SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) For the fiscal year ended December 31, 1995
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ___________ to ___________
Commission File No. 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 Identification)
incorporation or organization)
7 Powder Horn Drive
Warren, New Jersey 07059
(Address of principal executive offices) (Zip Code)
(908) 271-1001
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Common Stock, par value $.01 per share
(Title of Class)
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
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
Aggregate market value of voting stock held by non-affiliates of registrant as
of March 1, 1995: $145,294,006.
Number of shares of Common Stock outstanding as of March 1, 1996: 9,044,981
DOCUMENTS INCORPORATED BY REFERENCE
None.
CELGENE CORPORATION
ANNUAL REPORT ON FORM 10-K/A-2
-----------------------------------------------------------------
TABLE OF CONTENTS
Item No. Page
- -------- ----
Part II
7. Management's Discussion and Analysis
of Financial Condition and Results of Operations...........................1
Part IV
14. Exhibits, Financial Statements, and
Reports on Form 8-K.........................................................5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
Since inception, the Company has financed its working capital
requirements primarily through private and public sales of its debt and equity
securities, income earned on the investment of the proceeds from the sale of
such securities, and revenues from product sales.
In August 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 $11,022,570. (See Note 6 to the Financial Statements).
On December 31, 1995, the Company had available working capital of
approximately $10,296,000, consisting principally of cash, cash equivalents, and
marketable securities. It increased approximately $2,288,000, or 29%, from
December 31, 1994, which was attributable to the convertible debenture offering,
offset by cash used in operations.
In March 1996, the Company issued and sold in a private placement
offering 503 shares of Series A Convertible Preferred Stock at $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 proceeds from
the sale of the preferred stock increased the Company's working capital (on a
pro forma basis) to approximately $34,216,000 as of December 31, 1995 (See Note
12 of the Financial Statements).
In August 1992, the Company entered into a two-year research and
development agreement with the Rockefeller University. This agreement has been
extended through July 1998. Under the terms of the contract extension, the
Company is committed to pay Rockefeller University $504,000 annually.
During the year ended December 31, 1995, capital expenditures totalled
approximately $30,000 primarily for equipment and leasehold improvements to
expand its process development and manufacturing capabilities.
In the fourth quarter of 1995, the U.S. FDA approved the Company's
request to recover costs of providing its SYNOVIR drug to AIDS patients eligible
for entry into the Company's expanded trial for cachexia, a severe wasting
condition. The cost per patient for a twelve-week supply will be $550. At
present, the Company cannot estimate the impact that the potential recovery of
costs will have on the Company's operations. The recovery of such costs for 1995
was immaterial.
The Company believes that its current resources and income derived from
investments plus revenues from chiral product sales, research contracts, and
estimated recoveries under the FDA-approved SYNOVIR cost recovery program will
be sufficient to meet the Company's capital requirements for the balance of 1996
and 1997. However, to assure funding for the Company's future operations the
Company is likely to seek additional capital resources. These may include the
sale of additional securities under appropriate market conditions, alliances or
other partnership agreements with entities interested in and possessing
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 in the long-term.
However, no assurances can be given that the
1
Company will be successful in raising such 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.
As of December 31, 1995, the Company had for Federal income tax purposes
a net operating loss carryforward of approximately $66,900,000. If not utilized
to offset future taxable income, such loss carryforward will expire between 2001
and 2010. Certain events, including any sales by the Company of shares of its
stock and/or transfers of a substantial number of shares of Common Stock by the
current stockholders, may restrict the ability of the Company to utilize its net
operating loss carryforward.
