AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 2000
REGISTRATION NO. 333-94915
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CELGENE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 22-2711928
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
7 POWDER HORN DRIVE, WARREN, NEW JERSEY 07059
(732) 271-1001
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------
JOHN W. JACKSON
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CELGENE CORPORATION
7 POWDER HORN DRIVE, WARREN, NEW JERSEY 07059
(732) 271-1001
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of Communications to:
<TABLE>
<S> <C>
Robert A. Cantone, Esq. Gerald S. Tanenbaum, Esq.
Proskauer Rose LLP Cahill Gordon & Reindel
1585 Broadway, New York, New York 10036-8299 80 Pine Street, New York, New York 10005
(212) 969-3000 (212) 701-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest investment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE FEE (3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock,
par value $.01 per share.................671,600 shares $ 100.25 $67,327,900 $ 17,775 (3)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares which the Underwriters have an option to purchase to cover
over-allotments, if any.
(2) Based on the average high and low trading price of the common stock on the
Nasdaq National Market on February 8, 2000. Estimated pursuant to Rule 457
under the Securities Act of 1933, solely for the purpose of calculating the
registration fee.
(3) Registration fee in the amount of $45,567 paid on January 19, 2000 for
2,778,400 shares.
---------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION
DATED FEBRUARY 10, 2000
PROSPECTUS
3,000,000 Shares
[CELGENE CORPORATION LOGO OMITTED]
CELGENE CORPORATION
Common Stock
Celgene Corporation is selling 2,484,000 shares of common stock in this offering
and the selling stockholders are selling 516,000 shares.
Our common stock is traded on the Nasdaq National Market under the symbol
"CELG." On February 8, 2000, the reported last sale price of our common stock
was $99 3/4 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO THE
PUBLIC DISCOUNTS CELGENE SELLING STOCKHOLDERS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Per Share $ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total $ $ $ $
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
We have granted the underwriters the right to purchase up to an additional
450,000 shares of our common stock to cover over-allotments.
Joint Lead Managers
J.P. MORGAN & CO. PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
U.S. BANCORP PIPER JAFFRAY
, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[BAR GRAPH INDICATING THE PRECLINICAL AND CLINICAL STATUS OF CELGENE
CORPORATION'S CANCER, IMMUNOLOGY AND CHIRAL CHEMISTRY PROGRAMS.]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary .................................................... 2
Risk Factors .......................................................... 8
Forward-Looking Statements ............................................ 13
Use of Proceeds ....................................................... 14
Price Range of Common Stock ........................................... 14
Dividend Policy ....................................................... 14
Capitalization ........................................................ 15
Selected Consolidated Financial Data .................................. 16
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ......................................................... 17
<CAPTION>
PAGE
-----
<S> <C>
Business .............................................................. 21
Management ............................................................ 34
Selling Stockholders .................................................. 37
Description of Capital Stock .......................................... 38
Shares Eligible for Future Sale ....................................... 40
Underwriting .......................................................... 41
Legal Matters ......................................................... 43
Experts ............................................................... 43
Where You Can Find More Information ................................... 43
Index to Consolidated Financial Statements ............................ F-1
</TABLE>
---------------
We own or have the right to various trademarks, service marks and trade names
used in our business. These include THALOMID(Reg. TM) (thalidomide),
S.T.E.P.S.(TM), IMiDs(TM), SelCIDs(TM), ATTENADETM and CelgroTM. This prospectus
also includes trademarks, service marks and trade names owned by other
companies.
1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary does not contain all of the information that you should consider before
deciding to invest in our common stock. We urge you to read this entire
prospectus carefully, including the information under "Risk Factors," the
consolidated financial statements and the related notes to those statements.
CELGENE CORPORATION
We are an independent biopharmaceutical company engaged in the discovery,
development and commercialization of novel human pharmaceuticals for the
treatment of cancer and immunological diseases. Our primary therapeutic focus is
on the development of orally administered, small molecule pharmaceuticals that
regulate tumor necrosis factor alpha, or TNF-, and are anti-angiogenic. TNF- has
been linked to the cause and symptoms of many chronic inflammatory and
immunological diseases. Anti-angiogenic drugs inhibit the growth of undesirable
blood vessels, including those that promote tumor growth.
Our lead product, THALOMID (thalidomide), was approved for sale in the United
States by the U.S. Food and Drug Administration, or FDA, on July 16, 1998.
THALOMID is approved for the treatment of erythema nodosum leprosum, or ENL, an
inflammatory complication of leprosy. During the first nine months of 1999, net
sales of THALOMID were $15.1 million, primarily for cancer, or oncology,
indications. Our 60 person sales and commercialization group sells this product
in the United States. Our regulatory and clinical strategy is to obtain
approvals for THALOMID for additional cancer and immunological disease
indications. THALOMID is currently being evaluated in over 100 clinical trials
for the treatment of certain blood and solid tumor cancers as well as
immunological disorders such as Crohn's disease. Several of these trials are
supported by the National Cancer Institute, or the NCI. Working with the FDA, we
have developed a novel comprehensive education and distribution program, the
"System for Thalidomide Education and Prescribing Safety," or S.T.E.P.S., that
is designed to support the safe and appropriate use of THALOMID.
Our cancer and immunology pharmaceutical pipeline is highlighted by two classes
of novel and proprietary oral therapeutic agents, IMiDs, or ImmunoModulatory
Drugs, and SelCIDs, or Selective Cytokine Inhibitory Drugs. Both classes are
being developed for the treatment of cancer, chronic inflammatory diseases, such
as inflammatory bowel disease and rheumatoid arthritis, and other diseases of
the immune system. Our IMiDs are thalidomide analogues that are designed to
modulate TNF- and inhibit angiogenesis without causing birth defects or
sedation. We have completed a Phase I safety trial for each of our two lead
IMiDs. Our SelCIDs have been found in research to be Phosphodiesterase type 4
inhibitors, or PDE 4 inhibitors. Our SelCIDs have not, to date, shown any of the
undesirable side effects, such as nausea or vomiting, often associated with PDE
4 inhibitors. Our lead SelCID was found to be well tolerated and did not cause
nausea or vomiting in two Phase I clinical trials and is currently in a Phase II
pilot trial to assess its potential for the treatment of Crohn's disease. We own
patents that cover these compounds and their therapeutic applications.
We also have a chiral chemistry program in which we develop chemically pure
versions of existing compounds. We recently announced the results of two Phase
III pivotal efficacy trials of ATTENADE for the treatment of Attention Deficit
Disorder, or ADD, and Attention Deficit Hyperactivity Disorder, or ADHD.
ATTENADE is a chirally pure version of dl-methylphenidate. dl-methylphenidate is
a generic drug that is currently sold under the trade name Ritalin. In these
trials, ATTENADE showed a statistically significant benefit in controlling
symptoms of ADD and ADHD and demonstrated a statistically significant longer
duration of behavior control versus dl-methylphenidate. We expect to file a New
Drug Application, or NDA, for ATTENADE with the FDA in the second half of 2000.
We hold six U.S. patents covering use and formulations of and manufacturing
processes for ATTENADE. Total U.S. sales in 1998 of drugs used to treat the
symptoms of ADD and ADHD were approximately $500 million.
We own or control exclusive worldwide development and marketing rights for all
of our current products and products under development, except for rights in
Canada with respect to ATTENADE. Our strategy is to sell and market products
that we develop for cancer and immunological disease indications with accessible
patient populations. In the United States, we plan to implement this strategy
through our sales and commercialization group, which we expect to
2
<PAGE>
continue to expand. We anticipate selectively partnering with larger
pharmaceutical companies with respect to products we may develop for indications
with large patient populations and for overseas markets. We may also partner to
further develop and commercialize ATTENADE. These partnering arrangements are
likely to include milestone payments, reimbursement of research and development
expenses and royalty arrangements.
RECENT DEVELOPMENTS
In the fourth quarter of 1999, clinical trial results for THALOMID were featured
at major medical meetings and in prestigious peer review journals. These results
validated the potential use of THALOMID in the treatment of multiple myeloma and
its potential use in the treatment of a broad range of cancer and immunological
diseases. Multiple myeloma is a malignant cancer of plasma cells of the bone
marrow. In addition, we achieved a significant milestone in our clinical
development program during this period. The developments reported below provide
no assurance of success in later phases of the clinical development or
regulatory processes necessary for approval of our drugs.
o At the November 1999 Chemotherapy Foundation Symposium in New York,
oncology teams from the University College London, NCI, New York University
Medical Center, the University of Arkansas Cancer Research Center and Saint
Vincents Medical Center in New York presented positive data from five
studies on the use of THALOMID. These studies used THALOMID, both in
combination with various chemotherapeutic agents and as stand-alone
therapy, in a number of solid tumor and blood cancers, including prostate
cancer, brain cancer, kidney cancer and multiple myeloma.
o Clinical research published during November 1999 in The New England Journal
of Medicine reported the results of a study on the use of THALOMID in
multiple myeloma patients who had relapsed after high-dose chemotherapy.
The Phase II trial, conducted at the University of Arkansas Cancer Research
Center, found that 32% of patients had a partial response and 10% of
patients had complete or nearly complete remission. An editorial authored
by Noopur Raje, M.D. and Kenneth Anderson, M.D., both of the Dana-Farber
Cancer Institute, accompanied the article.
o At the November 1999 American College of Rheumatology meeting, data were
presented from small, open label studies of thalidomide in the treatment of
three immunological diseases: sclerodoma, sarcoidosis and
spondylarthopathy. Each of the three studies presented positive clinical
results.
o A total of 26 studies were presented or published at the 41st meeting of
the American Society of Hematology, or ASH, in December 1999. These studies
provided new data and expanded upon previously published results on the use
of THALOMID in treating advanced and refractory multiple myeloma. The
studies included the use of thalidomide as a single chemotherapeutic agent
and in combination with other chemotherapeutic agents. Studies were also
presented on the use of THALOMID to treat the bone marrow disorder
myelodysplastic syndrome, or MDS. In a preliminary report, researchers at
Rush Cancer Institute in Chicago observed improvements in 50% of 20
evaluable patients, with three long-standing, transfusion dependent
patients able to discontinue transfusions.
o We have completed a Phase I safety trial for two of our IMiDs. These were
placebo controlled, double blind, escalating single dose trials carried out
in healthy human volunteers. Results of these trials will be announced
during the first quarter of 2000.
3
<PAGE>
RECENT OPERATING RESULTS
On January 27, 2000, we announced our operating results for the three months and
year ended December 31, 1999. Total revenues for the three months ended December
31, 1999 were $9.4 million, consisting of product sales of THALOMID of $9.0
million and $425,000 of revenues from research contracts. The $9.0 million of
THALOMID sales for the three months ended December 31, 1999 represents a 43%
increase over the $6.3 million of THALOMID sales for the three months ended
September 30, 1999. Research and development expenses for the three months ended
December 31, 1999 increased to $5.2 million, primarily due to increased clinical
trial costs for ATTENADE. Selling, general and administrative expenses increased
to $8.4 million for the three months ended December 31, 1999, primarily due to
the expansion of our sales and commercialization organization and increased
warehousing and distribution expenses. The net loss applicable to common
stockholders for the three months ended December 31, 1999 was $2.8 million, or
$0.16 per share. The net loss applicable to common stockholders for the three
months and year ended December 31, 1999 includes a tax benefit of $3.0 million
from the sale of a portion of our New Jersey tax loss carryforwards.
4
<PAGE>
CELGENE CORPORATION
CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
---------------------------------------------------
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
1998 1999 1998 1999
------------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
In thousands, except per share data
STATEMENTS OF OPERATIONS DATA:
Revenues:
Product sales ....................................................... $ 2,235 $ 8,988 $ 3,266 $ 24,052
Research contracts .................................................. 430 425 535 2,158
------- -------- --------- ---------
Total Revenues .................................................... 2,665 9,413 3,801 26,210
Expenses:
Cost of goods sold .................................................. 223 906 282 2,983
Research and development ............................................ 5,804 5,280 19,772 19,646
Selling, general and administrative ................................. 5,011 8,389 16,219 26,236
------- -------- --------- ---------
Total expenses .................................................... 11,038 14,575 36,273 48,865
------- -------- --------- ---------
Operating loss ....................................................... (8,373) (5,162) (32,472) (22,655)
Other--income (expense), net ......................................... (2) (701) 449 (2,144)
---------- -------- --------- ---------
Loss before tax benefit .............................................. (8,375) (5,863) (32,023) (24,799)
Tax benefit .......................................................... -- 3,018 -- 3,018
--------- -------- --------- ---------
Loss from continuing operations ...................................... (8,375) (2,845) (32,023) (21,781)
Gain from discontinued operations, net ............................... -- -- 6,955 --
Accretion of premium payable on preferred stock and warrants ......... -- -- 25 --
--------- -------- --------- ---------
Net loss applicable to common stockholders ........................... $(8,375) $ (2,845) $ (25,093) $ (21,781)
========= ======== ========= =========
Per share--basic and diluted:
Loss from continuing operations, net ................................ $ (0.51) $ (0.16) $ (1.98) $ (1.28)
Net loss applicable to common stockholders .......................... $ (0.51) $ (0.16) $ (1.55) $ (1.28)
========= ======== ========= =========
Weighted average number of shares of common stock
outstanding ......................................................... 16,449 17,334 16,160 17,012
</TABLE>
<TABLE>
<CAPTION>
---------------------------
DECEMBER 31,
---------------------------
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
In thousands
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities available for sale $ 5,124 $ 19,527
Total assets .......................................................... 11,928 32,334
Long term convertible notes ........................................... 8,349 38,495
Accumulated deficit ................................................... (144,613) (166,394)
Total stockholders' deficit ........................................... (3,733) (15,709)
</TABLE>
Celgene Corporation was incorporated in Delaware in 1986. Our principal
executive offices are located at 7 Powder Horn Drive, Warren, New Jersey 07059;
our telephone number is (732) 271-1001.
5
<PAGE>
THE OFFERING
The following information is based on 17,703,646 shares of common stock
outstanding as of December 31, 1999. This number excludes 4,880,624 shares of
common stock issuable upon the exercise of our outstanding stock options and
warrants and conversion of our convertible notes, other than the conversion by
the selling stockholders immediately prior to this offering of a portion of our
9.0% convertible notes issued in January 1999. This number also assumes no
exercise of the underwriters' over-allotment option.
COMMON STOCK OFFERED BY CELGENE ................ 2,484,000 shares
COMMON STOCK OFFERED BY THE SELLING
STOCKHOLDERS .................................. 516,000 shares
COMMON STOCK OUTSTANDING AFTER THIS OFFERING ... 20,703,646 shares
OVER-ALLOTMENT OPTION .......................... 450,000 shares
USE OF PROCEEDS ................................ We intend to use the net
proceeds we receive from
this offering for:
o the further
commercialization and
clinical development of
THALOMID, including the
expansion of our sales
and commercialization
organization;
o the further development
of our oncology and
immunology programs,
including our IMiD and
SelCID therapeutic
agents;
o the further development
of our chiral products,
including ATTENADE; and
o general corporate
purposes.
We will not receive any of
the proceeds from the sale of
shares of our common stock by
the selling stockholders.
DIVIDEND POLICY ................................ We have never declared or
paid any cash dividends on
our common stock. We
currently intend to retain
any future earnings for
funding growth, and,
therefore, do not anticipate
that we will pay any cash
dividends on our common stock
in the foreseeable future.
NASDAQ NATIONAL MARKET SYMBOL .................. CELG
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The as adjusted balance sheet data below is adjusted to reflect the sale of
2,484,000 shares of our common stock offered by us and the receipt by us of the
net proceeds therefrom at an assumed public offering price of $99.75 per share
and after deduction of the underwriting discounts and offering expenses payable
by us and the conversion of a portion of our 9.0% convertible notes issued in
January 1999 held by the selling stockholders into 516,000 shares of our common
stock.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
In thousands, except share data
STATEMENTS OF OPERATIONS DATA:
Total revenues .............................. $ 98 $ 472 $ 882 $ 1,122 $ 3,801
Total expenses .............................. 6,396 8,982 18,924 26,526 36,273
---------- ---------- ---------- ---------- ----------
Operating loss .............................. (6,298) (8,510) (18,042) (25,404) (32,472)
Other income (expense), net ................. 587 143 984 384 449
---------- ---------- ---------- ---------- ----------
Loss from continuing operations ............. (5,711) (8,367) (17,058) (25,020) (32,023)
Gain (loss) from discontinued operations..... (4,502) (2,150) (761) (427) 6,955
---------- ---------- ---------- ---------- ----------
Net loss .................................... (10,213) (10,517) (17,819) (25,447) (25,068)
Accretion of premium payable on
preferred stock and warrants ............... -- -- 1,013 521 25
Deemed dividend for preferred stock
conversion discount ........................ -- -- 2,778 953 --
---------- ---------- ---------- ---------- ----------
Net loss applicable to common
stockholders ............................... $ (10,213) $ (10,517) $ (21,610) $ (26,921) $ (25,093)
========== ========== ========== ========== ==========
Per share -- basic and diluted:
Net loss applicable to common
stockholders .............................. $ (1.30) $ (1.30) $ (2.29) $ (2.20) $ (1.55)
========== ========== ========== ========== ==========
Weighted average number of shares of
common stock outstanding ................... 7,853 8,073 9,450 12,215 16,160
<CAPTION>
----------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
In thousands, except share data
STATEMENTS OF OPERATIONS DATA:
Total revenues .............................. $ 1,136 $ 16,796
Total expenses .............................. 25,235 34,289
---------- ----------
Operating loss .............................. (24,099) (17,493)
Other income (expense), net ................. 452 (1,443)
---------- ----------
Loss from continuing operations ............. (23,647) (18,936)
Gain (loss) from discontinued operations..... 6,955 --
---------- ----------
Net loss .................................... (16,692) (18,936)
Accretion of premium payable on
preferred stock and warrants ............... 25 --
Deemed dividend for preferred stock
conversion discount ........................ -- --
---------- ----------
Net loss applicable to common
stockholders ............................... $ (16,717) $ (18,936)
========== ==========
Per share -- basic and diluted:
Net loss applicable to common
stockholders .............................. $ (1.04) $ (1.12)
========== ==========
Weighted average number of shares of
common stock outstanding ................... 16,062 16,903
</TABLE>
<TABLE>
<CAPTION>
----------------------------
SEPTEMBER 30, 1999
----------------------------
ACTUAL AS ADJUSTED
------------- ------------
(UNAUDITED)
<S> <C> <C>
In thousands
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities available for sale $ 18,624 $ 251,057
Total assets .......................................................... 27,089 259,522
Long term convertible notes ........................................... 38,458 29,171
Accumulated deficit ................................................... (163,549) (163,479)
Total stockholders' equity (deficit) .................................. (18,496) 222,945
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, as well as the other
information contained in this prospectus or incorporated by reference in this
prospectus, before purchasing any of our common stock.
RISKS TO CELGENE
IF WE ARE UNSUCCESSFUL IN DEVELOPING AND COMMERCIALIZING OUR PRODUCTS, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED.
Many of our products and processes are in the early or mid-stages of development
and will require the commitment of substantial resources, extensive research,
development, preclinical testing, clinical trials, manufacturing scale-up and
regulatory approval prior to being ready for sale. We have not yet sold any of
our products other than THALOMID. All of our other products will require further
development, clinical testing and regulatory approvals, and there can be no
assurance that commercially viable products will result from these efforts. If
any of our products, even if developed and approved, cannot be successfully
commercialized, our business, financial condition and results of operations
could be materially adversely affected.
DURING THE NEXT SEVERAL YEARS, WE WILL BE VERY DEPENDENT ON THE COMMERCIAL
SUCCESS OF THALOMID.
At our present level of operations, we may not be able to attain profitability
if physicians prescribe THALOMID only for those who are diagnosed with ENL.
Under current FDA regulations, we are limited in our ability to promote THALOMID
outside this approved use. The market for the use of THALOMID in patients
suffering from ENL is relatively small. We have initiated clinical studies to
examine whether or not THALOMID is effective and safe when used to treat
disorders other than ENL, but we do not know whether these studies will in fact
demonstrate safety and efficacy, or if they do, whether we will succeed in
receiving regulatory approval to market THALOMID for additional indications. If
the results of these studies are negative, or if adverse experiences are
reported in these clinical studies or otherwise in connection with the use of
THALOMID by patients, this could undermine physician and patient comfort with
the product, could limit the commercial success of the product and could even
impact the acceptance of THALOMID in the ENL market. FDA regulations restrict
our ability to communicate the results of additional clinical studies to
patients and physicians without first obtaining approval from the FDA to expand
the authorized uses for this product.
IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
There can be no assurance that those of our products that receive regulatory
approval, including THALOMID, or those products for which no regulatory approval
is required, will achieve market acceptance. A number of factors render the
degree of market acceptance of our products uncertain, including the extent to
which we can demonstrate the products' efficacy, safety and advantages, if any,
over competing products, as well as the reimbursement policies of third party
payors, such as government and private insurance plans. Failure of our products
to achieve market acceptance would have a material adverse effect on our
business, financial condition and results of operations.
WE FACE A RISK OF PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN
INSURANCE.
We may be subject to product liability or other claims based on allegations that
the use of our technology or products has resulted in adverse effects, whether
by participants in our clinical trials or by patients using our products.
Thalidomide, when used by pregnant women, has resulted in serious birth defects.
Therefore, necessary and strict precautions must be taken by physicians
prescribing the drug to women with childbearing potential, and there can be no
assurance that such precautions will be observed in all cases or, if observed,
will be effective. Use of thalidomide has also been associated, in a limited
number of cases, with other side effects, including nerve damage. Although we
have product liability insurance that we believe is appropriate, there can be no
assurance that we will be able to obtain additional coverage if required, or
that such coverage will be adequate to protect us in the event claims are
asserted against us. Our obligation to defend against or pay any product
liability or other claim may have a material adverse effect on our business,
financial condition and results of operations.
8
<PAGE>
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT AND MAY NEED TO
SEEK ADDITIONAL FUNDING.
We have sustained losses in each year since our incorporation in 1986. We
sustained net losses of $25.1 million and $25.4 million for the years ended
December 31, 1998 and 1997, and $18.9 million for the nine months ended
September 30, 1999. We had an accumulated deficit of $144.6 million and $119.5
million at December 31, 1998 and 1997, and $163.5 million at September 30, 1999.
We expect to make substantial expenditures to further develop and commercialize
our products, and, based on these expenditures, it is probable that losses will
continue for at least the next six months. We expect that our rate of spending
will accelerate as the result of increased clinical trial costs and expenses
associated with regulatory approval and commercialization of products now in
development. In order to fund our future operations, we will likely seek
additional capital. We may not be able to raise additional capital on reasonable
terms, if at all. There can be no assurance, assuming we successfully raise
additional funds, that we will achieve profitability or positive cash flow.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.
We have historically experienced, and expect to continue for the foreseeable
future to experience, significant fluctuations in our quarterly operating
results. These fluctuations are due to a number of factors, many of which are
outside our control, and may result in volatility of our stock price. Future
operating results will depend on many factors, including:
o demand for our products;
o regulatory approvals for our products;
o the timing of the introduction and market acceptance of new products
by us or competing companies;
o the timing of certain research and development milestones; and
o our ability to control our costs.
WE HAVE NO MANUFACTURING CAPABILITIES AND WE ARE DEPENDENT ON ONE SUPPLIER FOR
THE RAW MATERIAL AND ONE MANUFACTURER FOR THE FORMULATION AND ENCAPSULATION OF
THALOMID.
We currently have no experience in, or our own facilities for, manufacturing any
products on a commercial scale. Currently, we obtain all of our bulk drug
material for THALOMID from a single supplier and rely on a single manufacturer
to formulate and encapsulate THALOMID. The FDA requires that all suppliers of
pharmaceutical bulk material and all manufacturers of pharmaceuticals for sale
in or from the United States achieve and maintain compliance with the FDA's
current Good Manufacturing Practice, or cGMP, regulations and guidelines. If the
operations of the sole supplier or the sole manufacturer were to become
unavailable for any reason, the required FDA review and approval of the
operations of a new supplier or new manufacturer could cause a delay in the
manufacture of THALOMID which could have a material adverse effect on our
business, financial condition and results of operations. We intend to continue
to utilize outside manufacturers if and when needed to produce our other
products on a commercial scale. If our outside manufacturers do not meet our
requirements for quality, quantity or timeliness, or do not achieve and maintain
compliance with all applicable regulations, our business, financial condition
and results of operations could be materially adversely affected.
WE HAVE LIMITED MARKETING AND DISTRIBUTION CAPABILITIES.
Although we have a 60 person sales and commercialization group to sell THALOMID,
we may be required to seek a corporate partner to provide marketing services
with respect to our other products. Any delay in developing these resources
could have a material adverse impact on our results of operations. We have
contracted with a specialty distributor to distribute THALOMID. Failure of this
specialty distributor to perform its obligations could have a material adverse
effect on our business, financial condition and results of operations.
WE ARE DEPENDENT ON COLLABORATIONS AND LICENSES WITH THIRD PARTIES.
Our ability to fully commercialize our products, if developed, may depend to
some extent upon our entering into joint ventures or other arrangements with
established pharmaceutical companies with the requisite experience and financial
and other resources to obtain regulatory approvals and to manufacture and market
such products. Accordingly, our success may depend, in part, upon the subsequent
success of such third parties in performing preclinical and clinical trials,
obtaining
9
<PAGE>
the requisite regulatory approvals, scaling up manufacturing, successfully
commercializing the licensed product candidates and otherwise performing their
obligations to us. We cannot assure you that:
o we will be able to enter into joint ventures or other arrangements on
acceptable terms, if at all;
o our joint ventures or other arrangements will be successful;
o our joint ventures or other arrangements will lead to the successful
development and commercialization of any products;
o we will be able to obtain or maintain proprietary rights or licenses to any
technology or products developed in connection with our joint ventures or
other arrangements; or
o we will be able to preserve the confidentiality of any proprietary rights
or information developed in connection with our joint ventures or other
arrangements.
THE HAZARDOUS MATERIALS WE USE IN OUR RESEARCH AND DEVELOPMENT COULD RESULT IN
SIGNIFICANT LIABILITIES WHICH COULD EXCEED OUR INSURANCE COVERAGE AND FINANCIAL
RESOURCES.
We use some hazardous materials in our research and development activities.
While we believe we are currently in substantial compliance with the federal,
state and local laws and regulations governing the use of these materials, we
cannot assure you that accidental injury or contamination will not occur. Any
such accident or contamination could result in substantial liabilities, which
could exceed our insurance coverage and financial resources. Additionally, we
cannot assure you that the cost of compliance with environmental and safety laws
and regulations will not increase in the future.
RESIDUAL YEAR 2000 PROBLEMS COULD CAUSE A MATERIAL DISRUPTION IN OUR BUSINESS.
Although all of our computer hardware and software has been upgraded for Year
2000 compliance, all of our key vendors have provided assurance that they are
Year 2000 compliant and there were no related problems at the transition into
the Year 2000, any residual effect of the Year 2000 problem could cause a
material disruption in our business.
INDUSTRY RISKS
THE PHARMACEUTICAL AND AGROCHEMICAL INDUSTRIES ARE SUBJECT TO EXTENSIVE
GOVERNMENT REGULATION AND THERE IS NO ASSURANCE OF REGULATORY APPROVAL.
The preclinical development, clinical trials, manufacturing, marketing and
labeling of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the United States and other countries.
There can be no assurance that we will be able to obtain the necessary approvals
required to market our products in any of these markets. The testing, marketing
and manufacturing of our products will require regulatory approval, including
approval from the FDA and, in some cases, from the U.S. Environmental Protection
Agency, or the EPA, and the U.S. Department of Agriculture, or the USDA, or
governmental authorities outside of the United States that perform roles similar
to those of the FDA and EPA. Certain of our pharmaceutical products in
development also fall under the Controlled Substances Act of 1970, or the CSA,
which requires authorization by the U.S. Drug Enforcement Agency, or the DEA, of
the U.S. Department of Justice in order to handle and distribute these products.
It is not possible to predict how long the approval processes of the FDA, EPA,
DEA or any other applicable federal, state or foreign regulatory authority or
agency for any of our products will take or whether any such approvals
ultimately will be granted. Positive results in preclinical testing and/or early
phases of clinical studies are no assurance of success in later phases of the
approval process. Risks associated with the regulatory approval process include:
o in general, preclinical tests and clinical trials can take many years, and
require the expenditure of substantial resources, and the data obtained
from these tests and trials can be susceptible to varying interpretation
that could delay, limit or prevent regulatory approval;
o delays or rejections may be encountered during any stage of the regulatory
approval process based upon the failure of the clinical or other data to
demonstrate compliance with, or upon the failure of the product to meet, a
regulatory agency's requirements for safety, efficacy and quality or, in
the case of a product seeking an orphan drug indication, because another
designee received approval first;
o requirements for approval may become more stringent due to changes in
regulatory agency policy, or the adoption of new regulations or
legislation;
10
<PAGE>
o the scope of any regulatory approval, when obtained, may significantly
limit the indicated uses for which a product may be marketed;
o approved drugs and agrochemicals, as well as their manufacturers, are
subject to continuing and on-going review, and discovery of previously
unknown problems with these products may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market; and
o regulatory authorities and agencies may promulgate additional regulations
restricting the sale of our existing and proposed products.
Once approved, we cannot guarantee that the FDA will permit us to market those
products for broader or different applications, or that it will grant us
approval with respect to separate product applications which represent
extensions of our basic technology, or that existing approvals will not be
withdrawn or modified in a significant manner. In addition, it is possible that
the FDA will promulgate additional regulations restricting the sale of our
present or proposed products.
