<PAGE>
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 June 30, 1999
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
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2711928
------------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. 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 July 31, 1999, 16,982,574 shares of Common Stock par value $.01 per share,
were outstanding.
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CELGENE CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item I Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1999 (unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of
Operations - Six-Month Periods Ended
June 30, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of 5
Operations - Three-Month Periods Ended
June 30, 1999 and 1998 (unaudited)
Consolidated Statements of
Cash Flows - Six-Month Periods Ended
June 30, 1999 and 1998 (unaudited) 6
Notes to Unaudited Condensed Consolidated
Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 16
PART II OTHER INFORMATION 17
Signatures 19
</TABLE>
2
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CELGENE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30,1999 December 31, 1998
------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,325,241 $ 3,066,953
Marketable securities available for sale 4,312,047 2,056,890
Accounts receivable, net of allowance of $90,334 at
June 30, 1999 and $43,386 at December 31, 1998 3,803,824 2,662,389
Inventory 2,148,428 1,571,408
Other current assets 817,766 229,060
------------ ------------
Total current assets 17,407,306 9,586,700
Plant and equipment, net 2,130,778 2,262,130
Other assets 454,167 79,167
------------ ------------
Total assets $ 19,992,251 $ 11,927,997
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 5,946,590 $ 3,848,853
Accrued expenses 3,951,259 3,041,859
Capitalized lease obligations 225,372 225,372
------------ ------------
Total current liabilities 10,123,221 7,116,084
Capitalized lease obligation-net of current portion 90,122 195,578
Long term convertible notes 23,421,877 8,348,959
------------ ------------
Total liabilities 33,635,220 15,660,621
------------ ------------
Stockholders' equity (deficit):
Common stock, $.01 par value per share
30,000,000 shares authorized at June 30,1999 and
December 31,1998; issued and outstanding 16,975,511 and
16,612,973 shares at June 30, 1999 and December 31, 1998,
respectively. 169,755 166,130
Additional paid-in capital 143,669,137 140,714,314
Accumulated deficit (157,430,431) (144,613,068)
Accumulated other comprehensive loss (51,430) -
------------ ------------
Total stockholders' (deficit) (13,642,969) (3,732,624)
------------ ------------
Total liabilities and stockholders' (deficit) $ 19,992,251 $ 11,927,997
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CELGENE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period Ended June 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Product Sales $ 8,748,326 $ -
Research contracts 1,307,500 80,000
------------ ----------
Total Revenues 10,055,826 80,000
Expenses:
Cost of Goods Sold 1,374,641 -
Research and development 9,432,815 8,730,570
Selling, general and administrative 11,228,154 7,331,158
------------ ----------
Total Expenses 22,035,610 16,061,728
Operating Loss (11,979,784) (15,981,728)
Interest income 255,443 360,838
Interest expense 1,093,022 6,106
------------ ----------
Loss from continuing operations (12,817,363) (15,626,996)
Discontinued Operations: (Note 7)
Loss from operations - (59,837)
Gain on sale of chiral assets - 7,014,830
------------ ----------
Net loss (12,817,363) (8,672,003)
Accretion of premium payable on preferred
stock - 24,648
------------ ----------
Net loss applicable to common
shareholders $(12,817,363) $(8,696,651)
------------ ----------
------------ ----------
Per share basic and diluted :
Loss from continuing operations $ (0.76) $ (0.98)
Discontinued operations:
Loss from operations $ - $ (0.00)
Gain on sale of chiral assets $ 0.44
Net loss applicable to common
shareholders per basic share of common stock $ (0.76) $ (0.55)
------------ ----------
------------ ----------
Weighted average number of shares of
common stock outstanding 16,839,000 15,891,000
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CELGENE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended June 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Product Sales $ 5,256,258 $ -
Research contracts 495,000 -
---------- ----------
Total Revenues 5,751,258 -
Expenses:
Cost of Goods Sold 718,790 -
Research and development 4,917,511 4,790,343
Selling, general and administrative 5,902,752 4,105,243
---------- ----------
Total Expenses 11,539,053 8,895,586
Operating Loss (5,787,795) (8,895,586)
Interest income 109,449 110,977
Interest expense 547,227 4,742
---------- ----------
Net Loss (6,225,573) (8,789,351)
---------- ----------
---------- ----------
Per share basic and diluted :
Net Loss $ (0.37) $ (0.55)
