FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to _____________
Commission File Number 0-16132
CELGENE CORPORATION
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2711928
------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
7 Powder Horn Drive, Warren, NJ 07059
------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 732-271-1001.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _x__ No ___
At October 31, 2000, 72,743,197 shares of Common Stock par value $.01 per share,
were outstanding.
<PAGE>
CELGENE CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I FINANCIAL INFORMATION
Item I Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
as of September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations
- Nine-Month Period Ended
September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Operations
- Three-Month Period Ended
September 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows
- Nine-Month Period Ended
September 30, 2000 and 1999 (unaudited) 6
Notes to Unaudited Consolidated
Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 21
PART II OTHER INFORMATION 22
Signatures 23
</TABLE>
2
<PAGE>
CELGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30,2000 December 31,1999*
------ ----------------- ----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 159,376,233 $ 21,869,256
Marketable securities available for sale 139,934,298 7,077,314
Accounts receivable, net of allowance of $396,832 at
September 30, 2000 and $121,437 at December 31, 1999 8,661,901 5,037,431
Inventory 4,354,838 2,456,059
Other current assets 7,800,749 1,322,996
------------- -------------
Total current assets 320,128,019 37,763,056
Plant and equipment, net 6,074,115 5,741,389
Other assets 5,784,616 3,368,090
------------- -------------
Total assets $ 331,986,750 $ 46,872,535
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Accounts payable $ 8,992,378 $ 3,254,823
Accrued expenses 12,822,476 7,284,343
Capitalized lease and note obligations 867,094 1,307,467
Deferred revenue 9,895,622 3,449,790
Other current liabilities 406,158 --
------------- -------------
Total current liabilities 32,983,728 15,296,423
Long term convertible notes 20,317,772 38,494,795
Capitalized lease and note obligations-net of current portion 1,140,546 1,828,221
Deferred revenue-net of current portion -- 650,002
Other non-current liabilities 88,532 329,918
------------- -------------
Total liabilities 54,530,578 56,599,359
------------- -------------
Stockholders' equity (deficit):
Preferred stock, $.01 par value per share, 5,000,000 shares authorized;
none outstanding at September 30, 2000 and December 31, 1999. -- --
Signal convertible preferred stock, 24,742,639 shares authorized;
issued and outstanding none and 24,492,639 shares at
September 30, 2000 and December 31, 1999, respectively -- 41,330,800
Common stock, $.01 par value per share, 120,000,000 shares authorized;
issued and outstanding 70,876,659 and 17,858,476 shares
at September 30, 2000 and December 31, 1999, respectively 708,767 178,584
Additional paid-in capital 506,457,657 154,393,662
Accumulated deficit (224,148,174) (204,170,352)
Deferred compensation (5,568,768) (1,272,014)
Notes receivable from stockholders (95,600) (95,600)
Accumulated other comprehensive gain(loss) 102,290 (91,904)
------------- -------------
Total stockholders' equity(deficit) 277,456,172 (9,726,824)
------------- -------------
Total liabilities and stockholders' equity(deficit) $ 331,986,750 $ 46,872,535
============= =============
* Restated-see note 1
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended September 30,
-------------------------------------
2000 1999 *
---- ------
<S> <C> <C>
Revenues:
Product sales $ 45,201,534 $ 15,063,644
Research contracts 6,700,283 7,697,126
Related-party collaborative agreement revenue 5,025,000 2,850,000
------------ ------------
Total revenues 56,926,817 25,610,770
Expenses:
Cost of goods sold 6,404,173 2,076,457
Research and development 39,323,538 26,960,334
Selling, general and administrative 34,181,892 20,048,545
Merger-related costs 7,168,110 --
------------ ------------
Total expenses 87,077,713 49,085,336
Operating loss (30,150,896) (23,474,566)
Interest income 12,634,860 994,363
Interest expense 2,011,785 2,348,728
------------ ------------
Net loss (19,527,821) (24,828,931)
Imputed Signal preferred stock dividend 450,000 --
------------ ------------
Net loss applicable to common stockholders $(19,977,821) $(24,828,931)