Results of Operations
Year ended December 31, 1995 v. Year ended December 31, 1994
Revenues for the year ended December 31, 1995 were approximately
$1,741,000, which was a decrease of approximately $1,101,000, or 39%, over the
comparable period in 1994. Chiral intermediate revenues decreased $1,340,000 to
$658,000, or 67%, for 1995 as compared to 1994. The 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 1995
were $515,000, which was an increase of $257,000, or 100%, over 1994. The
increase in research contract revenues was due to the Company entering into
research contracts for new compounds and for expanding development of existing
compounds. Revenue backlog at December 31, 1995 for chiral intermediates and
research contracts amounted to $777,000. The Company had no backlog at December
31, 1994. The company is negotiating with new and existing customers for
additional chiral intermediate and research contract orders; however, there is
no assurance that these efforts will be successful. Investment income decreased
$18,000, or 3%, to $569,000 in 1995 as compared to 1994 due to the decrease in
funds available for investment during the first half of 1995.
For 1995, costs of goods sold decreased $304,000, or 28%, to $792,000
(which includes certain fixed manufacturing costs) as compared to 1994, due to
the low volume of chiral intermediate revenues. Research and development
expenses for 1995 increased $1,691,000 to $8,183,000, or 26% higher than in
1994. This increase was due to an increase of approximately $2.3 million in
expenses associated with the immunotherapeutic program, partially offset by a
decrease of $600,000 in personnel and related expenses for the chiral research
group. The increase in expenses associated with immunotherapeutic programs was
caused by pre-clinical and clinical trial expenses, which increased by
approximately $1 million; regulatory and compliance expenses, which rose by
approximately $600,000; other ongoing research expenses, which increased by
$450,000, and expenses associated with The Rockefeller University program and
other university immunotherapeutic research programs, which increased by
approximately $250,000. Research and development expenses associated with the
immunotherapeutic programs are anticipated to increase to an even greater degree
during 1996 as the Company expects to incur substantial regulatory and clinical
trial related expenses related to the filing of NDA for Synovir. Selling,
general, and administrative expenses decreased $273,000, or 9%, to $2,858,000 in
1995 as compared to 1994, due to generally lower spending across most expense
categories, partially offset by amortization of debt offering costs. Interest
expense for 1995 was $425,000, which related to the Debentures issued in July,
1995.
The net loss for the year ended December 31, 1995 was approximately
$10,517,000, an increase of approximately $303,000, or 3%, over 1994. Net loss
for the year ended December 31, 1994 included the operating loss of the
Company's discontinued biotreatment operations of $2,336,000. Loss from
continuing operations during 1995 increased $2,639,000 due primarily to lower
chiral intermediates revenues and higher spending for the immunotherapeutic
program.
2
Year ended December 31, 1994 v. Year ended December 31, 1993
Revenues for the year ended December 31, 1994 were approximately
$2,843,000 which was at approximately the same level as compared to 1993.
Chemical intermediates revenue consisting of higher volume sales of chiral
products to existing customers increased $345,000, or 21%, to $1,998,000 in 1994
as compared to 1993. Chiral research contract revenues for 1994 was $258,000,
which was an increase of $103,000, or 66%, over the comparable period in 1993.
This increase in contract revenues was due to the Company entering into research
contracts for new compounds with new customers. Investment income decreased
approximately $406,000, or 41%, to approximately $587,000 in 1994 as compared to
1993, due to the decrease in funds available for investment.
For the year ended December 31, 1994, cost of goods sold as a percentage
of chemical intermediates revenue was 55% as compared to 87% for the comparable
1993 period. The lower cost of goods sold percentage in 1994 was due to improved
productivity and the volume of products internally manufactured by the Company
as compared to 1993 when a significant volume of products were produced by
outside manufacturers. In the comparative period for 1994, no outside
manufacturers were used and all of the Company's product revenues were derived
from products manufactured by Celgene. Research and development expenses for the
year ended December 31, 1994 increased $1,731,000, or 36%, to $6,492,000 as
compared to the same period in 1993, due to clinical trial expenses for the
immunotherapeutic program and, to a lesser extent, to higher personnel and
related expenses. Selling, general and administrative expenses for the year
ended December 31, 1994 decreased $470,000, or 13.1% to $3,131,000 as compared
to 1993 primarily due to no incentive bonus expense partially offset by increase
personnel and facilities expenses.