Weighted average number of shares of
common stock outstanding 16,921,000 16,105,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period Ended June 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $(12,817,363) $(15,626,996)
Adjustments to reconcile loss from continuing
operations to net cash used in operating
activities:
Depreciation 444,198 381,508
Issuance of stock for employee benefits 799,823 463,606
Provision for doubtful accounts 46,948 --
Amortization of debt issuance costs 125,000 --
Amortization of discount on convertible note 72,918 --
Change in current assets & liabilities:
Increase in Inventory (577,020) --
Increase in accounts payable
and accrued expenses 3,007,136 2,140,320
(Increase) Decrease in accounts receivable (1,188,383) 1,427,884
Increase in other assets (338,705) (204,402)
------------ ------------
Net cash used in continuing operations (10,425,448) (11,418,080)
Net cash used in discontinued operations -- (59,837)
------------ ------------
Net cash used in operating activities (10,425,448) (11,477,917)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (312,846) (289,263)
Proceeds from sales and maturities of marketable
securities available for sale 1,995,132 4,429,673
Purchases of marketable securities
available for sale (4,301,719) (9,068,486)
Proceeds from sale of chiral assets -- 7,500,000
------------ ------------
Net cash provided by (used in) investing activities (2,619,433) 2,571,924
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Costs related to secondary public offering -- (73,136)
Proceeds from exercise of common stock
options and warrants 2,158,625 1,137,661
Capital lease buyout (105,456) (271,519)
Debt issuance costs (750,000) --
Proceeds from convertible note 15,000,000 --
------------ ------------
Net cash provided by (used in) financing activities 16,303,169 793,006
------------ ------------
Net (decrease) increase in cash and cash
equivalents 3,258,288 (8,112,987)
Cash and cash equivalents at beginning of period 3,066,953 13,583,445
------------ ------------
Cash and cash equivalents at end of period $ 6,325,241 $ 5,470,458
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
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CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period Ended June 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
NON-CASH INVESTING ACTIVITY:
Change in net unrealized loss on marketable
securities available for sale $ (51,430) $ --
---------- ----------
---------- ----------
NON - CASH FINANCING ACTIVITIES:
Issuance of common stock upon the conversion
of Series A convertible preferred stock and
accretion thereon, net $ -- $4,054,103
---------- ----------
---------- ----------
Accretion of premium payable on preferred
stock and warrants $ -- $ 24,648
---------- ----------
---------- ----------
Interest Paid $ 7,383 $ 6,106
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
CELGENE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
The unaudited condensed consolidated 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.
The interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10K.
2. SERIES A. CONVERTIBLE A 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, upon the request of the purchasers of the Series B Preferred, 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 June 30, 1999) in effect on the issuance date (230,769 warrants as
of June 30, 1999) 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 June 30, 1999). 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 June 30, 1999 no warrants have been issued.
8
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4. STOCK BASED COMPENSATION
On June 22, 1999, an amendment to the 1995 Non-Employee Directors' Incentive
Plan was approved by the Company's stockholders. The amendment increased the
number of shares that may be issued upon exercise of options granted from
350,000 shares to 600,000 shares. The amendment also provides for a
discretionary grant upon the date of each annual meeting of an additional
option to purchase up to 5,000 shares to a non-employee director who serves
as a member (but not a chairman) of a committee of the Board of Directors,
and up to 10,000 shares to a non-employee director who serves as the chairman
of a committee of the Board of Directors.
5. CONVERTIBLE DEBT
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.
On January 20, 1999, the Company issued to an institutional investor a
convertible note in the amount of $15,000,000. The note has a five year term
and a coupon rate of 9% with interest payable on a semi-annual basis. The
note contains a conversion feature that allows the note holder to convert the
note into common shares after one year at $18 per share. The Company can
redeem the note after three years at 103% of the principal amount,(two years
under certain conditions). This note was subject to an issuance cost of
$750,000, or 5%, which is being amortized over three years.