============ ============
Per share basic and diluted:
Net loss applicable to common stockholders $ (0.31) $ (0.49)
Weighted average number of shares of
common stock outstanding 64,344,000 51,090,000
============ ============
* Restated-see note 1
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended September 30,
--------------------------------------
2000 1999 *
---- ------
<S> <C> <C>
Revenues:
Product sales $17,326,314 $ 6,315,319
Research contracts 3,703,660 1,920,901
Related-party collaborative agreement revenue 1,675,000 1,050,000
----------- -----------
Total revenues 22,704,974 9,286,220
Expenses:
Cost of goods sold 2,182,752 701,816
Research and development 13,508,425 8,895,427
Selling, general and administrative 12,215,250 7,345,579
Merger-related costs 7,168,110 --
----------- -----------
Total expenses 35,074,537 16,942,822
Operating loss (12,369,563) (7,656,602)
Interest income 5,338,838 407,245
Interest expense 440,100 985,006
----------- -----------
Net loss $(7,470,825) $(8,234,363)
=========== ===========
Per share basic and diluted:
Net loss $ (0.11) $ (0.16)
=========== ===========
Weighted average number of shares of
common stock outstanding 65,026,000 51,478,129
=========== ===========
* Restated-see note 1.
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30,
-------------------------------------
2000 1999 *
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (19,527,821) $ (24,828,931)
Adjustments to Reconcile Net Loss
to Net Cash Used in Operating Activities:
Depreciation and Amortization of Long-term Assets 2,614,081 2,208,444
Provision for Accounts Receivable Allowances 275,395 74,126
Shares Issued for Employee Benefit Plans 1,047,755 799,823
Non-cash Stock-based Compensation 2,518,307 464,305
Amortization of Debt Issuance Costs 167,216 187,500
Amortization of Discount On Convertible Note 109,377 109,377
Change in Current Assets & Liabilities:
Increase in Inventory (1,898,779) (500,864)
Increase(decrease) in Accounts Payable
and Accrued Expenses 11,525,711 (300,257)
Increase in Deferred Revenue 5,795,830 952,254
Increase in Accounts Receivable (3,899,865) (353,292)
Increase in Other Assets (6,697,755) (609,653)
------------- -----------
Net Cash Used in Operating Activities (7,970,548) (21,797,168)
Cash Flows From Investing Activities:
Capital Expenditures (5,587,989) (907,778)
Proceeds From Sales and Maturities of Marketable
Securities Available for Sale 73,313,515 14,443,688
Purchases of Marketable Securities
Available for Sale (205,976,305) (15,948,711)
------------- -----------
Net Cash Used in Investing Activities (138,250,779) (2,412,801)
Cash Flows From Financing Activities:
Net Proceeds From Follow-on Public Offering 277,391,860 --
Proceeds From Exercise of Common Stock
Options and Warrants 7,484,135 3,457,345
Repayment of Capital Lease and Note Obligations (1,147,691) (1,545,479)
Capital Lease Funding -- 854,043
Debt Issuance Costs -- (750,000)
Net Proceeds From Issuance of Convertible Notes -- 30,000,000
------------- -----------
Net Cash Provided by Financing Activities 283,728,304 32,015,909
============= ===========
Net Increase in Cash and Cash Equivalents 137,506,977 7,805,940
Cash and Cash Equivalents At Beginning of Period 21,869,256 9,563,316
------------- -----------
Cash and Cash Equivalents At End of Period $ 159,376,233 $17,369,256
============= ===========
* Restated-see Note 1
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Period Ended September 30,
---------------------------------------
2000 1999 *
---- ------
<S> <C> <C>
Non-cash investing activity:
Change in net unrealized gain(loss) on
marketable securities available for sale $ 194,194 $ (69,728)
=========== ===========
Non-cash Financing Activity:
Conversion of Convertible Notes $18,286,400 $ --
=========== ===========
Deferred Compensation Related to Stock Options $ 6,706,274 $ 619,404
=========== ===========
Imputed dividend on preferred stock warrant $ 450,000 $ --
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 3,358,151 $ 1,563,397
=========== ===========
* Restated-see Note 1
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
CELGENE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. Basis of Presentation
The unaudited consolidated financial statements have been prepared
from the books and records of Celgene Corporation and subsidiaries ("Celgene" or
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 annual 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.