Labeling and promotional activities are subject to scrutiny by the FDA and state
regulatory agencies and, in some circumstances, by the Federal Trade Commission.
FDA enforcement policy prohibits the marketing of approved products for
unapproved, or off-label, uses. These regulations, and the FDA's interpretation
of them, may impair our ability to effectively market THALOMID or other products
which gain approval. The FDA actively enforces regulations prohibiting promotion
of off-label uses and the promotion of products for which approval has not been
obtained. Failure to comply with these requirements can result in regulatory
enforcement action by the FDA. The FDA is aware that physicians prescribe
THALOMID for off-label uses and has not, as of this date, initiated any
regulatory actions against us. FDA approval of THALOMID requires that we
distribute it under the rigid standards of our S.T.E.P.S. program in order to
maintain approval.
Delays in obtaining, or the failure to obtain and maintain, necessary approvals
from the FDA, EPA, DEA or other applicable regulatory authorities or agencies
for our proprietary products or regulatory enforcement actions by FDA concerning
our marketing practices would have a material adverse effect on our business,
financial condition and results of operations.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.
Our success will depend, in part, on our ability to obtain and enforce patents,
protect trade secrets, obtain licenses to technology owned by third parties,
when necessary, and conduct our business without infringing upon the proprietary
rights of others. The patent positions of pharmaceutical firms, including ours,
can be uncertain and involve complex legal and factual questions. In addition,
the coverage sought in a patent application may not be obtained or may be
significantly reduced before the patent is issued. Consequently, we do not know
whether any of our pending applications will result in the issuance of patents
or, if any patents are issued, whether they will provide significant proprietary
protection or commercial advantage. If any of our issued or licensed patents are
infringed, we cannot guarantee that we will be successful in enforcing our
intellectual property rights. Moreover, we cannot assure you that we can
successfully defend against any patent infringement suit that may be brought
against us by a third party. Patent infringement lawsuits in the pharmaceutical
and biotechnology industries can be complex, lengthy and costly to both parties.
Further, we rely upon unpatented proprietary and trade secret technology that we
try to protect, in part, by confidentiality agreements with our collaborative
partners, employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors. There can be no assurance that these agreements
will not be breached or that we would have adequate remedies for any such
breach. We cannot assure you that, despite precautions taken by us, others have
not and will not obtain access to our proprietary technology or that such
technology will not be found to be non-proprietary or not a trade secret. Our
right to practice the inventions claimed in some patents which relate to
products under development and THALOMID arises under licenses granted to us by
others, including EntreMed, Inc. and The Rockefeller University. While we
believe these agreements to be valid and enforceable, we cannot assure you that
our rights under these agreements will continue or that disputes concerning
these agreement will not arise. In addition, certain of the grants contained in
the licenses granted to us depend upon the validity and enforceability of other
agreements to which we are not a party.
THE PHARMACEUTICAL AND AGROCHEMICAL INDUSTRIES ARE HIGHLY COMPETITIVE AND
SUBJECT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE.
The pharmaceutical and agrochemical industries in which we operate are highly
competitive and subject to rapid and significant technological change. Our
present and potential competitors include major chemical and pharmaceutical
companies, as well as specialized pharmaceutical firms. Most of these companies
have considerably greater financial,
11
<PAGE>
technical and marketing resources than us. We also experience competition from
universities and other research institutions and, in some instances, we compete
with others in acquiring technology from these sources. The pharmaceutical and
agrochemical industries have undergone, and are expected to continue to undergo,
rapid and significant technological change, and we expect competition to
intensify as technical advances in each field are made and become more widely
known. The development of products or processes with significant advantages over
those that we are seeking to develop could have a material adverse effect on our
business, financial condition and results of operations.
SALES OF OUR PRODUCTS ARE DEPENDENT ON THIRD-PARTY REIMBURSEMENT.
Sales of our products will depend, in part, on the extent to which the costs of
our products will be paid by health maintenance, managed care, pharmacy benefit
and similar health care management organizations, or reimbursed by government
health administration authorities, private health coverage insurers and other
third-party payors. These health care management organizations and third-party
payors are increasingly challenging the prices charged for medical products and
services. Additionally, the containment of health care costs has become a
priority of federal and state governments, and the prices of drugs have been
targeted in this effort. We cannot assure you that our products will be
considered cost effective by payors, that reimbursement will be available or, if
available, that the level of reimbursement will be sufficient to allow us to
sell our products on a profitable basis.
OFFERING RISKS
THE PRICE OF OUR COMMON STOCK HAS EXPERIENCED SUBSTANTIAL VOLATILITY AND MAY
CONTINUE TO DO SO IN THE FUTURE.
There has been significant volatility in the market prices for publicly traded
shares of pharmaceutical companies, including ours. In 1999, the price of our
common stock fluctuated from a low of $11 5/16 to a high of $72 5/8. On
February 8, 2000, our common stock closed at a price of $99 3/4. The price of
our common stock may not remain at or exceed current levels. The following
factors may have an adverse impact on the market price of our common stock:
o announcements of technical or product developments by us or our
competitors;
o market conditions for pharmaceutical and biotechnology stocks;
o market conditions generally;
o governmental regulation;
o healthcare legislation;
o public announcements regarding medical advances in the treatment of the
disease states that we are targeting;
o patent or proprietary rights developments;
o changes in third-party reimbursement policies for our products; or
o fluctuations in our operating results.
THE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE COULD
ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Future sales of substantial amounts of our common stock could adversely affect
the market price of our common stock. As of December 31, 1999, there were
outstanding stock options for 2,327,267 shares of common stock, of which 967,234
were currently exercisable, and warrants either outstanding or issuable upon
demand that are exercisable for 551,044 shares of common stock. In addition, the
9.25% convertible note issued on September 16, 1998 can be converted into
795,463 shares of common stock, the 9.0% convertible notes issued on January 20,
1999 can be converted into 833,400 shares of common stock and the 9.0%
convertible notes issued on July 6, 1999 can be converted into 789,450 shares of
common stock. Immediately prior to this offering, the selling stockholders will
convert a portion of our 9.0% convertible notes issued in January 1999 held by
them into 516,000 shares of our common stock. Upon issuance or conversion, all
of these shares of common stock will be freely tradable.
12
<PAGE>
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect that the public offering price of our common stock in this offering
will be substantially higher than the net tangible book value per share of our
outstanding common stock. As of September 30, 1999, our net negative book value
was $(19.1) million and on a pro forma basis our net tangible book value after
this offering will be $222.7 million. The amount of the increase in net tangible
book value attributable to the investors in this offering will be $36.5 million,
or $12.16 per share of common stock. Investors of our common stock in this
offering will experience immediate and substantial dilution of approximately
$266.1 million, or $88.70 per share of common stock.
OUR SHAREHOLDER RIGHTS PLAN AND CERTAIN CHARTER AND BY-LAW PROVISIONS MAY DETER
A THIRD PARTY FROM ACQUIRING US.
Our board of directors has adopted a shareholder rights plan, the purpose of
which is to protect stockholders against unsolicited attempts to acquire control
of us that do not offer a fair price to all of our stockholders. The rights plan
may have the effect of dissuading a potential acquirer from making an offer for
our common stock at a price that represents a premium to the then current
trading price.
Our board of directors has the authority to issue, at any time, without further
stockholder approval, up to 5,000,000 shares of preferred stock, and to
determine the price, rights, privileges and preferences of those shares. Any
issuance of preferred stock could discourage a third party from acquiring a
majority of our outstanding voting stock. Additionally, our board of directors
has adopted certain amendments to our by-laws intended to strengthen the board's
position in the event of a hostile takeover attempt.
Furthermore, we are subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law, which may also dissuade a
potential acquiror of our common stock.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this prospectus are
forward-looking statements concerning our business, financial condition, results
of operations, economic performance and financial condition. Forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
within the meaning of Section 21E of the Securities Exchange Act of 1934 are
included, for example, in the discussions about:
o our strategy;
o new product development or product introduction;
o product sales, royalties and contract revenues;
o expenses and net income;
o our credit risk management;
o our liquidity;
o our asset/liability risk management; and
o our operational and legal risks.
These statements involve risks and uncertainties. Actual results may differ
materially from those expressed or implied in those statements. Factors that
could cause such differences include, but are not limited to, those discussed
under "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
13
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of 2,484,000 shares of our
common stock offered by us will be approximately $232.4 million, $274.6 million
if the underwriters' over-allotment option is exercised in full, at an assumed
public offering price of $99.75 per share and after deduction of the
underwriting discounts and estimated offering expenses payable by us. We will
not receive any proceeds from the sale of shares of common stock in this
offering by the selling stockholders.
We intend to use the net proceeds we receive from this offering for:
o the further commercialization and clinical development of THALOMID,
including the expansion of our sales and commercialization organization;
o the further development of our oncology and immunology programs, including
our IMiD and SelCID therapeutic agents;
o the further development of our chiral products, including ATTENADE; and
o general corporate purposes.
Pending use of the net proceeds we receive from this offering for the above
purposes, we intend to invest funds in investment grade debt obligations.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"CELG." The following table sets forth, for the periods indicated, the intra-day
high and low sale prices per share of common stock on the Nasdaq National
Market:
<TABLE>
<CAPTION>
-----------------------
HIGH LOW
---------- ----------
<S> <C> <C>
2000
First Quarter (through February 8, 2000) ......... $104 3/8 $ 55
1999
Fourth Quarter ................................... $ 72 5/8 $ 24 3/4
Third Quarter .................................... 29 14
Second Quarter ................................... 20 1/16 13 9/16
First Quarter .................................... 18 5/8 11 5/16
1998
Fourth Quarter ................................... $ 17 1/4 $ 7 1/2
Third Quarter .................................... 15 4 1/8
Second Quarter ................................... 11 1/2 8 1/4
First Quarter .................................... 11 5/8 6 15/16
</TABLE>
The last reported sales price per share of common stock on the Nasdaq National
Market on February 8, 2000 was $99 3/4. As of December 31, 1999, there were
approximately 450 holders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1999:
o our actual cash and cash equivalents and marketable securities available
for sale and capitalization;
o our cash and cash equivalents and marketable securities available for sale
and capitalization as adjusted to reflect:
-- the sale of 2,484,000 shares of our common stock offered by us and the
receipt by us of the net proceeds therefrom at an assumed public
offering price of $99.75 per share and after deduction of the
underwriting discounts and offering expenses payable by us; and
-- the conversion by the selling stockholders of a portion of our 9.0%
convertible notes issued in January 1999 into 516,000 shares of our
common stock.
This table should be read in conjunction with our consolidated financial
statements and the related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
----------------------------
SEPTEMBER 30, 1999
----------------------------
ACTUAL AS ADJUSTED
In thousands ------------- ------------
<S> <C> <C>
Cash and cash equivalents and marketable securities available for sale ................ $ 18,624 $ 251,057
========== ==========
Capital lease obligation-net of current portion ....................................... $ 45 $ 45
Long term convertible notes ........................................................... 38,458 29,171
Stockholders' equity (deficit):
Common stock, $.01 par value per share; 30,000,000 shares authorized; 17,151,595
shares issued and outstanding; 20,151,595 shares issued and outstanding as adjusted 172 202
Additional paid-in capital ........................................................... 144,945 386,286
Accumulated deficit .................................................................. (163,549) (163,479)
Accumulated other comprehensive loss ................................................. (64) (64)
---------- ----------
Total stockholders' equity (deficit) ............................................... (18,496) 222,945
---------- ----------
Total capitalization ............................................................. $ 20,007 $ 252,161
========== ==========
</TABLE>
The above table excludes, as of September 30, 1999, 2,002,313 shares of common
stock reserved for issuance upon conversion of our convertible notes, 602,833
shares reserved for issuance upon exercise of our outstanding warrants and
2,768,756 shares reserved for issuance upon exercise of our outstanding stock
options.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with our consolidated financial statements and the related notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included elsewhere in this
prospectus. The statements of operations data set forth below for the years
ended December 31, 1996, 1997 and 1998 and the balance sheet data as of December
31, 1997 and 1998 are derived from our consolidated financial statements which
have been audited by KPMG LLP, independent certified public accountants, and
which are included elsewhere in this prospectus and are qualified by reference
to such consolidated financial statements and the related notes thereto. Some
other information has been derived from other audited consolidated financial
statements. The statements of operations data set forth below for the nine
months ended September 30, 1998 and 1999, and the balance sheet data as of
September 30, 1999 have been derived from our unaudited condensed consolidated
financial statements which are included elsewhere in this prospectus and are
qualified by reference to such unaudited condensed consolidated financial
statements and the related notes thereto. The interim nine month data has been
prepared on a basis consistent with that of the audited consolidated financial
statements and, in the opinion of our management, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation.
Our historical results of operations are not necessarily indicative of future
results of operations.
<TABLE>
<CAPTION>
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
In thousands, except share data ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Product sales ........................... $ -- $ 32 $ 65 $ -- $ 3,266
Research contracts ...................... 98 440 817 1,122 535
--------- --------- --------- --------- ---------
Total revenues ......................... 98 472 882 1,122 3,801
Expenses:
Cost of goods sold ...................... -- -- -- -- 282
Research and development ................ 3,678 6,393 15,153 17,380 19,772
Selling, general and administrative ..... 2,718 2,589 3,771 9,146 16,219
--------- --------- --------- --------- ---------
Total expenses ......................... 6,396 8,982 18,924 26,526 36,273
--------- --------- --------- --------- ---------
Operating loss ........................... (6,298) (8,510) (18,042) (25,404) (32,472)
Other income and expense:
Interest income ......................... 587 568 1,308 496 705
Interest expense ........................ -- 425 324 112 256
--------- --------- --------- --------- ---------
Loss from continuing operations .......... (5,711) (8,367) (17,058) (25,020) (32,023)
Discontinued operations:
Loss from operations .................... (4,502) (2,150) (761) (427) (60)
Gain on sale of chiral assets ........... -- -- -- -- 7,015
--------- --------- --------- --------- ---------
Net loss ................................. (10,213) (10,517) (17,819) (25,447) (25,068)
Accretion of premium payable on
preferred stock and warrants ............ -- -- 1,013 521 25
Deemed dividend for preferred stock
conversion discount ..................... -- -- 2,778 953 --
--------- --------- --------- --------- ---------
Net loss applicable to common
stockholders ............................ $ (10,213) $ (10,517) $ (21,610) $ (26,921) $ (25,093)
========= ========= ========= ========= =========
Per share--basic and diluted:
Loss from continuing operations ......... $ (0.73) $ (1.04) $ (1.81) $ (2.05) $ (1.98)
Discontinued operations:
Loss from operations ................... (0.57) (0.27) (0.08) (0.03) --
Gain on sale of chiral assets .......... -- -- -- -- 0.43
--------- --------- --------- --------- ---------
Net loss applicable to common
stockholders ........................... $ (1.30) $ (1.30) $ (2.29) $ (2.20) $ (1.55)
========= ========= ========= ========= =========
Weighted average number of shares of
common stock outstanding ................ 7,853 8,073 9,450 12,215 16,160
<CAPTION>
------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1999
In thousands, except share data ------------ ------------
(UNAUDITED)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Product sales ........................... $ 1,031 $ 15,064
Research contracts ...................... 105 1,732
--------- ---------
Total revenues ......................... 1,136 16,796
Expenses:
Cost of goods sold ...................... 59 2,076
Research and development ................ 13,969 14,366
Selling, general and administrative ..... 11,207 17,847
--------- ---------
Total expenses ......................... 25,235 34,289
--------- ---------
Operating loss ........................... (24,099) (17,493)
Other income and expense:
Interest income ......................... 497 512
Interest expense ........................ 45 1,955
--------- ---------
Loss from continuing operations .......... (23,647) (18,936)
Discontinued operations:
Loss from operations .................... (60) --
Gain on sale of chiral assets ........... 7,015 --
--------- ---------
Net loss ................................. (16,692) (18,936)
Accretion of premium payable on
preferred stock and warrants ............ 25 --
Deemed dividend for preferred stock
conversion discount ..................... -- --
--------- ---------
Net loss applicable to common
stockholders ............................ $ (16,717) $ (18,936)
========= =========
Per share--basic and diluted:
Loss from continuing operations ......... $ (1.47) $ (1.12)
Discontinued operations:
Loss from operations ................... -- --
Gain on sale of chiral assets .......... 0.44 --
--------- ---------
Net loss applicable to common
stockholders ........................... $ (1.04) $ (1.12)
========= =========
Weighted average number of shares of
common stock outstanding ................ 16,062 16,903
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
In thousands ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities
available for sale .............................. $ 8,500 $ 11,713 $ 17,815 $ 13,583 $ 5,124
Total assets ..................................... 11,548 14,211 20,938 18,217 11,928
Long term convertible notes ...................... -- 4,592 2,026 -- 8,349
Accumulated deficit .............................. (60,473) (70,989) (92,599) (119,521) (144,613)
Total stockholders' equity (deficit) ............. 10,004 7,143 16,065 15,425 (3,733)
<CAPTION>
--------------
SEPTEMBER 30,
1999
In thousands --------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities
available for sale ............................. $ 18,624
Total assets .................................... 27,089
Long term convertible notes ..................... 38,458
Accumulated deficit ............................. (163,549)
Total stockholders' equity (deficit) ............ (18,496)
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the
related notes thereto included elsewhere in this prospectus.
OVERVIEW
We were organized in 1980 as a unit of Celanese Corporation, a chemical company.
Our initial mandate was to apply biotechnology to the production of fine and
specialty chemicals. Following the 1986 merger of Celanese Corporation with
American Hoechst Corporation, we were spun off as an independent company. In
July 1987, we completed an initial public offering of our common stock and
commenced the development of chemical and biotreatment processes for the
chemical and pharmaceutical industries. We discontinued the biotreatment
operations in 1994 to focus on our targeted small molecule cancer and immunology
compound development programs and our biocatalytic chiral chemistry program.
Since 1990, our revenues have been generated primarily through research and
development relating to, and supply of, chirally pure intermediates to
pharmaceutical companies for use in new drug development and, to a lesser
degree, from agrochemical research and development contracts. However, as we
developed our cancer and immunology programs, sales of chirally pure
intermediates became a less integral part of our strategic focus. Accordingly,
on January 9, 1998, we completed the sale of our chiral intermediate business to
Cambrex Corporation for $15.0 million. The terms of the sale provided for a
payment of $7.5 million at closing and an additional amount of future royalties
not to exceed the net present value on the date of contract of $7.5 million,
with a guarantee of certain minimum payments beginning in the third year after
closing.
In late September 1998, we commenced sales of our first commercial product,
THALOMID.
We have sustained losses in each year since our inception in 1986. Through the
first nine months of 1999, we had a net loss of $18.9 million and, at September
30, 1999, had an accumulated deficit of $163.5 million. We expect to make
substantial expenditures to further commercialize and develop THALOMID, develop
our oncology and immunology programs and expand our chiral business. Based on
these expenditures, it is likely that losses will continue for at least the next
six months.
Subject to the risks described elsewhere in this prospectus, we believe that
there are significant market opportunities for the products and processes under
development by us. To address these opportunities in a timely and effective
manner, we intend to seek out collaborations and licensing arrangements with
third parties. We have entered into agreements covering the manufacture and
distribution for us of certain compounds, such as THALOMID, and the development
by us of processes for producing chirally pure crop protection agents for
license to agrochemical manufacturers. This development is performed through
Celgro Corporation, our wholly owned subsidiary.
We have established a commercial organization to sell THALOMID and we currently
employ 60 persons in this capacity. We intend to develop and market our own
pharmaceuticals for indications with accessible patient populations. For drugs
with indications for larger patient populations, we anticipate partnering with
other pharmaceutical companies. We also anticipate partnering with companies for
the development and commercialization of our chirally pure pharmaceutical and
agrochemical products. We expect that these arrangements typically will include
milestone payments, reimbursement of research and development expenses and
royalty arrangements.
Future operating results will depend on many factors, including demand for our
products, regulatory approvals of our products, the timing of the introduction
and market acceptance of new products by us or competing companies, the timing
of research and development milestones and our ability to control costs.
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RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 and 1998
Total revenues. Our total revenues for the nine months ended September 30, 1999
increased to $16.8 million from $1.1 million in the same period of 1998. Our
revenues for the 1999 period consisted of product sales of THALOMID of $15.1
million and research contract revenues of $1.7 million. The increase in total
revenues in the 1999 period 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 research contract revenue generated by Celgro.
Cost of goods sold. Cost of goods sold for the nine months ended September 30,
1999 was $2.1 million compared with approximately $59,000 in the same period in
1998. The cost of goods sold does not reflect raw material or formulation and
encapsulation costs of THALOMID prior to receiving FDA approval, as these costs
were charged as research and development expenses.
Research and development expenses. Research and development expenses increased
3% to $14.4 million in the nine months ended September 30, 1999 from $14.0
million in the same period in 1998. The increase in spending was due to clinical
trial costs, primarily for ATTENADE, of $3.1 million, which was offset by a
decrease or reclassification of the following: regulatory consulting fees of
approximately $600,000; quality assurance expenses of approximately $633,000,
which were recorded in cost of goods sold in 1999; external university research
program expenses of approximately $362,000; formulation and encapsulation
expenses for THALOMID of $1.0 million incurred prior to FDA approval of
THALOMID; and other expenses of approximately $500,000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 59% to $17.8 million in the nine months
ended September 30, 1999 from $11.2 million in the same period of 1998. This
increase was due primarily to the expansion of our sales and commercialization
organization and related expenses of $2.4 million and warehousing and
distribution expenses, including our S.T.E.P.S. program, of $2.9 million, both
to support the commercial sales of THALOMID. This increase was also due to
expenses for the medical affairs and drug safety department of approximately
$600,000, amortization of expenses related to our convertible notes of
approximately $500,000 and other miscellaneous expenses of approximately
$200,000.
Interest income and interest expense. Interest income for the nine months ended
September 30, 1999 increased 3% to approximately $512,000 from approximately
$497,000 in the same period of 1998. The increase in interest income was due to
higher average cash balances in 1999, primarily from investment of the net
proceeds from our 9.0% convertible notes issued in July 1999. Interest expense
for the nine months ended September 30, 1999 increased significantly to $2.0
million from approximately $45,000 in the same period in 1998. The increase in
interest expense was due to interest on our three convertible notes with coupon
rates of 9.25%, 9.0% and 9.0% placed in September 1998, January 1999 and July
1999.
Loss from continuing operations. Loss from continuing operations for the nine
months 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 selling, general and administrative
expenses as described above.
Discontinued operations. Discontinued operations in 1998 reflects the one-time
gain on the sale of our chiral intermediate business of $7.0 million. The
$60,000 loss in the nine months ended September 30, 1998 represents expenses for
the nine-day period preceding the sale. There were no discontinued operations in
1999.
Fiscal Years Ended December 31, 1998, 1997 and 1996
Total revenues. In 1998, total revenues increased by 245% to $3.8 million from
$1.1 million in 1997. This was due to product sales of $3.3 million of THALOMID,
which was launched in late September 1998, offset by a decrease in revenues from
research contracts of approximately $600,000 due to completion of a contract
with a major agrochemical company at the end of 1997. Our revenues for 1997
represented an increase of 27% over 1996 revenues of approximately $882,000.
Revenues were primarily from product sales in 1998 and research contracts for
the years 1997 and 1996.
Cost of goods sold. Cost of goods sold in 1998 was approximately $282,000 and
relates to THALOMID, our first commercial product, which was launched in late
September 1998. The cost of goods sold does not reflect raw material or
formulation and encapsulation costs of THALOMID prior to receiving FDA approval,
as these were charged as research and development expenses. There were no cost
of goods sold in 1997 or 1996.
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Research and development expenses. Research and development expenses for 1998
increased by 14% to $19.8 million from $17.4 million in 1997. This increase was
due to an increase of $1.5 million primarily for clinical trials and preclinical
toxicology studies for our chiral pharmaceutical program, and approximately
$780,000 due to clinical trials for potential NDA filings for THALOMID.
Research and development expenses for 1997 increased by 15% to $17.4 million
from $15.2 million in 1996. This increase was due to an increase in expenses of
approximately $823,000 associated with our chiral pharmaceutical program and
$1.3 million associated with facility and personnel charges related to
establishing a separate location for our chiral agrochemical business.
Selling, general and administrative expenses. Selling, general and
administrative expenses for 1998 increased by 78% to $16.2 million from $9.1
million in 1997. This was primarily due to sales and commercialization expenses
of $4.8 million in anticipation of the THALOMID product launch as well as
post-launch selling activities. The increase was also related to the
infrastructure costs required to support our commercial operations, including
medical affairs and drug safety costs of approximately $928,000, information
systems development costs and additional finance personnel of approximately
$423,000 and other administrative expenses such as legal, consulting and
investor relations of approximately $900,000.
Selling, general and administrative expenses for 1997 increased by 143% to $9.1
million from $3.8 million in 1996. This was primarily due to the formation of a
sales and commercialization organization in anticipation of the THALOMID product
launch as well as an increase in some support functions resulting from the
anticipated transition to a commercial operation. Major increases resulted from:
sales and commercialization expenses of $3.4 million for sales force recruiting
and training and other pre-launch expenses; medical affairs and drug safety
costs of approximately $425,000; additional finance personnel and information
systems development costs of approximately $366,000; executive and
administrative costs for Celgro of approximately $487,000; and other
administrative expenses such as legal, consulting and investor relations of
approximately $600,000.
Interest income and interest expense. Interest income for 1998 increased by 42%
to approximately $705,000 from approximately $496,000 in 1997. The increase was
due to higher average cash balances in 1998. Interest income for 1997 decreased
by 62% from $1.3 million in 1996. This decrease was attributable to lower
average cash balances in 1997. Interest expense for 1998 increased 129% to
approximately $256,000 from approximately $112,000 in 1997 due primarily to the
interest expenses associated with our 9.25% convertible notes issued in
September 1998. Interest expense in 1997 decreased 65% from approximately
$324,000 in 1996. The decrease was due to the conversion to equity of our 8.0%
convertible debentures issued in 1995.
Loss from continuing operations. Loss from continuing operations increased 28%
to $32.0 million from $25.0 million in 1997. The increase was due primarily to
spending related to the launch of THALOMID and ongoing research programs in
oncology, immunology and chiral pharmaceuticals as described above. The loss
from continuing operations for 1997 increased by 46% from $17.1 million in 1996
reflecting increased spending in oncology and immunology, the start of a
THALOMID sales and commercialization organization and the start of our chiral
pharmaceutical development program.
Loss from discontinued operations. The loss from discontinued operations
decreased to approximately $60,000 in 1998 from approximately $427,000 in 1997
due to the sale of the chiral intermediate business in January 1998. We recorded
a gain on the sale of the chiral intermediate assets of $7.0 million. The loss
from discontinued operations decreased by 44% in 1997 from approximately
$761,000 in 1996. The decrease was primarily a result of an increase in revenues
to $2.1 million in 1997 from $1.4 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in 1986, we have financed our working capital requirements
primarily through private and public sales of our 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 businesses
which we have since sold and currently from revenues from sales of THALOMID. As
of December 31, 1999, we have raised approximately $100.0 million in net
proceeds from three public and three private offerings, including our initial
public offering in July 1987. We also issued convertible notes in September
1998, January 1999 and July 1999 with net proceeds aggregating $38.0 million.
Our net working capital as of 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 cash equivalents and marketable securities available for sale of
$13.5 million, an increase in accounts receivable and inventory of approximately
$780,000, an increase in other current
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assets of approximately $450,000 and a decrease in accounts payable of
approximately $808,000 offset by an increase in accrued expenses of
approximately $784,000. Net working capital consisted principally of cash and
cash equivalents, marketable securities available for sale, accounts receivable,
inventory, 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 in the same period. This
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.
We expect that our rate of spending will increase as the result of increased
clinical trial costs, increased expenses associated with the regulatory approval
process and commercialization of products now in development, increased costs
related to the commercialization of THALOMID and increased 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 2000.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
All of our computer hardware and software has been upgraded for Year 2000
compliance. All of our key vendors have provided assurance that they are Year
2000 compliant. While there were no Year 2000 related problems at the transition
in the Year 2000, we are maintaining our contingency plans in the event any
problems arise in the future.
The statement contained in the foregoing Year 2000 readiness disclosures is
subject to protection under Year 2000 Information and Readiness Disclosure Act.
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BUSINESS
OVERVIEW
We are an independent biopharmaceutical company engaged primarily in the
discovery, development and commercialization of orally administered, small
molecule drugs for the treatment of cancer and immunological diseases. The key
mechanisms of action for our drugs are modulation of the overproduction of TNF-
and inhibition of angiogenesis. Additionally, our chiral chemistry program
develops chirally pure versions of existing compounds for both pharmaceutical
and agrochemical markets.
The FDA approved our first commercialized product, THALOMID, for sale in the
United States in July 1998. The approved indication for THALOMID is for the
treatment of acute cutaneous manifestations of moderate to severe ENL and as
maintenance therapy for prevention and suppression of cutaneous manifestation
recurrences. ENL is an inflammatory complication of leprosy. We sell this
product in the United States through our 60 person sales and commercialization
organization.
Our pipeline of new drugs is highlighted by two classes of orally administered
therapeutic agents: IMiDS and SelCIDs. The IMiD class is based on the activity
of THALOMID in modulating the overproduction of TNF- and inhibiting
angiogenesis. In preclinical studies, our IMiDs have demonstrated a higher level
of activity than thalidomide. In animal models, these compounds did not cause
birth defects or sedation. We completed Phase I trials in the fourth quarter of
1999 for each of our lead IMiDs. We expect that the data on these trials will be
compiled and released in the first quarter of 2000.