6. MARKETABLE SECURITIES AVAILABLE FOR SALE
Marketable securities available for sale at June 30, 1999 include debt
securities with maturities ranging from June 1999 to August 2004. A summary
of marketable securities at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Government Bonds and Notes $ 1,812,617 -- $ (12,571) $ 1,800,046
Government Agencies 2,550,860 -- (38,859) 2,512,001
----------- --------- ----------- -----------
Total $ 4,363,477 -- $ (51,430) $ 4,312,047
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
7. 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
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$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.
8. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard (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 available-for-sale, which prior to
adoption were reported separately in shareholders' equity.
<TABLE>
<CAPTION>
Three Months ended
------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Net Loss $(6,225,573) $(8,789,351)
Other Comprehensive Loss (51,430) --
------------- -----------
Total Comprehensive Loss $(6,277,003) $(8,789,351)
------------- -----------
------------- -----------
</TABLE>
<TABLE>
<CAPTION>
Six Months ended
------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Net Loss $(12,817,363) $ (8,672,003)
Other Comprehensive Loss (51,430) --
------------- -------------
Total Comprehensive Loss $(12,868,793) $ (8,672,003)
------------- -------------
------------- -------------
</TABLE>
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued and is effective for all fiscal quarters of
all fiscal years beginning after June 15, 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.
9. SUBSEQUENT EVENT
On July 6, 1999, the Company issued a convertible note to an institutional
investor in the amount of $15,000,000. The note has a five
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year term and a coupon rate of 9% with interest payable on a semi-annual
basis. The note contains a conversion feature that allows the note holder to
convert the note into common shares after one year at $19 per share. The
Company can redeem the note after three years at 103% of the principal
amount, (two years under certain conditions). There were no debt issuance
costs or discounts on the note. Accordingly, the Company received the full
amount of the proceeds.
11
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16
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1999 VS.
SIX MONTH PERIOD ENDED JUNE 30,1998
Total Revenues. The Company's total revenues for the six months ended
June 30, 1999 increased significantly to approximately $10.1 million from
$80,000 in the same period of 1998. 1999 revenue for the period consisted of
product sales of THALOMID, $8.7 million, and research contract revenue of $1.3
million . The increase in revenue in 1999 was primarily due to the launch of
THALOMID late in the third quarter of 1998, a milestone payment from an existing
d-methylphenidate research agreement, and several new research agreements with
Celgro.
Cost of Goods Sold. Cost of goods sold during the first six months of
1999 was approximately $1.4 million and relates to THALOMID, the Company's first
commercial pharmaceutical product. The cost of goods sold is lower than
anticipated as raw material, formulation and encapsulation costs of the product
were charged as research and development expense prior to FDA approval.
Research and development expenses. Research and development expenses
increased 8 percent, to $9.4 million in 1999 from $8.7 million in the same
period in 1998. The increase in spending was due to clinical trial costs for
d-methylphenidate, approximately $2.6 million, offset by a decrease in
regulatory consulting fees, approximately $600,000 and formulation and
encapsulation expenses for THALOMID, approximately $1.0 million, both incurred
prior to the FDA approval to market THALOMID in July of 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended June 30, 1998 increased by 53%
to approximately $11.2 million from $7.3 million in the same period of 1998. The
increase was due primarily to the expansion of a sales and marketing
organization and related expenses of approximately $1.2 million and warehousing
and distribution expenses, including the S.T.E.P.S program, of $2.1 million,
both to support the commercial sales of THALOMID. Other cost increases were
incurred for the Medical Affairs and Drug Safety department, approximately
$300,000 and expenses related to the placement of the convertible notes,
approximately $300,000.