Net loss for the year ended December 31, 1994 was approximately
$10,213,000 which was at the same approximate level as compared to 1993. Loss
from continuing operations increased $869,000, or 12%, to $7,877,000 in 1994
over the comparable 1993 period. The operating loss of the discontinued
operation decreased $1,821,000 to $1,497,000 primarily due to cessation of the
Company's biotreatment operations during the second quarter of 1994.
Other Matters
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which will become effective on January 1, 1996. SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed. Adoption of SFAS No. 121 is not expected to have a material impact on
the Company's consolidated financial position and operating results, nor will it
affect the Company's cash flows.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes an alternative method of
accounting for stock based compensation awarded to employees such as stock
options granted by the Company to employees. The standard provides for the
recognition of compensation expense based on the fair value of the stock-based
award, but allows companies to continue to measure compensation cost in
accordance with Accounting Principles Board
3
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Companies
electing to retain this method must make pro forma disclosures of net income and
earnings per share as if the fair value based method had been applied. The
Company plans to continue to use APB No. 25, which does not require the Company
to record compensation expense for the stock options it awards to employees.
Restricted stock awards for which the Company presently accrues compensation
would continue to be accounted for in that manner. With respect to fiscal 1996,
the Company will disclose the pro forma effect of the fair value method on 1995
and 1996 net income and earnings per share.
4
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) See Index to Financial Statements immediately following Exhibit
Index.
(b) No reports on Form 8-K were filed during the Company's fourth
quarter in 1995.
(c) Exhibits
See Exhibit Index immediately following signature pages.
5
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
By /s/ John W. Jackson
-------------------------------
John W. Jackson
Chairman of the Board and
Chief Executive Officer
Date: May 29, 1996
6
(c) Exhibits.
3.1 - Certificate of Incorporation of the Company (Incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-1,
dated July 24, 1987).
3.2 - By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, dated July 24, 1987).
4.1 - Form of 8% Convertible Debenture due July 31, 1997 (Incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
4.2 - Form of Certificate of Designation of Series A Convertible Preferred
Stock, par value $.01 per share (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, dated March 13, 1996).
10.1 - Asset and Technology Transfer Agreement, dated as of September 16, 1986,
between the Company and Hoechst Celanese (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-1, dated
July 24, 1987).
10.2 - Purchase Agreement, dated as of September 16, 1986, between the Company
and Hoechst Celanese (Incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1, dated July 24, 1987).
10.3 - Stock Purchase Agreement, dated as of November 6, 1986, among the
Company and the purchasers on the signature pages thereto (Incorporated
by reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-1, dated July 24, 1987).
10.4 - 1986 Stock Option Plan (Incorporated by reference to Exhibit A to the
Company's Proxy Statement dated April 13, 1990).
10.5 - Forms of Stock Option Agreements (Incorporated by reference to Exhibit
10.6 to the Company's Registration Statement on Form S-1, dated July 24,
1987).
10.6 - Employment Agreement, dated September 12, 1987, between the Company and
Sol J. Barer (Incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.7 - Holdback Agreement, dated November 6, 1986, between the Company and the
signatories thereto (Incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1, dated July 24, 1987).
10.8 - Form of indemnification agreement between the Company and each officer
and director of the Company (Incorporated by reference to Exhibit 10.14
to the Company's Registration Statement on Form S-1, dated July 24,
1987).
7
10.9 - Agreement, dated October 24, 1986, between the Company and Collaborative
Research Incorporated (Incorporated by reference to Exhibit 10.15 to the
Company's Registration Statement on Form S-1, dated July 24, 1987).
10.10 - Lease Agreement, dated January 16, 1987, between the Company and Powder
Horn Associates (Incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1, dated July 24, 1987).
10.11 - Amendment No. 1, dated September 12, 1990, to the Employment Agreement,
dated September 12, 1987, between the Company and Sol J. Barer.
(Incorporated by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990).