On August 31, 2000, the Company completed its merger with Signal
Pharmaceuticals, Inc. ("Signal"), a privately held San Diego-based
biopharmaceutical company focused on the discovery and development of drugs that
regulate genes associated with disease. The Company issued 3,710,144 shares of
its common stock for all the outstanding common shares of Signal at an exchange
rate of .1257 of a share of Celgene common stock for each share of Signal common
stock. Immediately prior to the consummation of the merger, all Signal preferred
shares were converted into Signal common shares on a one-for-one basis. In
addition, Celgene issued 380,607 options for all the Signal options outstanding
at the closing date. The Company entered into consulting agreements with certain
former non-employee directors of Signal to provide services to Signal, effective
August 31, 2000. These former non-employee directors held unvested stock options
to purchase 38,310 shares of the Company's common stock. As a result, the
Company is required to record compensation expense relative to the fair value of
such options which is being recognized over the remaining vesting period. For
the third quarter 2000, approximately $43,000 was recognized as compensation
expense.
The merger was accounted for as a pooling of interests. All prior
period consolidated financial statements of Celgene have been restated to
include the results of operations, financial position and cash flows of Signal.
Celgene and Signal incurred direct transaction expenses of $7.2 million which
were recognized in the third quarter of 2000. The merger-related costs consisted
of transaction fees for financial advisors, attorneys, accountants, financial
printing and other related charges.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10K, and Celgene's
consolidated financial statements, restated to reflect a three-for-one stock
split and Signal's financial statements included in Amendment No.1 to Form S-4
(Registration Statement No. 333-42302) filed by Celgene on August 9, 2000.
8
<PAGE>
2. Merger of Celgene and Signal
As discussed in Note 1, on August 31, 2000, Celgene completed the
merger with Signal in a transaction accounted for as a pooling of interests.
Accordingly, the consolidated financial statements reflect the combined results
of Celgene and Signal as if the merger had been in effect for all periods
presented. The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements for the periods prior
to the merger follow:
<TABLE>
<CAPTION>
Six Months Nine Months Three Months
Ended Ended Ended
June 30, September 30, September 30,
2000 1999 1999
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Revenues:
Celgene $28,884,836 $16,796,144 $6,740,319
Signal 5,337,008 8,814,626 2,545,901
----------------------- ----------------------- -----------------------
Combined $34,221,844 $25,610,770 $9,286,220
======================= ======================= =======================
Net loss:
Celgene $(3,971,178) $(18,935,733) $(6,118,369)
Signal (8,085,818) (5,893,198) (2,115,994)
----------------------- ----------------------- -----------------------
Combined ($12,056,996) $(24,828,931) $(8,234,363)
======================= ======================= =======================
</TABLE>
3. Common Stock Split and Authorized Shares
On April 14, 2000, the Company effected a three-for-one stock split for
stockholders of record as of April 11, 2000. On April 10, 2000, the Company's
stockholders approved an increase in the number of authorized shares of common
stock from 30,000,000 to 120,000,000. All share and per share amounts in the
consolidated statements of operations and share and per share amounts disclosed
in the accompanying notes to unaudited consolidated financial statements have
been retroactively restated to reflect the three-for-one stock split. Share and
per share amounts in the consolidated balance sheets have not been retroactively
restated to reflect the stock split. During the second quarter 2000, the Company
recorded a reclassification of approximately $429,000 to decrease additional
paid-in capital and to increase common stock in order to reflect the
three-for-one stock split.
4. 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 and warrants, and the conversion of convertible notes are all
anti-dilutive. The amount of common stock equivalents excluded from the
calculation were 13,839,493 at September 30, 2000 and 20,835,404 at
September 30, 1999.
