FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
(Mark one)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16132
CELGENE CORPORATION
(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 No.)
7 Powder Horn Drive, Warren, New Jersey 07059
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 908-271-1001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
At July 31, 1995, 7,862,689 shares of Common Stock, par value
$.01 per share, were issued and outstanding.
1
CELGENE CORPORATION
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page No.
--------
Item 1 Condensed Financial Statements
Balance Sheets as of June 30, 1995
and December 31, 1994 3
Statements of Operations -
Three-Month Periods Ended June 30, 1995
and 1994 4
Statements of Operations -
Six-Month Periods Ended June 30, 1995
and 1994 5
Statements of Cash Flows -
Six-Month Periods Ended
June 30, 1995 and 1994 6
Notes to Unaudited Condensed
Financial Statements 7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
PART II - OTHER INFORMATION 12
Signatures 13
2
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
CELGENE CORPORATION
BALANCE SHEETS
ASSETS
June 30 December 31
--------- -----------
1995 1994
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 896,874 $ 292,925
Marketable securities available
for sale 4,012,155 8,207,161
Accounts receivable 321,313 623,084
Other current assets 480,167 428,844
------------ ------------
Total current assets 5,710,509 9,552,014
Plant and equipment, net 1,575,906 1,954,666
Other assets 41,250 41,250
------------ ------------
$ 7,327,665 $ 11,547,930
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 200,682 $ 439,189
Accrued expenses 1,409,454 1,104,675
------------ ------------
Total current liabilities 1,610,136 1,543,864
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01
per share. Authorized 5,000,000
shares; issued none -- --
Common stock, par value $.01 per share. Authorized 20,000,000 shares; issued
and outstanding 7,862,689 shares at June 30, 1995 and December 31, 1994,
respectively 78,627 78,627
Additional paid-in capital 70,684,768 70,684,768
Unamortized deferred compensation -
restricted stock (12,186) (19,174)
Accumulated deficit (64,876,473) (60,472,877)
Net unrealized loss on marketable
securities available for sale (157,207) (267,278)
------------ ------------
Total stockholders' equity 5,717,529 10,004,066
------------ ------------
$ 7,327,665 $ 11,547,930
============ ============
3
CELGENE CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three-Month Period Ended June 30
---------------------------------
1995 1994
------ ------
Revenues:
Sales of chemical
intermediates $ 223,550 $ 615,845
Research contracts 100,000 20,000
Investment income 80,350 115,004
------------ ------------
403,900 750,849
------------ ------------
Expenses:
Cost of goods sold 203,549 304,073
Research and development 1,768,222 1,604,072
Selling, general and
administrative 689,143 854,624
------------ ------------
2,660,914 2,762,769
------------ ------------
Loss from continuing
operations (2,257,014) (2,011,920)
Discontinued operations
Loss from operations -- (729,421)
Loss on disposal -- (839,000)
------------ ------------
Loss from discontinued
operation -- (1,568,421)
------------ ------------
Net loss ($ 2,257,014) ($ 3,580,341)
============ ============
Per share of Common Stock
Loss from continuing
operations ($ .29) ($ .26)
Loss from discontinued
operation -- (.20)
------ ------
Net loss ($ .29) ($ .46)
====== ======
Weighted average number
of shares of common stock
outstanding 7,863,000 7,843,000
========= =========
4
CELGENE CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Six-Month Period Ended June 30
------------------------------
1995 1994
---- ----
Revenues:
Sales of chemical
intermediates $ 242,138 $ 994,441
Research contracts 240,000 45,000
Investment income 188,740 273,467
------------ ------------
670,878 1,312,908
------------ ------------
Expenses:
Cost of goods sold 363,926 521,098
Research and development 3,346,294 2,966,329
Selling, general and
administrative 1,364,254 1,743,907
------------ ------------
5,074,474 5,231,334
------------ ------------
Loss from continuing
operations (4,403,596) (3,918,426)
Discontinued operations
Loss from operations -- (1,497,088)
Loss on disposal -- ( 839,000)
------------ ------------
Loss from discontinued
operation -- (2,336,088)
------------ ------------
Net loss ($ 4,403,596) ($ 6,254,514)
============ ============
Per share of Common Stock
Loss from continuing
operations ($ .56) ($ .50)
Loss from discontinued
operation -- ( .30)
----- -----
Net loss ($ .56) ($ .80)
====== ======
Weighted average number
of shares of common stock
outstanding 7,863,000 7,843,000
========= =========
5
CELGENE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six-Month Period Ended June 30,
-------------------------------
1995 1994
---- ----