Interest income and expense. Interest income for the first six months
of 1999 decreased 29% to approximately $255,000 from $360,000 in the same period
of 1998. The decrease was due to lower average cash balances in 1999. Interest
expense increased
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significantly to approximately $1.1 million from $6,000 in 1998. The increase in
expense was due to the placement of two convertible notes with coupon rates of
9.25% and 9.0% in September of 1998 and January of 1999 respectively.
Net loss from continuing operations. The net loss from continuing
operations for the period ended June 30, 1999 decreased by 18% to $12.8 million
from $15.6 million in the same period of 1998. The decrease was due primarily to
the gross profit on the sales of THALOMID and increased research contract
revenue offset by increased research and development and sales and marketing
expenses as described above.
Discontinued operations. Discontinued operations in 1998 reflects the
one time gain on the sale of the chiral intermediate assets of $7.0 million. The
$60,000 loss in 1998 represents expenses for the nine day period preceding the
sale. There were no discontinued operations in 1999.
THREE MONTH PERIOD ENDED JUNE 30, 1999 VS.
THREE MONTH PERIOD ENDED JUNE 30, 1998
Total Revenues. Revenues for the three month period ended June 30, 1999
were $5.8 million and consisted of THALOMID sales of $5.3 million and research
contract revenue of $495,000. The company received no revenues during the second
quarter 1998.
Cost of Goods Sold. Cost of Goods Sold, related to the sales of
THALOMID, were approximately $719,000 during the second quarter 1999. The cost
of goods sold is lower than expected as raw material, formulation and
encapsulation costs of the product were expensed as research and development
cost prior to FDA approval.
Research and development expenses. Research and development expenses
for the second quarter 1999 were up slightly to approximately $4.9 million from
$4.8 million in the comparable period in 1998. The increase in spending was due
to an increase in spending on clinical trials, primarily for d-methylphenidate,
approximately $1.3 million, offset by decreases in formulation and encapsulation
costs, approximately $600,000, and regulatory consulting fees, approximately
$400,000, both incurred prior to FDA approval.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 44% to approximately $5.9 million in the
second quarter 1999 versus $4.1 million during the same period in 1998. The
increase was primarily in sales and marketing, approximately $600,000, as the
sales staff was expanded and marketing activities were increased, and
warehousing and distribution expenses were incurred,
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<PAGE>
approximately $1.2 million, all related to the sales and marketing of THALOMID.
Interest income and expense. Interest income was essentially flat in
the second quarter 1999 versus the same period in 1998. Interest expense
increased significantly to $547,000 from approximately $5,000 in the second
quarter 1998 and is related to the two convertible notes issued September 1998
and January 1999.
Net loss. The net loss for the second quarter 1999 decreased 29% over
the same period in 1998 to approximately $6.2 million from $8.8 million. The
decreased loss is related primarily to the gross profit on THALOMID sales offset
by increases in sales and marketing and warehousing and distribution expenses as
described above.
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, and an additional
$23 million in convertible notes issued in September 1998 and January 1999.
The Company's net working capital at June 30, 1999 was $7.3 million
versus $2.5 million at December 31, 1998. The increase was attributable to an
increase in cash and marketable securities of $5.5 million, an increase in
accounts receivable and inventory of $1.7 million, and an increase in other
current assets of approximately $600,000, offset by an increase in accounts
payable and accrued expenses of $3.0 million. Net working capital consisted
principally of cash, cash equivalents, and marketable securities, accounts
receivable, inventory and accounts payable and accrued expenses.
Cash and cash equivalents increased by $3.3 million in the first six
months of 1999 and marketable securities increased $2.3 million from December
31, 1998. The increase reflects the receipt in January 1999 of funds from the
issuance of a convertible note as well as increasing revenues from the sales of
THALOMID.
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
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<PAGE>
commercialization of products now in development as well as increased commercial
costs related to the sales and marketing of THALOMID and increasing working
capital requirements. This increased spending will be mitigated by the
collection of receivables resulting from sales of THALOMID. It is anticipated
that the increasing sales of THALOMID as well as an additional $15 million in
cash from a convertible note issued on July 6, 1999 will be sufficient to fund
operations for the remainder of the year at which time it is expected that
commercial operations alone will be sufficient to fund the Company's ongoing
financial requirements.