The second class of compounds, SelCIDs, is designed to modulate TNF- by
selectively inhibiting PDE 4, a key cell-signaling enzyme. Our SelCIDs are
targeted to control inflammation without broad suppression of the immune system.
Phase I trials demonstrated our lead SelCID compound, CDC 801, was safe and well
tolerated. There were no signs of nausea or vomiting, common side effects of
known PDE 4 inhibitors. CDC 801 is being tested in a Phase II pilot, placebo
controlled trial for the treatment of Crohn's disease. This trial is expected to
be completed in the first quarter of 2000.
In the third quarter of 1999, we announced favorable clinical results of two
Phase III pivotal efficacy trials for ATTENADE, a chirally pure version of
dl-methylphenidate. dl-methylphenidate is commonly marketed as Ritalin. ATTENADE
is designed to treat the symptoms of ADD and ADHD. We expect that the final
12-month safety trial will be completed in the first quarter of 2000 and we plan
to submit an NDA to the FDA in the second half of 2000.
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CELGENE PRODUCT OVERVIEW
The target disease states for, and clinical trial status of, THALOMID and our
products and compounds currently under development are outlined in the following
table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PRODUCT INDICATION/INTENDED USE STATUS
- ------------ --------------------------------- --------------------------------------------
<S> <C> <C>
THALOMID ENL Approved
Multiple Myeloma Phase II trial data
published and presented at
the American Society of
Hematology Phase III pivotal
trial protocol in preparation
Myelodysplastic Syndrome Phase II trial ongoing and initial data
presented at the American Society of
Hematology
Leukemia Multiple Phase II trials underway
Glioblastoma(1) Initial Phase II trials completed
Other Phase II trials underway
Liver Cancer Phase II trial underway
Kidney Cancer Phase II trial underway
Prostate Cancer(1) Initial Phase II trial completed
Other Phase II trials underway
Kaposi's Sarcoma(1) Phase II trial completed
Cancer Cachexia Initial Phase II trial completed
Sarcoidosis Initial Phase II trial completed
Other Phase II trials underway
Scleroderma Initial Phase II trial completed
Recurrent Aphthous Stomatitis Phase III pivotal trial completed
in AIDS patients
Crohn's disease Phase II trial completed and initial data
published
Ulcerative Colitis Phase II trial underway
Colon and Rectal Cancer(1) Phase II trial announced
SelCIDs
CDC 801 Crohn's disease Phase II trial underway
CC 7085 Crohn's disease Preclinical toxicology
IMiDs
CC 5013 Blood cancers Initial Phase I trial completed
CC 4047 Blood cancers Initial Phase I trial completed
ATTENADE Attention Deficit Disorder and Phase III pivotal efficacy trials completed
Attention Deficit Hyperactivity Phase III safety trials ongoing
Disorder
</TABLE>
- ----------
(1) At least one study supported by the National Cancer Institute.
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OVERVIEW OF ONCOLOGY AND IMMUNOLOGY
Our clinical and commercial focus is to produce a portfolio of highly potent,
selective drugs that have the potential to regulate the overproduction of TNF-
and are anti-angiogenic.
TNF-, produced primarily by certain white blood cells, is one of a number of
proteins called cytokines that act as chemical messengers throughout the body to
regulate many aspects of the immune system. TNF- is essential to mounting an
inflammatory response, which is the normal immune system reaction to infection
or injury that rids the body of foreign agents and promotes tissue repair.
However, chronic or excessive production of TNF- has been implicated in a number
of acute and chronic inflammatory diseases. These disease states, which are
inadequately treated with existing therapies, include non-insulin dependent
diabetes, Alzheimer's disease, congestive heart failure, inflammatory bowel
disease, rheumatoid arthritis, cancer cachexia, Parkinson's disease, multiple
sclerosis and lupus.
Traditional therapies for these disease states include anti-inflammatory drugs
and immunosuppressive agents. These therapies often fail to achieve significant
clinical benefits and can cause serious side effects such as severe drops in
certain blood component counts, liver toxicity, osteoporosis, teratogenicity and
various endocrine abnormalities. We believe that selective control and reduction
of TNF- represents a promising new strategy for treating chronic inflammatory
diseases. In pursuit of this strategy, two broad classes of compounds have been
investigated: proteins and small synthetic molecules.
Anti-TNF- proteins, including anti-TNF- antibodies and TNF- soluble receptors,
have demonstrated efficacy in the treatment of such chronic inflammatory
diseases as rheumatoid arthritis and Crohn's disease. While initial doses of
these anti-TNF- proteins have been well tolerated and have reduced disease
activity in clinical studies, these proteins exhibit certain shortcomings linked
to their nature as proteins. First, they are large molecules that must currently
be injected or infused. Second, the period of efficacy of a given dosage of a
protein-based drug can decline with repeated administration, rendering
protein-based drugs more suitable for treatment of acute pathological conditions
rather than chronic disease states. This limitation is due in part to increasing
production by a patient's immune system of antibodies that neutralize
administered proteins.
There are a number of large molecule, protein-based therapeutic products under
development by other companies for TNF- modulation. One product has received
approval from the FDA for the treatment of Crohn's disease and rheumatoid
arthritis, and another has received approval for rheumatoid arthritis. Synthetic
small molecule drugs, however, if successfully developed, may prove to be
preferable in the treatment of chronic inflammatory diseases, due to factors
such as oral dosing, lower cost of therapy and avoidance of undesirable immune
response that results in adverse side effects and reduced efficacy. We believe
that our small molecule immunotherapeutic compounds have the potential to
selectively modulate TNF- while affording these benefits.
In addition, research has indicated that our small molecule drug, THALOMID, is
anti-angiogenic. Angiogenesis is the fundamental biological process by which new
blood vessels are formed. Cancer cells require oxygen and nutrients and initiate
a biochemical mechanism that stimulates angiogenesis which, in turn, provides
the cancerous cells with the blood supply that they need to grow. Inhibition of
angiogenesis could adversely affect the graft of a tumor and be a potential
anti-cancer therapy. This therapy could be also used in conjunction with
radiation or more traditional chemotherapeutic agents. Currently, a number of
anti-angiogenic agents are being developed by a number of companies. However, we
believe that THALOMID is the only product on the market that has a direct
anti-angiogenic effect. Moreover, preliminary research suggests that our two new
classes of small molecule immunotherapeutic compounds -- one of which is based
on thalidomide's activity -- may be anti-angiogenic.
THALOMID
In July 1998, we received FDA approval to market THALOMID for treatment of ENL
and the product was launched in late September 1998. THALOMID is the first drug
approved under a special "Restricted Distribution for Safety" regulation and is
distributed through our S.T.E.P.S. program. Our program is designed to support
the safe and appropriate use of THALOMID and has been made a part of the
approved labeling for THALOMID. We are currently developing THALOMID for the
treatment of a variety of serious disease states for which we believe there are
currently no adequate approved therapies. Our current intent is to seek FDA
approval for THALOMID for at least one cancer of the blood, such as multiple
myeloma, one solid tumor cancer and an AIDS-related indication.
The immunological and anti-angiogenic properties of THALOMID are being
investigated as the basis for treatment of a variety of oncological diseases,
and a number of trials are ongoing, some in cooperation with the NCI, to
evaluate the potential of the drug in cancer. Key investigations include
multiple myeloma, which was the subject of an article and
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editorial in the November 18, 1999 issue of The New England Journal of Medicine,
Volume 341, Number 21, and glioblastoma multiforme, for which initial data were
presented in November 1999 at the Chemotherapy Foundation Symposium XVII in New
York. Additional presentations have been made at the 41st ASH symposium in
December 1999.
Our work with thalidomide was originally based on a scientific collaboration
with The Rockefeller University's Laboratory of Cellular Physiology and
Immunology. In the early 1990s, researchers at The Rockefeller University
discovered that thalidomide is a selective modulator of TNF- and, therefore,
could be of potential benefit in many serious immune-related disease states,
including cachexia and other AIDS-related conditions. We believe that, in
serious and debilitating disease states, the risk of birth defects and other
potential side effects related to thalidomide is outweighed by the drug's
potential clinical benefits. The Rockefeller University has granted to us
certain exclusive rights and licenses to manufacture, use and sell thalidomide
for treating the toxicity associated with high concentrations of TNF- in septic
shock, cachexia and HIV-related disease states. Researchers at the Children's
Medical Center, which is affiliated with Harvard University, discovered that
thalidomide is anti-angiogenic and filed patents on this utility. These patents,
some of which have not issued in the United States, are exclusively licensed to
EntreMed, Inc. We were granted an exclusive sublicense to all of EntreMed's
thalidomide patents in December 1998.
As a result of our own applications and designations acquired from EntreMed, we
now have Orphan Drug designations from the FDA for THALOMID covering: primary
brain malignancies; HIV associated wasting syndrome; severe Recurrent Aphthous
Stomatitis, or RAS, in severely, terminally immunocompromised patients; clinical
manifestations of mycobacterial infections caused by Mycobacterium tuberculosis
and non-tuberculous mycobacteria; ENL; multiple myeloma; Crohn's disease and
Kaposi's sarcoma. If the FDA approves any of these indications for THALOMID, we
will be granted a seven-year period of exclusivity during which time the FDA is
prohibited, except under some conditions, from approving another version of
thalidomide for the approved indication.
Thalidomide was developed initially as a sedative, and was also widely
prescribed by doctors in Europe in the late 1950s and early 1960s to pregnant
women for relief of morning sickness. After severe birth defects were later
observed with use of the drug, it was virtually removed from the world market.
Thalidomide was later discovered to have therapeutic effects in the treatment of
ENL, a disease that is rare in the United States but common in many parts of the
developing world. Although the FDA had never approved the marketing of
thalidomide, the U.S. Public Health Service has dispensed the drug for the
treatment of ENL for the past 25 years. We note that thalidomide's history may
limit market acceptance of THALOMID.
Oncology
Cancer tissue has many blood vessels. This observation has led to the
realization that growth of blood vessels is essential for tumor growth, invasion
and metastasis. Specifically, developing solid primary tumors are believed to
remain clinically insignificant unless they can arrange to obtain nourishment
from their host. Biochemically, an invasive tumor acts by altering a complex
system of factors causing the formation of new blood vessels from existing ones.
Almost three decades ago, it was proposed that this tumor angiogenesis could be
a target of cancer therapy. Anti-angiogenic compounds were believed to be able
to work by reducing or halting remaining tumor growth and could also be used in
conjunction with more traditional chemotherapeutic agents. Thalidomide was
discovered to be anti-angiogenic at the Children's Medical Center in Boston.
We are currently working with the NCI and a number of clinical investigators to
assess the potential of THALOMID in the treatment of various cancers. In the
first 12 months after THALOMID was commercially launched in the United States,
approximately 70% of the product's prescriptions were in oncology, as reported
by prescribers on our S.T.E.P.S. program enrollment surveys.
Multiple Myeloma. Multiple myeloma is a malignant proliferation of plasma cells
and plasmacytoid cells. It is the second most common blood borne malignancy and
is invariably fatal. According to the Leukemia Society of America, multiple
myeloma accounts for about 13% of blood borne disease and affects approximately
40,000 people in the United States. The incidence of this disease is
approximately four per 100,000, and approximately 14,400 cases are reported
annually with approximately 11,000 deaths associated with the disease every
year.
Clinical research published in the November 18, 1999 edition of The New England
Journal of Medicine, Volume 341, Number 21, reported results of a study
conducted at the University of Arkansas on the use of THALOMID in 84 multiple
myeloma patients with advanced stage disease and histories of extensive prior
chemotherapeutic interventions, radiation treatments and multiple bone marrow
transplants. This Phase II study found that 32% of the patients had a partial
response
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and 10% of the patients had a complete or nearly complete remission based on
decreases in paraprotein, the myeloma protein in serum, or Bence Jones protein
in urine, important markers of the progression of the disease. Clinical data
from 180 patients in this study was presented at the December 1999 ASH meeting
by researchers at the University of Arkansas who reported that 36% of the
patients achieved a 25% reduction in tumor burden. Eighteen patients achieved
paraprotein response of at least 90%, 14 patients achieved at least a 75%
paraprotein response, 16 patients achieved at least a 50% paraprotein response
and four patients achieved a complete response. Side effects reported by the
investigators were constipation, weakness/fatigue and somnolence. A number of
additional presentations and posters presented confirmatory evidence at the ASH
meeting regarding the efficacy of THALOMID. In September 1999, similar findings
were reported at the International Myeloma Workshop in Stockholm, Sweden on
trials conducted at Cedars-Sinai Medical Center, Los Angeles. In this Phase II,
open label study of 20 relapsing or progressive multiple myeloma patients
utilizing low-dose THALOMID administered over an eight-week trial period, 30% of
patients experienced a greater than 50% reduction of tumor burden. Further data
confirming earlier trials was presented at the Chemotherapy Foundation Symposium
XVII in November 1999 in New York on 15 refractory patients treated at Saint
Vincents Medical Center, New York in which there was observed a 67% overall
response with THALOMID alone or in combination with chemotherapy.
In the 12 months following the launch of THALOMID, as reported by prescribers on
our S.T.E.P.S. program enrollment surveys, approximately 30% of total usage was
in multiple myeloma. Based on this information and on the growing volume of
clinical trial data, our plan is to develop a regulatory/clinical program based
on what has been learned from these studies and file a supplemental NDA for
THALOMID for the treatment of multiple myeloma.
Glioblastoma Multiforme. Glioblastomas are the most common brain tumors and
account for 50% of all gliomas, an aggressive form of brain cancer. The usual
treatment of high-grade gliomas is surgical removal followed by radiation
therapy.
Studies at the New York University School of Medicine and at the Dana Farber
Institute have demonstrated the potential for thalidomide as a treatment for
glioblastoma multiforme. Phase I/II data from the New York University trial were
presented in November 1999 at the Chemotherapy Foundation Symposium XVII in New
York. THALOMID in combination with carboplatin was administered to 71 patients
with recurrent glioblastoma multiforme. At the maximum tolerated dose of
THALOMID, 53 of the patients were evaluated for efficacy, with 70% experiencing
responses, two with partial responses, 35 with disease stabilization. The
trial's most commonly reported side effects were constipation and drowsiness. A
Phase III trial will assess whether patients benefited because of the higher
carboplatin doses or if there was any synergy between thalidomide and
carboplatin. Additionally, a Phase II trial has been initiated in collaboration
with the NCI's Radiation Therapy Oncology Group to investigate the effect of
THALOMID and radiation as co-therapy for the treatment of glioblastoma.
Other Oncology Indications. In addition to glioblastoma multiforme, the NCI is
currently investigating THALOMID in clinical trials on prostate, colorectal,
head and neck and non-small cell lung cancer. Other trials such as those in
liver cancer, kidney cancer and leukemia are being run by key investigators.
Recently, researchers in London reported that continuous, low-dose thalidomide
is useful as an agent in patients with advanced cancers as a palliative. That
study showed that three of 18 patients with kidney cancer also showed a response
benefit and three patients had stabilization of their disease for periods of up
to six months. In addition, four of 17 melanoma patients experienced stable
disease for up to six months. According to a report in the medical journal
Lancet, follow-up studies using higher doses have also shown "encouraging
results" in patients with kidney cancer. These researchers are now testing
thalidomide in combination with interferon or interleukin 2 in this group.
Similarly, the NCI reported trial results in which 63 patients were treated with
either a low dose or a high dose of thalidomide. Approximately 53% of the low
dose and 68% of the high dose patients had declines in prostate specific
antigen, a recognized marker for prostate cancer. If successful, these studies
would establish proof of principle, leading to the design of additional trials,
including pivotal studies.
Immunology
THALOMID has been shown to impact the immune system both in vitro and in vivo.
Examples of such biological activities include the inhibition of TNF-,
stimulation of the anti-inflammatory cytokine IL-10 and activation of T-cell
function. These types of activities could prove to have therapeutic benefit in a
variety of inflammatory, infectious and autoimmune diseases. The two key areas
of investigation at present involve inflammatory bowel disease and serious
complications associated with HIV/AIDS. In addition, other areas of
investigation include sarcoidosis, an inflammation of body tissue which often
attacks the lungs and lymph nodes, and scleroderma, a chronic tissue disorder.
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Erythema Nodosum Leprosum. ENL is a complication of leprosy, a chronic bacterial
disease. Although the disease is relatively rare in the United States, leprosy
afflicts millions worldwide. ENL occurs in about 30% of leprosy patients and is
characterized by cutaneous lesions, acute inflammation, fever and anorexia. On
July 16, 1998, we received approval from the FDA to market THALOMID for the
treatment of ENL.
Inflammatory Bowel Disease. According to the Crohn's and Colitis Foundation of
America, there are approximately one million Americans with active inflammatory
bowel disease. Inflammatory bowel disease is characterized by serious chronic
inflammation of the wall or any part of the gastrointestinal tract and results
in pain, bloating and diarrhea. In addition, the chronic inflammation may result
in abscesses and fistula formation. The most serious form of inflammatory bowel
disease is known as Crohn's disease with an estimated 70,000 to 125,000 U.S.
patients diagnosed with active moderate to severe manifestation of the disease.
A Phase II pilot study using THALOMID in patients with severe Crohn's disease
has been concluded at the Cedars-Sinai Medical Center, Los Angeles, and reported
in the journal Gastroenterology. About 70% of the patients suffering from
moderate to severe Crohn's disease who completed at least five weeks of the
12-week trial demonstrated a response when treated with low dose THALOMID, with
20% of these patients experiencing remission. All patients were able to reduce
their steroid regimen by at least 50%, with 44% of patients discontinuing
steroids. Data from this trial suggests that THALOMID may provide clinical
benefit and potentially reduce the need for steroid treatment. This combination
of effects could mean improvement over current therapeutic options. A similar
Phase II pilot study has been initiated at Cedars-Sinai Medical Center using
THALOMID for chronically active ulcerative colitis, which is another form of
inflammatory bowel disease. Estimates of the prevalence of ulcerative colitis in
the United States generally range between 250,000 and 500,000. Recent
preliminary data has shown that eight of 11 patients with intractable bowel
disease benefited from THALOMID.
HIV/AIDS. Recurrent Aphthous Stomatitis, or RAS, is a complication of AIDS
characterized by lesions of the oral cavity, esophagus and gastrointestinal
tract and may interfere with normal eating. We believe RAS currently afflicts an
estimated 5,000 AIDS patients in the United States. Positive results have been
reported in a study conducted by the AIDS Clinical Trials Group of the National
Institutes of Health using a formulation of thalidomide manufactured by a third
party. In mid-1997, we began a pivotal clinical trial involving 84 patients for
the evaluation of THALOMID in the treatment of RAS, using the same principal
investigator as the AIDS Clinical Trials Group study. We will be analyzing this
clinical trial data in 2000 with a view toward the possibility of a supplemental
NDA submission to the FDA.
S.T.E.P.S. Program
Working with the FDA and other governmental agencies as well as certain advocacy
groups, we designed and implemented our S.T.E.P.S. program, the objective of
which is the safe and appropriate use of THALOMID. This proprietary program
includes comprehensive physician, pharmacist and patient education. Female
patients are required to use contraception and are given pregnancy tests
regularly. All patients are also subject to other requirements, including
informed consent and participation in a confidential outcomes registry managed
on our behalf by an academic epidemiology research group. Physicians are also
required to comply with the educational, contraception counseling, informed
consent and pregnancy testing and other elements of the program. Dispensing
pharmacists are required to confirm that the physician is a registered
participant in the program, and that the patient has signed an informed consent.
Automatic refills are not permitted under the program and each prescription may
not exceed four weeks dosing. A new prescription is required each month.
Sales and Commercialization
We have established an organization of approximately 60 persons to sell and
commercialize THALOMID. These individuals have considerable experience in the
pharmaceutical industry and many have experience with oncological and
immunological products. We expect to expand our THALOMID sales and
commercialization group to support products we develop to treat oncological and
immunological diseases. We intend to market and sell the products we develop for
indications with accessible patient populations. For drugs with indications with
larger patient populations, we anticipate partnering with other pharmaceutical
companies. In addition, we are positioned to accelerate the expansion of these
sales resources as appropriate to take advantage of product in-licensing and
product acquistion opportunities. We intend to establish commercial
relationships with selected companies in other countries to market THALOMID.
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Manufacturing
THALOMID is formulated and encapsulated for us by Penn Pharmaceuticals Ltd. of
Great Britain in an FDA approved facility devoted exclusively to the production
of THALOMID capsules. Both the bulk manufacturing facility that produces the
drug substance for THALOMID and the Penn facility have been certified as cGMP
compliant. In certain instances, we may be required to make substantial capital
expenditures to access additional manufacturing capacity. In addition, we have
established a contract with another cGMP certified bulk drug substance supplier
for THALOMID that will begin in 2001 once the regulatory process is completed.
We are also actively seeking an alternate manufacturer to provide additional
capacity for the formulation and encapsulation of THALOMID and expect that this
will be concluded in 2000.
IMIDS
We have designed and synthesized a number of novel structural analogues of
thalidomide called IMiDs which have been demonstrated in in vitro tests to be
substantially more potent than thalidomide. There can be no assurance, however,
that the same effect can be duplicated in humans. Animal models have suggested
that our IMiDs do not cause the birth defects associated with thalidomide.
Research on these compounds has identified two clinical trial candidates and
each has advanced into a Phase I trial. Research continues on follow-on
compounds with enhanced immunological and anti-angiogenic activity. IMiDs may
have potential for treating conditions where there is a deficiency in T-cell
activity, such as viral diseases including HIV-related diseases, or for
enhancing potential IL-12 mediated anti-tumor activities. In preclinical
studies, our lead IMiD compound has been shown to inhibit interleukins 1-beta, 6
and 12 while stimulating the production of interleukins 10 and 2 as well as
interferon gamma. The activity of T-cells is enhanced by the compound up to
1,000 times more than with thalidomide. We expect to advance at least one of the
lead IMiDs, CC 5013 or CC 4047, into a Phase II pilot trial in a blood cancer
during 2000. The U.S. Patent and Trademark Office has issued composition of
matter and use patents to us relating to our IMiDs.
SELCIDS
We have designed, synthesized and tested a large number of SelCIDs. These
compounds have demonstrated the ability to be highly specific inhibitors of TNF-
overproduction in in vitro bioassays of human cells. SelCIDs appear to have a
specific inhibitory effect on PDE 4, which is linked to the overproduction of
TNF-. Studies have determined that many of the SelCIDs decrease synthesis of
TNF- through selective inhibition of PDE 4. Preclinical and animal tests have
shown this class of compounds to be up to 10,000 times more active with a longer
half-life than THALOMID. We believe that control of TNF- at its source, versus
simple removal of circulating levels of the cytokine, may facilitate more
effective therapy without immune suppression. There can be no assurance,
however, that the same effect can be duplicated in humans.
Our lead SelCID, CDC 801, was found to be well tolerated in two Phase I trials
completed in 1999 in the United Kingdom. A Phase II pilot trial for this
compound in Crohn's disease commenced in 1999 at the Cedars-Sinai Medical Center
and results are expected in the first quarter of 2000. In addition, we expect to
initiate a Phase II pilot trial for CDC 801 in a blood cancer during 2000. Other
SelCIDs have been identified and the most advanced of these is undergoing
toxicological evaluation in preparation for the initiation of Phase I trials.
Unlike many therapeutics which inhibit PDE 4, SelCIDs have not shown any
evidence of acute nausea and vomiting in patients. The U.S. Patent and Trademark
Office has issued to us composition of matter and use patents relating to our
SelCIDs.
CHIRAL CHEMISTRY
Many human pharmaceuticals and agrochemicals exist in two different
three-dimensional configurations that are identical in chemical structure but
are mirror images of each other. These conformations, known as enantiomers, or
isomers, generally interact differently with biological targets. In clinical
applications, one isomer may result in the desired therapeutic effect by
stimulating or inhibiting a targeted biological function, while the other isomer
may be inactive or cause undesirable side effects. In contrast to racemic
compositions which contain both isomers, the use of chirally pure
pharmaceuticals can result in significant clinical benefits such as reduced
toxicity and increased efficacy. In agrochemical applications, the use of
chirally pure chemicals can result in a substantially reduced volume of product
required to achieve the desired benefit, thereby potentially lowering
manufacturing costs and reducing the environmental burden as compared with
racemic chemicals.
Our biocatalytic process enables the efficient production of chirally pure
compounds. This patented process is based primarily on the use of enzymes called
aminotransaminases, which are optimized by us through a variety of techniques
including genetic engineering. These enzymes catalyze the production of only the
desired stereoisomer of a chiral compound and can be used in conventional
chemical synthesis reactors at room temperature.
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Our biocatalytic process for producing chirally pure compounds differs from the
more common approach of producing racemic mixtures followed by separation of the
desired stereoisomer through resolution techniques such as crystallization or
chromatography. These traditional approaches to producing chirally pure
compounds can be cumbersome, result in low yields, use substantial amounts of
raw materials and involve the disposition of waste product. Traditional
approaches also are generally less economical than our process. We believe that
our biocatalytic process can be applied to the manufacture of a wide variety of
organic chemicals.
We believe there is a significant incremental opportunity in developing
selected, chirally pure versions of approved drugs currently sold in racemic
form. Compounds that have been approved and marketed have a significant body of
information regarding their safety and efficacy and consequently:
o the cost and duration of preclinical evaluations and clinical trials may be
reduced if reference may be made to data used in the course of obtaining
regulatory approval for the racemic parent compound;
o the risk of not obtaining regulatory approval may be reduced; and
o marketing risks may also be reduced due to the established market for the
parent compound.
We have made significant progress over the past year in the development of
ATTENADE, the chirally pure version of Ritalin. We have also made significant
progress in the development and production of chirally pure agrochemicals. We
believe that the agrochemical market presents a substantial opportunity because
many agrochemicals produced in racemic form could be manufactured in chirally
pure form.
ATTENADE
We have completed two pivotal Phase III efficacy trials for ATTENADE. These
trials found that ATTENADE met all efficacy parameters for controlling symptoms
of ADD and ADHD in school-age children. Drugs containing dl-methylphenidate such
as Ritalin have been used for decades for the treatment of ADD and ADHD. We
believe that one million children in the United States were treated with
dl-methylphenidate and other psychostimulants in 1998. Total U.S. sales in 1998
of drugs used to treat the symptoms of ADD and ADHD were approximately $500
million.
More than 200 children participated in our pivotal trials. Both multi-center
trials compared ATTENADE to placebo; the second trial directly compared the
efficacy of both ATTENADE and dl-methylphenidate to placebo. As compared to
placebo, ATTENADE demonstrated a statistically significant longer duration of
action than dl-methylphenidate. ATTENADE controlled the symptoms of ADD and ADHD
at all times measured in the study while dl-methylphenidate did not control the
symptoms at the last measurement. In both trials, behavioral and objective
measures were examined. ATTENADE had favorable scores over dl-methylphenidate in
all parameters measured. The results of the primary efficacy analysis indicated
that ATTENADE was significantly more effective than placebo as evaluated by a
behavioral scale, signifying an improvement in the clinical status of the
children. The results of the second trial confirmed the drug's efficacy and
indicated a significantly longer duration of action for ATTENADE compared to
dl-methlyphenidate as measured by a behavioral scale. The Phase III safety trial
is scheduled for completion in the first quarter of 2000 and an NDA submission
is anticipated later in the year. Clinical trials on a pulsed release
formulation are planned to commence in the first half of 2000.
We are in discussions regarding partnerships for ATTENADE in the United States
and Europe. In Canada, where it is awaiting registration, ATTENADE is licensed
to Biovail Corporation, which purchased $2.5 million dollars worth of our stock
and will pay to us licensing fees, milestone payments and royalties. We have
been issued patents for the use of ATTENADE for the treatment of ADD and ADHD,
and for the once-a-day administration of methylphenidate drugs in a controlled
or pulsed release formulation that includes both the chirally pure
d-methylphenidate and the racemic form. In addition, we have been issued process
patents covering our manufacturing process for the active substance.
Chirally Pure Agrochemicals
Celgro is applying our proprietary biocatalytic synthesis technology to
agrochemicals. Celgro's approach is to work with agrochemical companies to adapt
our biocatalytic technology to the manufacture of chirally pure versions of
their existing crop protection product and then license the technology to these
companies in exchange for royalties. Celgro will also seek to develop chirally
pure versions of existing agrochemicals on its own and then enter into license
agreements with third
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parties, who would manufacture and sell the agrochemicals. We expect that these
arrangements typically will include milestone payments, reimbursement of
research and development expenses and royalty arrangements. We have entered into
research and development agreements with two leading agrochemical companies and
initiatives are underway to secure additional collaborations.
We also believe that our chiral technology can be enabling in agrochemical
applications because it has the potential to significantly lower manufacturing
costs compared to conventional technologies and other chiral technologies.
Compared to our biocatalytic process, conventional technologies require more raw
materials and greater plant capacity to produce the same effective quantity of
product, while other chiral technologies require specialized equipment, more
expensive chiral agents, more raw material and greater capacity for handling
hazardous wastes produced in the separation process. In addition, it is
anticipated that the required application amount of a chirally pure form of an
agrochemical could be substantially less than the racemic form and achieve the
same or better results, thereby reducing environmental burden. Agrochemicals are
highly price sensitive and, therefore, a process that produces chirally pure
products at significant cost savings could be in substantial demand.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to our business. It is our
policy to seek patent protection for our inventions, and also to rely upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain our competitive position.