10.12 - Stock Option and Registration Rights Agreement, dated June 21, 1990,
between the Company and John L. Ufheil (Incorporated by reference to
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990).
10.13 - Warrant Agreement, dated as of February 21, 1991 (Incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.14 - Form of Restricted Stock Award Agreement (Incorporated by reference to
Exhibit 10.24 to Amendment No. 1 to the Company's Registration Statement
on Form S-2, dated May 7, 1991).
10.15 - Draft Letter Agreement to Warrant Agreement (Incorporated by reference
to Exhibit 10.25 to Amendment No. 1 to the Company's Registration
Statement on Form S-2, dated May 7, 1991).
10.16 - 1992 Long-Term Incentive Plan (Incorporated by reference to Exhibit A to
the Company's Proxy Statement, dated April 17, 1992).
10.17 - 1992 Non-Employee Directors' Incentive Plan (Incorporated by reference
to Exhibit B to the Company's Proxy Statement, dated April 17, 1992).
10.18 - Form of Option Agreements under the 1992 Long-Term Incentive Plan and
1992 Non-Employee Directors' Incentive Plan (Incorporated by reference
to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.19 - Stock Option Agreement, dated August 2, 1993, between the Company and
John L. Ufheil. (Incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993).
10.20 - License and asset purchase agreement dated June 17, 1994 between the
Company and Sybron Chemicals, Inc. (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
10.21 - Amendment No. 2, dated November 1, 1993, to the Employment Agreement,
dated September 12, 1987, or between the Company and Sol J. Barer.
(Incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994).
8
10.22 - Amendment No. 3, dated March 1, 1994, to the Employment Agreement, dated
September 12, 1987 between the Company and Sol J. Barer. (Incorporated
by reference to Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994).
10.23 - Stock Option Agreement, dated March 21, 1994, between the Company and
Richard G. Wright. (Incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994).
10.24 - Engagement Agreement dated November 23, 1994, between the Company and
Redington, Inc. (Incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.25 - Agent's Warrant issued in connection with the placement of 8%
Convertible Debentures (Incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
10.26 - Form of Registration Rights Agreement (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K, dated March
13, 1996 previously filed).
10.27 - Agent's Warrant issued in connection with the placement of Series A
Convertible Preferred Stock (previously filed).
23 - Consent of KPMG Peat Marwick LLP
27 - Financial Data Schedule - Article 5 for Year Form 10-K (previously
filed)
9
CELGENE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
CELGENE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Independent Auditor's Report ............................................. F-2
Balance Sheets as of December 31, 1995 and 1994 .......................... F-3
Statements of Operations - Years Ended
December 31, 1995, 1994, and 1993 ................................ F-4
Statements of Stockholders' Equity - Years
Ended December 31, 1995, 1994 and 1993 ........................... F-5
Statements of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993 ................................. F-6
Notes to Financial Statements ............................................ F-8
All other Schedules are omitted as they are not required, or are not
applicable, or the required information is shown in the financial statements or
notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CELGENE CORPORATION:
We have audited the accompanying balance sheets of Celgene Corporation
as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted audited
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Celgene Corporation
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in note 2 to the financial statements, the Company adopted
the provisions of the Financial Accounting Standard Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective January 1, 1994.