9
<PAGE>
5. Marketable Securities Available for Sale
Marketable securities available for sale at September 30, 2000 include
debt securities with maturities ranging from March 2001 to August 2003. A
summary of marketable securities at September 30, 2000 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
-------------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Government Bonds & Notes $ 301,758 1,814 $(9,149) $ 294,423
Government Agencies 139,530,250 430,852 (321,227) 139,639,875
-------------------- ----------------- ------------------ -------------------
Total $139,832,008 432,666 $(330,376) $139,934,298
==================== ================= ================== ===================
</TABLE>
A summary of marketable securities available for sale at December
31, 1999 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
-------------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Government Bonds & Notes $2,313,125 -- $(25,579) $2,287,546
Government Agencies 2,050,000 -- (66,325) 1,983,675
Corporate Debt Securities 2,806,093 -- -- 2,806,093
-------------------- ----------------- ------------------ -------------------
Total $7,169,218 -- $(91,904) $7,077,314
==================== ================= ================== ===================
</TABLE>
6. Inventory
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------------- ----------------------
<S> <C> <C>
Raw materials $1,537,325 $1,411,663
Work in process 1,494,247 647,841
Finished goods 1,323,266 396,555
----------------------- ----------------------
Total $4,354,838 $2,456,059
======================= ======================
</TABLE>
7. Convertible Notes
On September 16, 1998, the Company issued convertible notes to an
institutional investor in the amount of $8,750,000. The notes have a five year
term and a coupon rate of 9.25% with interest payable on a semi-annual basis.
The notes contain a conversion feature that allows the note holders to convert
the notes into common shares at $3.67 per share. The Company can redeem the
notes after three years at 103% of the principal amount (two years if the
Company's stock trades at $8.26 or higher for a period of 20 consecutive trading
days). These notes were issued at a discount of $437,500 which is being
amortized over three years. On October 16, 2000, all of the notes were converted
into 2,386,387 common shares.
10
<PAGE>
On January 20, 1999, the Company issued to an institutional investor
convertible notes in the amount of $15,000,000. The notes have a five year term
and a coupon rate of 9% with interest payable on a semi-annual basis. The notes
contain a conversion feature that allows the note holders to convert the notes
into common shares after one year at $6 per share. The Company can redeem the
notes after three years at 103% of the principal amount (two years under certain
conditions). Issuance costs of $750,000 incurred in connection with this note
are being amortized over three years. Just prior to the Company's public
offering on February 16, 2000, a portion of the notes totaling $9,288,000 were
converted into 1,548,000 common shares and included in the public offering. On
May 17, 2000, an additional $3,998,400 of the notes were converted into 666,399
common shares and issued to the noteholder. The remaining carrying value of the
notes at September 30, 2000 is $1,713,600, convertible into 285,601 common
shares.
On July 6, 1999, the Company issued to a third institutional investor
convertible notes in the amount of $15,000,000. The notes have a five year term
and a coupon rate of 9% with interest payable on a semi-annual basis. The notes
contain a conversion feature that allows the note holders to convert the notes
into common shares after one year at $6.33 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 these notes. On July
6, 2000, $5.0 million of the notes were converted to 789,474 common shares. At
September 30, 2000, the remaining carrying value of the notes was $10.0 million
and is convertible into 1,578,948 common shares.
On September 26, 2000, the Company entered into an agreement with the
noteholders of the January 1999 and the July 1999 notes which allows the
noteholders to take a "short position" in the common stock (as defined in the
respective Note Purchase Agreements) of the Company with certain conditions
regarding the stock price. In exchange for the Company consenting to waive the
provisions that prohibit short sales, the noteholders waive the right to the
receipt of any interest after the effective date of August 24, 2000.
8. Secured Promissory Note
In June 2000, Signal issued a secured promissory note for up to $5
million that can be borrowed against through December 31, 2000, as needed. The
proceeds of the note will be used for general corporate purposes and working
capital. The interest rate will float with the Treasury rate as the proceeds are
drawn down and then be fixed for the term, maintaining the spread. The note is
payable in either twelve or thirty-six monthly installments, at Signal's option,
and is secured by the assets of the Company. To date, Signal has not drawn down
any proceeds from the note. In conjunction with the issuance of the promissory
note, Signal issued the creditor a warrant to purchase up to 225,000 shares of
C-2 Preferred Stock at a price of $4.00 per share, of which 150,000 shares were
issuable under the warrant upon Signal's signing of a loan commitment letter in
May 2000, and the remaining 75,000 shares become issuable under the warrant upon
any additional borrowing against the note greater than $2.5 million. The warrant
expires ten years from the date of grant. The Company recorded a $450,000
imputed dividend during the second quarter of 2000 which represents the excess
of the fair value over the issuance price of the warrant.