Under an agreement with The Rockefeller University, we have obtained certain
exclusive rights and licenses to manufacture, have manufactured, use and sell
products that are based on compounds that were identified in research carried
out by The Rockefeller University and us, that have activity associated with
TNF-. The Rockefeller University has identified a method of using thalidomide
and certain thalidomide-like compounds to treat certain symptoms associated with
abnormal concentrations of TNF-, including those manifested in septic shock,
cachexia and HIV infection. In 1995, The Rockefeller University was issued a
U.S. patent which claims such methods. This U.S. patent expires in 2012 and is
included in the patent rights exclusively licensed to us under the license from
The Rockefeller University. However, The Rockefeller University did not seek
corresponding patents in any other country in respect of this invention. The
Rockefeller University has filed an additional U.S. patent application and an
international patent application relating to the activity of thalidomide related
to interleukin-12. Under the license from The Rockefeller University, we were
obligated to pay certain specified royalties to The Rockefeller University on
net sales of licensed products for covered indications. In November 1999, we
agreed with The Rockefeller University to substitute a lump sum payment and
issue stock options to The Rockefeller University and the inventors in lieu of
the royalties previously payable under the license. The license from The
Rockefeller University is coterminous with the last to expire of the licensed
patents and is terminable by The Rockefeller University only in the event of a
breach of the agreement's terms by us which breach shall fail to be remedied for
more than sixty days after notice thereof. Any termination of the license from
The Rockefeller University could have a material adverse effect on our business,
financial condition and results of operations.
In 1998, we were granted an exclusive sublicense to all of the thalidomide
patents and patent applications worldwide, exclusively licensed to EntreMed by
the Children's Medical Center Corp., which is affiliated with Harvard
University, related to the anti-angiogenic action of thalidomide. Three U.S.
patents issued to Children's Medical Center Corp. will expire in 2014.
Corresponding foreign patent applications and additional U.S. patent
applications are still pending. Further, we have also exclusively sublicensed
pending U.S. and foreign patent applications related to the use of thalidomide
in combination with other therapeutic agents. There can be no assurance that
additional patents will issue, or that if patents issue, that such patents will
provide us with significant proprietary protection or commercial advantage. The
license from EntreMed is coterminous with the last to expire of the licensed
patents and we must pay royalties for at least 12 years from our first
commercial sale in the United States. The EntreMed license is terminable in the
event of a breach by us, which breach shall fail to be remedied for 60 days
after notice thereof. Any termination of the license from EntreMed could have a
material adverse affect on our business, financial condition and results of
operations.
We have been issued a total of 36 U.S. patents and have filed an additional 15
U.S. patent applications. Of the issued patents, 14 relate to our oncologic or
immunologic compounds and uses and six are directed to methylphenidate
therapeutic compositions and processes. Our U.S. patents expire between 2001 and
2019. We have filed patient applications and in some instances have obtained
patents in certain other countries which correspond to some, but not all of our
U.S. patents. We expect to continue to file patent applications covering the use
of our proprietary inventions.
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Prior to the enactment in the United States of new laws adopting certain changes
mandated by the General Agreement on Tariffs and Trade, the exclusive rights
afforded by a U.S. patent were for a period of 17 years measured from the date
of grant. Under these new laws, the term of any U.S. patent granted on an
application filed subsequent to June 8, 1995 will terminate 20 years from the
date on which the patent application was filed in the United States or the first
priority date, whichever occurs first. Future patents granted on an application
filed before June 8, 1995 will have a term that terminates 20 years from such
date, or 17 years from the date of grant, whichever date is later.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a U.S.
product patent or use patent may be extended for up to five years under certain
circumstances to compensate the patent holder for the time required for FDA
regulatory review of the product. The benefits of this act are available only to
the first approved use of the active ingredient in the drug product and may be
applied only to one patent per drug product. There can be no assurance that we
will be able to take advantage of this law.
Our success will depend, in part, on our ability to obtain and enforce patents,
protect trade secrets, obtain licenses to technology owned by third parties when
necessary and conduct its business without infringing the proprietary rights of
others. The patent positions of pharmaceutical and biotechnology firms,
including ours, can be uncertain and involve complex legal and factual
questions. In addition, the coverage sought in a patent application can be
significantly reduced before the patent is issued. Consequently, we do not know
whether any of our owned or licensed pending applications will result in the
issuance of patents or, if any patents are issued, whether they will provide
significant proprietary protection or commercial advantage, or whether they will
be circumvented or infringed upon by others. Since patent applications in the
United States are maintained in secrecy until patents issue and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, we cannot be certain that we, or our licensors, were
the first to make the inventions covered by each of the pending patent
applications or that we, or our licensors, were the first to file patent
applications for such inventions. In the event a third party has also filed a
patent for any of its inventions, we, or our licensors, may have to participate
in interference proceedings declared by the U.S. patent and Trademark Office to
determine priority of invention, which could result in the loss of a U.S. patent
or loss of any opportunity to secure U.S. patent protection for the invention.
Even if the eventual outcome is favorable to us, such interference proceedings
could result in substantial cost to us. Prosecution of patent applications and
litigation to establish the validity and scope of patents, to assert patent
infringement claims against others and to defend against patent infringement
claims by others can be expensive and time-consuming. There can be no assurance
that, in the event that claims of any of our owned or licensed patents are
challenged by one or more third parties, any court or patent authority ruling on
such challenge will determine that such patent claims are valid and enforceable.
An adverse outcome in such litigation could cause us to lose exclusivity
relating to the subject matter delineated by such patent claims and may have a
material adverse effect on our business. If a third party is found to have
rights covering products or processes used by us, we could be forced to cease
using the products or processes covered by the disputed rights, subject to
significant liabilities to such third party and/or required to license
technologies from such third party. Also, different countries have different
procedures for obtaining patents and patents issued by different countries
provide different degrees of protection against the use of a patented invention
by others. There can be no assurance, therefore, that the issuance to us in one
country of a patent covering an invention will be followed by the issuance in
other countries of patents covering the same invention or that any judicial
interpretation of the validity, enforceability or scope of the claims in a
patent issued in one country will be similar to the judicial interpretation
given to a corresponding patent issued in another country. Furthermore, even if
our owned or licensed patents are determined to be valid and enforceable, there
can be no assurance that competitors will not be able to design around such
patents and compete with us using the resulting alternative technology. We do
not currently have, nor do we intend to seek, patent protection relating to the
use of THALOMID to treat ENL.
We also rely upon unpatented, proprietary and trade secret technology that we
seek to protect, in part, by confidentiality agreements with our collaborative
partners, employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors. There can be no assurance that these agreements
provide meaningful protection or that they will not be breached, that we would
have adequate remedies for any such breach or that our trade secrets,
proprietary know-how and technological advances will not otherwise become known
to others. In addition, there can be no assurance that, despite precautions
taken by us, others have not and will not obtain access to our proprietary
technology or that such technology will not be found to be non-proprietary or
not a trade secret.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and other countries
is a significant factor in the manufacture and marketing of pharmaceuticals and
in our ongoing research and development activities. All of our therapeutic
products
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will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical testing and clinical trials and other pre-marketing
approval requirements by the FDA and regulatory authorities in other countries.
In the United States, various federal, and in some cases state statutes and
regulations also govern or impact upon the manufacturing, safety, labeling,
storage, record-keeping and marketing of such products. The lengthy process of
seeking required approvals and the continuing need for compliance with
applicable statutes and regulations, require the expenditure of substantial
resources. Regulatory approval, when and if obtained, may be limited in scope
which may significantly limit the indicated uses for which a product may be
marketed. Further, approved drugs, as well as their manufacturers, are subject
to ongoing review and discovery of previously unknown problems with such
products may result in restrictions on their manufacture, sale or use or in
their withdrawal from the market. Any failure by us, our collaborators or
licensees to obtain or maintain, or any delay in obtaining regulatory approvals
could adversely affect the marketing of our products, and our ability to receive
product revenue, royalty revenue or profit sharing payments.
The activities required before a pharmaceutical may be marketed in the United
States begin with preclinical testing not involving human subjects. Preclinical
tests include laboratory evaluation of product chemistry and animal studies to
assess the potential safety and efficacy of a product and its formulations. The
results of these studies must be submitted to the FDA as part of an
Investigational New Drug application, or IND, which must be reviewed by the FDA
primarily for safety considerations before proposed clinical trials in humans
can begin.
Typically, clinical trials involve a three-phase process. In Phase I, clinical
trials are generally conducted with a small number of individuals to determine
the early safety and tolerability profile and the pattern of drug distribution
and metabolism within the body. If the Phase I trials are satisfactory, Phase II
clinical trials are conducted with groups of patients in order to determine
preliminary efficacy, dosing regimes and expanded evidence of safety. In Phase
III, large-scale, multi-center, adequately powered and well-controlled,
comparative clinical trials are conducted with patients in effort to provide
enough data for the statistical proof of efficacy and safety required by the FDA
and others. However, in some limited circumstances Phase III trials may be
modified to allow evaluation of safety and efficacy in a less regimented manner,
which may allow us to rely on historical data relating to the natural course of
disease in untreated patients. In some cases, as a condition of NDA approval,
confirmatory trials are required to be conducted after the FDA's approval of an
NDA in order to resolve any open issues. The FDA requires monitoring of all
aspects of clinical trials and reports of all adverse events must be made to the
agency, both before and after drug approval.
The results of the preclinical testing and clinical trials are submitted to the
FDA as part of an NDA for evaluation to determine if the product is adequate for
approval to commence commercial sales. In responding to an NDA, the FDA may
grant marketing approval, request additional information or deny the application
if it determines that the application does not satisfy its regulatory approval
criteria. When an NDA is approved, the manufacturer must employ a system for
obtaining reports of experience and side effects that are associated with the
drug and make appropriate submissions to the FDA.
Pursuant to the Orphan Drug Act, a sponsor may request that the FDA designate a
drug intended to treat a "rare disease or condition" as an "orphan drug." A
"rare disease or condition" is defined as one which affects less than 200,000
people in the United States or which affects more than 200,000 people, but for
which the cost of development and making available the drug is not expected to
be recovered from sales of the drug in the United States. Upon the approval of
the first NDA for a drug designated as an orphan drug for a specified
indication, the sponsor of the NDA is entitled to exclusive marketing rights in
the United States for such drug for that indication for seven years. Orphan
drugs may also be eligible for federal income tax credits for costs associated
with the drug's development. Possible amendment of the Orphan Drug Act by the
United States Congress and possible reinterpretation by the FDA are the subject
of frequent discussion. FDA regulations reflecting certain definitions,
limitations and procedures initially went into effect in January 1993 and were
amended in certain respects in 1998. Therefore, there is no assurance as to the
precise scope of protection that may be afforded by orphan drug status in the
future or that the current level of exclusivity and tax credits will remain in
effect. We have received from the FDA orphan drug approval for thalidomide for
the treatment of ENL. Celgene also has received orphan drug designations for
thalidomide: for the treatment of multiple myeloma; for the treatment of
HIV-associated wasting syndrome; for the treatment of the clinical
manifestations of mycobacterial infection caused by Mycobacterium tuberculosis
and non-tuberculosis mycobacteria; for the treatment of severe recurrent apthous
stomatitis in severely, terminally compromised patients; and for the treatment
of Crohn's disease. We also obtained orphan drug designation in Kaposi's sarcoma
and primary brain malignancies as part of our agreement with EntreMed. However,
there can be no assurance that another company also holding orphan drug
designation will not receive approval prior to us for the use of thalidomide for
the treatment of one or more of these indications, other than ENL. If that were
to happen, our applications for that indication could not be approved until the
competing company's seven-year period of exclusivity expired.
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Among the conditions for NDA approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures continually conform
with the FDA's cGMP. In complying with cGMP, manufacturers must devote extensive
time, money and effort in the area of production and quality control and quality
assurance to maintain full technical compliance. Manufacturing facilities and
company records are subject to periodic inspections by the FDA to ensure
compliance. If a manufacturing facility is not in substantial compliance with
these requirements, regulatory enforcement action may be taken by the FDA which
may include seeking an injunction against shipment of products from the facility
and recall of products previously shipped from the facility.
Failure to comply with applicable FDA regulatory requirements can result in
informal administrative enforcement actions such as warning letters, recalls or
adverse publicity issued by the FDA or in legal actions such as seizures,
injunctions, fines based on the equitable remedy of disgorgement, restitution
and criminal prosecution.
Steps similar to those in the United States must be undertaken in virtually
every other country comprising the market for our products before any such
product can be commercialized in those countries. The approval procedure and the
time required for approval vary from country to country and may involve
additional testing. There can be no assurance that approvals will be granted on
a timely basis or at all. In addition, regulatory approval of prices is required
in most countries other than the United States. There can be no assurance that
the resulting prices would be sufficient to generate an acceptable return to us.
COMPETITION
The pharmaceutical and agrochemical industries in which we compete are each
highly competitive. Our competitors include major pharmaceutical and
biotechnology companies, most of which have considerably greater financial,
technical and marketing resources than us. We also experience competition in the
development of our products and processes from universities and other research
institutions and, in some instances, compete with others in acquiring technology
from such sources.
Competition in the pharmaceutical industry, and specifically in the oncology and
immunology areas being addressed by us, is particularly intense. Numerous
companies are pursuing techniques to modulate TNF- production through various
combinations of monoclonal antibodies, TNF- receptors and small molecule
approaches. Two U.S. companies, Centocor Inc., a wholly owned subsidiary of
Johnson & Johnson, and Immunex Corporation, have registered drugs that block the
disease-causing effects of TNF- in inflammatory arthritis and bowel disease.
Both drug products are registered only in the United States and have been
marketed since 1998. In the United States the present cost of TNF- modulating
drugs, not including medical or other charges, is between $7,000 and $11,500 per
patient year. Both U.S. companies have applied for European registration of
their products. Amgen Inc. is currently also developing a soluble TNF- receptor.
BASF A.G. has a human antibody in development and Celltech Group plc has a
humanized antibody. In addition, a number of other companies are attempting to
address, with other technologies and products, the disease states currently
being targeted by us. EntreMed is researching the effectiveness of its own
thalidomide analogues as anti-angiogenic agents in the treatment of retinal
disease and cancer. Andrulis Pharmaceuticals Corp., a small, privately held
company, is attempting to develop thalidomide for the treatment of AIDS-related
complications.
Several companies have established chiral products and chiral technologies.
Sepracor Inc. and Chiroscience Group plc are actively developing chirally pure
versions of pharmaceuticals currently marketed in racemic form. Chiroscience has
completed Phase I trials in the United Kingdom for a chirally pure version of
dl-methylphenidate and is working with Medeva plc, a leading supplier of
dl-methylphenidate in the United States, towards full clinical development.
Chiroscience has also taken certain steps to assert patent and proprietary
rights with respect to its formulation of a chirally pure version of
dl-methylphenidate. The agrochemical market is large and, within this market,
efforts are underway by the in-house development staffs of agrochemical
companies to produce chirally pure versions of their existing racemic crop
protection agents.
The pharmaceutical and agrochemical industries have undergone, and are expected
to continue to undergo, rapid and significant technological change, and
competition is expected to intensify as technical advances in each field are
made and become more widely known. In order to compete effectively, we will be
required to continually upgrade our scientific expertise and technology,
identify and retain capable management, and pursue scientifically feasible and
commercially viable opportunities.
Our competition will be determined in part by the indications for which our
products are developed and ultimately approved by regulatory authorities. An
important factor in competition will be the timing of market introduction of our
or our competitors' products. Accordingly, the relative speed with which we can
develop products, complete clinical trials and approval processes and supply
commercial quantities of products to the market will be expected to be important
competitive factors. Competition among products approved for sale will be based,
among other things, on product efficacy, safety, convenience, reliability,
availability, price and patent position.
32
<PAGE>
EMPLOYEES
As of January 15, 2000, we had 146 full-time employees, 45 of whom were engaged
primarily in research and development activities, 60 of whom were engaged in
sales and commercialization activities and the remainder of whom were engaged in
executive and administrative activities. Of these employees, 53 have advanced
degrees, including 26 who have Ph.D. degrees. We also maintain consulting
arrangements with a number of scientists at various universities and other
research institutions in Europe and the United States.
PROPERTIES
We lease a 44,500-square foot laboratory and office facility in Warren, New
Jersey, under a lease with an unaffiliated party, which has a term ending in May
2002 with one five-year renewal option, and a 29,000-square foot facility which
has a term ending in July 2010 with two five-year renewal options. We also lease
an 18,000-square foot laboratory and office facility in North Brunswick, New
Jersey, under a lease with an unaffiliated party which has a term ending in
December 2009 with two five-year renewal options. We believe that our laboratory
facilities are adequate for our research and development activities for at least
the next 12 months.
LEGAL PROCEEDINGS
We are not engaged in any material legal proceedings.
33
<PAGE>
MANAGEMENT
DIRECTORS, OFFICERS AND KEY EMPLOYEES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NAME AGE POSITION
- ----------------------------------------------------------------------------------------
<S> <C> <C>
John W. Jackson* ....................... 55 Chairman of the Board and Chief Executive
Officer
Sol J. Barer, Ph.D.* ................... 52 President, Chief Operating Officer, Director
Robert J. Hugin* ....................... 45 Chief Financial Officer and Senior Vice
President
David I. Stirling, Ph.D. .............. 46 Chief Scientific Officer and Executive Vice
President - Pharmaceutical Research and
Development
Jerome B. Zeldis, M.D., Ph.D. ......... 49 Chief Medical Officer and Vice President --
Medical Affairs
Joseph J. Day, Jr. .................... 58 Senior Vice President -- Planning and
Business Development
George W. J. Matcham, Ph.D. ........... 47 Senior Vice President -- Celgro
Steven D. Thomas, Ph.D. ............... 38 Vice President -- Regulatory Affairs and
Project Management
Bruce A. Williams ..................... 45 Vice President -- Marketing and Sales
Jack L. Bowman ........................ 67 Director
Frank T. Cary ......................... 79 Director
Arthur Hull Hayes, Jr., M.D. .......... 66 Director
Gilla Kaplan, Ph.D. ................... 52 Director
Richard C.E. Morgan ................... 55 Director
Walter L. Robb, Ph.D. ................. 71 Director
Lee J. Schroeder ...................... 71 Director
</TABLE>
* Executive Officer
JOHN W. JACKSON has been our Chairman of the Board and Chief Executive Officer
since January 1996. From February 1991 to January 1996, Mr. Jackson was
President of Gemini Medical, a consulting firm that he founded and which
specialized in services and investment advice to start-up medical device and
biotechnology companies. Previously, Mr. Jackson had been President of the
worldwide Medical Device Division of American Cyanamid, a major pharmaceutical
company, from February 1986 to January 1991 and served in various international
positions, including Vice President -- International for American Cyanamid from
1978 to 1986. Mr. Jackson served in several human health marketing positions at
Merck & Company, a major pharmaceutical company, from 1971 to 1978. Mr. Jackson
received a B.A. degree from Yale University and an M.B.A. from INSEAD, France.
SOL J. BARER, PH.D. has been our President since October 1993 and our Chief
Operating Officer and one of our directors since March 1994. Dr. Barer was our
Senior Vice President -- Science and Technology and Vice President/General
Manager -- Chiral Products from October 1990 to October 1993 and our Vice
President -- Technology from September 1987 to October 1990. Dr. Barer received
a Ph.D. in organic and physical chemistry from Rutgers University.
ROBERT J. HUGIN has been our Senior Vice President and Chief Financial Officer
since June 1999. Previously, Mr. Hugin had been a Managing Director at J.P.
Morgan & Co. Inc., which he joined in 1985. Mr. Hugin received an A.B. degree
from Princeton University and an M.B.A. from the University of Virginia.
DAVID I. STIRLING, PH.D. has been our Executive Vice President -- Pharmaceutical
Research and Development since 1996 and our Chief Scientific Officer since 1998.
Dr. Stirling served as Senior Vice President--Biological and Pharmaceutical
Research and Development from 1993 to 1996, as Vice President -- New Technology
Chiral Products from 1991 to 1993, and in a variety of other research positions
from 1986 to 1991. Previously, Dr. Stirling was employed by Celanese Research
Company, a major chemical company, from 1980 to 1986. Dr. Stirling received a
Ph.D. in biochemistry from the University of Warwick.
34
<PAGE>
JEROME B. ZELDIS, M.D., PH.D. has been our Chief Medical Officer since 1999 and
our Vice President -- Medical Affairs since February 1997. Since 1996, Dr.
Zeldis has also been Associate Attending Physician at New York Hospital. Since
1995, Dr. Zeldis has also been a Clinical Associate Professor of Medicine,
Cornell University Medical School. From 1990 to 1994, Dr. Zeldis was Clinical
Research Physician, Sacramento Medical Foundation, Center for Blood Research,
and Associate Professor of Medicine at the University of California at Davis.
From 1988 to 1990, Dr. Zeldis was Assistant Professor of Medicine at the
University of California at Davis. From 1986 to 1988, Dr. Zeldis was Assistant
Professor of Medicine, Harvard Medical School. Dr. Zeldis was a director of
Sandoz Research Foundation and Janssen Research Foundation. Dr. Zeldis received
a Ph.D. in molecular biophysics and biochemistry from Yale University. Dr.
Zeldis also received an M.D. degree from Yale Medical School.
JOSEPH J. DAY, JR. has been our Senior Vice President, Planning and Business
Development since January 1998. Mr. Day is a 28-year veteran of the
pharmaceutical industry. During his career, Mr. Day has held various
international and domestic management positions with Cephalon, Inc., American
Home Products Corporation, Johnson & Johnson, Merck and Company and
Schering-Plough Corporation. Mr. Day received a B.S. in pharmacy from Fordham
University and an M.B.A. from Rutgers University.
GEORGE W. J. MATCHAM, PH.D. has been our Senior Vice President -- Celgro since
1996. Dr. Matcham joined in 1988, and became Vice President of Chiral Amine
Technology in 1991 and Vice President and General Manager of Chiral Products in
1993. Previously, Dr. Matcham was a Senior Scientist and Project Leader for
Shell Research Ltd., UK, the physical and biological research subsidiary of
Royal Dutch/Shell, from 1981 to 1988. Dr. Matcham received a Ph.D. in microbial
enzymology from the University of Wales, and was Director of Studies in
chemistry, and a fellow of Emmanuel College of the University of Cambridge from
1979 to 1980.
STEVEN D. THOMAS, PH.D. has been our Vice President -- Regulatory Affairs and
Project Management since August 1999 and was our Vice President --
Pharmaceutical Development from 1996 to 1999. Dr. Thomas held various research
and development positions with us from 1992 to 1996. Previously, Dr. Thomas was
a Business Unit Manager for Enzymatix Ltd., a pharmaceutical and fine chemicals
company, from 1987 to 1992. Dr. Thomas received a Ph.D. in molecular enzymology
from Southampton University.
BRUCE A. WILLIAMS has been our Vice President -- Marketing and Sales since 1996.
Previously, Mr. Williams was employed by Ortho Biotech Inc., a subsidiary of
Johnson & Johnson, where he held various positions from 1989 to 1996, including
Executive Director -- Marketing. From 1984 to 1989, Mr. Williams held several
positions at American Cyanamid Company. Mr. Williams received a B.A. in biology
from Syracuse University and an M.B.A. from Columbia University.
JACK L. BOWMAN, one of our directors since April 1998, served as Company Group
Chairman of Johnson & Johnson from 1987 to 1994. From 1983 to 1987, Mr. Bowman
served as Executive Vice President of American Cyanamid. Mr. Bowman is also a
director of NeoRx Corporation, Cell Therapeutics, Inc., CytRx Corporation,
Cellegy Pharmaceuticals and Targeted Genetics.
FRANK T. CARY has been Chairman of the Executive Committee of our board of
directors since July 1990 and has been one of our directors since 1987. From
1973 to 1981, Mr. Cary was Chairman of the Board and Chief Executive Officer of
International Business Machines Corporation. Mr. Cary also is a director of
Cygnus Therapeutic Systems Inc., ICOS Corporation, Lincare Inc., Lexmark
International Inc., Vion Pharmaceuticals Inc. and Teltrend, Inc.
ARTHUR HULL HAYES, JR., M.D., one of our directors since 1995, has been
President and Chief Operating Officer of MediScience Associates, a consulting
organization that works with pharmaceutical firms, biomedical companies and
foreign governments, since July 1991. Dr. Hayes has also been a partner in Issue
Sphere, a public affairs firm that focuses on health science issues, since
November 1995, as well as a professor in medicine, pharmacology and family and
community medicine at New York Medical College and clinical professor of
medicine and pharmacology at the Pennsylvania State University College of
Medicine. From 1986 to 1990, Dr. Hayes was President and Chief Executive Officer
of E.M. Pharmaceuticals, a unit of E. Merck AG and from 1981 to 1983 was
Commissioner of the United States Food and Drug Administration. Dr. Hayes also
is a director of Myriad Genetics, Inc., NaPro BioTherapeutics, Inc. and Premier
Research Worldwide.
GILLA KAPLAN, PH.D., one of our directors since April 1998, is an immunologist
in the Laboratory of Cellular Physiology and Immunology at The Rockefeller
University in New York where she was appointed Assistant Professor in 1985 and
Associate Professor in 1990. Dr. Kaplan is a member of numerous professional
societies and has been the organizer of several major symposia on tuberculosis.
Dr. Kaplan has served as an advisor to the Global Program for Vaccines and
35
<PAGE>
Immunization of the World Health Organization, has participated in several NIH
peer review panels, and is on the Editorial Board of Microbial Drug Resistances,
and Tubercle and Lung Disease. Dr. Kaplan is the author of more than 100
scientific publications and has received international recognition for her work.
In 1995, she gave the Special Honorary Lecture at the American Society for
Microbiology and in 1997 was appointed a Fellow of the American Academy of
Microbiology.
RICHARD C.E. MORGAN, one of our directors since 1987, has been the Managing
Member of Amphion Partners LLC, formerly Wolfensohn Partners, L.P., since 1986.
From January 1996 to January 1998, Mr. Morgan was a partner of Jackson Hole
Management Company, Inc. Mr. Morgan also is Chairman of the board of directors
of AXCESS, Inc., Chairman of the board of directors of Quidel Corp., and a
director of Indigo, N.V. and a director of Orbis International, Inc.
WALTER L. ROBB, PH.D., one of our directors since 1992, has been a private
consultant and President of Vantage Management Inc., a consulting and investor
services company, since January 1993. Mr. Robb was Senior Vice President for
Corporate Research and Development of General Electric Company, and a member of
its Corporate Executive Council from 1986 to December 1992. Mr. Robb also is
Chairman of the board of directors of Capital District Sports and a director of
Cree Research Inc., Mechanical Technology, Inc. and Plug Power, Inc.
LEE J. SCHROEDER, one of our directors since 1995, has been President of Lee
Schroeder & Associates, Inc., pharmaceutical business consultants, since 1985.
Mr. Schroeder was President of Fox Meyer Lincoln from 1983 to 1985, and was an
Executive Vice President of Sandoz, Inc. from 1981 to 1983. Mr. Schroeder also
is a director of Bryan LGH Hospital, MGI Pharmaceutical, Inc., Ascent
Pediatrics, Inc. and Interneuron Pharmaceuticals, Inc.
36
<PAGE>
SELLING STOCKHOLDERS
The table below sets forth the beneficial ownership of our common stock as of
December 31, 1999 by each of the selling stockholders. Beneficial ownership of
our common stock is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes voting or investment power with
respect to securities and options that are exercisable or convertible within 60
days. Each of the selling stockholders has sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by it. All of
the shares owned by each selling stockholder are shares underlying our
convertible notes held by it.
<TABLE>
<CAPTION>
-------------------------------------------------------------
SHARES OWNED NUMBER OF SHARES SHARES OWNED
PRIOR TO OFFERING BEING OFFERED AFTER OFFERING
-------------------- ------------------ -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Hancock Mezzanine Partners, LP ..................... 416,700 2.3% 258,000 158,700 *
c/o John Hancock Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Sandeep Alva
Bond & Corporate Finance Group, T-57
Signature 1A (Cayman), Ltd. ........................ 27,780 * 17,200 10,580 *
c/o John Hancock Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
John Hancock Variable Life Insurance Company ....... 11,112 * 6,880 4,232 *
c/o John Hancock Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
John Hancock Life Insurance Company ................ 377,808 2.0% 233,920 143,888 *
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
</TABLE>
- ----------
* Represents less than 1%.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of December 31, 1999, our authorized capital stock consists of 30,000,000
shares of common stock, par value $.01 per share, and 5,000,000 shares of
preferred stock, par value $.01 per share, of which 520 shares have been
designated Series A convertible preferred stock and 20,000 shares have been
designated as Series B convertible preferred stock. As of December 31, 1999,
there were 17,703,646 shares of common stock outstanding, no shares of Series A
convertible preferred stock outstanding and no shares of Series B convertible
preferred stock outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders, and do not have cumulative voting
rights. Holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by our board of directors out of funds legally
available therefor, and subject to any preferential dividend rights of any then
outstanding preferred stock. Upon liquidation, dissolution, or winding up of us,
the holders of common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
any liquidation preference of any then outstanding preferred stock. Holders of
common stock have no preemptive, subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to the common stock. The
outstanding shares of common stock are, and the shares offered by us in this
offering will be when issued and paid for, fully paid and non-assessable.
PREFERRED STOCK
Our board of directors has the authority, subject to certain restrictions,
without further stockholder approval, to issue, at any time and from time to
time, shares of preferred stock in one or more series. Each such series shall
have such number of shares, designations, preferences, voting powers,
qualifications, and special or relative rights or privileges as shall be
determined by our board of directors, which may include, among others, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights, to the full extent now or
hereafter permitted by the laws of the State of Delaware.
The rights of the holders of common stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock that may be
issued in the future. Such rights may include voting and conversion rights which
could adversely affect the holders of the common stock. Satisfaction of any
dividend preferences of outstanding preferred stock would reduce the amount of
funds available, if any, for the payment of dividends on common stock. Holders
of preferred stock would typically be entitled to receive a preference payment.