Cash flows from operating activities:
Loss from continuing operations ($ 4,403,596) ($ 3,918,426)
Adjustments to reconcile loss from continuing
operations to net cash used in operating
activities:
Depreciation and amortization 388,006 332,126
Amortization of deferred compensation 6,988 28,885
(Decrease) increase in accounts payable
and accrued expenses 66,272 21,524
Decrease in accounts receivable 301,771 75,532
Increase in other assets (51,323) (335,441)
---------- ----------
Net cash used in continuing operations (3,691,882) (3,795,800)
---------- ----------
Net cash used in discontinued operation -- (1,736,054)
---------- ----------
Net cash used in operating activities (3,691,882) (5,531,854)
---------- ----------
Cash flows from investing activities:
Continuing operations:
Capital expenditures (9,246) (198,964)
Proceeds from sales and maturities
of marketable securities available
for sale 4,827,327 15,296,989
Purchases of marketable securities
available for sale (522,250) (9,379,646)
---------- ----------
Net cash provided by investing
activities 4,295,831 5,718,379
---------- ----------
Cash flows from financing activities:
Net proceeds from sale of common stock -- 4,417
---------- ----------
Net increase in cash and cash
equivalents $ 603,949 190,942
Cash and cash equivalents at
beginning of period 292,925 789,847
---------- ----------
Cash and cash equivalents at end of period $ 896,874 $ 980,789
---------- ----------
---------- ----------
Net increase in cash and
cash equivalents 603,949 $ 190,942
Decrease in marketable securities
available for sale (4,305,077) (5,917,343)
---------- ----------
Net decrease in cash and cash equivalents
and marketable securities available
for sale ($ 3,701,128) ($ 5,726,401)
========== ==========
Non-cash investing activity - net change
gain (loss) in net unrealized loss on
securities available for sale $ 110,071 ($ 146,395)
========== ==========
6
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements
June 30, 1995
1. Basis of Presentation
The unaudited 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.
Where appropriate prior period financial information has been reclassified
to conform to the 1995 presentation.
2. Stock Options
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 250,000
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), except that at the 1995 annual meeting of stockholders the Non-Employee
Directors received an option to purchase 6,000 shares of common stock. On April
5, 1995, each Non-Employee Director was granted, under this plan, a
non-qualified option to purchase 20,000 shares of common stock, subject to
stockholder approval which was received on June 16, 1995.
The shares subject to each option grant of 20,000 shares vests 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 fair market value and expire 10 years after the
date of grant. This plan terminates in 2005 and no additional options or
restricted stock awards may be granted under the Company's 1992 Non-Employee
Directors' Stock Option Plan.
7
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements -- (continued)
3. Subsequent Event
Subsequent to the second quarter ended June 30, 1995, the Company issued
and sold in a private placement offering, 8% convertible debentures due July 31,
1997 in the aggregate principal amount of $12,000,000, and received net
proceeds, after offering costs, of approximately $11,000,000. Such debentures
are convertible into common stock of the Company at the option of either the
holders thereof or the Company. The holders of the convertible debentures may
convert the debentures into common stock of the Company at $8.00 per share until
September 12, 1995, after which time the conversion price varies and is based
upon the market price (as defined) of the common stock on the date of
conversion.
The Company may require the conversion of the convertible debentures
commencing October 15, 1995 through July 30, 1997 at a conversion price which
varies and is based upon the market price of the common stock on the date of
conversion. The Company also has the right to redeem any convertible debenture
after it has received a notice of conversion with respect to such debenture. The
redemption price is the greater of 115% of the principal and accrued interest of
the redeemed debenture and an amount which is based on the appreciation of the
common stock from issuance of the debentures.
The conversion price of the convertible debentures is subject to adjustment
under certain circumstances.
8
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
On June 30, 1995, the Company had available working capital of
approximately $4,100,000, consisting principally of cash, cash equivalents and
marketable securities available for sale, which represents a decrease of
approximately $3,908,000, or 49%, from December 31, 1994 primarily due to
operating losses.
