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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16132
CELGENE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-2711928
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
7 Powder Horn Drive, Warren, NJ 07059
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(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, 1999, 17,180,722 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 September 30, 1999 (unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of
Operations - Nine-Month Periods Ended
September 30, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of 5
Operations - Three-Month Periods Ended
September 30, 1999 and 1998 (unaudited)
Consolidated Statements of
Cash Flows - Nine-Month Periods Ended
September 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 18
</TABLE>
2
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CELGENE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,324,499 $ 3,066,953
Marketable securities available for sale 4,299,974 2,056,890
Accounts receivable, net of allowance of $117,512
at September 30, 1999 and $43,386 at December 31, 1998 2,941,555 2,662,389
Inventory 2,072,272 1,571,408
Other current assets 678,527 229,060
------------- -------------
Total current assets 24,316,827 9,586,700
Plant and equipment, net 2,083,212 2,262,130
Other assets 688,732 79,167
------------- -------------
Total assets $ 27,088,771 $ 11,927,997
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 3,041,185 $ 3,848,853
Accrued expenses 3,826,091 3,041,859
Capitalized lease obligations 214,544 225,372
------------- -------------
Total current liabilities 7,081,820 7,116,084
Capitalized lease obligation-net of current portion 44,607 195,578
Long term convertible notes 38,458,336 8,348,959
------------- -------------
Total liabilities 45,584,763 15,660,621
------------- -------------
Stockholders' equity (deficit):
Common stock, $.01 par value per share
30,000,000 shares authorized at September 30,1999 and
December 31,1998; issued and outstanding 17,151,595 and
16,612,973 shares at September 30, 1999 and December 31, 1998,
respectively 171,516 166,130
Additional paid-in capital 144,944,797 140,714,314
Accumulated deficit (163,548,803) (144,613,068)
Accumulated other comprehensive loss (63,502) --
------------- -------------
Total stockholders' (deficit) (18,495,992) (3,732,624)
------------- -------------
Total liabilities and stockholders' (deficit) $ 27,088,771 $ 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>
Nine Month Period Ended September 30,
-------------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Product Sales $ 15,063,644 $ 1,030,838
Research contracts 1,732,500 105,000
------------ ------------
Total Revenues 16,796,144 1,135,838
Expenses:
Cost of Goods Sold 2,076,457 59,270
Research and development 14,366,132 13,968,657
Selling, general and administrative 17,846,527 11,207,326
------------ ------------
Total Expenses 34,289,116 25,235,253
Operating Loss (17,492,972) (24,099,415)
Interest income 511,659 497,100
Interest expense 1,954,420 45,192
------------ ------------
Loss from continuing operations (18,935,733) (23,647,507)
Discontinued Operations: (Note 7)
Loss from operations -- (59,837)
Gain on sale of chiral assets -- 7,014,830
------------ ------------
Net loss (18,935,733) (16,692,514)
Accretion of premium payable on preferred
stock -- 24,648
------------ ------------
Net loss applicable to common
shareholders $(18,935,733) $(16,717,162)
============= ============
Per share basic and diluted :
Loss from continuing operations $ (1.12) $ (1.47)
Discontinued operations:
Loss from operations $ -- $ (0.00)
Gain on sale of chiral assets $ 0.44
Net loss applicable to common
shareholders per share of common stock $ (1.12) $ (1.04)
============= ============
Weighted average number of shares of
common stock outstanding 16,903,000 16,062,000
============= ============
</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 September 30,
--------------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Product Sales $ 6,315,319 $ 1,030,838
Research contracts 425,000 25,000
----------- ------------
Total Revenues 6,740,319 1,055,838
Expenses:
Cost of Goods Sold 701,816 59,270
Research and development 4,933,317 5,238,106
Selling, general and administrative 6,618,373 3,876,150
----------- ------------
Total Expenses 12,253,506 9,173,526
Operating Loss (5,513,187) (8,117,688)
Interest income 256,215 136,262
Interest expense 861,397 39,086
----------- ------------
Net Loss (6,118,369) (8,020,512)
=========== ============
Per share basic and diluted :
Net Loss $ (0.36) $ (0.49)
Weighted average number of shares of
common stock outstanding 17,028,000 16,399,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended September 30,
-------------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $(18,935,733) $(23,647,507)
Adjustments to reconcile loss from continuing
operations to net cash used in operating
activities:
Depreciation 585,497 575,575
Issuance of stock for employee benefits 799,004 463,606
Provision for doubtful accounts 74,126 --
Amortization of debt issuance costs 187,500 --
Amortization of discount on convertible note 109,377 --
Change in current assets & liabilities:
Increase in Inventory (500,864) (317,437)
Increase (Decrease) in accounts payable
and accrued expenses (822,440) 1,984,036
(Increase) Decrease in accounts receivable (353,292) 388,063
(Increase) Decrease in other assets (496,534) 129,648
------------ ------------
Net cash used in continuing operations (19,353,359) (20,424,016)
Net cash used in discontinued operations -- (59,837)
------------ ------------
Net cash used in operating activities (19,353,359) (20,483,853)
------------ ------------
Cash flows from investing activities:
Capital expenditures (406,579) (645,104)
Proceeds from sales and maturities of marketable
securities available for sale 2,495,992 7,086,154
Purchases of marketable securities
available for sale (4,802,578) (10,116,494)
