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 March 31, 1996
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
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(Exact name of registrant as specified in its charter)
Delaware 22-2711928
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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 April 30, 1996, 9,111,133 shares of Common Stock, and 503
shares of Series A Convertible Preferred 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
Condensed Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Condensed Statements of Operations -
Three-Month Periods Ended March 31, 1996
and 1995 4
Condensed Statements of Cash Flows -
Three-Month Periods Ended
March 31, 1996 and 1995 5
Notes to Unaudited Condensed
Financial Statements 7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II - OTHER INFORMATION 12
Signatures 13
2
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
CELGENE CORPORATION
CONDENSED BALANCE SHEETS
ASSETS
March 31 December 31
-------- -----------
1996 1995
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 108,524 $ 337,165
Marketable securities available
for sale 32,010,780 11,375,740
Accounts receivable 592,794 397,241
Other current assets 584,749 404,011
------------ ------------
Total current assets 33,296,847 12,514,157
Plant and equipment, net 1,166,500 1,207,805
Deferred costs 310,022 448,006
Other assets 41,250 41,250
------------ ------------
$ 34,814,619 $ 14,211,218
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 565,789 $ 607,206
Accrued expenses 1,048,677 1,610,846
Preferred stock - accretion
of premium 76,447 --
------------ ------------
Total current liabilities 1,690,913 2,218,052
------------ ------------
Convertible debentures 2,566,322 4,592,366
Convertible debentures-
accrued interest 240,825 258,299
------------ ------------
Total liabilities 4,498,060 7,068,717
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01
per share. Authorized 5,000,000
shares Series A convertible,
redeemable, cumulative preferred;
issued and outstanding
503 shares at March 31, 1996 25,150,000 --
Common stock, par value $.01 per
share. Authorized 20,000,000
shares; issued 9,141,118
and 8,807,863 shares at
March 31,1996 and December 31,
1995, respectively 91,412 88,079
Additional paid-in capital 79,146,906 78,064,288
Unamortized deferred compensation -
restricted stock (4,535) (7,085)
Accumulated deficit (74,023,672) (70,989,400)
Net unrealized gain (loss) on
marketable securities available
for sale 56,687 (13,138)
Common stock in treasury, at cost
29,985 and 24,271 shares at
March 31, 1996 and December 31,
1995, respectively (100,239) (243)
------------ ------------
Total stockholders' equity 30,316,559 7,142,101
------------ ------------
$ 34,814,619 $ 14,211,218
============ ============
See accompanying notes to financial statements
3
CELGENE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Month Period Ended March 31
---------------------------------
1996 1995
-------- --------
Revenues:
Sales of chemical
intermediates $ 516,505 $ 18,588
Research contracts 150,000 140,000
Investment income 152,302 108,390
----------- -----------
818,807 266,978
----------- -----------
Expenses:
Cost of goods sold 269,522 160,377
Research and development 2,737,966 1,578,072
Selling, general and
administrative 659,484 675,111
Interest expense 109,660 --
----------- -----------
3,776,632 2,413,560
----------- -----------
Net loss ($2,957,825) ($2,146,582)
Accretion of premium payable
on preferred stock 76,447 --
----------- -----------
Net loss applicable to common
shareholders ($3,034,272) --
=========== ===========
Net loss applicable to common
shareholders per share of
common stock ($ .34) ($ .27)
=========== ===========
Weighted average number
of shares of common stock
outstanding 9,001,000 7,863,000
=========== ===========
See accompanying notes to financial statements
4
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three-Month Period Ended March 31,
----------------------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net loss applicable to common shareholders ($ 3,034,272) ($ 2,146,582)
Adjustments to reconcile loss from continuing
operations to net cash used in operating
activities:
Depreciation and amortization 225,003 191,485
Amortization of deferred compensation 2,550 4,438
Interest on convertible debentures 109,660 --
Accretion of premium payable on
preferred stock 76,447 --
Decrease in accounts payable
and accrued expenses (603,586) (20,296)
Increase in accounts receivable (195,553) 480,226
Increase in other current assets (180,738) (134,317)
------------ ------------
Net cash used in operating activities (3,600,489) (1,625,046)
------------ ------------
Cash flows from investing activities:
Capital expenditures (119,174) (5,053)
Proceeds from sales and maturities of
marketable securities available for sale 11,563,415 2,451,286
Purchases of marketable securities
available for sale (32,128,630) (481,752)
------------ ------------
Net cash (used in) provided by
investing activities (20,684,389) 1,964,481
------------ ------------
Cash flows from financing activities:
Net proceeds from conversion of common
stock options 226,612 --
Net proceeds from sale of preferred stock 23,829,625 --
------------ ------------
Net cash provided from financing activities 24,056,237 --
------------ ------------
Net (decrease) increase in cash and cash
equivalents (228,641) 339,435
Cash and cash equivalents at
beginning of period 337,165 292,925
------------ ------------
Cash and cash equivalents at end of period $ 108,524 $ 632,360
============ ============
Net (decrease) increase in cash and
cash equivalents ($ 228,641) $ 339,435
Increase (decrease) in marketable securities
available for sale 20,635,040 (1,969,534)
------------ ------------
Net increase (decrease) in cash and cash
equivalents and marketable securities
available for sale $ 20,406,399 ($ 1,630,099)
============ ============
5
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Non-cash investing activities:
Net change in net unrealized gain (loss)
on securities available for sale $ 69,825 $ 57,721
========== ==========
Non-cash financing activities:
Issuance of common stock upon the
conversion of convertible debentures
and accrued interest thereon, net $2,079,718 --
========== ==========
Issuance of common stock upon conversion
of options through the return of
previously outstanding common stock $ 99,996
========== ==========
See accompanying notes to financial statements
6
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements
March 31, 1996
1. Basis of Presentation
The unaudited condensed 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 financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
latest annual report on Form 10K.