11
<PAGE>
9. Comprehensive Income (Loss)
Comprehensive loss includes net loss and other comprehensive gain
(loss) which refers to those revenues, expenses, gains and losses which are
excluded from net loss. Other comprehensive gain(loss) includes unrealized gains
and losses on marketable securities classified as available-for-sale.
<TABLE>
<CAPTION>
Three Months ended
---------------------------------------------------------
September 30, 2000 September 30, 1999
------------------------- ----------------------------
<S> <C> <C>
Net Loss $(7,472,044) $(8,234,363)
Other Comprehensive Gain/(Loss) 432,666 (12,072)
------------ -------------
Total Comprehensive Loss $(7,039,378) $(8,246,435)
============ ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months ended
---------------------------------------------------------
September 30, 2000 September 30, 1999
------------------------- ----------------------------
<S> <C> <C>
Net Loss $(19,527,821) $(24,828,931)
Other Comprehensive Gain/Loss 194,194 (63,502)
------------- -------------
Total Comprehensive Loss $(19,333,627) $(24,892,433)
============= =============
</TABLE>
10. New Accounting Pronouncements
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") NO. 101, Revenue Recognition in
Financial Statements. SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. SAB 101, as amended, must be adopted no later
than the fourth quarter of 2000 with an effective date of January 1, 2000. The
Company is in the process of evaluating this SAB and the effect it will have on
our consolidated financial statements and future revenue recognition policy.
In June 1998, Statement of Financial Accounting Standard ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities, was issued
and, as amended, 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.
12
<PAGE>
11. Stockholders' Equity
Convertible Preferred Stock
A summary of the Signal convertible preferred stock at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Shares Issued
and Outstanding
-----------------------------
<S> <C>
Series A 2,626,892
Series B 2,875,000
Series C 8,791,432
Series D 732,601
Series E 6,455,493
Series F 2,722,513
Series F-1 288,708
------------------------
24,492,639
</TABLE>
Each of the shares of preferred stock, listed above, was convertible
on a one-for-one basis, at the option of the holder, into shares of Signal
common stock. Immediately prior to the closing of the merger on August 31, 2000,
all of the preferred shares converted into Signal common stock and subsequently
each share was converted into Celgene common stock at the exchange rate of
.1257.
Rights Plan
On February 17, 2000, the Company's Board of Directors approved an
amendment to the Company's shareholder rights plan adopted in 1996 ("Rights
Plan"), changing the initial exercise price thereunder from $100.00 per Right
(as defined in the original Rights Plan agreement) to $700.00 per Right and
extending the final expiration date of the Rights Plan to February 17, 2010.
Long-Term Incentive Plan
At the Company's Annual Meeting of Stockholders on June 20, 2000, the
stockholders of the Company approved an amendment to the 1998 Incentive Plan to
increase the number of shares that may be subject to awards thereunder from
4,500,000 shares to 6,000,000 shares.
Warrants to Acquire Common Stock
Under the terms of a private placement of Series B Preferred Stock
with Chancellor LGT Asset Management, Inc. ("Chancellor") entered into on June
9, 1997, the Company was obligated to issue warrants to Chancellor to acquire a
number of shares of common stock. As of September 30, 2000, there were a total
of 1,207,693 warrants outstanding. All such warrants have an exercise price of
$2.50 per share and expire on June 1, 2002.
Deferred Compensation
Prior to the merger, Signal recorded an aggregate of approximately
$9.9 million of deferred compensation for stock options granted from 1997
through 2000, representing the difference between the option exercise price and
the estimated fair value of the underlying stock for financial statement
presentation purposes. The deferred compensation is being amortized over the
vesting period of the options. Through September 30, 2000, the Company has
recorded approximately $3.8 million of compensation expense related to these
options.