SHAREHOLDER RIGHTS PLAN
Our board of directors has adopted a shareholder rights plan. The shareholder
rights plan was adopted to give the Board increased power to negotiate in our
best interests and to discourage appropriation of control of us at a price that
is unfair to our stockholders. It is not intended to prevent fair offers for
acquisition of control determined by our board of directors to be in the best
interests of us and our stockholders, nor is it intended to prevent a person or
group from obtaining representation on or control of our board of directors
through a proxy contest, or to relieve our board of directors of its fiduciary
duty to consider any proposal for our acquisition in good faith.
The shareholder rights plan involved the distribution of one "right" as a
dividend on each outstanding share of our common stock to all holders of record
on September 26, 1996. Each right shall entitle the holder to purchase one-tenth
of a share of common stock. The rights trade in tandem with the common stock
until, and become exercisable upon, the occurrence of certain triggering events,
and the exercise price is based on the estimated long-term value of our common
stock. The exercise of these rights becomes economically attractive upon the
triggering of certain "flip-in" or "flip-over" rights which work in conjunction
with the shareholder rights plan's basic provisions. The flip-in rights will
permit their holders to purchase shares of common stock at a discounted rate,
resulting in substantial dilution of an acquiror's voting and economic interests
in us. The flip-over element of the shareholder rights plan involves some
mergers or significant asset purchases, which trigger certain rights to purchase
shares of the acquiring or surviving company at a discount. The shareholder
rights plan contains a "permitted offer" exception which allows offers
determined by our board of directors to be in our best interests and our
stockholders to take place free of the diluting effects of the shareholder
rights plan's mechanisms.
38
<PAGE>
Our board of directors retains the right, at all times prior to acquisition of
15% of our voting common stock by an acquiror, to discontinue the shareholder
rights plan through the redemption of all rights, or to amend the shareholder
rights plan in any respect.
DELAWARE LAW AND SOME BY-LAW PROVISIONS
Our board of directors has adopted certain amendments to our by-laws intended to
strengthen our board of directors' position in the event of a hostile takeover
attempt. These by-law provisions have the following effects:
o they provide that only persons who are nominated in accordance with the
procedures set forth in the by-laws shall be eligible for election as our
directors, except as may be otherwise provided in the by-laws;
o they provide that only business brought before the annual meeting by our
board of directors or by a stockholder who complies with the procedures set
forth in the by-laws may be transacted at an annual meeting of
stockholders;
o they provide that only the Chairman of the Board, if any, the Chief
Executive Officer, the President, the Secretary or a majority of our board
of directors may call special meetings of our stockholders;
o they establish a procedure for our board of directors to fix the record
date whenever stockholder action by written consent is undertaken; and
o they require a vote of holders of two-thirds of the outstanding shares of
common stock to amend certain by-law provisions.
Furthermore, we are subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock Transfer
& Trust Company. It is located at 40 Wall St., 46th Floor, New York, NY, 10005,
and its telephone number is (718) 921-8200.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock could adversely affect
the prevailing market price of our common stock. In addition, as of December 31,
1999, there were outstanding stock options exercisable for 2,327,267 shares of
common stock, of which 967,234 were currently exercisable, and outstanding
warrants exercisable for 551,044 shares of common stock. If all of the
convertible notes outstanding on December 31, 1999 had been converted on that
date, 2,418,313 shares of common stock would have been issued. Immediately prior
to this offering, the selling stockholders will convert a portion of our 9.0%
convertible notes issued in January 1999 held by them into 516,000 shares of our
common stock. All shares of common stock referred to in this paragraph would be
freely tradeable upon issuance. See "Description of Capital Stock."
Shares which may be acquired by a person deemed an affiliate of ours as that
term is defined in Rule 144 promulgated under the Securities Act of 1933 will
remain subject to the resale limitations of Rule 144. Generally, Rule 144
provides that a person who has beneficially owned "restricted" shares for at
least one year will be entitled to sell on the open market in brokers'
transactions within any three month period a number of shares that does not
exceed the greater of:
o 1% of the then outstanding shares of common stock; and
o the average weekly trading volume in the common stock on the open market
during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain post-sale notice requirements
and the availability of current public information about us.
In the event that any person who is deemed to be our affiliate purchases shares
of our common stock pursuant to this offering or acquires shares of our common
stock pursuant to one of our employee benefit plans, the shares held by such
person are required under Rule 144 to be sold in brokers' transactions, subject
to the volume limitations described above. Shares properly sold in reliance upon
Rule 144 to persons who are not our affiliates are thereafter freely tradable
without restriction.
We and our executive officers and directors and the selling stockholders have
agreed, with limited exceptions, that, during the period beginning from the date
of this prospectus and continuing to and including the date 90 days after the
date of this prospectus, none of us will, directly or indirectly, offer, sell,
offer to sell, contract to sell or otherwise dispose of any shares of common
stock or any of our securities which are substantially similar to the common
stock, including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, common stock or any
such substantially similar securities or enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, the economic
consequence of ownership of common stock or any securities substantially similar
to the common stock, other than pursuant to the exercise of stock options and
warrants outstanding on the date of this prospectus, the conversion of our
convertible notes outstanding on the date of this prospectus and employee and
director stock option plans existing on the date of this prospectus, without the
prior written consent of J.P. Morgan Securities Inc.
40
<PAGE>
UNDERWRITING
J.P. Morgan Securities Inc. and Prudential Securities Incorporated are acting
as joint lead managers. J.P. Morgan Securities Inc. is acting as book running
lead manager for this offering.
The underwriters named below, for whom J.P. Morgan Securities Inc., Prudential
Securities Incorporated and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, have severally agreed, subject to the terms and conditions set
forth in the underwriting agreement between us, the selling stockholders and the
underwriters, to purchase from us and the selling stockholders, and we and the
selling stockholders have agreed to sell to the underwriters, the respective
numbers of shares of common stock set forth opposite their names below:
<TABLE>
<CAPTION>
-----------------
NUMBER OF SHARES
UNDERWRITERS -----------------
<S> <C>
J.P. Morgan Securities Inc. ................
Prudential Securities Incorporated .........
U.S. Bancorp Piper Jaffray Inc. ............
---------
Total .................................. 3,000,000
=========
</TABLE>
The nature of the underwriters' obligations under the underwriting agreement is
such that all of the common stock being offered, excluding shares covered by the
over-allotment option granted to the underwriters, must be purchased if any are
purchased.
The representatives of the underwriters have advised us and the selling
stockholders that the several underwriters propose to offer the common stock to
the public initially at the public offering price set forth on the cover page of
this prospectus and may offer the common stock to selected dealers at such price
less a concession not to exceed $ per share. The underwriters may allow, and
such dealers may reallow, a concession to other dealers not to exceed $ per
share. After the initial public offering of the common stock, the public
offering price and other selling terms may be changed by the representatives.
We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase up to 450,000 additional shares of common
stock at the same price per share to be paid by the underwriters for the other
shares offered hereby. If the underwriters purchase any such additional shares
pursuant to the option, each of the underwriters will be committed to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The underwriters may exercise the option only to cover
over-allotments, if any, made in connection with the distribution of the common
stock offered hereby.
The following tables show the per share and total underwriting discounts to be
paid to the underwriters by us and the selling stockholders, assuming both no
exercise and full exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
------------------------------
PAYABLE BY CELGENE
------------------------------
NO EXERCISE FULL EXERCISE
------------- --------------
<S> <C> <C>
Per share ......... $ $
Total ........... $ $
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
------------------------------
PAYABLE BY THE
SELLING STOCKHOLDERS
------------------------------
NO EXERCISE FULL EXERCISE
------------- --------------
<S> <C> <C>
Per share ......... $ $
Total ........... $ $
</TABLE>
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect
thereof.
We estimate that the total expenses of this offering to us, excluding
underwriting discounts, will be $ . The selling stockholders will pay no
expenses of this offering.
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of common stock.
Specifically, the underwriters may overallot this offering, creating a syndicate
short position. In addition, the underwriters may bid for, and purchase, shares
of common stock in the open market to cover syndicate shorts or to stabilize the
price of the common stock. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing shares of common stock in this
offering, if the syndicate repurchases previously distributed common stock in
syndicate covering transactions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the shares of
common stock above independent market levels. The underwriters are not required
to engage in these activities, and may end any of these activities at any time.
Prior to the pricing of the common stock, and until such time when a stabilizing
bid may have been made, some or all of the underwriters who are market makers in
the common stock may make bids for or purchases of shares of common stock
subject to certain restrictions, known as passive market making activities.
One or more of the underwriters may facilitate the marketing of this offering
online directly or through one of its affiliates. In those cases, prospective
investors may view offering terms and a prospectus online and, depending upon
the particular underwriter, place orders online or through their financial
advisors.
We and our executive officers and directors and the selling stockholders have
agreed, with limited exceptions, that, during the period beginning from the date
of this prospectus and continuing to and including the date 90 days after the
date of this prospectus, none of us will, directly or indirectly, offer, sell,
offer to sell, contract to sell or otherwise dispose of any shares of common
stock or any of our securities which are substantially similar to the common
stock, including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, common stock or any
such substantially similar securities or enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, the economic
consequence of ownership of common stock or any securities substantially similar
to the common stock, other than pursuant to the exercise of stock options and
warrants outstanding on the date of this prospectus, the conversion of our
convertible notes outstanding on the date of this prospectus and employee and
director stock option plans existing on the date of this prospectus, without the
prior written consent of J.P. Morgan Securities Inc.
The common stock is traded on the Nasdaq National Market under the symbol
"CELG."
It is expected that delivery of the shares will be made to investors on or about
, 2000.
From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged in and may continue to
engage in commercial banking and/or investment banking transactions with us and
our affiliates.
42
<PAGE>
LEGAL MATTERS
Proskauer Rose LLP, New York, New York, has passed on the validity of the
shares. Certain legal matters in connection with this offering are being passed
upon for the underwriters by Cahill Gordon & Reindel, New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1997, and for
each of the years in the three-year period ended December 31, 1998, have been
included herein and in the Registration Statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The statements in this prospectus under the captions "Risk Factors--We may not
be able to protect our intellectual property" and "Business--Patents and
Proprietary Technology" have been reviewed and approved by Mathews, Collins,
Shepherd & Gould, P.A. and are included herein in reliance upon such review and
approval.
The statements in this prospectus that relate to U.S. patent rights licensed
from The Rockefeller University and EntreMed/Children's Medical Center Corp.
under the captions "Risk Factors--We may not be able to protect our intellectual
property" and "Business--Patents and Proprietary Technology" have been reviewed
and approved by Pennie & Edmonds LLP as special patent counsel to Celgene
Corporation for these matters, and are included herein in reliance upon their
review and approval as experts in U.S. patent law.
The statements in this prospectus under the captions "Risk Factors--The
pharmaceutical and agrochemical industries are subject to extensive government
regulation and there is no assurance of regulatory approval" and
"Business--Governmental Regulation" have been reviewed and approved by
Kleinfeld, Kaplan & Becker, as experts in such matters, and are included herein
in reliance upon such review and approval.
WHERE YOU CAN FIND MORE INFORMATION
We file reports with the Securities and Exchange Commission on a regular basis
that contain financial information about us and our results of operations. You
may read or copy any document that we file with the Securities and Exchange
Commission at the Securities and Exchange Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549 and 7 World Trade Center, Suite
1300, New York, New York 10048. You may obtain information about the Public
Reference Room by calling the Securities and Exchange Commission for more
information at 1-800-SEC-0330. Our Securities and Exchange Commission filings
are also available at the Securities and Exchange Commission's web site at
http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by reference"
the information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the Securities and Exchange Commission will
automatically update and supersede this information. We are incorporating by
reference the documents listed below and any future filings that we will make
with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934:
o Our Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
as amended by an Amendment on Form 10-K/A and an Amendment on Form
10-K/A-2;
o Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1999;
o Our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1999;
o Our Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1999;
o Our Current Report on Form 8-K dated February 11, 1999;
o Our Current Report on Form 8-K dated January 27, 2000;
o Our Current Report on Form 8-K dated February 9, 2000; and
o Our Current Report on Form 8-K dated February 9, 2000.
43
<PAGE>
You may request a copy of these filings, at no cost, by writing or telephoning
our Secretary at the following address:
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
(732) 271-1001
This prospectus is part of a registration statement we filed with the Securities
and Exchange Commission. You should rely only on the information or
representations provided in this prospectus. We have authorized no one to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of the document.
44
<PAGE>
CELGENE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 ............................ F-3
Consolidated Statements of Operations -- Years Ended
December 31, 1996, 1997, and 1998 ...................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) -- Years Ended
December 31, 1996, 1997 and 1998 ....................................................... F-5
Consolidated Statements of Cash Flows -- Years Ended December 31, 1996, 1997 and 1998 ... F-8
Notes to Consolidated Financial Statements .............................................. F-10
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of September 30, 1999 ........................... F-20
Condensed Consolidated Statements of Operations -- Nine Months Ended
September 30, 1999 and 1998 ............................................................ F-21
Condensed Consolidated Statements of Operations -- Three Months Ended
September 30, 1999 and 1998 ............................................................ F-22
Consolidated Statements of Cash Flows -- Nine Months Ended
September 30, 1999 and 1998 ............................................................ F-23
Notes to Unaudited Condensed Consolidated Financial Statements .......................... F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CELGENE CORPORATION:
We have audited the accompanying consolidated balance sheets of Celgene
Corporation and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Celgene Corporation
and subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Short Hills, New Jersey
February 11, 1999
F-2
<PAGE>
CELGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------
DECEMBER 31,
-------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 13,583,445 $ 3,066,953
Marketable securities available for sale .......................................... -- 2,056,890
Accounts receivable, net of allowance of $43,386 in 1998........................... 1,430,384 2,662,389
Inventory ......................................................................... -- 1,571,408
Other current assets .............................................................. 353,266 229,060
Assets held for disposal .......................................................... 485,170 --
-------------- --------------
Total current assets ............................................................ 15,852,265 9,586,700
Plant and equipment, net ........................................................... 2,286,024 2,262,130
Other assets ....................................................................... 79,167 79,167
-------------- --------------
Total assets .................................................................... $ 18,217,456 $ 11,927,997
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................................. $ 842,262 $ 3,848,853
Accrued expenses .................................................................. 1,388,933 3,041,859
Capitalized lease obligation ...................................................... 210,499 225,372
-------------- --------------
Total current liabilities ....................................................... 2,441,694 7,116,084
Capitalized lease obligation--net of current portion ............................... 350,670 195,578
Long term convertible note ......................................................... -- 8,348,959
-------------- --------------
Total liabilities ............................................................... 2,792,364 15,660,621
-------------- --------------
Stockholders' equity (deficit):
Preferred stock, $.01 par value per share
5,000,000 shares authorized; Series A convertible, redeemable, cumulative
preferred; 74 shares issued and outstanding at December 31, 1997, plus
$329,455 accretion premium; none outstanding at December 31, 1998................ 4,029,455 --
Common stock, $.01 par value per share
20,000,000 shares authorized at December 31, 1997 and 30,000,000 shares
authorized at December 31, 1998; issued and outstanding 15,427,949 and
16,612,973 shares at December 31, 1997 and December 31, 1998,
respectively .................................................................... 154,279 166,130
Common stock in treasury, at cost - 22,888 shares at December 31, 1997 and none
at December 31, 1998 ............................................................ (76,535) --
Additional paid-in capital ........................................................ 130,838,433 140,714,314
Accumulated deficit ............................................................... (119,520,540) (144,613,068)
-------------- --------------
Total stockholders' equity (deficit) ............................................ 15,425,092 (3,732,624)
-------------- --------------
Total liabilities and stockholders' equity (deficit) .............................. $ 18,217,456 $ 11,927,997
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------------------------
FOR YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Product sales ........................................................... $ 65,000 $ -- $ 3,265,490
Research contracts ...................................................... 816,665 1,122,193 535,000
------------- ------------- -------------
Total revenues ........................................................ 881,665 1,122,193 3,800,490
Expenses:
Cost of goods sold ...................................................... -- -- 282,307
Research and development ................................................ 15,152,735 17,380,390 19,771,953
Selling, general and administrative ..................................... 3,770,781 9,145,456 16,218,486
------------- ------------- -------------
Total expenses ........................................................ 18,923,516 26,525,846 36,272,746
------------- ------------- -------------
Operating loss ........................................................... (18,041,851) (25,403,653) (32,472,256)
Other income and expense:
Interest income ......................................................... 1,308,243 495,580 705,215
Interest expense ........................................................ 323,913 111,771 255,832
------------- ------------- -------------
Loss from continuing operations .......................................... (17,057,521) (25,019,844) (32,022,873)
Discontinued operations (note 10):
Loss from operations .................................................... (761,461) (427,183) (59,837)
Gain on sale of chiral assets ........................................... -- -- 7,014,830
------------- ------------- -------------
Net loss ................................................................. (17,818,982) (25,447,027) (25,067,880)
Accretion of premium payable on preferred stock and
warrants (note 7) ....................................................... 1,012,881 521,397 24,648
Deemed dividend for preferred stock conversion discount (note 7) ......... 2,777,777 953,077 --
------------- ------------- -------------
Net loss applicable to common stockholders ............................... $ (21,609,640) $ (26,921,501) $ (25,092,528)
============= ============= =============
Per share basic and diluted (note 2):
Loss from continuing operations ......................................... $ (1.81) $ (2.05) $ (1.98)
Discontinued operations:
Loss from operations .................................................. (0.08) (0.03) (0.00)
Gain on sale of chiral assets ......................................... -- -- 0.43
------------- ------------- -------------
Net loss applicable to common stockholders .............................. $ (2.29) $ (2.20) $ (1.55)
============= ============= =============
Weighted average number of shares of common stock outstanding ............ 9,450,000 12,215,000 16,160,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK TREASURY STOCK
------------------------- ------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ -------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1,
1996 ............................ 8,807,863 $ 88,079 -- $ -- (24,271) $ (243)
Exercised stock options .......... 42,069 420
Repurchase of shares ............. (5,714) (99,996)
Amortization of deferred
compensation ....................
Conversion of convertible
debentures ...................... 372,681 3,727
Issuance of preferred stock,
net ............................. 503 25,150,000
Conversion of preferred stock 1,388,809 13,888 (236) (12,141,309)
Preferred stock lock-up
warrants ........................
Accretion of premium on
preferred stock ................. 874,725
Deemed dividend for
preferred stock conversion
discount ........................
Comprehensive Income
(Loss):
Net loss ........................
Net change in unrealized
gain (loss) on investment
securities ......................
Total comprehensive
income (loss) ...................
---------- --------- ----- -------------- ------- -----------
BALANCES AT DECEMBER 31,
1996 ............................ 10,611,422 $ 106,114 267 $ 13,883,416 (29,985) $ (100,239)
<CAPTION>
---------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL UNAMORTIZED OTHER
PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE
CAPITAL COMPENSATION DEFICIT INCOME (LOSS) TOTAL
-------------- -------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1,
1996 ............................ $ 78,064,288 $ (7,085) $ (70,989,400) $ (13,138) $ 7,142,501
Exercised stock options .......... 337,521 337,941
Repurchase of shares ............. (99,996)
Amortization of deferred
compensation .................... 5,952 5,952
Conversion of convertible
debentures ...................... 2,645,388 2,649,115
Issuance of preferred stock,
net ............................. (1,320,375) 23,829,625
Conversion of preferred stock 12,127,421 --
Preferred stock lock-up
warrants ........................ 138,156 (138,156) --
Accretion of premium on
preferred stock ................. (874,725) --
Deemed dividend for
preferred stock conversion
discount ........................ 2,777,777 (2,777,777) --
Comprehensive Income
(Loss):
Net loss ........................ (17,818,981) (17,818,981)
Net change in unrealized
gain (loss) on investment
securities ...................... 18,852 18,852
--------------
Total comprehensive
income (loss) ................... 17,800,129
------------ --------- ------------- --------- --------------
BALANCES AT DECEMBER 31,
1996 ............................ $ 94,770,176 $ (1,133) $ (92,599,039) $ 5,714 $ 16,065,009
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK TREASURY STOCK
------------------------ ---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ----------- ----------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1996 ............................. 10,611,422 $ 106,114 267 $ 13,883,416 (29,985) $ (100,239)
Exercised stock options ........... 2,986 30
Shares issued in lieu of cash
bonus ............................ 5,000 50
Amortization of deferred
compensation .....................
Conversion of convertible
debenture ........................ 441,248 4,412
Issuance of Series B Preferred
Stock-net ........................ 5,000 4,046,923
Conversion of preferred stock ..... 2,166,193 21,662 (5,180) (14,654,071)
Accretion of premium on
preferred stock .................. 521,397
Redemption of preferred stock ..... (13) (721,287)
Deemed dividend on Series B
Preferred Stock and fair value
of warrants ...................... 953,077
Comprehensive Income (Loss):
Net loss .........................
Net change in unrealized
gain (loss) on investment
securities .......................
Total comprehensive income
(loss) ...........................
Treasury shares issued ............ 7,097 23,704
Issuance of common stock, net ..... 2,201,100 22,011
---------- --------- ------- -------------- ------- -----------
BALANCES AT DECEMBER 31,
1997 ............................. 15,427,949 $ 154,279 74 $ 4,029,455 (22,888) $ (76,535)
<CAPTION>
---------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL UNAMORTIZED OTHER
PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE
CAPITAL COMPENSATION DEFICIT INCOME (LOSS) TOTAL
--------------- -------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1996 ............................. $ 94,770,176 $ (1,133) $ (92,599,039) $ 5,714 $ 16,065,009
Exercised stock options ........... 20,187 20,217
Shares issued in lieu of cash
bonus ............................ 55,575 55,625
Amortization of deferred
compensation ..................... 1,133 1,133
Conversion of convertible
debenture ........................ 2,326,892 2,331,304
Issuance of Series B Preferred
Stock-net ........................ 793,825 4,840,748
Conversion of preferred stock ..... 14,632,409 --
Accretion of premium on
preferred stock .................. (521,397) --
Redemption of preferred stock ..... (721,287)
Deemed dividend on Series B
Preferred Stock and fair value
of warrants ...................... (953,077) --
Comprehensive Income (Loss):
Net loss ......................... (25,447,027) (25,447,027)
Net change in unrealized
gain (loss) on investment
securities ....................... (5,714) (5,714)
-------------
Total comprehensive income
(loss) ........................... (25,452,741)
-------------
Treasury shares issued ............ 55,250 78,954
Issuance of common stock, net ..... 18,184,119 18,206,130
------------- --------- -------------- -------- -------------
BALANCES AT DECEMBER 31,
1997 ............................. $ 130,838,433 $ -- $ (119,520,540) $ -- $ 15,425,092
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK TREASURY STOCK
------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ----------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1997 ........... 15,427,949 $154,279 74 $ 4,029,455 (22,888) $ (76,535)
Exercised stock options ...... 283,120 2,831
Exercise of warrants ......... 118,230 1,183
Costs related to secondary
offering ....................
Conversion of preferred
stock ....................... 575,669 5,757 (74) (4,054,103)
Accretion of premium on
preferred stock ............. 24,648
Shares issued for employee
benefit plans ............... 8,317 83 22,888 76,535
Stock purchase ............... 199,688 1,997
Net loss and comprehensive
loss ........................
---------- -------- --- ----------- ------- ---------
BALANCES AT
DECEMBER 31, 1998 ........... 16,612,973 $166,130 -- $ -- -- $ --
========== ======== === ============= ======= =========
<CAPTION>
----------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL UNAMORTIZED OTHER
PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE
CAPITAL COMPENSATION DEFICIT INCOME (LOSS) TOTAL
--------------- -------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1997 ........... $130,838,433 $ -- $ (119,520,540) $ -- $ 15,425,092
Exercised stock options ...... 2,028,715 2,031,546
Exercise of warrants ......... 986,883 988,066
Costs related to secondary
offering .................... (73,136) (73,136)
Conversion of preferred
stock ....................... 4,048,346 --
Accretion of premium on
preferred stock ............. (24,648) --
Shares issued for employee
benefit plans ............... 387,070 463,688
Stock purchase ............... 2,498,003 2,500,000
Net loss and comprehensive
loss ........................ (25,067,880) (25,067,880)
------------ ---- -------------- ---- -------------
BALANCES AT
DECEMBER 31, 1998 ........... $140,714,314 $ -- $ (144,613,068) $ -- $ (3,732,624)
============ ==== ============== ==== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1996 1997 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations ............................... $ (17,057,521) $ (25,019,844) $ (32,022,873)
Adjustments to reconcile loss from continuing
operations to net cash used in operating activities:
Depreciation ................................................. 362,590 380,364 812,555
Provision for losses on accounts receivable .................. -- -- 43,386
Amortization of convertible debt costs ....................... 234,540 126,577 --
Amortization of deferred compensation ........................ 5,952 1,133 --
Interest on convertible debentures ........................... 323,914 68,736 --
Issuance of stock award ...................................... -- 55,625 --
Shares issued for employee benefit plans ..................... -- 78,954 463,688
Change in current assets & liabilities:
Increase in Inventory ........................................ -- -- (1,571,408)
Increase (decrease) in accounts payable and accrued
expenses ................................................... 216,226 (379,091) 4,659,517
(Increase) decrease in accounts receivable ................... 18,646 (1,051,789) (1,275,391)
(Increase) decrease in other assets .......................... (256,586) 150,304 124,206
-------------- ------------- -------------
Net cash used in continuing operations ........................ (16,152,239) (25,589,031) (28,766,320)
Net cash used in discontinued operations ...................... (491,872) (302,996) (59,837)
-------------- ------------- -------------
Net cash used in operating activities ......................... (16,644,111) (25,892,027) (28,826,157)
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................... (1,340,232) (1,240,775) (788,661)
Proceeds from sales and maturities of marketable
securities available for sale ................................ 137,051,037 47,470,593 8,559,604
Purchases of marketable securities available for sale ......... (142,548,468) (30,584,284) (10,616,494)
Proceeds from sale of chiral assets ........................... -- -- 7,500,000
-------------- ------------- -------------
Net cash provided by (used in) investing activities ........... (6,837,663) 15,645,534 4,654,449
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from secondary offering .......................... -- 18,206,130 --
Costs related to secondary offering ........................... -- -- (73,136)
Proceeds from sale of stock ................................... -- -- 2,500,000
Proceeds from exercise of common stock options and
warrants ..................................................... 237,946 20,217 3,019,612
Redemption of Series A preferred stock ........................ -- (721,287) --
Net proceeds from issuance of preferred stock ................. 23,829,624 4,840,748 --
Capital lease buyout .......................................... -- -- (400,414)
Capital lease funding ......................................... -- 561,169 260,195
Proceeds from convertible note, net ........................... -- -- 8,348,959
-------------- ------------- -------------
Net cash provided by financing activities ..................... 24,067,570 22,906,977 13,655,216
-------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents .......... 585,796 12,660,484 (10,516,492)
Cash and cash equivalents at beginning of year ................ 337,165 922,961 13,583,445
-------------- ------------- -------------
Cash and cash equivalents at end of year ...................... $ 922,961 $ 13,583,445 $ 3,066,953
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1997 1998
-------------- --------------- --------------
<S> <C> <C> <C>
NON-CASH INVESTING ACTIVITY:
Charge in net unrealized gain (loss) on marketable securities
available for sale .................................................. $ 18,852 $ (5,714) $ --
=========== =========== ===========
NON-CASH FINANCING ACTIVITIES:
Issuance of common stock upon the conversion of convertible
debentures and accrued interest thereon, net ........................ $ 2,649,115 $ 2,331,304 $ --
=========== =========== ===========
Accretion of premium payable on preferred stock and warrants ......... $ 1,012,881 $ 521,397 $ 24,648
=========== =========== ===========
Deemed dividend for preferred stock conversion discount .............. $ 2,777,777 $ 953,077 $ --
=========== =========== ===========
Issuance of common stock upon the conversion of convertible
preferred stock and accrued accretion thereon, net .................. $12,141,309 $14,654,071 $ 4,054,103
=========== =========== ===========
Issuance of common stock upon exercise of options through the
return of common stock previously outstanding ....................... $ 99,996 $ -- $ --
=========== =========== ===========
INTEREST PAID ........................................................ $ -- $ 20,599 $ 19,766
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(1) NATURE OF BUSINESS AND LIQUIDITY
Celgene Corporation and its subsidiary Celgro (collectively "Celgene" or the
"Company") is a specialty pharmaceutical company engaged in the development and
commercialization of human pharmaceuticals and agrochemicals, and employs two
broad technology platforms: (i) small molecule immunotherapeutic compound
development and (ii) biocatalytic chiral chemistry. The initial therapeutic
focus of the immunology program is the development of small molecule
pharmaceuticals that have the potential to selectively regulate Tumor Necrosis
Factor alpha ("TNF-"), a protein whose overproduction has been linked to many
chronic inflammatory and immunological diseases. The Company's lead compound in
immunology is THALOMID(Reg. TM), its formulation of thalidomide, a potent yet
selective inhibitor of TNF-. On July 16, 1998, the Company received an approval
from the United States Food and Drug Administration ("FDA") to market THALOMID
for the treatment of erythema nodosum leprosum ("ENL"), an inflammatory
complication of leprosy, and commenced sales at the end of September 1998. The
Company expects to submit an additional New Drug Application ("NDA") in 2000 to
market THALOMID in the treatment of multiple myeloma, a blood related cancer.