Short Hills, New Jersey
February 17, 1996, except as
to note 12, which is as of
March 13, 1996
F-2
CELGENE CORPORATION
BALANCE SHEETS
December 31,
-------------------------------
1995 1994
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 337,165 $ 292,925
Marketable securities available for sale ...... 11,375,740 8,207,161
Accounts receivable ........................... 397,241 623,084
Other current assets .......................... 404,011 428,844
----------- ------------
Total current assets .......................... 12,514,157 9,552,014
Plant and equipment, net ...................... 1,207,805 1,954,666
Other assets .................................. 41,250 41,250
Deferred debt costs ........................... 448,006 --
----------- ------------
$14,211,218 $11,547,930
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 607,206 $ 439,189
Accrued expenses .............................. 1,610,846 1,104,675
----------- ------------
Total current liabilities ..................... 2,218,052 1,543,864
Convertible debentures (note 6) ............... 4,592,366 --
Convertible debentures-accrued interest ....... 258,299 --
----------- ------------
Total liabilities ............................. 7,068,717 1,543,864
----------- ------------
Commitments and contingencies (note 11)
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 8,783,592 and 7,862,689 shares at
December 31, 1995 and 1994,
respectively ............................... 87,836 78,627
Additional paid-in capital .................... 78,064,288 70,684,768
Unamortized deferred compensation-- restricted
stock ...................................... (7,085) (19,174)
Accumulated deficit ........................... (70,989,400) (60,472,877)
Net unrealized loss on marketable securities
available for sale .......................... (13,138) (267,278)
----------- ------------
Total stockholders' equity .................... 7,142,501 10,004,066
----------- ------------
$14,211,218 $11,547,930
=========== ============
See Accompanying Notes to Financial Statements
F-3
CELGENE CORPORATION
STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- ----------
Revenues:
Sales of chemical intermediates ........... $ 657,753 $ 1,997,636 $1,652,233
Research contracts ........................ 515,000 258,000 155,000
Investment income ......................... 568,516 586,931 992,734
----------- ----------- ----------
1,741,269 2,842,567 2,799,967
----------- ----------- ----------
Expenses:
Cost of goods sold ........................ 792,251 1,096,687 1,444,904
Research and development .................. 8,183,045 6,492,468 4,761,907
Selling, general and administrative ....... 2,857,758 3,130,551 3,600,914
Interest .................................. 424,738 -- --
----------- ----------- ----------
12,257,792 10,719,706 9,807,725
----------- ----------- ----------
Loss from continuing operations ........... (10,516,523) (7,877,139) (7,007,758)
Discontinued operations (note 9)
Loss from operations ...................... (--) (1,497,088) (3,318,028)
Loss on disposal .......................... -- (839,000) --
----------- ----------- ----------
Loss from discontinued operation .......... (--) (2,336,088) (3,318,028)
----------- ----------- ----------
Net loss .................................. ($10,516,523) ($10,213,227) ($10,325,786)
============ ============ ============
Per share of Common Stock (note 2)
Loss from continuing operation ............ ($1.30) ($1.00) ($.89)
Loss from discontinued operation .......... -- (.30) (.43)
------------ ------------ ------------
Net loss .................................. ($1.30) ($1.30) ($1.32)
============ ============ ============
Weighted average number of shares of common
stock outstanding ......................... 8,073,000 7,853,000 7,841,000
============ ============ ============
See Accompanying Notes to Financial Statements.
F-4
CELGENE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
Net
Unrealized
Loss on
Common Stock Marketable
------------------------- Additional Unamortized Securities
Paid-in Deferred Accumulated Available
Shares Amount Capital Compensation Deficit For Sale Total
-------- -------- ---------- ------------- ------------ ----------- -----------
Balances at
December 31, 1992 ....... $7,827,595 $ 78,276 $ 70,444,712 ($ 214,531) ($39,933,864) -- $ 30,374,593
Exercised stock options .. 15,339 153 109,582 -- -- -- 109,735
Amortization of deferred
compensation ............ -- -- -- 137,072 -- -- 137,072
Net loss ................. -- -- -- -- (10,325,786) -- (10,325,786)
--------- ------- ------------ ------------ ------------ ------------ ------------
Balances at
December 31, 1993 ....... 7,842,934 78,429 70,554,294 (77,459) (50,259,650) -- 20,295,614
Repurchase of
employee's shares ....... (2,667) (26) (134) -- -- -- (160)