13
<PAGE>
12. Public Offering
On February 16, 2000, the company completed an offering to sell
10,350,000 shares of its common stock at a price of $33.67 per share. 8,802,000
shares were for the account of the Company and 1,548,000 were for the account of
a selling shareholder pursuant to the conversion of $9,288,000 of the 9%,
January 1999 convertible notes held by that shareholder. Proceeds to the
Company, net of expenses, were approximately $278 million.
13. Agreements
On April 26, 2000, the Company announced that it had entered into an
agreement with Novartis Pharma AG wherein the Company granted to Novartis an
exclusive worldwide license for the development and marketing of
d-methylphenidate, its chirally pure version of Ritalin. The Company also
granted rights to all its related intellectual property and patents, including
new formulations of the currently marketed Ritalin. Celgene received a $10
million, nonrefundable, upfront license fee payment in July 2000 and is entitled
to receive substantial milestone payments in addition to royalties on the entire
family of Ritalin drugs. The agreement was subject to regulatory approval in the
United States under the Hart-Scott-Rodino Pre-Merger Notification Act for which
the waiting period ended on June 10, 2000. The upfront license fee of $10
million is being recognized as revenue over a 14 month period commencing June
2000 which is management's estimate of the period of time required to fulfill
its obligations related to obtaining FDA approval of the immediate release form
of d-methylphenidate. This estimate is subject to change due to uncertainties
inherent in the regulatory approval process, which change could have a material
impact on the timing of the recognition of revenue. Accordingly, the Company
recognized approximately $2.1 million and $2.5 million of research contract
revenue for the three and nine months ended September 30, 2000, respectively,
with the remainder of the $10 million fee recorded as deferred revenue at
September 30, 2000.
Related Party Collaborative Agreement Revenue
Prior to the merger, Signal entered into collaborative research and
license agreements with related parties as follows:
Axys Pharmaceutical ("Axys") is a related party, as the chief
executive officer of Axys served on the Board of Directors of Signal.
Accordingly, revenues of $625,000 and $1,875,000 were classified as related
party revenue for the three and nine months ended September 30, 2000,
respectively. There was no revenue from Axys for the comparable periods of the
prior year.
Ares Serono S.A. is a related party based on its ownership in Signal
prior to the merger. Accordingly, revenues of $1,050,000 and $3,150,000 were
classified as related party revenue for the three and nine months ended
September 30, 2000, respectively, and $1,050,000 and $2,850,000, respectively,
were classified as related party revenue for the comparable periods of the prior
year.
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While these two companies are no longer considered related parties
after the merger was completed, revenue from these companies will continue to be
classified as related party revenue until the agreements with those companies
terminate.
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PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Nine month period ended September 30,2000 vs.
Nine month period ended September 30,1999
Total Revenues. Our total revenues for the nine months ended September
30, 2000 increased significantly to $56.9 million compared with $25.6 million
for the same period in 1999. Revenues in 2000 consisted of THALOMID sales of
$45.2 million, research contract revenue of $6.7 million, and related party
collaborative agreement revenue of $5.0 million compared with THALOMID sales of
$15.1 million, research contract revenue of $7.7 million and related party
revenue of $2.85 million for the same period in 1999. The growth in THALOMID
sales is primarily the result of increased use in oncology. Included in the
research contract revenue for 2000 was $2.5 million of the $10 million
nonrefundable upfront license fee payment received in connection with a
collaborative agreement with Novartis Pharma AG.
Cost of Goods Sold. Cost of goods sold during the first nine months of
2000 was $6.4 million compared with approximately $2.1 million in the comparable
period in 1999. The increase in cost of goods sold reflects the higher volume of
THALOMID sold in the first nine months of 2000. In addition, the cost of goods
sold during 1999 and first quarter 2000 does not reflect raw material or
formulation and encapsulation costs associated with THALOMID, as these costs
were charged as research and development expenses prior to receiving FDA
approval.