Where appropriate prior period financial information has been reclassified
to conform to the 1996 presentation.
2. 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 dividends at a rate of 4.9% per year, is convertible into common
stock of the Company at the option of the holders thereof in one-third
increments commencing on May 12, June 11, and July 11, 1996, 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. The Company may redeem the shares in increments of no less than
$1.5 million commencing December 13, 1996, on thirty business days written
notice to the stockholders, at a price that equals a specified premium,
ranging from 120% to 130%, over the purchase price plus dividends. Under
certain conditions, upon receipt of a conversion notice from the holder, the
Company has the right (i) to redeem shares presented for conversion, or (ii)
to defer conversion for 90 days in exchange for warrants to purchase
additional shares of common stock as specified in the Certificate of
Designation of Series A Preferred Stock. Any shares of Series A Convertible
Preferred Stock outstanding on March 13, 1998 shall be converted
automatically into common stock on such date at the conversion price then in
effect. The holders of Preferred Stock have no voting rights. The Company
granted registration rights to the subscribers in the private placement that
require the
7
Company to file a registration statement covering the shares of Common Stock
of the Company underlying the Preferred Stock. If such registration
statement is not declared effective by June 11, 1996, the Company may be
required to pay the subscribers an amount in common stock equal to 1 1/2%
per month of the gross proceeds of the private placement offering until the
registration statement is declared effective, and the holders of Preferred
Stock may be entitled to exercise demand or piggyback registration rights.
The Company had $76,447 accrued at March 31, 1996 for accretion of the
premium on the Preferred Stock.
In connection with the private placement, the Company 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.
3. Convertible Debentures
In the third quarter ended September 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 $11,022,570. 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 a conversion price that
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 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 the accrued interest on the redeemed
debenture or an amount which is based on the appreciation of the common
stock from the date of issuance of the debentures.
The conversion price of the convertible debentures is subject to adjustment
under certain circumstances. As of March 31, 1996, convertible debentures in
the aggregate principal amount of $9,150,000, plus accrued interest, had
been converted into a total of 1,188,681 shares of common stock. During the
quarter ended March 31, 1996, convertible debentures in the aggregate
principal amount of $2,937,000, plus accrued interest had been converted
into a total of 292,765 shares of common stock. No interest was paid in
cash.
8
4. Marketable Securities Available for Sale
Marketable securities available for sale at March 31, 1996 include debt
securities with maturities ranging from April, 1996 to August, 1996. A
summary of marketable securities at March 31, 1996 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
---------- ---------- ---------- ------------
US Government and agency
Obligations $13,543,645 $ 34,835 -- $13,578,480
Certificates of deposit $ 1,500,000 -- ($ 5) $ 1,499,995
Asset backed security $ 3,011,134 -- ($ 821) $ 3,010,313
Commercial Paper $13,899,314 $ 22,678 -- $13,921,992
----------- ----------- ------ -----------
Commercial Paper $31,954,093 $ 57,513 ($ 826) $32,010,780
=========== =========== ====== ===========
The net change in the gross unrealized gain for the quarter ended March 31,
1996 was an increase of approximately $70,000. The proceeds from sales
included gross realized gains and losses of approximatley $42,000 and
$21,000 respectively, for the quarter ended March 31, 1996.
5. Treasury Stock
During the quarter ended March 31, 1996, 5,714 shares of common stock with a
fair market value of $99,996 were returned to the Company as payment towards
the exercise of 16,666 stock options.
9
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
On March 31, 1996, the Company had available working capital of
approximately $31,606,000, consisting principally of cash, cash equivalents and
marketable securities available for sale, which represents an increase of
approximately $21,310,000, from December 31, 1995 primarily due to the private
placement of Series A Convertible Preferred Stock in March, 1996.