Restricted stock forfeited (4,000) (40) (44,960) 15,627 -- -- (29,373)
Exercised stock options .. 26,422 264 175,568 -- -- 175,832
Amortization of deferred
compensation ............ -- -- -- 42,658 -- -- 42,658
Net unrealized loss on
marketable securities
available for sale ...... -- -- -- -- -- (267,278) (267,278)
Net loss ................. -- -- -- -- (10,213,227) -- (10,213,227)
--------- ------- ------------ ------------ ------------ ------------ ------------
Balances at
December 31, 1994 ....... 7,862,689 78,627 $ 70,684,768 ($ 19,174) ($60,472,877) ($267,278) $10,004,066
Exercised stock options .. 24,987 250 170,638 -- -- -- 170,888
Amortization of deferred
compensation ............ -- -- -- 12,089 -- -- 12,089
Conversion of convertible
debenture ............... 895,916 8,959 7,565,114 -- -- -- 7,574,073
Cost associated with
conversion of
convertible debentures,
net .................... -- (356,232) -- -- -- (356,232)
Net unrealized gain on
marketable securities
available for sale ...... 254,140 254,140
Net loss ................. -- -- -- -- (10,516,523) -- (10,516,523)
--------- ------- ------------ ------------ ------------ ------------ ------------
Balances at
December 31, 1995 ....... $8,783,592 $ 87,836 $ 78,064,288 $ (7,085) ($70,989,400) ($13,138) $ 7,142,501
========= ======= ============ ============ ============ ============ ============
See Accompanying Notes to Financial Statements.
F-5
CELGENE CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------------------
1995 1994 1993
-------------- -------------- --------------
Cash flows from operating activities:
Loss from continuing operations ($10,516,523) ($ 7,877,139) ($ 7,007,758)
Adjustments to reconcile loss from
continuing operations to net cash
used in operating activities:
Depreciation and amortization 949,933 675,352 514,288
Amortization of deferred compensation 12,089 58,285 137,072
Interest on convertible debentures 424,738 -- --
Increase in accounts payable and
accrued expenses 674,188 17,253 150,605
(Increase) decrease in accounts receivable 225,843 (262,368) (222,344)
Increase (decrease) in other assets 24,833 60,381 (137,518)
------------ ------------ ------------
Net cash used in continuing operations (8,204,899) (7,328,236) (6,565,655)
Net cash used in discontinued operation -- (1,736,054) (2,421,809)
------------ ------------ ------------
Net cash used in operating activities (8,204,899) (9,064,290) (8,987,464)
------------ ------------ ------------
Cash flows from investing activities:
Continuing operations:
Capital expenditures (29,880) (198,964) (280,919)
Proceeds from sales and maturities
of marketable securities available
for sale 22,185,466 19,314,158 42,543,395
Purchases of marketable securities
available for sale (25,099,905) (10,678,498) (32,231,652)
------------ ------------ ------------
Net cash provided by (used in)
investing activities from
continuing operations (2,944,319) 8,436,696 10,030,824
Net investing activities of
discontinued operation -- -- (1,207,806)
------------ ------------ ------------
Net cash flows provided
by (used in) investing activities (2,944,319) 8,436,696 8,823,018
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 170,888 130,672 109,735
Net proceeds from issuance of
convertible debentures 11,022,570 -- --
------------ ------------ ------------
11,193,458 130,672 109,735
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 44,240 (496,922) (54,711)
Cash and cash equivalents at
beginning of period 292,925 789,847 844,558
------------ ------------ ------------
Cash and cash equivalents at end
of period $ 337,165 $ 292,925 $ 789,847
============ ============ ============
Net increase (decrease) in cash and
cash equivalents 44,240 (496,922) (54,711)
Increase (decrease) in marketable
securities available for sale 3,168,579 (8,902,938) (10,311,743)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents and marketable
securities available for sale $ 3,212,819 ($ 9,399,860) ($10,366,454)
============ ============ ============
See Accompanying Notes to Financial Statements. (continued)
F-6
CELGENE CORPORATION
STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31,
---------------------------------------------
1995 1994 1993
-------------- -------------- --------------
Non-cash investing activity:
Net change gain (loss) in net unrealized
loss on securities available for sale $ 254,140 ($ 267,278) --
============ ============ ============
Non-cash financing activities:
Issuance of common stock upon the
conversion of convertible debentures
and accrued interest thereon, net $ 5,928,907 -- --
============ ============ ============
Issuance of warrants for services
rendered in connection with the
issuance of convertible debentures $ 94,500 -- --
============ ============ ============
See Accompanying Notes to Financial Statements.