Research and development expenses. Research and development expenses
increased by 46% for the nine months ended September 30, 2000 to approximately
$39.3 million compared to $27.0 million for the same period in 1999. The
increase was primarily in spending by Celgene for preclinical toxicology studies
and phase I and phase II clinical trials for SelCIDs and IMiDs, as well as
spending on the completion of the pivotal trials and preparation for filing the
NDA for d-methylphenidate, our chirally pure version of Ritalin, and spending by
Signal for product development for our SERM (selective estrogen receptor
modulators) cancer program.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 70% for the
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nine months ended September 30, 2000 to $34.2 million compared to $20.0 million
for the same period in 1999. The increase was due primarily to the expansion of
Celgene's sales and marketing organization and related expenses, and spending
for customer service, warehousing and distribution.
Merger-related costs. The merger-related costs are the one-time costs
associated with the merger of Celgene and Signal. These costs, totaling
approximately $7.2 million, incurred by both Celgene and Signal, are primarily
for fees for financial advisors, attorneys, accountants, financial printing and
other related charges.
Interest income and expense. Interest income for the first nine months
of 2000 increased significantly to approximately $12.6 million compared to
approximately $994,000 for the same period in 1999. The increase was due to the
investment of the net proceeds of approximately $278 million from the follow-on
public offering in February 2000, and $10.0 million received from Novartis
Pharma AG in early July 2000.
Interest expense for the first nine months of 2000 decreased to
approximately $2.0 million compared to approximately $2.3 million for the same
period in 1999. The decrease was due primarily to the conversion of $13.2
million of the January 1999 convertible notes in February and May 2000 and $5.0
million of the July 1999 convertible notes in July 2000. As a result of the
conversions, our long term convertible notes balance declined to $20.3 million
at September 30, 2000 from $38.5 million at December 31, 1999.
Net loss. The net loss for the nine month period ended September 30,
2000 decreased by 21% to $19.5 million compared to $24.8 million for the same
period in 1999. The decrease was due primarily to the increase in THALOMID sales
and higher net interest income offset by an increase in research and development
expenses, selling, general and administrative expenses and the one-time merger
related expenses. Excluding the merger related costs, the net loss for the nine
month period ended September 30, 2000 decreased by 50% to $12.4 million compared
to $24.8 million for the same period in 1999.
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Results of Operations
Three month period ended September 30,2000 vs.
Three month period ended September 30,1999
Total Revenues. Our total revenues for the three month period ended
September 30, 2000 increased significantly to $22.7 million compared with $9.3
million for the same period in 1999. Revenue in 2000 consisted of THALOMID sales
of $17.3 million, research contract revenue of $3.7 million, and related party
collaborative agreement revenue of $1.7 million compared with THALOMID sales of
$6.3 million, research contract revenue of $1.9 million, and related party
collaborative agreement revenue of $1.1 million during the comparable period in
1999. The growth in THALOMID sales is primarily the result of increased use in
Oncology.
Cost of Goods Sold. Cost of goods sold during the third quarter 2000
was $2.2 million compared with approximately $702,000 in the comparable period
in 1999. The cost of goods sold relates entirely to sales of THALOMID. The cost
of goods sold during the third quarter 1999 does not reflect raw material or
formulation and encapsulation costs associated with THALOMID, as these costs
were charged as research and development expenses prior to receiving FDA
approval.
Research and development expenses. Research and development expenses
increased by 52% in the third quarter 2000 to approximately $13.5 million
compared to approximately $8.9 million for the second quarter 1999. The increase
was primarily in spending by Celgene for preclinical toxicology studies and
phase I and phase II clinical trials for the SelCIDs and IMiDs and additional
headcount related expenses to support the increased activity, and spending by
Signal for product development related to our SERM cancer program.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended September 30, 2000 increased
by 66% to approximately $12.2 million compared to $7.3 million for the same
period in 1999. The increase was due primarily to the expansion of the sales and
marketing organization and related expenses.