Celgene has further applied its expertise in small molecule chemistry to develop
novel and proprietary thalidomide analogues, called IMiDsTM ("ImmunoModulatory
Drugs"), as well as a class of proprietary immunotherapeutic pharmaceutical
compounds called SelCIDsTM ("Selective Cytokine Inhibitory Drugs"). These two
classes of compounds are orally administered small molecules that are highly
specific for the suppression of TNF- and are intended to treat chronic
inflammatory diseases and other disorders.
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 and
increased commercial costs related to the launch of THALOMID. 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. The Company believes
that its current financial resources including $15.0 million received in January
1999 for a convertible note issued to an institutional investor plus the
revenues from the sales of THALOMID will fund operations through 1999.
The consolidated financial statements include the parent Company and its
subsidiary Celgro. All inter-company transactions have been eliminated. The
preparation of the consolidated financial statements requires management to make
estimates and assumptions that affect reported amounts and disclosures. Actual
results could differ from those estimates. The Company is subject to certain
risks and uncertainties such as uncertainty of product development,
uncertainties regarding regulatory approval, no assurance of market acceptance
of products, risk of product liability, uncertain scope of patent and
proprietary rights, intense competition, and rapid technological change.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
At December 31, 1997 and 1998, cash equivalents consisted principally of funds
invested in money market funds, and United States government securities such as
treasury bills and notes.
(b) Marketable Securities
The Company has classified all of its marketable securities as securities
available for sale at December 31, 1998. Such securities were to be held for an
indefinite period of time and were intended to be used to meet the ongoing
liquidity needs of the Company. Realized gains and losses are included in
operations and are measured using the specific cost identification method.
F-10
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Inventory
Inventories are priced at lower of cost or market using the first-in, first-out
("FIFO") method. The cost of inventory reflects primarily the packaging costs
for a significant portion of the finished goods inventory. Prior to FDA
approval, the raw material, formulation and encapsulation costs are recorded as
research and development expense.
(d) Long-Lived Assets
Plant and equipment are stated at cost. Depreciation of plant and equipment is
provided using the straight-line method. The estimated useful lives of fixed
assets are as follows:
<TABLE>
<S> <C>
Laboratory equipment and
machinery .................... 5-10 years
Furniture and fixtures ......... 5-10 years
</TABLE>
Amortization of leasehold improvements is calculated using the straight-line
method over the term of the lease or the life of the asset, whichever is
shorter. Maintenance and repairs are charged to operations as incurred, while
renewals and improvements are capitalized.
The Company reviews long-lived assets for impairment whenever events or changes
in business circumstances occur that indicate that the carrying amount of the
assets may not be recoverable. The Company assesses the recoverability of
long-lived assets held and to be used based on undiscounted cash flows and
measures the impairment, if any, using discounted cash flows.
(e) Research and Development Costs
All research and development costs are expensed as incurred.
(f) Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement carrying amounts and tax
bases of assets and liabilities using enacted tax rates in effect for all years
in which the temporary differences are expected to reverse.
Research and development tax credits will be recognized as a reduction of the
provision for income taxes when realized.
(g) Revenue Recognition
Revenue from the sale of products is recognized upon product shipment. Revenue
under research contracts is recorded as earned under the contracts, generally as
services are provided. Revenue is recognized immediately for nonrefundable
license fees when agreement terms require no additional performance on the part
of the Company.
(h) Stock Options
The Company generally does not record compensation cost for the issuance of
employee stock options since the options are generally issued with an exercise
price equal to the market price at the date of grant. For the fair value of the
employee stock options issued in 1996, 1997 and 1998, see note 8.
F-11
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Earnings per Share
"Basic" earnings per common share equals net income divided by weighted average
common shares outstanding during the period. "Diluted" earnings per common share
equals net income divided by the sum of weighted average common shares
outstanding during the period plus common stock equivalents if dilutive. The
Company's basic and diluted per share amounts are the same since the assumed
exercise of stock options, warrants, conversion of convertible debentures and
preferred stock are all anti-dilutive. The amount of common stock equivalents
excluded from the calculation were 3,738,168 in 1996, 3,770,954 in 1997, and
3,863,535 in 1998.
(j) Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
(loss) consists of net losses and net unrealized gains (losses) on securities
and is presented in the consolidated statements of stockholders' equity
(deficit). The Statement requires only additional disclosures in the financial
statements; it does not affect the Company's financial position or results of
operations. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
(k) Presentation
In connection with the disposition of the Company's chiral intermediate
operation (see note 10), the 1996, 1997, and 1998 financial results applicable
to continuing operations exclude amounts from this discontinued operation.
(l) Fair Value of Financial Instruments
The fair value, which is the carrying value, of marketable securities available
for sale is based on quoted market prices. The convertible debentures
approximate fair value due to interest rates approximating market rates. For all
other financial instruments their carrying value approximates fair value due to
the short maturity of these instruments.
(3) INVENTORY
<TABLE>
<CAPTION>
-------------
DECEMBER 31,
1998
-------------
<S> <C>
Raw materials ........................................................ $ 440,400
Work in process ...................................................... 535,494
Finished goods ....................................................... 595,514
----------
Total ................................................................ $1,571,408
==========
</TABLE>
Inventory costs prior to FDA approval of THALOMID on July 16, 1998 were expensed
as research and development costs.
F-12
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED )
(4) PLANT AND EQUIPMENT
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
-----------------------------
DECEMBER 31,
-----------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Leasehold improvements .............................. $ 3,957,366 $ 4,008,246
Laboratory equipment and machinery .................. 4,430,336 4,874,733
Furniture and fixtures .............................. 437,478 470,667
Leased equipment .................................... 415,109 675,304
----------- -----------
9,240,289 10,028,950
Less: accumulated depreciation ...................... 6,954,265 7,766,820
----------- -----------
$ 2,286,024 $ 2,262,130
=========== ===========
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
-----------------------------
DECEMBER 31,
-----------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Professional and consulting fees .................... $ 235,000 $ 787,381
Accrued compensation ................................ 1,041,772 1,650,048
Other ............................................... 112,161 604,430
----------- -----------
$ 1,388,933 $ 3,041,859
=========== ===========
</TABLE>
(6) CONVERTIBLE DEBT
On September 16, 1998, the Company issued a convertible note to an institutional
investor in the amount of $8,750,000. The note has a five-year term and a coupon
rate of 9.25% with interest payable on a semi-annual basis. The note contains a
conversion feature that allows the note holder to convert the note into shares
of common stock after one year at $11 per share. The Company can redeem the note
after three years at 103% of the principal amount (two years if the Company's
stock trades at $24.75 or higher for a period of 20 consecutive trading days).
This note was issued at a discount of $437,500 which is being amortized over
three years.
During 1995, the Company issued and sold, in an offering pursuant to Regulation
S, 8% convertible debentures due July 31, 1997 in the aggregate principal amount
of $12,000,000, and received net proceeds, after offering costs, of $11,022,570.
The recorded value of the debentures at the date of issuance was discounted to
produce a market interest rate of approximately 13.5%. As of December 31, 1997,
all convertible debentures in the aggregate principal amount of $12,000,000,
plus accrued interest, had been converted into a total of 1,709,845 shares of
common stock.
(7) STOCKHOLDERS' EQUITY
Series A Convertible Preferred Stock
On March 13, 1996, in a private placement, the Company completed the sale of 503
shares of Series A Convertible Preferred Stock, par value $.01 per share (the
"Preferred Stock"), at an issue price of $50,000 per share. The Company received
net proceeds, after offering costs, of $23,829,625. The Preferred Stock, plus
accretion at a rate of 4.9% per year, was convertible, at the option of the
holders thereof, into common stock of the Company 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 a result of the issuance of
securities with variable conversion features, the Company recognized the value
of the discount to market conversion feature as a deemed dividend.
F-13
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(7) STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the private placement, the Company also granted to certain
executives and affiliates of the placement agent warrants, valued at $60,168, to
purchase an aggregate of 66,853 shares of common stock at an exercise price of
$20.52, subject to proportional adjustment in the event that the Company
undertakes a stock split, stock dividend, recapitalization or similar event.
These warrants are exercisable for a period of five years from the date of
issuance. These warrants are all outstanding at December 31, 1998.
As of December 31, 1998, all of the shares of the Series A Preferred Stock (503
shares), with their respective accrued accretion, had been converted or redeemed
into 3,342,202 shares of common stock. Through December 31, 1998 the Company had
accrued $1,420,770 representing accretion of the premium on the Preferred Stock.
The Company agreed to reduce the maximum conversion price of 58 shares to $8.50
per share of common stock from $18.81 for holders who agreed to a lock-up ending
on December 1, 1997. During 1996, the Company had also issued warrants valued at
$138,156, that entitle certain stockholders of the Series A Preferred Stock to
purchase 153,507 shares of common stock at an exercise price of $11.50 per
share. The warrants were issued in exchange for the deferral of conversion for
90 days. At December 31, 1998, all these warrants either expired or were
exercised for 3,418 shares of common stock.
Series B Convertible Preferred Stock
On June 9, 1997, in a private placement, the Company completed the sale of 5,000
shares of Series B Convertible Preferred Stock (the "Series B Preferred"), par
value $.01 per share, at an issue price of $1,000 per share. The Company
received net proceeds, after offering costs, of $4,840,748. Shares could be
converted at an initial conversion price of $6.50 per share. As of December 31,
1998, all shares of the Series B Preferred had been converted into 788,469
shares of common stock.
Upon request of the purchasers of the Series B Preferred, the Company is
required to issue warrants to acquire a number of shares of common stock equal
to (i) 1,500,000 divided by the conversion price in effect on the issuance date
(230,769 warrants as of December 31, 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
December 31, 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 ($6.50 at December 31, 1998). The fair value of
warrants at the issuance date was $1.28 per warrant. As of December 31, 1998, no
warrants had been issued.
Through December 31, 1998, the Company had recorded $953,077 representing
accretion of the deemed dividend on the Series B Preferred Stock. The deemed
dividend represents the difference between the Series B Preferred Stock
conversion price and the fair market value of the Company's common stock at the
date of issuance.
Preferred Stock
Moreover, the board of directors has the authority to issue, at any time,
without further stockholder approval, up to 5,000,000 shares of preferred stock,
and to determine the price, rights, privileges, and preferences of those shares.
Rights Plan
During 1996, the Company adopted a shareholder rights plan ("Rights Plan"). The
Rights Plan involves the distribution of one "Right" as a dividend on each
outstanding share of the Company's common stock to each holder of record on
September 26, 1996. Each Right shall entitle the holder to purchase one-tenth of
a share of common stock. The Rights trade in tandem with the common stock until,
and are exercisable upon, certain triggering events, and the exercise price is
based on the estimated long term value of the Company's common stock.
(8) STOCK BASED COMPENSATION
(a) Stock Options
The Company has two incentive plans that provide for the granting of options,
restricted stock awards, stock appreciation rights, performance awards and other
stock-based awards to employees and officers of the Company to purchase not more
than an aggregate of 1,400,000 shares of common stock under the 1992 plan and
1,500,000 shares of common stock under
F-14
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(8) STOCK BASED COMPENSATION (CONTINUED)
the 1998 plan, subject to adjustment under certain circumstances. The Management
Compensation and Development Committee of the Board of Directors (the
"Committee") determines the type, amount and terms, including vesting, of any
awards made under the Incentive Plans. The plans terminate in 2002 and 2008,
respectively.
With respect to options granted under the incentive plans, the exercise price
may not be less than the fair market value of the common stock on the date of
grant. In general, each option granted under the Plans vests evenly over a three
or four year period and expires 10 years from the date of grant, subject to
earlier expiration in case of termination of employment. The vesting period for
options and restricted stock awards granted under the Plans is subject to
certain acceleration provisions if a change in control, as defined in the Plans,
occurs.
On June 16, 1995, the stockholders of the Company approved the 1995 Non-Employee
Directors' Incentive Plan, which provides for the granting of non-qualified
stock options to purchase an aggregate of not more than 350,000 shares of common
stock (subject to adjustment under certain circumstances) to directors of the
Company who are not officers or employees of the Company ("Non-Employee
Directors"). Each new Non-Employee Director, upon the date of his election or
appointment, receives an option to purchase 20,000 shares of common stock.
Additionally, upon the date of each annual meeting of stockholders, each
continuing Non-Employee Director receives an option to purchase 10,000 shares of
common stock (or a pro rata portion thereof if he has served less than one
year). The shares subject to each non-employee director's option grant of 20,000
shares vest in four equal annual installments commencing on the first
anniversary of the date of grant. The shares subject to an annual meeting option
grant vest in full on the date of the first annual meeting of stockholders held
following the date of grant. All options are granted at an exercise price that
equals the fair market value of the Company's common stock at the grant date and
expire 10 years after the date of grant. This plan terminates in 2005. The
weighted-average fair value per share for stock options granted was $3.97 for
the 1998 options, $3.93 for the 1997 options, and $5.01 for those granted in
1996. The Company estimated the fair values using the Black-Scholes option
pricing model and used the following assumptions:
<TABLE>
<CAPTION>
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate ...................... 6.38% 6.37% 5.68%
Expected stock price volatility .............. 62% 55% 66%
Expected term until exercise (years) ......... 2.22 3.09 2.86
Expected dividend yield ...................... 0% 0% 0%
</TABLE>
The Company does not record compensation expense for stock option grants. The
following table summarizes results as if compensation expense was recorded for
the annual option grants under the fair value method:
<TABLE>
<CAPTION>
-----------------------------------------
1996 1997 1998
In thousands of dollars, except per share data ----------- ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported ................................... $ (21,610) $ (26,922) $ (25,093)
Pro forma ..................................... $ (23,515) $ (28,652) $ (26,745)
Per share basic and diluted:
As reported ................................... $ (2.29) $ (2.20) $ (1.55)
Pro forma ..................................... $ (2.49) $ (2.35) $ (1.66)
</TABLE>
The pro forma effects on net loss and loss per share for 1996, 1997 and 1998 may
not be representative of the pro forma effects in future years since
compensation cost is allocated on a straight-line basis over the vesting periods
of the grants, which extends beyond the reported years.
F-15
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(8) STOCK BASED COMPENSATION (CONTINUED)
The following table summarizes the stock option activity for both Plans:
<TABLE>
<CAPTION>
--------------------------------------
OPTIONS OUTSTANDING
------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE PRICE PER
FOR GRANT SHARES SHARE
------------- ------------- ----------
<S> <C> <C> <C>
Balance January 1, 1996 .................... 1,201,913 1,415,341 $ 7.70
Expired ................................... (126,126) -- --
Granted ................................... (679,037) 679,037 13.25
Exercised ................................. -- (42,069) 8.03
Cancelled ................................. 46,095 (46,095) 6.40
--------- --------- --------
Balance December 31, 1996 .................. 442,845 2,006,214 9.60
Authorized ................................ 500,000 -- --
Expired ................................... (74,797) -- --
Granted ................................... (492,775) 492,775 9.39
Exercised ................................. -- (6,986) 7.83
Cancelled ................................. 142,027 (142,027) 9.36
--------- --------- --------
Balance December 31, 1997 .................. 517,300 2,349,976 9.59
Authorized ................................ 1,620,000 -- --
Expired ................................... (85,095) -- --
Granted ................................... (559,983) 559,983 8.87
Exercised ................................. -- (283,120) 7.18
Cancelled ................................. 198,726 (198,726) 10.74
--------- --------- --------
Balance December 31, 1998 .................. 1,690,948 2,428,113 $ 9.62
========= ========= ========
</TABLE>
The following table summarizes information concerning options outstanding under
the Plans at December 31, 1998:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------- ---------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
NUMBER AVERAGE REMAINING NUMBER AVERAGE
OUTSTANDING EXERCISE TERM EXERCISABLE EXERCISE
AT 12/31/98 PRICE (YRS.) AT 12/31/98 PRICE
RANGE OF EXERCISE PRICE ------------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 5.00-9.00 ............. 1,350,740 $ 7.48 5.6 863,361 $ 7.12
$ 9.01-13.00 ............ 610,644 10.74 7.6 298,854 10.81
$13.01-18.00 ............ 466,729 14.31 6.9 405,319 14.12
--------- ------- --- ------- --------
2,428,113 $ 9.62 6.6 1,567,534 $ 9.63
========= ======= === ========= ========
</TABLE>
On January 22, 1999 the Company granted options to purchase approximately
105,000 shares to certain members of management exercisable at $16.50 (market
price at the date of grant). These options vest evenly over three years and have
a ten-year term. Also on January 22, 1999, the Company granted options to
purchase approximately 140,000 shares to certain employees at an exercise price
of $16.50. The options vest equally over four years and have a ten-year term.
(b) Stock Awards
On January 1, 1997, the Company awarded 5,000 shares to the Company's Chairman
and Chief Executive Officer, which were immediately vested. The fair value of
$55,625 for this award was expensed.
(c) Warrants
In connection with the retention of an investment firm to assist in the sale and
issuance of 8% convertible notes, the Company, in August 1995, granted to such
firm warrants to purchase until July 31, 2000, 105,000 shares of common stock at
a price of $9.60 per share. As of December 31, 1998, 40,188 warrants were
outstanding.
F-16
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(8) STOCK BASED COMPENSATION (CONTINUED)
In connection with the retention of an investment firm to assist in the sale and
issuance of the Series A Preferred Stock, the Company, in March 1996, granted to
such firm warrants to purchase until March 10, 2001, 66,853 shares of common
stock at a price of $20.52. These warrants were outstanding as of December 31,
1998.
During 1997, the Company issued to certain stockholders of the Series A
Convertible Preferred Stock warrants valued at $7,826, to purchase 8,696 shares
of common stock at an exercise price of $11.50. The warrants were issued in
exchange for the deferral of conversion for 90 days. These warrants are
exercisable for a period of two years from the date of issuance and these
warrants were outstanding as of December 31, 1998.
In connection with the retention of a consultant to provide strategic
development services, the Company, in December 1997, granted to such consultant
warrants to purchase until December 24, 1999, 5,000 shares of common stock at a
price of $12.00. These warrants were outstanding as of December 31, 1998.
(9) INCOME TAXES
At December 31, 1997 and 1998, the tax effects of temporary differences that
give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
---------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Deferred Assets:
Federal and state net operating loss carryforwards ................. $ 44,334,000 $ 54,779,000
Research and experimentation tax credit carryforwards .............. 2,735,000 3,235,000
Plant and equipment, principally due to differences in depreciation 753,000 772,000
Patents, principally due to differences in amortization ............ 68,000 62,000
Accrued expenses ................................................... 385,000 665,000
------------- -------------
Total deferred tax assets .......................................... 48,275,000 59,513,000
Valuation allowance ................................................ (48,275,000) (59,513,000)
------------- -------------
Net deferred tax assets ............................................ $ -- $ --
============= =============
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. At December 31,
1998, the Company had net operating loss carryforwards of approximately
$135,000,000 that will expire in the years 2001 through 2012. The Company also
has research and experimentation credit carryforwards of approximately
$3,235,000 that expire in the years 2001 through 2018. Ultimate
utilization/availability of such net operating losses and credits may be
curtailed if a significant change in ownership occurs.
(10) DISCONTINUED OPERATION
On January 9, 1998, the Company concluded an agreement with Cambrex Corporation
for Cambrex to acquire Celgene's chiral intermediate business for approximately
$15 million. The Company received $7.5 million upon the closing of the
transaction, and will receive 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 Celgene'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.
Revenues relative to the chiral intermediate business were approximately $1.4
million and $2.1 million for 1996 and 1997, respectively. Direct expenses
related to the chiral intermediate business were $2.2 million and $2.5 million
for 1996 and 1997, respectively.
F-17
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED )
(11) MARKETABLE SECURITIES AVAILABLE FOR SALE
Marketable securities available for sale at December 31, 1998 include debt
securities with maturities ranging from March 1999 to October 2002. Marketable
securities at December 31, 1998 include Corporate Bonds ($1,006,890) and US
Government and agency obligations ($1,050,000). The carrying value equaled fair
market value. There were no marketable securities at December 31, 1997.
(12) COMMITMENTS AND CONTINGENCIES
(a) Leases
Celgene leases its main laboratory and office facilities in Warren Township, New
Jersey. The current lease term for the main laboratory and office space expires
in 2002 and has one five-year renewal option. Annual payments are $330,000. The
lease provides that at the end of each five-year term, the rent will be
increased based upon the change in the consumer price index, but in no case
shall the increase be greater than 20%. Celgene is also required to pay
additional amounts for real estate taxes, utilities, and maintenance. Total
rental expense amounted to $453,000, $477,000 and $486,000 in 1996, 1997 and
1998, respectively. Celgene has subleased 12,500 square feet of this facility to
Cambrex Corporation for up to three years for the chiral intermediate business
which Cambrex purchased on January 9, 1998.
In January 1997, the Company entered into a sub-lease agreement to lease an
additional 18,000 square feet of laboratory and office space in Annandale, New
Jersey. The sub-lease agreement is for a two year term, expiring in February
1999. Annual payments are $227,500.
In July 1997, the Company entered into an equipment leasing agreement. Under the
agreement, the Company can lease up to $1,000,000 of equipment for a three year
term after which the Company can purchase the equipment for a nominal value.
Through December 31, 1998, the Company has leased $675,000 of laboratory
equipment under this agreement. Under this capital lease, the Company is
committed to 36 monthly payments of approximately $21,000.
(b) Employment Agreements
Celgene has employment agreements with certain officers and employees. The
related outstanding commitments over the next two years are approximately $1.6
million, of which $1.0 million is due in 1999. Employment contracts provide for
an increase in compensation reflecting annual reviews and related salary
adjustments.
(c) Contracts
Pursuant to the terms of a research and development agreement with The
Rockefeller University, the Company has the world-wide exclusive license to
manufacture and market any drugs, including THALOMID, which may result from the
research performed at The Rockefeller University and funded by the Company. The
Rockefeller University is entitled to receive royalties based on commercial
sales of any such drugs for certain indications for ten years after the first
sale. Under terms of the current research agreement extension, the Company is
committed to pay The Rockefeller University $504,000 annually for research.
In December 1995, the Company entered into an agreement with Penn
Pharmaceutical, Ltd. of Great Britain ("Penn") for the production of THALOMID.
Annual facility payments are approximately $480,000, which commenced in December
1996. Penn will manufacture THALOMID and sell it exclusively to the Company. The
agreement has been renewed for 1999, for facility payments of approximately
$480,000.
In October 1997, the Company entered into a contract with Boston University to
manage the surveillance registry which is intended to monitor compliance to the
requirements of the Company's S.T.E.P.S. program (prescription safety and
education program) for all THALOMID patients. The contract has been renewed for
1999. Under the terms of the agreement quarterly payments of approximately
$300,000 are required. The contract is renewable for one-year terms upon
agreement of both parties.
F-18
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
In December 1997, the Company entered into a research agreement with the
University of Glasgow for clinical testing and evaluation of certain of
Celgene's patented compounds. Under terms of the agreement, Celgene would pay
the University approximately $200,000 in two annual installments. The term of
the agreement is for two years.
In June 1998, the Company entered into a research agreement with a contract
research organization to manage the pivotal clinical trial for d-methylphenidate
encompassing four separate protocols. The agreement is for approximately two
years and is estimated at approximately $3.0 million over the life of the
agreement.
In December 1998, the Company entered into an exclusive license agreement with
EntreMed, Inc. whereby EntreMed granted to Celgene an exclusive license to its
patent and technology rights for thalidomide. In return EntreMed will receive
royalties on all sales of THALOMID.
In December 1998, the Company entered into a one year clinical trial agreement
with the University of Arkansas for Medical Science to collaborate on clinical
trials for multiple myeloma under four separate protocols. The commitment for
1999 is $200,000.
The Company has various other research and consulting agreements totaling
approximately $336,000 for 1999.
(d) Contingencies
The Company believes it maintains insurance coverage adequate for its current
needs.
The Company's operations are subject to environmental laws and regulations which
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company reviews the effects of such laws and regulations
on its operation and modifies its operations as appropriate. The Company
believes that it is in substantial compliance with all applicable environmental
laws and regulations.
(e) Concentration of Market Risk
Sales to one chain pharmacy and three wholesalers accounted for 27%, 18%, 15%
and 14% of sales, respectively, in 1998. The direct sales to the chain pharmacy
were for the initial stocking order. All future sales will be through
wholesalers.
One customer accounted for 100% of the research contract revenue in 1996 and
1997. Three customers accounted for 37%, 28% and 24% of 1998 research contract
revenue.
(13) SUBSEQUENT EVENT
On January 20, 1999, the Company issued a $15.0 million convertible note to an
institutional investor. The note has a five year term and a coupon rate of 9%
with interest payable on a semi-annual basis. The debt contains a conversion
feature that allows the note holder to convert the debt into shares of common
stock after one year at a conversion price of $18 per share. The Company can
redeem the note after three years (two years if the stock trades at 225% of the
conversion price for a period of 20 consecutive trading days), at 103% of the
principal amount. Net proceeds after issuance at a discount were $14.25 million.
F-19
<PAGE>
CELGENE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------
SEPTEMBER 30,
1999
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 14,324,499
Marketable securities available for sale ................................. 4,299,974
Accounts receivable, net of allowance of $117,512 at September 30, 1999... 2,941,555
Inventory ................................................................ 2,072,272
Other current assets ..................................................... 678,527
--------------
Total current assets ................................................... 24,316,827
Plant and equipment, net .................................................. 2,083,212
Other assets .............................................................. 688,732
--------------
Total assets ........................................................... $ 27,088,771
==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable ......................................................... $ 3,041,185
Accrued expenses ......................................................... 3,826,091
Capitalized lease obligation ............................................. 214,544
--------------
Total current liabilities .............................................. 7,081,820
Capitalized lease obligation-net of current portion ....................... 44,607
Long term convertible notes ............................................... 38,458,336
--------------
Total liabilities ...................................................... 45,584,763
--------------
Stockholders' equity (deficit):
Common stock, $.01 par value per share
30,000,000 shares authorized at September 30, 1999
issued and outstanding 17,151,595 shares at September 30, 1999 ......... 171,516
Additional paid-in capital ............................................... 144,944,797
Accumulated deficit ...................................................... (163,548,803)
Accumulated other comprehensive loss ..................................... (63,502)
--------------
Total stockholders' deficit ............................................ (18,495,992)
--------------
Total liabilities and stockholders' deficit .............................. $ 27,088,771
==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
CELGENE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1998 1999
-------------- ---------------
<S> <C> <C>
Revenues:
Product sales .......................................................... $ 1,030,838 $ 15,063,644
Research contracts ..................................................... 105,000 1,732,500
------------- -------------
Total revenues ....................................................... 1,135,838 16,796,144
Expenses:
Cost of goods sold ..................................................... 59,270 2,076,457
Research and development ............................................... 13,968,657 14,366,132
Selling, general and administrative .................................... 11,207,326 17,846,527
------------- -------------
Total expenses ....................................................... 25,235,253 34,289,116
Operating loss .......................................................... (24,099,415) (17,492,972)
Other income and expense:
Interest income ........................................................ 497,100 511,659
Interest expense ....................................................... 45,192 1,954,420
------------- -------------
Loss from continuing operations ......................................... (23,647,507) (18,935,733)
Discontinued operations: (Note 7)
Loss from operations ................................................... (59,837) --
Gain on sale of chiral assets .......................................... 7,014,830 --
------------- -------------
Net loss ................................................................ (16,692,514) (18,935,733)
Accretion of premium payable on preferred stock ......................... 24,648 --
------------- -------------
Net loss applicable to common stockholders .............................. $ (16,717,162) $ (18,935,733)
============= =============
Per share basic and diluted:
Loss from continuing operations ........................................ $ (1.47) $ (1.12)
Discontinued operations:
Loss from operations ................................................. -- --
Gain on sale of chiral assets ........................................ 0.44 --
------------- -------------
Net loss applicable to common stockholders per share of common stock ... $ (1.04) $ (1.12)
============= =============
Weighted average number of shares of common stock outstanding .......... 16,062,000 16,903,000
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
CELGENE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
Revenues:
Product sales ........................................................ $ 1,030,838 $ 6,315,319
Research contracts ................................................... 25,000 425,000
------------ ------------
Total revenues ..................................................... 1,055,838 6,740,319
Expenses:
Cost of goods sold ................................................... 59,270 701,816
Research and development ............................................. 5,238,106 4,933,317
Selling, general and administrative .................................. 3,876,150 6,618,373
------------ ------------
Total expenses ..................................................... 9,173,526 12,253,506
Operating loss ........................................................ (8,117,688) (5,513,187)
Other income and expense:
Interest income ...................................................... 136,262 256,215
Interest expense ..................................................... 39,086 861,397
------------ ------------
Net loss .............................................................. $ (8,020,512) $ (6,118,369)
============ ============
Per share basic and diluted:
Net loss ............................................................. $ (0.49) $ (0.36)
============ ============
Weighted average number of shares of common stock outstanding ......... 16,399,000 17,028,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations ..................................................... $ (23,647,507) $ (18,935,733)
Adjustments to reconcile loss from continuing operations to
net cash used in operating activities:
Depreciation ....................................................................... 575,575 585,497
Issuance of stock for employee benefits ............................................ 463,606 799,004
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 .............................................................. (317,437) (500,864)
Increase (Decrease) in accounts payable and accrued expenses ....................... (1,984,036) (822,440)
(Increase) Decrease in accounts receivable ......................................... 388,063 (353,292)
(Increase) Decrease in other assets ................................................ 129,648 (496,534)
------------- -------------
Net cash used in continuing operations .............................................. (20,424,016) (19,353,359)
Net cash used in discontinued operations ............................................ (59,837) --
------------- -------------
Net cash used in operating activities ............................................... (20,483,853) (19,353,359)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................ (645,104) (406,579)
Proceeds from sales and maturities of marketable
securities available for sale ...................................................... 7,086,154 2,495,992
Purchases of marketable securities available for sale ............................... (10,116,494) (4,802,578)
Proceeds from sale of chiral assets ................................................. 7,500,000 --
------------- -------------
Net cash provided by (used in) investing activities ................................. 3,824,556 (2,713,165)
------------- -------------
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 ......................... 1,673,740 4,235,869
Capital lease buyout ................................................................ (329,614) (161,799)
Capital lease funding ............................................................... 260,195 --
Debt issuance costs ................................................................. (437,500) (750,000)
Proceeds from convertible notes ..................................................... 8,750,000 30,000,000
------------- -------------
Net cash provided by (used in) financing activities ................................. 12,343,685 33,324,070
------------- -------------
Net (decrease) increase in cash and cash equivalents ................................ (4,315,612) 11,257,546
Cash and cash equivalents at beginning of period .................................... 13,583,445 3,066,953
------------- -------------
Cash and cash equivalents at end of period .......................................... $ 9,267,833 $ 14,324,499
------------- -------------
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 ....................................................................... $ 11,468 $ 1,080,693
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
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 10-K.