F-7
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
1. Nature of Business and Liquidity
Celgene Corporation ("Celgene" or the "Company") attempts to develop and
produce innovative products primarily for two major pharmaceutical markets: high
purity chiral chemical intermediates for use in the production of
pharmaceuticals, food additives, agricultural chemicals, and proprietary
products with distinct therapeutic advantages. Prior to June 1994, the Company
was also engaged in the development of biotreatment systems designed to detoxify
certain chemical process waste streams before they are released by a
manufacturing plant to the environment. See note 9 with respect to the Company's
disposal of its biotreatment business.
The Company believes that its current resources and income derived from
investments plus revenues from chiral product sales, research contracts, and
potential recoveries under the FDA approved SYNOVIR cost recovery program will
be sufficient to meet the Company's capital requirements for at least the
balance of 1996 and 1997. However, to assure funding for the Company's future
operations the Company continues to seek additional capital resources. These may
include the sales of additional securities under appropriate market conditions,
alliances or other partnership agreements with entities interested in and
possessing 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 in the long-term. However, no assurances can be given that the Company
will be successful in raising additional capital or entering into any business
alliances. 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.
The preparation of the financial statements requires management to make
estimates and assumptions that affect reported amounts and disclosures in these
financial statements. Actual results could differ from those estimates. The
Company is subject to certain risks and uncertainties as a result of changes in
the healthcare environment, results of clinical trials and discovery of new
drugs.
2. Summary of Significant Accounting Policies
(a) Cash Equivalents
At December 31, 1995 and 1994, cash equivalents consisted principally of
funds invested in overnight repurchase agreements secured by United States
government treasury bills and money market funds, United States government
securities such as treasury bills and notes, and Federal agency notes and bonds
with maturities of three months or less when purchased.
(b) Marketable Securities
On January 1, 1994, the Company adopted Financial Accounting Standards Board
("FASB") Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly,
F-8
the Company has classified all of its marketable securities as securities
available for sale. Such securities are to be held for an indefinite period of
time and are intended to be used to meet the ongoing liquidity needs of the
Company. Marketable securities available for sale at December 31, 1995 and 1994
are carried at fair value, and unrealized holding gains and losses on such
securities are excluded from earnings, and are included as a component of
stockholders' equity. Realized gains and losses are included in operations and
are measured using the specific cost identification method.
(c) Plant and Equipment
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:
Laboratory equipment and machinery ........................ 5-10 years
Furniture and fixtures .................................... 5-10 years
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.
(d) Research and Development Costs
All research and development costs are expensed as incurred.
(e) 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.
(f) Revenue Recognition
Revenue from the sale of chemical intermediates 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.
(g) Share Information
Net loss per share of common stock is based upon the weighted average number
of shares of common stock outstanding. The assumed exercise of stock options and
conversion of convertible debentures are not considered, as the effect would be
anti-dilutive.
F-9
(h) Presentation
In connection with the discontinuation of the Company's biotreatment
operation (see note 9), the 1994 and 1993 financial results applicable to
continuing operations exclude amounts from the discontinued operation.
(i) Deferred Debt Costs
Deferred debt costs are amortized over the life of the debt.
(j) 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 the relative short period since their initial
issuance to December 31, 1995. For all other financial instruments their
carrying value approximates fair value due to the short maturity of these
instruments.