On March 13, 1996, in a private placement, the Company completed a sale
of 503 shares of Series A Convertible Preferred Stock, par value $0.01 per
share, at an issue price of $50,000 per share, for total gross proceeds of
$25,150,000. The Company received net proceeds, after offering costs, of
approximately $23,800,000. The holders of Preferred Stock have no voting rights.
The Company has entered into certain technology agreements with various
parties which requires payments of approximately $400,000 within the next nine
months.
In December, 1995 the Company entered into an agreement with Penn
Pharmaceutical, Ltd. to build a special facility devoted exclusively to the
production of SYNOVIR'TM', the Company's experimental drug which has been
approved by the FDA for expanded distribution, prior to final evaluation by that
agency. Under the terms of the agreement, based on certain milestones with
respect to commencing production and FDA inspection, the Company is responsible
for $320,000 of start-up and validation costs. In addition, the Company will
lease the dedicated facility for a three year period. Annual facilty payments
are $268,000, which commences in the month the first milestone is completed.
Penn will manufacture SYNOVIR'TM' and sell to the Company at a price to be
agreed upon.
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. This agreement was extended
for another two years in March 1996. 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.
Three-month period ended March 31, 1996 vs.
Three-month period ended March 31, 1995
Revenues for the three-month period ended March 31, 1996 were
approximately $819,000, which was an increase of approximately $552,000, or
207%, over the comparable period in 1995. Chiral intermediate revenues increased
$498,000 to $517,000 for the three-month period of 1996 as compared to the
comparable 1995 period. The increase in chiral intermediate revenues was due
primarily to stronger sales to pharmaceutical and allied industries. Chiral
research contract revenues for the first quarter were $150,000
10
which was an increase of $10,000 over the first quarter of 1995. Revenue backlog
at March 31, 1996, for chiral intermediates and research contracts, was
approximately $956,000. Investment income increased $44,000, or 41%, to $152,000
in the first three months of 1996 as compared to the first three months of 1995
due to the increase in funds available for investment.
For the first quarter ended March 31, 1996, cost of goods sold increased
$110,000, or 68%, to $270,000 (which includes certain fixed manufacturing costs)
as compared to the first quarter of 1995, due to the higher volume of chiral
intermediate revenues. Research and development expenses for the three-month
period ended March 31, 1996 increased by $1,160,000, or 74%, to $2,738,000 as
compared to the same period in 1995, primarily due to an increase in regulatory
and clinical expenses associated with the expected filing of a New Drug
Application (NDA) for SYNOVIR(TM). Selling, general and administrative expenses
for the three-month period ended March 31, 1996 decreased $16,000, or 2%, to
$659,000 as compared to the 1995 comparable period. Interest expense, related to
the convertible debenture was $110,000 for the three-month period ended March
31, 1996.
Net loss for the three-month period ended March 31, 1996 was
approximately $2,958,000 which was an increase of approximately $811,000, or
34%, over the comparable period in 1995, due to the increase in R&D expenditures
for the immunotherapeutic program.
11
PART II - OTHER INFORMATION
Item 1. - None
Item 2. - Change in Securities
(a)-(b) On March 13, 1996, the Company issued 503 shares of
Series A Convertible Preferred Stock (the "Preferred Stock"). In
connection therewith, the Company filed with the State of
Delaware a Certificate of Designation of Series A Convertible
Preferred Stock, par value $.01, which established the
designation, number, voting powers, preferences and relative,
participating, optional, and other special rights and the
qualifications, limitations, restrictions, and other
distinguishing characteristics of the Preferred Stock. The
Certificate of Designation provides that, in the event of any
liquidation, dissolution or winding up of the Company, either
voluntary or involuntary, the holders of the Preferred Stock
shall be entitled to receive, in preference to any distribution
to holders of Common Stock of the Company, an amount per share
equal to the sum of (i) $50,000 for each outstanding Share(the
"Original Series A Issue Price") and (ii) an amount equal to 4.9%
of the Original Series A Issue Price per annum for the period
that has passed since the date of issuance of the Preferred
Stock. If the assets and funds of the Company shall be
insufficient to permit payment of the full preferential amounts
due to the holders of the Preferred Stock, then the entire assets
and funds of the Corporation legally available for distribution
shall be distributed among the holders of the Preferred Stock.
Item 3. - None
Item 4. - None
Item 5. - None
Item 6. - Exhibits
(a) 27 Financial Data Schedule - Article 5 for first quarter
Form 10Q.
(b) A Current Report on Form 8K with respect to Item 5 of
Form 8K was filed on March 13, 1996.
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 May 13, 1996 BY /s/ John W. Jackson
---------------------- ----------------------
John W. Jackson
Chairman of the Board
Chief Executive Officer
DATE May 13, 1996 BY /s/ Sanford Kaston
---------------------- -----------------------
Sanford Kaston
Controller
13
STATEMENT OF DIFFERENCES
The trade mark symbol shall be expressed as .......'TM'