Proceeds from sale of chiral assets -- 7,500,000
------------ ------------
Net cash provided by (used in) investing activities (2,713,165) 3,824,556
------------ ------------
Cash Flows from financing activities:
Costs related to secondary public offering -- (73,136)
Proceeds from the sale of stock -- 2,500,000
Proceeds from exercise of common stock
options and warrants 4,235,869 1,673,740
Capital lease buyout (161,799) (329,614)
Capital lease funding -- 260,195
Debt issuance costs (750,000) (437,500)
Proceeds from convertible notes 30,000,000 8,750,000
------------ ------------
Net cash provided by (used in) financing activities 33,324,070 12,343,685
------------ ------------
Net (decrease) increase in cash and cash
equivalents 11,257,546 (4,315,612)
Cash and cash equivalents at beginning of period 3,066,953 13,583,445
------------ ------------
Cash and cash equivalents at end of period $ 14,324,499 $ 9,267,833
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended September 30,
--------------------------------------
1999 1998
---- ----
<S> <C> <C>
Non-cash investing activity:
Change in net unrealized loss on marketable
securities available for sale $ (63,502) $ --
============= ==========
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 $ 1,080,693 $ 11,468
============= ==========
</TABLE>
7
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CELGENE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1999) in effect on the issuance date (230,769 warrants
as of September 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 September 30, 1999).
All such warrants will have a term of four years from the issuance date and an
exercise price
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equal to 115% of the Conversion Price in effect on the issuance date. As of
September 30, 1999 no warrants have been issued.
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.
On July 6, 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 $19 per share. The Company can redeem the
note after three years at 103% of the principal amount, (two years under certain
conditions). There was no fee or discount associated with this note.
6. Marketable Securities Available for Sale
Marketable securities available for sale at September 30, 1999 include
debt securities with maturities ranging from January 2000 to
9
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August 2004. A summary of marketable securities at September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Government Bonds & Notes $2,313,476 -- $(15,557) $2,297,919
Government Agencies 2,050,000 -- (47,945) 2,002,055
---------- ---------- -------- ----------
Total $4,363,476 -- $(63,502) $4,299,974
========== ========== ======== ==========
</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 $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. Comprehensive Income and Recently Issued Accounting Pronouncement
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>
Nine Months ended
----------------------------------------------------------
September 30, 1999 September 30, 1998
-------------------------- ----------------------------
<S> <C> <C>
Net Loss $(18,935,733) $(16,692,514)
Other Comprehensive Loss (63,502) --
------------ ------------
Total Comprehensive Loss $(18,999,235) $(16,692,514)
============ ============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Three Months ended
--------------------------------------------------------
September 30, 1999 September 30, 1998
-------------------------- --------------------------
<S> <C> <C>
Net Loss $(6,118,369) $(8,020,512)
Other Comprehensive Loss (12,072) --
----------- -----------
Total Comprehensive Loss $(6,130,441) $(8,020,512)
=========== ===========
</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.
11
<PAGE>
Part 1 - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Nine month period ended September 30, 1999 vs.
Nine month period ended September 30,1998
Total Revenues. The Company's total revenues for the nine months ended
September 30, 1999 increased significantly to approximately $16.8 million from
$1.1 million in the same period of 1998. 1999 revenue for the period consisted
of product sales of THALOMID, $15.1 million, and research contract revenue of
$1.7 million . The increase in revenue in 1999 was primarily due to a full nine
months of sales of THALOMID compared with sales from the initial launch of
THALOMID late in the third quarter of 1998, a milestone payment from an existing
d-methylphenidate research agreement, and several research agreements with
Celgro.
Cost of Goods Sold. Cost of goods sold during the first nine months of
1999 was approximately $2.1 million compared with approximately $59,000 in 1998
and relates to sales of 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 3 percent, to $14.4 million in 1999 from $14.0 million in the same
period in 1998. The increase in spending was due to clinical trial costs
primarily for Attenade (d-methylphenidate), approximately $3.1 million, offset
by a decrease in regulatory consulting fees, approximately $600,000, Quality
Assurance, which is recorded in Cost of Goods in 1999, approximately $633,000,
external University research programs, approximately $362,000, formulation and
encapsulation expenses for THALOMID, approximately $1.0 million, incurred in
1998 prior to the FDA approval to market THALOMID in July of 1998, and other
expenses of approximately $500,000.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1999 increased
by 59% to approximately $17.8 million from $11.2 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 $2.4 million and warehousing
and distribution expenses, including the S.T.E.P.S program, of $2.9 million,
both to support the commercial sales of THALOMID. Other cost increases were
incurred for the Medical Affairs and Drug Safety department, approximately
$600,000, amortization of expenses related to the convertible notes,
approximately $500,000, and other miscellaneous expenses, $200,000.