Interest income and expense. Interest income for the third quarter 2000
increased significantly to approximately $5.3 million compared to approximately
$407,000 for the same period in 1999. The increase was due to the investment of
the net proceeds of approximately $278 million from the follow-on public
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offering in February 2000, and the $10 million received from Novartis Pharma AG
in July 2000.
Interest expense for the third quarter 2000 decreased to approximately
$440,000 compared to approximately $985,000 for the same period in 1999. The
decrease was due primarily to the conversion of $18.2 million of the convertible
notes as described above.
Net loss. The net loss for the third quarter 2000 decreased by 9% to
approximately $7.5 million compared to $8.2 million for the same period in 1999.
The decrease was due to the increase in total revenues and interest income
offset by increased research and development expenses, selling, general and
administrative expenses and the one-time merger-related costs. Excluding the
$7.2 million of merger-related costs, the net loss for the third quarter of 2000
was approximately $304,000.
Liquidity and Capital Resources. Since inception, 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, and revenues from collaborative agreements and
product sales. Through December 31, 1999, we 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
approximately $38 million.
On February 16, 2000, we completed an offering to sell 10,350,000
shares of our common stock at a price of $33.67 per share. 8,802,000 shares were
for the account of Celgene and 1,548,000 shares were for the account of a
selling shareholder pursuant to the conversion of $9,288,000 of the 9%, January
1999 convertible notes held by that shareholder. Our proceeds, net of expenses,
were approximately $278 million.
On April 19, 2000, we signed a development and license agreement with
Novartis Pharma AG in which we granted to Novartis rights to our chirally pure
version of Ritalin in return for certain upfront and milestone payments and
royalties upon commercialization of the product. The agreement became effective
on June 10, 2000 upon which a payment of $10 million was due to us. The $10
million was received in early July, 2000.
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Our net working capital at September 30, 2000 increased significantly
to approximately $287.1 million (primarily cash and cash equivalents and
marketable securities) from approximately $22.5 million at December 31, 1999.
The increase in working capital was primarily due to the net proceeds received
from the public offering in February 2000.
At September 30, 2000, cash and cash equivalents increased by $137.5
million in the third quarter 2000 and marketable securities increased by $132.9
million from December 31, 1999. This reflects the receipt of funds in February
2000 from the follow-on public offering, the $10.0 million up-front payment from
Novartis Pharma AG and increasing receivable collections related to sales of
THALOMID.
We expect that our rate of spending will increase as the result of the
merger with Signal Pharmaceuticals, increased clinical trial costs, increased
expenses associated with the regulatory approval process and commercialization
of products currently in development, increased costs related to the
commercialization of THALOMID and increased working capital requirements. We
believe that the funds received from the public offering, funds received and the
possibility of additional milestone payments in connection with the Novartis
collaboration, as well as the increasing revenues from sales of THALOMID should
be sufficient to fund the combined operations for the foreseeable future.
Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. SAB 101, as amended, must be adopted no later
than the fourth quarter 2000 with an effective date of January 1, 2000. We are
in the process of evaluating this SAB and the effect it will have on our
consolidated financial statements and future revenue recognition policy.
Cautionary Statements for Forward-Looking Information
The Management's Discussion and Analysis of Financial Condition and
Results of Operations provided above contains certain forward-looking statements
which involve known and unknown risks, delays, uncertainties and other factors
not under our control which may cause
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actual results, performance and achievements of Celgene to be materially
different from the results, performance or other expectations implied by these
forward-looking statements. These factors include the integration of Signal,
results of current or pending clinical trials, actions by the FDA and other
factors detailed herein and in our other filings with the Securities and
Exchange Commission.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Market Risk
We do not use derivative financial instruments. Our convertible notes
have a fixed interest rate.
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PART II - OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4. - None
Item 5.--Other Information:
None
Item 6. Exhibits
A. 27 Financial Data Schedule - Article 5 for third quarter 2000
Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CELGENE CORPORATION
DATE November 14, 2000 BY /S/Robert J. Hugin
-------------------- -------------------------
Robert J. Hugin
Senior Vice President
Chief Financial Officer
DATE November 14, 2000 BY /s/James R. Swenson
-------------------- -------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
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