Subsequent to June 30, 1995, the Company issued and sold in a private
placement offering, an aggregate principal amount of $12,000,000 of 8%
convertible debentures due July 31, 1997, and received net proceeds, after
offering costs, of approximately $11,000,000. The proceeds from the sale of
these debentures increased the Company's working capital (on a pro forma basis)
to approximately $15,100,000 as of June 30, 1995. (See Note 2 to the Unaudited
Condensed Financial Statements)
In August 1992, the Company entered into a two-year research and
development agreement with the Rockefeller University. In July 1994 this
agreement was extended for an additional two years. Under terms of the contract
extension, the Company is committed to an annual fee to Rockefeller University
of $504,000 paid semiannually in April and October.
The Company's financial statements for the six-month period ended June 30,
1995 have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company incurred a net loss of $4,404,000 for the
six months ended June 30, 1995 and as of June 30, 1995 had an accumulated
deficit of $64,876,000. The Company expects to incur substantial expenditures to
further its immunotherapeutic program and to expand its chiral business. The
Company's working capital at June 30, 1995 and proceeds from the convertible
debenture offering plus limited revenue from product sales and research
contracts from its chiral business will not be sufficient to meet such
objectives as presently structured. Management recognizes that the Company must
generate additional resources or consider modifications to its immunotherapeutic
program or other reductions in operating costs to enable it to continue
operations with available resources. Management's plans include consideration of
the sale of additional securities under appropriate market conditions, alliances
or other partnership agreements with entities interested in and resources to
support the Company's immunotherapeutic or chiral programs, or other business
transactions which would generate sufficient resources to assure continuation of
the Company's operations and research programs.
The Company has retained investment banking counsel to advise it on the
possible sale of securities as well as to introduce and assist in the evaluation
of potential merger and partnering
9
opportunities. The Company also has retained independent consultants to assist
it to identify other entities interested in its immunotherapeutic and chiral
programs. Management expects that these efforts will result in the introduction
of other parties with interests and resources which may be compatible with that
of the Company. However, no assurances can be given that the Company will be
successful in raising additional capital or entering into a business alliance.
Further, there can be no assurance, assuming the Company successfully raises
additional funds or enters into a business alliance, that the Company will
achieve profitability or positive cash flow. If the Company is unable to obtain
adequate additional financing or enter into such business alliance, management
will be required to sharply curtail the Company's immunotherapeutic program and
to curtail certain other of its operations.
Six-month period ended June 30, 1995 vs.
Six-month period ended June 30, 1994
Revenues for the six-month period ended June 30, 1995 were approximately
$671,000, which was a decrease of approximately $642,000, or 49%, over the
comparable period in 1994. Chiral intermediate revenues decreased $752,000 to
$242,000 for the six-month period ended June 30, 1995 as compared to the
comparable 1994 period. This decrease in chiral intermediate revenues was due
primarily to the sporadic nature of orders from the Company's small customer
base. Chiral research contract revenues for the first six months were $240,000
which was an increase of $195,000 over the first six months of 1994. This
increase in contract revenues was due to the Company entering into research
contracts for new compounds and for expanding development of existing compounds.
Revenue backlog at June 30, 1995, for 1995 sales, for chiral intermediates and
research contracts decreased $73,000 or 11%, to $587,000 as compared to the June
30, 1994 backlog. The Company is negotiating with new and old customers for
additional chiral intermediate and research contract orders; however, there is
no assurance that these efforts will be successful. Investment income decreased,
$85,000, or 31%, to $189,000 in the six months of 1995 as compared to the six
months of 1994 due to the decrease in funds available for investment.
For the six months ended June 30, 1995, cost of goods sold decreased
$157,000, or 30%, to $364,000 (which includes certain fixed manufacturing costs)
as compared to the six months of 1994, due to the low volume of chiral
intermediate revenues. Research and development expenses for the six month
period ended June 30, 1995 increased by $380,000, or 13%, to $3,346,000 as
compared to the same period in 1994, primarily due to an increase in the
Rockefeller University expense and clinical trial expenses for the
immunotherapeutic program. Selling, general and administrative expenses for the
six-month period ended June 30, 1995 decreased $380,000, or 22%, to $1,364,000
as compared to the 1994 comparable
10
period, primarily due to the absence in 1995 of any incentive bonus expense, as
no cash bonuses are projected to be paid, and lower personnel and facility
expenses.
