter 1998 versus the same period in 1997, to approximately $136,000 from
$99,000, due to higher average cash balances. Interest expense increased to
approximately $39,000 from $10,000 due primarily to
12
<PAGE>
interest related to the $8.75 million 9.25% Convertible Note issued in
September.
Net loss from continuing operations. The net loss from continuing
operations for the third quarter 1998 increased 41% over the same period in 1997
to approximately $8.0 million from $5.7 million. The increased loss was due
primarily to the increase in research spending and sales and marketing and
medical affairs and drug safety expenses, all as described above.
Discontinued Operations. There was no discontinued operation activity
in the third quarter of 1998 as the chiral intermediate business was sold on
January 9, 1998. Discontinued operations in the third quarter 1997 of
approximately $406,000 consisted of revenues of $137,000 offset by expenses
$544,000.
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 research contracts and product sales from
certain businesses which the company has since sold. The company has raised
approximately $99.0 million in net proceeds from three public and three private
offerings, including its initial public offering in July 1987.
The Company's net working capital at September 30, 1998 was
$9.4 million versus $13.4 at December 31, 1997. The decrease was due to an
increase in costs. Net working capital consisted principally of cash, cash
equivalents, marketable securities, and accounts receivable.
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 may need to seek additional capital resources. However, no assurances
can be given that the Company will be successful in raising additional capital.
To this end, the Company is in active discussions with potential corporate
partners as well as discussing funding options with financial institutions and
various financial advisors in the event that additional resources are required.
In June Celgene signed a license and distribution agreement with
Biovail Laboratories granting exclusive distribution rights in Canada to Biovail
for d-methylphenidate. In early July, Biovail purchased $2.5 million of
Celgene's common stock at a 25% premium to the market price.
In September 1998, the Company issued a $8,750,000 convertible note to
an institutional investor. The note has a five year term and a coupon rate of
9.25% with interest payable on a semi-annual basis. The debt contains a
conversion feature that allows the note holder to convert the debt into common
shares after one year at $11 per share, a 25% premium to the market price at
closing.
13
<PAGE>
The Company entered into research agreements with two major
multinational agrochemical companies. In these agreements, the Company's
subsidiary, Celgro, would apply its proprietary biocatalytic technology to
develop cost effective manufacturing processes to produce certain chirally pure
compounds. The agreements call for certain up-front payments, milestone
payments, funding of research and development expenses and royalties on
commercialization of the products.
Year 2000 Computer Systems Compliance
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 ("Y2K") to mean
the year 1900 instead. If not corrected, those programs could cause date-related
transaction failures. The Company's Chief Information Officer, in conjunction
with outside consultants is in the process of assessing the Company's systems
with regard to "Y2K" compliance and to recommend and implement year 2000
compliant systems.
Since the Company was transitioning from a research and development
company to a commercial operation, pending FDA approval of the Company's lead
product Thalomid, the Company had already begun an assessment of Information
Technology needs to support the evolving structure. During the first nine months
of 1998, the Company replaced all personal computers, with the exception of
several computers connected to laboratory analytic equipment, with Year 2000
compliant machines. All applications other than those used in the laboratory
equipment, are Year 2000 Compliant. The Company is confident that by year end
1998, all critical systems and software will have been addressed and an
assessment as to the date critical nature of the laboratory computers will be
complete with a plan to replace those machines if necessary by early 1999. The
Company has spent less than $1.0 million on the systems upgrades to date.
Additional expenditures are expected to be less than $500,000. The Company uses
outside vendors to produce, encapsulate, package, process orders, invoice and
maintain accounts receivable records for Thalomid. The Company is in the process
of receiving certifications from such vendors that the systems utilized are or
will be "Y2K" compliant before the end of 1999. Based on current plans and
efforts to date, the Company expects that there will be no material adverse
effect on operations. There can be no assurance, however, that all problems will
be foreseen and corrected, that Year 2000 problems at the Company's vendors,
customers, and at governmental agencies will not adversely affect the Company,
or that no material disruption of the Company's business will occur as a result
of Year 2000 problems. Accordingly, the Company is developing contingency plans
to address the possible occurrence of Year 2000 problems. Such plans are
expected to be in place well before the end of 1999.
The statements contained in the foregoing Year 2000 readiness disclosure are
subject to certain protection under the Year 2000 Information and Readiness
Disclosure Act.
14
<PAGE>
Cautionary Statements for Forward-Looking Information
The Management's Discussion and Analysis of Financial Condition and
Results of Operations provided above contains certain forward-looking statements
which involve known and unknown risks, delays, uncertainties and other factors
not under the Company's control which may cause actual results, performance and
achievements of the Company to be materially different from the results,
performance or other expectations implied by these forward-looking statements.
These factors include results of current or pending clinical trials, actions by
the FDA and other factors detailed herein and in the Company's other filings
with the Securities and Exchange Commission.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company currently does not use derivative financial instruments.
The warrants associated with the issuance of the Company's Series B Preferred
Stock currently have a conversion price of $7.48 which is based on 115% of a
defined conversion price which is currently $6.50. The conversion price can be
reset if the stock price were to fall below $6.50. Once the warrants are issued,
the conversion price can no loner be reset.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4 - None
Item 5 - None
Item 6. Exhibits
A. 27 Financial Data Schedule - Article 5 for third quarter
Form 10-Q.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CELGENE CORPORATION
DATE November 13, 1998 BY /S/John W. Jackson
---------------------- -------------------------------
John W. Jackson
Chairman of the Board
Chief Executive Officer
DATE November 13, 1998 BY /s/James R. Swenson
---------------------- -------------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
17
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