12
<PAGE>
Interest income and expense. Interest income for the first nine months
of 1999 increased 3% to approximately $512,000 from $497,000 in the same period
of 1998. The increase was due to higher average cash balances in 1999, primarily
from the convertible note issued in July. Interest expense increased
significantly to approximately $1.9 million from $45,000 in 1998. The increase
in expense was due to the placement of three convertible notes with coupon rates
of 9.25%, 9.0% and 9.0% in September of 1998, January of 1999, and July of 1999,
respectively.
Net loss from continuing operations. The net loss from continuing
operations for the nine month period ended September 30, 1999 decreased by 20%
to $18.9 million from $23.6 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 September 30, 1999 vs.
Three month period ended September 30, 1998
Total Revenues. Revenues for the three month period ended September
30, 1999 were $6.7 million compared with revenues of $1.1 million for the same
period in 1998. 1999 third quarter revenues consisted of THALOMID sales of $6.3
million and research contract revenue of $425,000. Third quarter revenues in
1998 consisted of $1.0 million of THALOMID sales and $25,000 of research
contract revenue.
Cost of Goods Sold. Cost of Goods Sold, related to the sales of
THALOMID, were approximately $702,000 during the third quarter 1999 compared
with $59,000 in the comparable period in 1998. 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 third quarter 1999 were down 6% to approximately $4.9 million from $5.2
million in the comparable period in 1998. The decrease in spending was due to
lower spending for legal fees related to patent filings, approximately $251,000,
lower preclinical toxicology expenses, approximately $167,000, primarily related
to Attenade, as most of the toxicology work was completed in 1998, lower
spending on external University programs, approximately $198,000, and lower
requirements for internal consumable research
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supplies, approximately $204,000, offset by increased clinical trial expenses,
primarily for Attenade, approximately $624,000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 70% to approximately $6.6 million in the
third quarter 1999 compared with $3.9 million during the same period in 1998.
The increase was primarily in sales and marketing, $1.2 million, as the sales
staff was expanded and marketing activities were increased, and warehousing and
distribution expenses were incurred, approximately $900,000, all related to the
sales and marketing of THALOMID, increased spending for Medical Affairs and Drug
Safety, approximately $300,000, and other miscellaneous general and
administrative expenses, approximately $300,000.
Interest income and expense. Interest income was up 88%, to $256,000
in the third quarter 1999 compared with $136,000 during the same period in 1998.
The higher interest resulted from higher cash balances related to the
convertible note issued in July, 1999. Interest expense increased significantly
to $861,000 from approximately $39,000 in the third quarter 1998 and is related
to the three convertible notes issued September 1998, January 1999, and July
1999.
Net loss. The net loss for the third quarter 1999 decreased 24% over
the same period in 1998 to approximately $6.1 million from $8.0 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, revenues from research contracts, product sales from certain
businesses which the company has since sold, and currently from revenues from
sales of THALOMID. 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 $38 million in convertible notes
issued in September 1998, January 1999, and July 1999.
The Company's net working capital at September 30, 1999 was $17.2
million compared with $2.5 million at December 31, 1998. The increase was
attributable to an increase in cash and marketable securities of $13.5 million,
an increase in accounts receivable and inventory of $780,000, and an increase in
other current assets of approximately $450,000, an decrease in account payable
of $800,000 offset by an increase in accrued expenses of $784,000. Net working
capital consisted principally of cash, cash equivalents, and
14
<PAGE>
marketable securities, accounts receivable, inventory and accounts payable and
accrued expenses.
Cash and cash equivalents increased by $11.3 million in the first nine
months of 1999 and marketable securities increased $2.2 million from December
31, 1998. The increase reflects the receipt in January 1999 and July 1999 of
funds from the issuance of two convertible notes 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 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
existing cash resources will be sufficient to fund operations through midyear
2000 at which time it is expected that commercial operations alone will be
sufficient to fund the Company's ongoing financial requirements.
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 is nearing completion of the implementation of the Year 2000
compliance plan.
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
15
<PAGE>
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 has developed contingency plans to address the possible
occurrence of Year 2000 problems.
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 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 or
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 those factors detailed in the company's 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 longer be reset.
16
<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.
17
<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 15, 1999 BY /S/ John W. Jackson
--------------------- ------------------------------------
John W. Jackson
Chairman of the Board
Chief Executive Officer
DATE November 15, 1999 BY /s/ James R. Swenson
--------------------- -----------------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
18
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