Net loss for the six-month period ended June 30, 1995 was approximately
$4,404,000 which was a decrease of approximately $1,851,000, or 30%, over the
comparable period in 1994, due primarily to the cessation of the Company's
biotreatment operation at June 30, 1994. Loss from continuing operations during
the six-months period ended June 30, 1995 increased $485,000, or 12%, over the
comparable quarter in 1994, primarily due to reduced chiral intermediates
revenues.
Three-month period ended June 30, 1995 vs.
Three-month period ended June 30, 1994
Revenues for the three-month period ended June 30, 1995 were approximately
$404,000, which was a decrease of approximately $347,000, or 46%, over the
comparable period in 1994. Chiral intermediate revenues decreased $392,000 to
$224,000 for the three-month period ended June 30, 1995 as compared to the
comparable 1994 period. This decrease in chiral intermediate revenues was due
primarily to the sporadic nature of orders from the Company's small customer
base. Chiral research contract revenues for the second quarter of 1995 were
$100,000 which was an increase of $80,000 over the second quarter of 1994. This
increase in contract revenues was due to the Company entering into research
contracts for new compounds and for expanding development of existing compounds.
Investment income decreased, $35,000, or 30%, to $80,000 in the second three
months of 1995 as compared to the second three months of 1994 due to the
decrease in funds available for investment.
For the second quarter ended June 30, 1995, cost of goods sold decreased
$101,000, or 33%, to $204,000 (which includes certain fixed manufacturing costs)
as compared to the second quarter of 1994, due to the low volume of chiral
intermediate revenues. Research and development expenses for the three-month
period ended June 30, 1995 increased by $164,000, or 10%, to $1,768,000 as
compared to the same period in 1994, primarily due to an increase in the
Rockefeller University expense and clinical trial expenses for the
immunotherapeutic program. Selling, general and administrative expenses for the
three-month period ended June 30, 1995 decreased $165,000, or 19%, to $689,000
as compared to the 1994 comparable period, primarily due to the absence in 1995
of any incentive bonus expense, as no cash bonuses are projected to be paid, and
lower personnel and facility expenses.
Net loss for the three-month period ended June 30, 1995 was approximately
$2,257,000 which was a decrease of approximately $1,323,000, or 37%, over the
comparable period in 1994, due primarily to the cessation of the Company's
biotreatment operation at June 30, 1994. Loss from continuing operations during
the three-months period ended June 30, 1995 increased $245,000, or 12%, over the
comparable quarter in 1994, primarily due to reduced chiral intermediates
revenues.
11
PART II - OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4. - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 16, 1995. At
this meeting stockholders of the Company were asked to vote for the election of
directors, act upon the proposal to approve the adoption of the Corporation's
1995 Non-Employee Directors' Incentive Plan, and for the proposal to ratify the
appointment of KPMG Peat Marwick LLP as the independent certified public
accountants of the Company for the year ending December 31, 1995. All nominated
directors were elected, the proposal to adopt the Corporation's 1995
Non-Employee Directors' Incentive Plan was approved and the proposal regarding
the appointment of auditors was approved, by the following votes:
A. Election of Directors:
Name Number of Shares
---- -------------------------------------
For Withheld Abstained
--- -------- ---------
Sol J. Barer 6,865,556 92,262 --
Frank T. Cary 6,879,376 78,542 --
Richard C. E. Morgan 6,882,946 74,972 --
Walter L. Robb 6,882,776 75,142 --
Lee J. Schroeder 6,879,726 78,192 --
Richard G. Wright 6,853,622 104,296 --
B. Adoption of the Corporation's 1995 Non-Employee Directors' Incentive
Plan:
Number of Shares
--------------------------------------
For Against Abstained
--- ------- ---------
6,225,048 601,704 69,915
C. Appointment of Auditors:
Number of Shares
--------------------------------------
For Against Abstained
--- ------- ---------
6,874,429 64,100 17,171
Item 5. - None
Item 6. - Exhibits
4.1 Form of 8% Convertible Debenture due July 31, 1997.
10.1 Form of Registration Rights Agreement.
10.2 Agent's Warrant.
27 Financial Data Schedule - Article 5 for second quarter Form
10-Q.
12
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 August 14, 1995 BY /s/ Richard G. Wright
------------------------------ ------------------------------
Richard G. Wright
Chairman of the Board and
Chief Executive Officer
DATE August 14, 1995 BY /s/ Robert B. Eastty
------------------------------ ------------------------------
Robert B. Eastty
Controller
(Chief Accounting Officer)
13