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 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.
F-24
<PAGE>
CELGENE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
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 shares of common stock 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 shares
of common stock 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 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> <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 intermediate 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 intermediate 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,
-----------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Net Loss ......................... $(16,692,514) $(18,935,733)
Other Comprehensive Loss ......... -- (63,502)
------------ ------------
Total Comprehensive Loss ......... $(16,692,514) $(18,999,235)
============ ============
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Net Loss ......................... $(8,020,512) $(6,118,369)
----------- -----------
Other Comprehensive Loss ......... -- (12,072)
----------- -----------
Total Comprehensive Loss ......... $(8,020,512) $(6,130,441)
=========== ===========
</TABLE>
F-25
<PAGE>
CELGENE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED )
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 Events
In November, 1999, we signed an amendment to The Rockefeller University License
Agreement pursuant to which we agreed to substitute a lump sum payment and issue
stock options to The Rockefeller University and the inventors in lieu of the
royalties previously payable under the license.
In December, 1999, we entered into a lease with our current landlord to rent an
additional 29,000 square feet of office and laboratory space adjacent to our
current leased space. The lease has a ten-year term with two five-year renewal
options. The annual commitment is approximately $260,000.
F-26
<PAGE>
[CELGENE CORPORATION LOGO OMITTED]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An estimate of the fees and expenses of issuance and distribution (other than
underwriting discounts) of the common stock offered hereby (all of which will be
paid by Celgene) is as follows:
<TABLE>
<S> <C>
SEC registration fee ....................... $ 63,344
NASDAQ National Market listing fee ......... 24,233
NASD filing fee ............................ 19,185
Legal fees and expenses .................... 150,000
Accounting fees and expenses ............... 75,000
Printing fees .............................. 160,000
Total ................................... $491,762
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware, or the DGCL, permits
Celgene and its stockholders to limit directors' exposure to liability for
certain breaches of the directors' fiduciary duty, either in a suit on behalf of
Celgene or in an action by stockholders of Celgene.
The Certificate of Incorporation of Celgene, or the Charter, eliminates the
liability of directors of Celgene to Celgene or its stockholders for monetary
damages arising out of the directors' breach of their fiduciary duty of care.
The Charter also authorizes Celgene to indemnify its directors, officers,
incorporators, employees and agents with respect to certain costs, expenses, and
amounts incurred in connection with an action, suit or proceeding by reason of
the fact that such person was serving as a director, officer, incorporator,
employee or agent of Celgene. In addition, the Charter permits Celgene to
provide additional indemnification rights to its officers and directors and to
indemnify them to the greatest extent possible under the DGCL. Celgene has
entered into indemnification agreements with each of its officers and directors
and intends to enter into indemnification agreements with each of its future
officers and directors. Pursuant to such indemnification agreements, Celgene has
agreed to indemnify its officers and directors against certain liabilities,
including liabilities arising out of the offering made by this Registration
Statement.
Celgene maintains a standard form of officers' and directors' liability
insurance policy which provides coverage to the officers and directors of
Celgene for certain liabilities, including certain liabilities which may arise
out of this Registration Statement.
ITEM 16. EXHIBITS.
The exhibits listed in the Exhibit Index as filed as part of this Registration
Statement.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1.1 -- Form of Underwriting Agreement.
5.1 -- Opinion of Proskauer Rose LLP.*
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Proskauer Rose LLP (incorporated by reference to Exhibit 5.1).*
23.3 -- Consent of Pennie & Edmonds LLP.
23.4 -- Consent of Kleinfeld, Kaplan & Becker.
23.5 -- Consent of Mathew, Collins, Shepherd & Gould, P.A.
24.1 -- Power of Attorney (included in Signature Page).
</TABLE>
* Previously filed.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Warren, State of New Jersey on February 9, 2000.
CELGENE CORPORATION
By: /s/ John W. Jackson
----------------------------------------
John W. Jackson
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the persons whose signatures appear below, which
persons have signed such Registration Statement in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- --------------------------------------------------- -----------------
<S> <C> <C>
/s/ John W. Jackson Chairman of the Board and Chief Executive February 9, 2000
- -------------------------- Officer (Principal Executive Officer)
John W. Jackson
* President, Chief Operating Officer and Director February 9, 2000
- --------------------------
Sol J. Barer
* Chief Financial Officer (Principal Accounting and February 9, 2000
- -------------------------- Financial Officer)
Robert J. Hugin
* Director February 9, 2000
- --------------------------
Jack L. Bowman
* Director February 9, 2000
- --------------------------
Frank T. Cary
Director February 9, 2000
- --------------------------
Gilla Kaplan
Director February 9, 2000
- --------------------------
Arthur Hull Hayes, Jr.
Director February 9, 2000
- --------------------------
Richard C. E. Morgan
* Director February 9, 2000
- --------------------------
Walter L. Robb
* Director February 9, 2000
- --------------------------
Lee J. Schroeder
</TABLE>
* Executed by attorney-in-fact.
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1.1 -- Form of Underwriting Agreement.
5.1 -- Opinion of Proskauer Rose LLP.*
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Proskauer Rose LLP (incorporated by reference to Exhibit 5.1).*
23.3 -- Consent of Pennie & Edmonds LLP.
23.4 -- Consent of Kleinfeld, Kaplan & Becker.
23.5 -- Consent of Mathew, Collins, Shepherd & Gould, P.A.
24.1 -- Power of Attorney (included in Signature Page).
</TABLE>
* Previously filed.
CELGENE CORPORATION
3,000,000 Shares of Common Stock
Underwriting Agreement
February [ ], 2000
J.P. Morgan Securities Inc.
Prudential Securities Incorporated
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the several Underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
Celgene Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell 2,484,000 shares (the "Company Shares") of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company, and Hancock Mezzanine
Partners L.P., a partnership formed under the laws of the State of Delaware,
John Hancock Life Insurance Company, a Massachusetts corporation, John Hancock
Variable Life Insurance Company, a Massachusetts corporation, and Signature 1A
(Cayman), Ltd., a corporation organized under the laws of the Cayman Islands
(each individually referred to as a "Selling Stockholder" and collectively
referred to as the "Selling Stockholders") propose to sell an aggregate of
516,000 shares (the "Selling Stockholder Shares") of Common Stock of the Company
to the several Underwriters listed in Schedule I hereto (the "Underwriters"),
for whom you are acting as representatives (the "Representatives"). The Company
Shares and the Selling Stockholder Shares are herein referred to as the
"Underwritten Shares." In addition, for the sole purpose of covering
over-allotments in connection with the sale of the Underwritten Shares, the
Company proposes to issue and sell to the Underwriters, at the option of the
Underwriters, up to an additional 450,000 shares (the "Option Shares") of Common
Stock. The Underwritten Shares and the Option Shares are herein referred to as
the "Shares."
<PAGE>
2
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement on Form S-3, including a prospectus, relating to the Shares. The
registration statement as amended at the time when it became or shall become
effective, including information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act, is referred to in this Agreement as the "Registration
Statement," and the prospectus in the form first used to confirm sales of Shares
is referred to in this Agreement as the "Prospectus." If the Company has filed
an abbreviated registration statement pursuant to Rule 462(b) under the
Securities Act ("Rule 462 Registration Statement"), then any reference herein to
the term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement. Any reference in this Agreement to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Securities Act, as of the effective date of the
Registration Statement or the date of such preliminary prospectus or the
Prospectus, as the case may be, and any reference to "amend," "amendment" or
"supplement" with respect to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include any
documents filed after such date under the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") that are deemed to be incorporated by
reference therein.
The Company and each of the Selling Stockholders hereby agrees with the
Underwriters as follows:
1. The Company agrees to issue and sell the Company Shares and each of the
Selling Stockholders agrees, severally and not jointly, to sell the Selling
Stockholder Shares to the several Underwriters as hereinafter provided, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase,
severally and not jointly, from each of the Company and each of the Selling
Stockholders at a purchase price per share of $[ ] (the "Purchase Price") the
number of Underwritten Shares (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying the aggregate number of
Underwritten Shares to be sold by the Company and by each of the Selling
Stockholders as set forth opposite their respective names under the heading
"Number of Underwritten Shares" in Schedule II hereto by a fraction, the
numerator of which is the aggregate number of Underwritten Shares to be
purchased by such Underwriter as set forth opposite the name of such Underwriter
in Schedule I hereto and the denominator of which is the aggregate number of
Underwritten Shares to be purchased by all the Underwriters from the Company and
all the Selling Stockholders hereunder.
<PAGE>
3
In addition, the Company agrees to issue and sell the Option Shares to the
several Underwriters as hereinafter provided, and the Underwriters, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, shall have the option to purchase, severally and
not jointly, from the Company at the Purchase Price that portion of the number
of Option Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Option Shares by a fraction, the numerator of which is the
maximum number of Underwritten Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Option Shares which all of
the Underwriters are entitled to purchase hereunder, for the sole purpose of
covering over-allotments (if any) in the sale of Underwritten Shares by the
several Underwriters.
The Underwriters may exercise the option to purchase the Option Shares at
any time (but not more than once) on or before the thirtieth day following the
date of this Agreement, by written notice from the Representatives to the
Company. Such notice shall set forth the aggregate number of Option Shares as to
which the option is being exercised and the date and time when the Option Shares
are to be delivered and paid for, which may be the same date and time as the
Closing Date (as hereinafter defined) but shall not be earlier than the Closing
Date nor later than the tenth full Business Day (as hereinafter defined) after
the date of such notice (unless such time and date are postponed in accordance
with the provisions of Section 9 hereof). Any such notice shall be given at
least two Business Days prior to the date and time of delivery specified
therein.
2. The Company and the Selling Stockholders understand that the
Underwriters intend (i) to make a public offering of the Shares as soon after
(A) the Registration Statement has become effective and (B) the parties hereto
have executed and delivered this Agreement as in the judgment of the
Representatives is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in immediately
available funds to the accounts specified by the Company, in the case of the
Company Shares, and to the accounts specified by the Selling Stockholders, in
the case of the Selling Stockholder Shares, to the Representatives on February
[ ], 2000, or at such other time on the same or such other date, not later than
the fifth Business Day thereafter, as the Representatives, the Company and the
Selling Stockholders may agree upon in writing, or to an account specified to
the Representatives by the Company, in the case of the Option Shares, on the
date and time specified by the Representatives in the written notice of the
Underwriters' election to purchase such Option Shares. The time and date of such
payment for the Underwritten Shares is referred to herein as the "Closing Date,"
and the time and date for such payment for the Option Shares, if other than the
Closing Date, are herein referred to as the "Additional Closing Date."
<PAGE>
4
As used herein, the term "Business Day" means any day other than a day on which
banks are permitted or required to be closed in New York City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Company Shares and the Option Shares duly paid by the
Company and any transfer taxes payable in connection with the transfer to the
Underwriters of the Selling Stockholder Shares duly paid by the Selling
Stockholders. The certificates for the Shares will be made available for
inspection and packaging by the Representatives at the office of J.P. Morgan
Securities Inc. set forth above not later than 1:00 P.M., New York City time, on
the Business Day prior to the Closing Date or the Additional Closing Date, as
the case may be.
4. (A) The Company represents and warrants to the Underwriters and the
Selling Stockholders that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary
prospectus filed as part of the Registration Statement as originally filed
or as part of any amendment thereto, or filed pursuant to Rule 424 under
the Securities Act, complied when so filed in all material respects with
the Securities Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, that this
representation and warranty shall not apply to any statements in, or
omissions from, the Registration Statement or the Prospectus made in
reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein;
(b) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of the Company, threatened by the
Commission, and the Registration Statement and Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) comply, or will comply, as the case may be, in all
material respects with the Securities Act and do not and will not, as of
the applicable effective date as to the Registration Statement and any
amendment thereto and as of the date of the Prospectus and any amendment or
supplement thereto,
<PAGE>
5
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectus, as amended or
supplemented, if applicable, at the Closing Date or Additional Closing
Date, as the case may be, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, that the foregoing representations and
warranties shall not apply to any statements in, or omissions from,
the Registration Statement or the Prospectus made in reliance upon and
in conformity with information relating to any Underwriter furnished to
the Company in writing by such Underwriter through the Representatives
expressly for use therein;
(c) the documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and none of such
documents contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; any further
documents so filed and incorporated by reference in the Prospectus, when
such documents are filed with the Commission, will conform in all material
respects to the requirements of the Exchange Act, and will not contain an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(d) the financial statements, and the related notes thereto, included
or incorporated by reference in the Registration Statement and the
Prospectus present fairly the consolidated financial position of the
Company as of the dates indicated and the consolidated results of its
operations and changes in cash flows for the periods specified; such
financial statements have been prepared in conformity with United States
generally accepted accounting principles applied on a consistent basis, and
the supporting schedules included or incorporated by reference in the
Registration Statement present fairly the information required to be stated
therein;
(e) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in
the capital stock or long-term debt of the Company or its subsidiary, or
any material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, business,
prospects, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiary, taken as a whole (a
"Material Adverse Change"), otherwise than as set forth or contemplated in
the Prospectus; and except as set forth or contemplated in the Prospectus,
neither the Co-
<PAGE>
6
mpany nor its subsidiary has entered into any transaction or agreement
(whether or not in the ordinary course of business) material to the
Company and its subsidiary, taken as a whole;
(f) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such qualification,
other than where the failure to be so qualified or in good standing would
not have a material adverse effect on the general affairs, business,
prospects, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiary, taken as a whole (a
"Material Adverse Effect");
(g) the Company has no subsidiaries other than Celgro Corporation
("Celgro"); the Company's subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
state of Delaware with corporate power and authority to own its properties
and conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or in good
standing would not have a Material Adverse Effect; and all the outstanding
shares of capital stock of the Company's subsidiary have been duly
authorized and validly issued, are fully-paid and non-assessable, and are
owned by the Company, directly or indirectly, free and clear of all liens,
encumbrances, security interests and claims;
(h) this Agreement has been duly authorized, executed and delivered by
the Company;
(i) the Company has an authorized capitalization as set forth in the
Prospectus and such authorized capital stock conforms to the description
thereof set forth in the Prospectus, and all of the outstanding shares of
capital stock of the Company have been duly authorized and validly issued,
are fully paid and non-assessable and are not subject to any pre-emptive or
similar rights; and, except as described in or expressly contemplated by
the Prospectus, there are no outstanding rights (including, without
limitation, pre-emptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in the Company, its subsidiary, or any
contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any capital stock of the Company,
<PAGE>
7
its subsidiary, any such convertible or exchangeable securities or any such
rights, warrants or options;
(j) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and, when issued and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be
validly issued and will be fully paid and non-assessable and will conform
to the description thereof set forth in the Prospectus; and the issuance of
such Shares is not subject to any preemptive or similar rights;
(k) the Shares to be sold by the Selling Stockholders hereunder
issuable upon the conversion of a portion of the 9.00% Convertible Notes
due January 20, 2004 (each a "Note" and collectively, the "Notes") by the
Selling Stockholders have been duly and validly authorized and reserved for
issuance, and at the time of delivery to the Underwriters with respect to
such Shares (assuming prior delivery of the Notes to the Company for
conversion), such Shares will be issued and delivered in accordance with
the provisions of the Note between the Company and such Selling Stockholder
and will be validly issued and will be fully paid and non-assessable and
will conform to the description thereof set forth in the Prospectus;
(l) the Notes were duly authorized, executed and delivered and
constitute valid and binding instruments enforceable in accordance with
their terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and Notes
conform to the description thereof set forth in the Prospectus;
(m) neither the Company nor its subsidiary is, or with the giving of
notice or lapse of time or both would be, in breach or violation of or in
default under its certificate of incorporation or by-laws or any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which any of the Company or its subsidiary is a party or by which the
Company or its subsidiary is bound or to which any of their respective
properties or assets is subject, except for violations and defaults which
individually and in the aggregate would not have a Material Adverse Effect;
the issuance and sale of the Shares to be sold by the Company hereunder,
the issuance by the Company of the Shares to be issued upon conversion of
the Notes and sold by the Selling Stockholders hereunder and the
performance by the Company of its obligations under this Agreement and the
consummation of the transactions contemplated herein will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or its
subsidiary is a party or by which the Company or its subsidiary is bound or
to which any of their respective
<PAGE>
8
properties or assets is subject, nor will any such action result in any
violation of the provisions of the certificate of incorporation or the
by-laws of the Company or any applicable law or statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company, its subsidiary or any of their respective
properties; no consent, approval, authorization, order, license,
registration or qualification of or with any such court or governmental
agency or body is required for the consummation by the Company of the
transactions contemplated by this Agreement, except such consents,
approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act and as may be
required under state securities or blue sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(n) other than as set forth in the Prospectus, there are no legal or
governmental investigations, actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company
or its subsidiary or any of their respective properties or to which the
Company or its subsidiary is or may be a party or to which any property of
the Company or its subsidiary is or may be subject which, if determined
adversely to the Company or its subsidiary, could individually or in the
aggregate have, or reasonably be expected to have, a Material Adverse
Effect; and, to the knowledge of the Company, no such proceedings are
threatened or contemplated by any governmental authorities or threatened by
others; and there are no statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required;
(o) the Company and its subsidiary have good and marketable title to
all personal property owned by them, free and clear of all liens,
encumbrances and defects except such as are described or referred to in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made or proposed to be made of such
property by the Company and its subsidiary; and any real property and
buildings held under lease by the Company and its subsidiary are held by
them under valid, existing and enforceable leases with such exceptions as
are not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or its subsidiary;
(p) no relationship, direct or indirect, exists between or among the
Company or its subsidiary, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or its subsidiary, on
the other hand, which is required by the Securities Act to be described in
the Registration Statement and the Prospectus which is not so described;
<PAGE>
9
(q) except for rights which have been waived or exercised, no person
has the right to require the Company to register any securities for
offering and sale under the Securities Act by reason of the filing of the
Registration Statement with the Commission, or the issuance and sale of the
Shares to be sold by the Company hereunder or, to the knowledge of the
Company, the sale of the Shares to be sold by the Selling Stockholders
hereunder;
(r) the Company is not, and after giving effect to the issuance and
sale of the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(s) KPMG LLP ("KPMG"), who have certified certain consolidated
financial statements of the Company, are independent public accountants as
required by the Securities Act;
(t) the Company and its subsidiary have filed all federal, state,
local and foreign tax returns which have been required to be filed and have
paid all taxes shown thereon and all assessments received by them or either
of them to the extent that such taxes have become due and are not being
contested in good faith; and no tax deficiency has been determined
adversely to the Company and there is no tax deficiency which has been or
might reasonably be expected to be asserted or threatened against the
Company or its subsidiary;
(u) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock;
(v) the statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable;
(w) each of the Company and its subsidiary owns, possesses or has
obtained all licenses, permits, certificates, consents, orders, approvals
and other authorizations from, and has made all declarations and filings
with, all federal, state, local and foreign governmental authorities, all
self-regulatory organizations and all courts and other tribunals, domestic
or foreign, necessary to own or lease, as the case may be, and to operate
its properties and to carry on its business as conducted as of the date
hereof, and neither the Company nor its subsidiary has received any notice
of any proceeding relating to revocation or modification of any such
license, permit, certificate, consent, order, approval or other
authorization, except as described in the Registration State-
<PAGE>
10
ment and the Prospectus; and each of the Company and its subsidiary is in
compliance with all laws and regulations relating to the conduct of its
business as conducted as of the date hereof;
(x) each of the Company and its subsidiary owns, is licensed to use or
otherwise possesses adequate rights to use the patents, patent rights,
licenses, inventions, trademarks, service marks, trade names, copyrights
and know-how, including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems, processes or
procedures (collectively, the "Intellectual Property"), reasonably
necessary to carry on the business conducted by it, except to the extent
that the failure to own, be licensed to use or otherwise possess adequate
rights to use such Intellectual Property would not individually or in the
aggregate be reasonably expected to have a Material Adverse Effect; except
as set forth in the Registration Statement and the Prospectus, the Company
has not received any notice of infringement of or conflict with, and the
Company has no knowledge of any infringement of or conflict with, asserted
rights of others with respect to the Intellectual Property which could,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect; except as set forth in the Registration Statement
and the Prospectus, the discoveries, inventions, products or processes of
the Company referred to in the Registration Statement and the Prospectus do
not, to the knowledge of the Company, infringe on or conflict with any
right or patent of any third party, or any discovery, invention, product or
process which is the subject of a patent application filed by any third
party (which patent application has been published or is otherwise known to
the Company) which could, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect; except as set forth in the
Registration Statement and the Prospectus, the Company is not obligated to
pay any royalty, grant any license or provide other consideration to any
third party in connection with its patents, patent rights, licenses,
inventions, trademarks, service marks, trade names, copyrights and know-how
which could reasonably be expected to result in a Material Adverse Effect;
and no third party, including any academic or governmental organization,
possesses rights to the Intellectual Property which, if exercised, could
reasonably be expected to have a Material Adverse Effect;
(y) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, the studies, tests and
preclinical and clinical trials conducted by or on behalf of the Company
that are described in the Registration Statement and the Prospectus were
and, if still pending, are being conducted in accordance with experimental
protocols, procedures and controls pursuant to, where applicable, accepted
professional scientific standards, except where the failure to so conduct
could not reasonably be expected to result in a Material Adverse Effect;
the des-
<PAGE>
11
criptions of the results of such studies, tests and trials contained in the
Registration Statement and the Prospectus are accurate and complete in all
material respects; and the Company has not received any notices or
correspondence from the U.S. Food and Drug Administration or any state,
local or foreign governmental body exercising comparable authority
requiring the termination, suspension or material modification of any
studies, tests or preclinical or clinical trials conducted by or on behalf
of the Company which termination, suspension or material modification could
reasonably be expected to have a Material Adverse Effect;
(z) there are no existing or, to the knowledge of the Company,
threatened labor disputes with the employees of the Company or its
subsidiary which could reasonably be expected to have a Material Adverse
Effect;
(aa) the Company and its subsidiary carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses
in similar industries;
(bb) the Company and its subsidiary (i) are in compliance with any and
all applicable federal, state, local and foreign laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
(collectively, "Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance
with all terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not
individually or in the aggregate have a Material Adverse Effect;
(cc) in the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiary, in the course
of which it identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties); on the basis of such review, the Company has reasonably concluded
that such associated costs and liabilities would not individually or in the
aggregate have a Material Adverse Effect;
<PAGE>
12
(dd) each employee benefit plan, within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that
is maintained, administered or contributed to by the Company or any of its
affiliates for employees or former employees of the Company and its
affiliates has been maintained in material compliance with its terms and
the requirements of any applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Internal Revenue Code of 1986,
as amended (the "Code"); no prohibited transaction, within the meaning of
Section 406 of ERISA or Section 4975 of the Code, has occurred with respect
to any such plan excluding transactions effected pursuant to a statutory or
administrative exemption; for each such plan which is subject to the
funding rules of Section 412 of the Code or Section 302 of ERISA, no
"accumulated funding deficiency," as defined in Section 412 of the Code,
has been incurred, whether or not waived, and the fair market value of the
assets of each such plan (excluding for these purposes accrued but unpaid
contributions) exceed the present value of all benefits accrued under such
plan determined using reasonable actuarial assumptions;
(ee) the Company has not distributed and, prior to the later of (i)
the Closing Date and (ii) the completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering
and sale of the Shares other than the Registration Statement, the
Prospectus, any amendment or supplement thereto, any preliminary prospectus
or any other materials, if any, permitted by the Securities Act; and
(ff) the Company and its subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with United States
generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(B) Each of the Selling Stockholders severally represents and warrants to
each of the Underwriters and the Company that:
(a) such Selling Stockholder has been duly formed and is validly
existing as a corporation or partnership, as the case may be, in good
standing under its jurisdiction of incorporation or formation, as the case
may be;
<PAGE>
13
(b) this Agreement has been duly authorized, executed and delivered by
such Selling Stockholder;
(c) the sale of the Shares to be sold by such Selling Stockholder hereunder
and the compliance by such Selling Stockholder with all of the provisions
of this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action result
in any violation of the provisions of the certificate of incorporation or
by-laws of such Selling Stockholder if such Selling Stockholder is a
corporation, the partnership agreement of such Selling Stockholder if such
Selling Stockholder is a partnership, or any applicable law or statute or
any order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder, in each case other than such conflicts, breaches,
violations or defaults which individually or in the aggregate (i) would not
have a material adverse effect on the general affairs, business, prospects,
management, financial position or results of operations of such Selling
Stockholder, (ii) would not have a Material Adverse Effect and (iii) would
not affect the validity, performance or consummation of the transactions
contemplated herein; no consent, approval, authorization, order, license,
registration or qualification of or with any such court or governmental
agency or body is required for the consummation by such Selling Stockholder
of the transactions contemplated by this Agreement, except such consents,
approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act and as may be
required under state securities or blue sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(d) such Selling Stockholder will have, immediately prior to the
Closing Date and assuming due issuance of the Shares to be sold by such
Selling Stockholder to be issued upon conversion of the Notes, good and
valid title to such Shares free and clear of all mortgages, pledges,
security interests, liens, claims, encumbrances or equities, with full
right and authority to deliver the same hereunder; upon delivery of and
payment for such Shares pursuant to this Agreement, good and valid title to
such Shares, free and clear of all liens, encumbrances, equities or claims,
will pass to the Underwriters, assuming the Underwriters have purchased
such Shares in good faith and without notice of any such lien, encumbrance,
equity or claim or any other adverse claim within the meaning of the
Uniform Commercial Code (as in effect in the State of New York);
<PAGE>
14
(e) such Selling Stockholder has not taken nor will it take, directly
or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price
of the Common Stock;
(f) the sale of the Shares to be sold by such Selling Stockholder
hereunder is not prompted by any material information concerning the
Company or its subsidiary which is not set forth in the Registration
Statement or the Prospectus;
(g) to the extent, and only to the extent, of written information
relating to such Selling Stockholder furnished to the Company in writing by
or on behalf of such Selling Stockholder expressly for use in any
preliminary prospectus, each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, did not
contain an untrue statement of a material fact or omit to state a material
fact, in each case with respect to such Selling Stockholder, required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(h) to the extent, and only to the extent, of written information
relating to such Selling Stockholder furnished to the Company in writing by
or on behalf of such Selling Stockholder expressly for use in the
Registration Statement and the Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto),
the Registration Statement and the Prospectus (as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto)
do not and will not, as of the applicable effective date of the
Registration Statement and any amendment thereto and as of the date of the
Prospectus and any amendment or supplement thereto, contain any untrue
statement of a material fact or omit to state any material fact, in each
case with respect to such Selling Stockholder, required to be stated
therein or necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented, if applicable, at the Closing Date,
will not contain any untrue statement of a material fact or omit to state a
material fact, in each case with respect to such Selling Stockholder,
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(i) such Selling Stockholder has not distributed and, prior to the
later of (i) the Closing Date and (ii) the completion of the distribution
of the Shares, will not distribute any offering material in connection with
the offering and sale of the Shares other than the Registration Statement,
the Prospectus, any amendment or supplement thereto, any preliminary
pro-
<PAGE>
15
spectus or any other materials, if any, permitted by the Securities Act.