On July 6, 1999 the Company issued a convertible note to an
institutional investor for $15 million. The note has a coupon rate of 9% with
semi-annual interest payments and a fixed conversion price of $19 per share.
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 has assessed the Company's systems with regard to Y2K
compliance and the implementation for year 2000 compliant systems is nearing
completion.
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 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 has completed an assessment of the laboratory
computers and has begun the replacement of non-Y2K compliant machines. 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
15
<PAGE>
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.
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.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4.- Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 22, 1999. At this
meeting stockholders of the Company were asked to vote for the election of
directors, and act upon the proposals, (1) to approve an amendment to the 1995
Non-Employee Directors' Incentive Plan ("Directors' Option Plan") to (a)
increase the number of shares that may be issued upon exercise of options
granted thereunder from 350,000 shares to 600,000 shares and (b) provide for a
discretionary grant upon the date of each annual meeting of an additional option
to purchase up to 5,000 shares to a non-employee director who serves as a member
(but not a chairman) of a committee of the Board of Directors and up to 10,000
shares to a non-employee director who serves as the chairman of a committee of
the Board of Directors; (2) to consider and act upon a proposal to confirm the
appointment of KPMG LLP as the independent certified public accountants of the
Company for the current fiscal year. All nominated directors were elected, the
proposal to amend the 1995 Non-Employees Directors' Incentive Plan was approved
and the proposal regarding the appointment of auditors was approved. The
election of directors and the various proposals were approved by the following
votes:
A. Election of Directors:
<TABLE>
<CAPTION>
Name Number of Shares
---- --------------------------------------
For Withheld Abstained
--- -------- ---------
<S> <C> <C> <C>
John W. Jackson ...... 16,468,898 54,444 --
Sol J. Barer ......... 16,467,548 55,794 --
Frank T. Cary ........ 16,468,798 54,544 --
Richard C. E. Morgan . 16,468,998 54,344 --
Walter L. Robb ....... 16,468,798 54,544 --
Lee J. Schroeder ..... 16,467,498 54,844 --
Arthur Hull Hayes, Jr 16,467,698 55,644 --
Gila Kaplan .......... 16,467,648 55,694 --
Jack L. Bowman ....... 16,467,698 55,644 --
</TABLE>
17
<PAGE>
B. Adoption of amendment to the 1995 Non-Employees Directors' Incentive Plan:
<TABLE>
<CAPTION>
Number of Shares
-----------------------------------------------------------------------
For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
15,943,340 478,098 101,904
</TABLE>
C. Appointment of Auditors:
<TABLE>
<CAPTION>
Number of Shares
-----------------------------------------------------------------------
For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
16,444,539 33,400 45,403
</TABLE>
Item 5.-- Other Information:
None
Item 6. Exhibits
A. 27 Financial Data Schedule - Article 5 for second quarter
Form 10-Q.
18
<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
<TABLE>
<S> <C> <C> <C>
DATE August 13, 1999 BY /S/John W. Jackson
------------------------------------ -------------------------
John W. Jackson
Chairman of the Board
Chief Executive Officer
DATE August 13, 1999 BY /s/James R. Swenson
------------------------------------ -------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 6,325,241
<SECURITIES> 4,312,047
<RECEIVABLES> 3,894,158
<ALLOWANCES> (90,334)
<INVENTORY> 2,148,428
<CURRENT-ASSETS> 17,407,306
<PP&E> 10,341,796
<DEPRECIATION> (8,211,018)
<TOTAL-ASSETS> 19,992,251
<CURRENT-LIABILITIES> 10,123,221
<BONDS> 0
0
0
<COMMON> 169,755
<OTHER-SE> (13,812,724)
<TOTAL-LIABILITY-AND-EQUITY> 19,992,251
<SALES> 8,748,326
<TOTAL-REVENUES> 10,055,826
<CGS> 1,374,641
<TOTAL-COSTS> 22,035,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,093,022
<INCOME-PRETAX> (12,817,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,817,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,817,363)
<EPS-BASIC> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