5. (A) The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its best efforts to cause the Registration Statement to
become effective at the earliest possible time and, if required, to file
the final Prospectus with the Commission within the time periods specified
by Rule 424(b) and Rule 430A under the Securities Act and to file promptly
all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of the Prospectus and for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Shares; and to
furnish copies of the Prospectus to the Underwriters in New York City prior
to 10:00 a.m., New York City time, on the Business Day next succeeding the
date of this Agreement in such quantities as the Representatives may
reasonably request;
(b) to deliver, at the expense of the Company, to the Representatives
four signed copies of the Registration Statement (as originally filed) and
each amendment thereto, in each case including exhibits and documents
incorporated by reference therein, and to each other Underwriter a
conformed copy of the Registration Statement (as originally filed) and each
amendment thereto, in each case without exhibits but including the
documents incorporated by reference therein and, during the period referred
to in paragraph (e) below, to each of the Underwriters as many copies of
the Prospectus (including all amendments and supplements thereto) and
documents incorporated by reference therein as the Representatives may
reasonably request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the
Registration Statement becomes effective, to furnish to the Representatives
a copy of the proposed amendment or supplement for review and not to file
any such proposed amendment or supplement to which the Representatives
reasonably object;
(d) to advise the Representatives promptly, and to confirm such advice
in writing (i) when the Registration Statement has become effective, (ii)
when any amendment to the Registration Statement has been filed or becomes
effective, (iii) when any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof, (iv) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for any additional information, (v) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus or the initiation or threatening of any
proceeding for that purpose,
<PAGE>
16
(vi) of the occurrence of any event, within the period referenced in
paragraph (e) below, as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, and (vii) of the receipt by the Company of
any notification with respect to any suspension of the qualification of the
Shares for offer and sale in any jurisdiction or the initiation or
threatening of any proceeding
for such purpose; and to use its best efforts to prevent the issuance of
any such stop order, or of any order preventing or suspending the use of
any preliminary prospectus or the Prospectus, or of any order suspending
any such qualification of the shares, or notification of any such order
thereof and, if issued, to obtain as soon as possible the withdrawal
thereof;
(e) if, during such period of time after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters a
prospectus relating to the Shares is required by law to be delivered in
connection with sales by the Underwriters or any dealer, any event shall
occur as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus to
comply with law, forthwith to prepare and furnish, at the expense of the
Company, to the Underwriters and to the dealers (whose names and addresses
the Representatives will furnish to the Company) to which Shares may have
been sold by the Representatives on behalf of the Underwriters and to any
other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law;
(f) to endeavor to qualify the Shares for offer and sale under the
securities or blue sky laws of such jurisdictions as the Representatives
shall reasonably request and to continue such qualification in effect so
long as reasonably required for distribution of the Shares; provided that
the Company shall not be required to file a general consent to service of
process in any such jurisdiction;
(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earnings statement covering a
period of at least twelve months beginning with the first fiscal quarter of
the Company occurring after the effective date of the Registration
Statement, which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
<PAGE>
17
(h) so long as the Shares are outstanding, to furnish to the
Representatives copies of all reports or other communications (financial or
other) furnished to holders of the Shares, and copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange;
(i) for a period of 90 days after the date of the initial public offering
of the Shares, not to, directly or indirectly, (i) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any shares
of Common Stock or any securities of the Company which are substantially
similar to the Common Stock, including but not limited to any securities
convertible into or exercisable or exchangeable for, or that represent the
right to receive, Common Stock or (ii) enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock or any securities of
the Company which are substantially similar to the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled
by delivery of Common Stock or such other securities, in cash or otherwise
without the prior written consent of J.P. Morgan Securities Inc., in each
case other than (w) the Shares to be sold by the Company hereunder, (x) any
options to be granted or shares of Common Stock issued upon exercise of
options granted or to be granted under the Company's employee or director
stock option plans existing on the date of the Prospectus, (y) shares of
Common Stock issued upon exercise of warrants of the Company outstanding on
the date of the Prospectus or (z) shares of Common Stock issued upon
conversion of convertible notes of the Company (including but not limited
to the Notes) outstanding on the date of the Prospectus;
(j) to use the net proceeds received by the Company from the sale of
the Shares to be sold by the Company hereunder by the Company pursuant to
this Agreement in a manner consistent with the description of the use of
proceeds in the Prospectus under the caption "Use of Proceeds";
(k) to list, subject to official notice of issuance, the Shares on the
Nasdaq National Market (the "Nasdaq National Market"); and
(l) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations
hereunder, including without limiting the generality of the foregoing, all
costs and expenses (i) incident to the preparation, registration, transfer,
execution, issuance and delivery of the Shares, (ii) incident to the
preparation, printing and filing under the Securities Act of the
Regis-
<PAGE>
18
tration Statement, the Prospectus and any preliminary prospectus (including
in each case all exhibits, amendments and supplements thereto), (iii)
incurred in connection with the registration or qualification of the Shares
under the laws of such jurisdictions as the Representatives may designate
(including fees of counsel for the Underwriters and its disbursements),
(iv) in connection with the listing of the Shares on the Nasdaq National
Market, (v) related to the filing with, and clearance of the offering by,
the National Association of Securities Dealers, Inc., (vi) in connection
with the printing (including word processing and duplication costs) and
delivery of this Agreement, any blue sky memoranda and the furnishing to
the Underwriters and dealers of copies of the Registration Statement and
the Prospectus, including mailing and shipping, as
herein provided, (vii) any expenses incurred by the Company in connection
with a "road show" presentation to potential investors, (viii) the cost of
preparing stock certificates and (ix) the cost and charges of any transfer
agent and any registrar.
(B) Each of the Selling Stockholders covenants and agrees with the several
Underwriters as follows:
(a) prior to the Closing Date, to take all action required under the
Notes by such Selling Stockholder to convert a portion of the Notes into
the Shares to be sold by such Selling Stockholder hereunder; and
(b) for a period of 90 days after the date of the initial public
offering of the Shares, not to, directly or indirectly, (i) offer, pledge,
announce the intention to sell, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any shares of Common Stock or any securities of the Company which are
substantially similar to the Common Stock, including but not limited to any
securities convertible into or exercisable or exchangeable for, or that
represent the right to receive, Common Stock or (ii) enter into any swap,
option, future, forward or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Common Stock or
any securities of the Company which are substantially similar to the Common
Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise or (iii) make any demand for or exercise any right with
respect to the registration of any shares of Common Stock or any securities
of the Company which are substantially similar to the Common Stock without
the prior written consent of J.P. Morgan Securities Inc., in each case
other than (x) the Shares to be sold by such Selling Stockholder hereunder,
(y) Common Stock to be issued upon conversion of any Note and (z) transfers
of any Note, or the shares of Common Stock issued upon conversion of such
Note, to an affiliate (as such term is defined in the Securities Act) of
such Selling Stock-
<PAGE>
19
holder or an entity for which such Selling Stockholder
acts as an investment advisor or manager, provided that such affiliate or
such entity, as applicable, agrees to be bound by the terms of this Section
5(B)(b).
6. The several obligations of the Underwriters hereunder to purchase the
Shares on the Closing Date or the Additional Closing Date, as the case may be,
are subject to the performance by the Company and each of the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:
(a) the Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed under the Securities Act,
such post-effective amendment shall have become effective) not later than
5:00 P.M., New York City time, on the date hereof; and no stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment shall be in effect, and no proceedings for such
purpose shall be pending before or threatened by the Commission; the
Prospectus shall have been filed with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Securities Act and in accordance with
Section 5(A) hereof; and all requests for additional information shall have
been complied with to the satisfaction of the Representatives;
(b) the representations and warranties of the Company and the Selling
Stockholders contained herein are true and correct on and as of the Closing
Date or the Additional Closing Date, as the case may be, as if made on the
Closing Date or the Additional Closing Date, as the case may be, and the
Company and each of the Selling Stockholders shall have complied with all
agreements and all conditions on their part to be performed or satisfied
hereunder at or prior to the Closing Date or the Additional Closing Date,
as the case may be;
(c) since the respective dates as of which information is given in the
Prospectus, there shall not have been any change in the capital stock or
long-term debt of the Company or any Material Adverse Change, or any
development involving a prospective Material Adverse Change, otherwise than
as set forth or contemplated in the Prospectus, the effect of which in the
judgment of the Representatives makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares on the
Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus; and neither the
Company nor its subsidiary has sustained since the date of the latest
audited financial statements included or incorporated by reference in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus;
<PAGE>
20
(d) the Representatives shall have received on and as of the Closing Date
or the Additional Closing Date, as the case may be, (1) a certificate of
the Chief Executive Officer and Chief Financial Officer of the Company,
satisfactory to the Representatives, to the effect set forth in subsections
(a) through (d) (with respect to the respective representations,
warranties, agreements and conditions of the Company) of this Section 6 and
to the further effect that there has not occurred any Material Adverse
Change, or any development involving a prospective Material Adverse Change,
from that set forth or contemplated in the Registration Statement and (2) a
certificate of an executive officer of each of the Selling Stockholders,
satisfactory to the Representatives to the effect set forth in subsection
(b) of this Section 6 (with respect to the respective representations,
warranties, agreements and conditions of the Selling Stockholders);
(e) Proskauer Rose LLP, counsel for the Company, shall have furnished
to the Representatives their written opinion, dated the Closing Date or the
Additional Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, to the effect that:
(i) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission;
(ii) based solely on certificates of public officials in the case
of clauses (x) and (z) below, (x) the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware, (y) the Company has the
corporate power and authority to own its properties and conduct its
business as described in the Prospectus, and (z) the Company has been
duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of the State of New
Jersey;
(iii) based solely on certificates of public officials in the
case of clauses (x) and (z) below, (x) Celgro has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of Delaware, (y) Celgro has the corporate power and
authority to own its properties and conduct its business as described
in the Prospectus, and (z) Celgro has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of New Jersey; and all the outstanding shares of
capital stock of Celgro have been duly authorized and validly issued,
are fully-paid and non-assessable, and are owned by the Company,
directly or indirectly, free and clear of all liens, encumbrances,
security interests and claims;
(iv) other than as set forth in the Prospectus, to the best of
such counsel's knowledge, there are no actions, suits or proceedings
pending or threatened against the Company or its subsidiary or any of
their respective properties which are required to be described in the
Prospectus but are not so described; and to the best of such counsel's
knowledge, there are no contracts or other documents that are required
to be described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required;
<PAGE>
21
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the Company has an authorized capitalization as set forth
under "Capitalization" in the Prospectus;
(vii) all of the outstanding shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and are free of statutory and, to such
counsel's knowledge, contractual pre-emptive rights; and, except as
described in or expressly contemplated by the Prospectus and to the
best of such counsel's knowledge, there are no outstanding rights
(including, without limitation, pre-emptive rights), warrants or
options to acquire, or instruments convertible into or exchangeable
for, any shares of capital stock or other equity interest in the
Company, its subsidiary, or any contract, commitment, agreement,
understanding or arrangement of any kind relating to the issuance of
any capital stock of the Company, its subsidiary, any such convertible
or exchangeable securities or any such rights, warrants or options;
(viii) the Company Shares and the Option Shares, when issued and
delivered to and paid for by the Underwriters in accordance with the
terms of this Agreement, will be duly and validly authorized and
issued and will be fully paid and non-assessable; and the Company
Shares and the Option Shares, when issued, will be free of statutory
and, to our knowledge, contractual preemptive rights;
(ix) the issuance of the Selling Stockholder Shares in accordance
with the terms of the Notes upon conversion by the Selling
Stockholders has been duly authorized and reserved for issuance, and
when issued in accordance with the terms of the Notes, will be validly
issued, fully paid and non-assessable;
(x) the Notes were duly and validly authorized, executed and
delivered and constitute legal, valid and binding obligations
enforceable in accordance with their terms, except as may be limited
by bankruptcy, insolvency, reorganization and other similar laws
affecting the rights and remedies of creditors generally and general
equity principles, whether applied by a court of equity or law;
(xi) to such counsel's knowledge, except for rights which have
been waived, no person has the right to require the Company to
register any securities for offering and sale under the Securities Act
by reason of the filing of the Registration Statement with the
Commission, or the issuance and sale of the
<PAGE>
22
Shares to be sold by the Company hereunder or, to the knowledge of
such counsel, the sale of the Shares to be sold by the Selling
Stockholders hereunder;
(xii) the statements in the Prospectus under "Description of
Capital Stock" and in the Registration Statement in Item 15, insofar
as such statements constitute a summary of the terms of the Common
Stock, legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such terms,
legal matters, documents or proceedings;
(xiii) the Registration Statement and the Prospectus and any
supplement or amendment thereto (other than any financial statements
and related schedules therein as to which no belief need be expressed)
comply as to form in all material respects with the Securities Act;
(xiv) such counsel shall state that they have, in the course of
the preparation of the Registration Statement and the Prospectus,
participated in conferences with officers and other representatives of
the Company, with the Company's independent public accountants and the
Underwriters, at which conferences they made certain inquiries and
investigations in connection with the Registration Statement and
Prospectus and (without taking any further action to verify
independently the accuracy or completeness of the statements made in
the Registration Statement and the Prospectus and, except as stated in
their opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to their
attention that causes them to believe that either the Registration
Statement in the form it originally became effective under the
Securities Act and as of the Closing Date or the Additional Closing
Date, as the case may be, contained or contains any untrue statement
of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as of its date or as of
the Closing Date or the Additional Closing Date, as the case may be,
contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading (except that such counsel makes no statement
with respect to the financial statements and supporting schedules and
other financial data derived therefrom included in or omitted from the
Registration Statement or the Prospectus).
(xv) the issuance and sale of the Shares being delivered by the
Company on the Closing Date or the Additional Closing Date, as the
case may be, the
<PAGE>
23
issuance of the Shares to be sold by the Selling Stockholders
hereunder to be issued upon conversion of the Notes and the
performance by the Company of its obligations under this Agreement and
the consummation of the transactions contemplated herein will not
conflict with or result in a breach of, or constitute a default under
(nor constitute an event which with notice, lapse of time, or both,
would constitute a breach of or default under) provisions of (A) any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or its subsidiary is a party or by
which the Company or its subsidiary is bound or to which any of their
respective properties or assets is subject, (B) the certificate of
incorporation or the by-laws of the Company, (C) any federal or New
York law, regulation, rule, or the General Corporation Law of the
State of Delaware, or (D) to such counsel's knowledge, any decree,
judgment or order applicable to the Company or its Subsidiary, except,
in each case other than Clause (B) above, for conflicts breaches or
defaults which would not have, or would not be reasonably likely to
have, a Material Adverse Effect;
(xvi) no consent, approval, authorization or order of, or filing
with, any federal, state or local government or regulatory commission,
board, body, authority or agency is required for the consummation by
the Company of the transactions contemplated by this Agreement, other
than registration under the Securities Act (except that we express no
opinion as to any necessary qualification under state securities or
blue sky laws in connection with the purchase and distribution of the
Shares by the Underwriters);
(xvii) the Company is not, and after giving effect to the
issuance and sale of the Shares will not be, an "investment company"
or an entity "controlled" by an "investment company," as such terms
are defined in the Investment Company Act; and
(xviii) the documents filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus or any further amendment
or supplement thereto by the Company prior to the Closing Date or the
Additional Closing Date, as the case may be (except as to the
financial statements and related schedules therein, as to which no
belief need be expressed), when they were filed with the Commission,
complied as to form in all material respects with the requirements of
the Exchange Act, and the rules and regulations of the Commission
thereunder.
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States
and the States of New
<PAGE>
24
York and Delaware, to the extent such counsel deems proper and to the
extent specified in such opinion, if at all, upon an opinion or opinions
(in form and substance reasonably satisfactory to Underwriters' counsel) of
other counsel reasonably acceptable to the Underwriters' counsel, familiar
with the applicable laws; (B) as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the
Company and certificates or other written statements of officials of
jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company. The opinion of such counsel for
the Company shall state that the opinion of any such other counsel upon
which they relied is in form satisfactory to such counsel and, in such
counsel's opinion, the Underwriters and they are justified in relying
thereon.
The opinion of Proskauer Rose LLP described above shall be rendered to
the Underwriters at the request of the Company and shall so state therein;
(f) Joanne P. Acford, Esq., Vice President and Counsel of John Hancock
Life Insurance Company, shall have furnished to the Representatives her
written opinion, dated the Closing Date or the Additional Closing Date, as
the case may be, in form and substance satisfactory to the Representatives,
to the effect that:
(i) each of the Selling Stockholders has full legal right, power
and authority to enter into this Agreement;
(ii) this Agreement has been duly authorized, executed and
delivered by each Selling Stockholder;
(iii) the execution, delivery and performance of this Agreement
by each Selling Stockholder, compliance by each Selling Stockholder
with all of the provisions herein and the consummation of the
transactions contemplated hereby will not (a) require any consent,
approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except for filings for
informational purposes and except such as may be required under the
Securities Act and state securities or Blue Sky laws), (b) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws (if a corporation) or the
partnership agreement (if a partnership), of such Selling Stockholder,
(c) to her knowledge, conflict with or constitute a material breach of
any of the terms or provisions of, or a material default under, any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to such Selling Stockholder, or (d) to her
knowledge, violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or
its property, in any manner
<PAGE>
25
which, individually or in the aggregate, would affect the validity,
performance or consummation of the transactions contemplated by this
Agreement;
(iv) to her knowledge, on the date on which each Selling
Stockholder delivered its Shares to the Underwriters, such Selling
Stockholder had good and valid title to the Shares listed beside such
Selling Stockholder's name on Schedule II attached hereto, free and
clear of all liens, encumbrances, equities or claims, and each Selling
Stockholder had full right, power and authority to sell, assign,
transfer and deliver such Shares;
(v) upon delivery of and payment for the Shares being sold by the
Selling Stockholders pursuant to this Agreement, good and valid title
to such Shares, free and clear of all liens, encumbrances, equities or
claims, will pass to the Underwriters, assuming such Underwriters have
purchased such Shares in good faith and without notice of any such
lien, encumbrance, equity or claim or any other adverse claim within
the meaning of the Uniform Commercial Code (as in effect in the State
of New York);
(vi) such counsel shall state that no facts have come to her
attention to cause her to believe that to the extent, and only to the
extent, that written information relating to the Selling Stockholders
was furnished to the Company by or on behalf of the Selling
Stockholders expressly for use in the Registration Statement and the
Prospectus, (A) the Registration Statement and the Prospectus included
therein (other than any financial statements and related schedules
therein as to which no belief need be expressed) at its effective date
contained an untrue statement of a material fact or omitted to state a
material fact, in each case with respect to the Selling Stockholders,
required to be stated therein or necessary to make the statements
contained therein not misleading or (B) the Prospectus (other than any
financial statements and related schedules therein as to which no
belief need be expressed), as of its date and as of the Closing Date
or the Additional Closing Date, as the case may be, contained or
contains an untrue statement of a material fact or omitted or omits to
state a material fact, in each case with respect to the Selling
Stockholders, necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States
and the Commonwealth of Massachusetts, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel reasonably acceptable
<PAGE>
26
to the Underwriters' counsel, familiar with the applicable laws; (B) as to
matters of fact, to the extent such counsel deems proper, on certificates
of responsible officers of the any of the Selling Stockholders and
certificates or other written statements of officials of jurisdictions
having custody of documents respecting the corporate existence or good
standing of any Selling Stockholder. The opinion of such counsel for the
Selling Stockholder shall state that the opinion of any such other counsel
upon which they relied is in form satisfactory to such counsel and, in such
counsel's opinion, the Underwriters and they are justified in relying
thereon.
The opinion of Joanne P. Acford, Esq., described above shall be
rendered to the Underwriters at the request of the Selling Stockholders and
shall so state therein;
(g) on the date hereof and the effective date of the most recently
filed post-effective amendment filed on or subsequent to the date hereof to
the Registration Statement and also on the Closing Date or Additional
Closing Date, as the case may be, KPMG shall have furnished to you letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, containing statements and information of the type
customarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained or incorporated by reference in the Registration Statement and
the Prospectus;
(h) the Representatives shall have received on and as of the Closing
Date or Additional Closing Date, as the case may be, an opinion of Cahill
Gordon & Reindel, counsel to the Underwriters, with respect to the due
authorization and valid issuance of the Shares, the Registration Statement,
the Prospectus and other related matters as the Representatives may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(i) the Shares to be delivered on the Closing Date or Additional
Closing Date, as the case may be, shall have been approved for listing on
the Nasdaq National Market, subject to official notice of issuance;
(j) on or prior to the Closing Date or Additional Closing Date, as the
case may be, the Company and the Selling Stockholders shall have furnished
to the Representatives such further certificates and documents as the
Representatives shall reasonably request; and
(k) the lock-up agreements, each substantially in the form of Exhibit
A hereto, between you and each of the Company's executive officers and
directors, delivered to you on or before the date hereof, shall be in full
force and effect on the Closing Date or Additional Closing Date, as the
case may be.
<PAGE>
27
7. The Company agrees to indemnify and hold harmless each Underwriter and
each affiliate of any Underwriter which assists such Underwriter in the
distribution of the Shares and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, the legal fees and other expenses
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any audio
or visual materials prepared by the Company or based upon written information
furnished by or on behalf of the Company including, without limitation, slides,
videos, films, tape recordings used in connection with the marketing of the
Shares, including, without limitation, statements communicated to securities
analysts employed by the Underwriters, except in each case insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use
therein.
The Selling Stockholders agree, severally and not jointly, to indemnify and
hold harmless each Underwriter and each affiliate of any Underwriter which
assists such Underwriter in the distribution of the Shares and each person, if
any, who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, the
legal fees and other expenses incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case to the extent and only to the extent that such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of such Selling
Stockholder expressly for use therein; provided, however, that the obligations
of any Selling Stockholder under the foregoing indemnity shall not exceed the
net proceeds received by such Selling Stockholder from the sale of the Shares to
be sold by such Selling Stockholder hereunder (which net proceeds shall not
include the Underwriters' discounts).
<PAGE>
28
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act and each of the
Selling Stockholders to the same extent as the foregoing indemnity from the
Selling Stockholders to each Underwriter, but only with reference to information
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use in the Registration Statement, the Prospectus,
any amendment or supplement thereto, or any preliminary prospectus.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to the preceding paragraphs
of this Section 7, such person (the "Indemnified Person") shall promptly notify
the person or persons against whom such indemnity may be sought (each an
"Indemnifying Person") in writing, and such Indemnifying Persons, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
and not the Indemnifying Persons unless (i) the Indemnifying Persons and the
Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Persons has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named parties in
any such proceeding (including any impleaded parties) include both an
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that no Indemnifying Person
shall, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Underwriters, each affiliate of any Underwriter which
assists such Underwriter in the distribution of the Shares and such control
persons of Underwriters shall be designated in writing by J.P. Morgan Securities
Inc. and any such separate firm for the Company, its directors, its officers who
sign the Registration Statement and such control persons of the Company shall be
designated in writing by the Company, any such separate firm for the Selling
Stockholders shall be designated in writing by each Selling Stockholder. No
Indemnifying Person shall be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, each Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for fees and expenses of
<PAGE>
29
counsel as contemplated by the second and third sentences of this paragraph,
such Indemnifying Person agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first three paragraphs of this
Section 7 is unavailable to an Indemnified Person or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Stockholders and the total underwriting discounts and the commissions received
by the Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate public offering price of the Shares. The
relative fault of the Company and the Selling Stockholders on the one hand and
the Underwriters on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Stockholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Selling Stockholders or the
Underwriters were treated as one entity for such purposes) or by any other
method of allocation that does not take account of
<PAGE>
30
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, (i) in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, (ii) in no event shall
the amount required to be contributed by any Selling Stockholder exceed the
amount by which the net proceeds received by such Selling Stockholder through
the sale of the Shares to be sold by such Selling Stockholder (which net
proceeds shall not include the Underwriters' discounts) to the Underwriters
exceeds the amount of any damages that such Selling Stockholder has otherwise
been required to pay by reason of its untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section ll(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective number of Shares set forth
opposite their names in Schedule I hereto, and not joint. The Selling
Stockholders' obligations to contribute pursuant to this Section 7 are several
and not joint.
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of the Company, the Selling Stockholders and
the Underwriters set forth in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any other person controlling the Company or any Selling Stockholder and (iii)
acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the Option Shares) may
be terminated in the absolute discretion of the Representatives, by notice given
to the Company and the Selling Stockholders, if after the execution and delivery
of this Agreement and prior to the Closing Date (or, in the case of the Option
Shares, to the Company prior to the Additional Closing Date) (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange or the American Stock Exchange, the
<PAGE>
31
National Association of Securities Dealers, Inc., the Chicago Board Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of or guaranteed by the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in the judgment of the Representatives,
is material and adverse and which, in the judgment of the Representatives, makes
it impracticable to market the Shares being delivered at the Closing Date or the
Additional Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement (or, if applicable, any
post-effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the number of Shares set
forth opposite their respective names in Schedule I hereto bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 hereof be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives, the Company
and the Selling Stockholders for the purchase of such Shares are not made within
36 hours after such default, this Agreement (or the obligations of the several
Underwriters to purchase the Option Shares, as the case may be) shall terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case either you, the Company or the
Selling Stockholders shall have the right to postpone the Closing Date (or, in
the case of the Option Shares, either you or the Company shall have the right to
postpone the Additional Closing Date), but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and in the Prospectus or in any other documents or
<PAGE>
32
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company or the
Selling Stockholders to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason any of the Company or any of
the Selling Stockholders shall be unable to perform its obligations under this
Agreement or any condition of the Underwriters' obligations cannot be fulfilled,
the Company agrees to reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and expenses of its counsel)
reasonably incurred by the Underwriter in connection with this Agreement or the
offering contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Selling Stockholders, the Underwriters and each affiliate of any
Underwriter which assists such Underwriter in the distribution of the Shares,
any controlling persons referred to herein and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person, firm or corporation any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. No purchaser of Shares from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: 212-648-5705), Attention: Syndicate Department, copy to
Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 (telefax:
212-269-5420), Attention: Gerald S. Tanenbaum, Esq. Notices to the Company shall
be given to it at its office, 7 Powder Horn Drive, Warren, New Jersey 07059,
(telefax: [ ]), Attention: [ ]. Notices to the Selling Stockholders shall be
given to to them, c/o John Hancock Mutual Life Insurance Company, 200 Clarendon
Street, Boston, Massachusetts 02117 (telefax: 617-572-9268), Attention:
Christine Miller, Esq., Assistant Counsel, copy to Choate, Hall & Stewart, 53
State Street, Boston, Massachusetts 02109 (telefax: 617-248-4000), Attention:
James R. Kane, Esq. Copies of notices to the Company should be given to
Proskauer Rose LLP, 1585 Broadway, New York, New York 10036-8299 (telefax:
212-969-2900), Attention: Robert A. Cantone, Esq.
<PAGE>
33
13. This Agreement may be signed in counterparts, each of which shall be an
original and all of which together shall constitute one and the same instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAWS PROVISIONS THEREOF.
<PAGE>
34
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
CELGENE CORPORATION
By:
------------------------------------
Name:
Title:
HANCOCK MEZZANINE
PARTNERS L.P.
By: Hancock Mezzanine Investments
LLC, its general partner
By: John Hancock Life Insurance
Company, as investment manager
By:
------------------------------------
Name:
Title:
JOHN HANCOCK LIFE
INSURANCE COMPANY
By:
------------------------------------
Name:
Title:
<PAGE>
35
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By:
------------------------------------
Name:
Title:
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Life Insurance
Company, as portfolio advisor
By:
------------------------------------
Name:
Title:
<PAGE>
36
Accepted: February [ ], 2000
J.P. MORGAN SECURITIES INC.
PRUDENTIAL SECURITIES INCORPORATED
U.S. BANCORP PIPER JAFFRAY INC.
Acting severally on behalf of themselves
and the several Underwriters listed in
Schedule I hereto.
By: J.P. MORGAN SECURITIES INC.
By:
------------------------------------
Name: Michael J. Tiedemann
Title: Vice President
<PAGE>
SCHEDULE I
Number of
Underwritten Shares
Underwriter To Be Purchased
- ----------- -------------------
J.P. Morgan Securities Inc..................................
Prudential Securities Incorporated..........................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total.................................................. 2,484,000
=========
<PAGE>
SCHEDULE II
Number of
Selling Stockholder Underwritten Shares
- ------------------- -------------------
Hancock Mezzanine Partners L.P.............................. 258,000
John Hancock Life Insurance Company......................... 233,920
John Hancock Variable Life Insurance Company................ 6,880
Signature 1A (Cayman), Ltd.................................. 17,200
-------
Total.............................................. 516,000
=======
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
CELGENE CORPORATION:
We consent to the use of our report included herein and to the reference to our
firm under the heading "EXPERTS" in the prospectus.
/s/ KPMG LLP
- -----------------
KPMG LLP
Short Hills, New Jersey
February 9, 2000
EXHIBIT 23.3
[LETTERHEAD OF PENNIE & EDMONDS LLP]
February 9, 2000
Mr. Joseph J. Day, Jr.
Senior Vice President
Planning and Business Development
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
Re: S-3 Registration Statement and Amendment
Dear Mr. Day:
We consent to the following reference to our firm under the heading
"Experts" in the Prospectus:
-- The statements in this Prospectus that relate to U.S. patent rights
licensed from The Rockefeller University and EntreMed/Children's Medical
Center Corporation under the captions "Risk Factors--We may not be able to
protect our intellectual property" and "Business--Patents and Proprietary
Technology" have been reviewed and approved by Pennie & Edmonds LLP as
special patent counsel to us for these matters, and are included herein in
reliance upon their review and approval as experts in United States Patent
Law.--
Very truly yours,
/s/ Pennie & Edmonds LLP
Pennie & Edmonds LLP
EXHIBIT 23.4
[LETTERHEAD OF KLEINFELD, KAPLAN AND BECKER]
February 9, 2000
JOSEPH DAY, JR., SENIOR VICE PRESIDENT
OF PLANNING AND BUSINESS DEVELOPMENT
CELGENE CORPORATION
7 POWDER HORN DRIVE
WARREN, NJ 07059
RE: S-3 REGISTRATION STATEMENT
Dear Joe:
This will confirm that Kleinfeld, Kaplan and Becker hereby consents to the
use of its name in Celgene's current S-3 Registration Statement.
Very truly yours,
Kleinfeld, Kaplan and Becker
/s/ Alan H. Kaplan
----------------------
Alan H. Kaplan
For The Firm
[LETTERHEAD OF MATHEWS, COLLINS, SHEPHERD & GOULD, P.A.]
February 9, 2000
JOSEPH DAY, JR., SENIOR VICE PRESIDENT
OF PLANNING AND BUSINESS DEVELOPMENT
CELGENE CORPORATION
7 POWDER HORN DRIVE
WARREN, NJ 07059
RE: S-3 REGISTRATION STATEMENT
Dear Joe:
Mathews, Collins, Shepherd & Gould P.A. hereby consents to the use of its
name as an expert in the current S-3 Registration.
Very truly yours,
Mathews, Collins, Shepherd & Gould P.A.
/s/ Bruce M. Collins
----------------------
Bruce M. Collins
BMC:ds