3. Plant and Equipment
Plant and equipment consists of the following:
December 31,
1995 1994
---- ----
Leasehold improvements........... $ 3,113,212 $ 2,955,606
Laboratory equipment and
machinery........................ 4,946,764 5,074,490
Furniture and fixtures........... 391,370 391,370
------- -------
8,451,346 8,421,466
Less: accumulated depreciation
and amortization................. 7,243,541 6,466,800
--------- ---------
$ 1,207,805 $ 1,954,666
=========== ===========
4. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1995 1994
---- ----
Professional and consulting fees $ 912,400 $ 691,086
Accrued compensation 610,111 341,290
Other 88,335 72,299
--------- ---------
$1,610,846 $1,104,675
========= =========
F-10
5. Stockholder Registration Rights
All of the rights, designations and preferences of the preferred stock may
be determined by the Company's Board of Directors. At December 31, 1995 no
preferred stock had been issued. Certain stockholders have demand and piggyback
registration rights with respect to the common stock issued to such
stockholders. Celgene is party to holdback agreements with certain investors in
the event that it files a registration statement in connection with an
underwritten registration statement pursuant to the exercise of such
registration rights.
6. 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 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 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 December 31, 1995, convertible debentures in
the aggregate principal amount of $6,213,000, plus accrued interest, had been
converted into a total of 895,916 shares of common stock.
7. Stock Options and Restricted Stock Awards
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.
F-11
The shares subject to each 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 equates to 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 and no additional options or
restricted stock awards may be granted under the Company's 1992 Non-Employee
Directors' Stock Option Plan.
On May 27, 1992, the stockholders of the Company approved two new stock
option plans: the 1992 Long-Term Incentive Plan (the "Incentive Plan") and the
1992 Non-Employee Directors' Stock Option Plan (the "1992 Directors' Plan").
The Incentive Plan provides 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 1,000,000 shares of common stock, 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 Plan. This plan
terminates in 2002.
The Company also has a 1986 Stock Option Plan (the "1986 Plan"), which
provides for the granting of options and restricted stock awards to employees
and officers of the Company for up to 1,250,000 shares of common stock, of which
200,000 shares are issuable pursuant to grants of restricted stock awards. Prior
to the approval of the 1992 Directors' Plan, the 1986 Plan provided for up to
200,000 of the 1,250,000 shares of common stock to be issued to Non-Employee
Directors pursuant to the grant of options and restricted stock awards.
Non-Employee Directors no longer are eligible to participate in the 1986 Plan.
All options previously granted to Non-Employee Directors under the 1986 Plan
vest in four equal annual installments commencing one year from the date of
grant. The Committee determines the type, amount and terms, including vesting,
of any awards made under the 1986 Plan. The 1986 Plan will terminate in June,
1996.
With respect to options granted under the Incentive Plan, the 1992
Directors' Plan, and the 1986 Plan (collectively, the "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 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.
Restricted stock awards granted pursuant to the Plans generally require no
payments by the grantee. All of the shares of stock subject to such restricted
stock awards are subject to forfeiture if the employee's employment, or
Non-Employee Director's association with the Company, is terminated or ended
(except under certain circumstances) prior to a vesting period of generally
three to five years from the restricted stock award grant date. The market price
of the shares on the date of the grant is recorded as a deduction from
stockholders' equity (unamortized deferred compensation -- restricted stock)
which is amortized to compensation expense over the applicable vesting period.
The Company may grant additional options outside the Plans in connection
with its efforts to hire or retain consultants and others. At December 31, 1995,
the Committee has been authorized by the Board
F-12
of Directors to grant options outside of the Plans for an additional 7,918
shares of common stock, substantially all of which may be exercisable at prices
below the fair value of the common stock on the date of grant.
In connection with the retention of a financial advisor, the Company in
February 1991 granted to such financial advisor a warrant to purchase, until
January 15, 1996, 50,000 shares of common stock at a price of $6.50 per share.
This warrant was outstanding as of December 31, 1995.
In connection with the retention of an investor relations firm, the Company
in November 1994 granted to such firm a warrant to purchase until September 1,
1999, 50,000 shares of common stock at a price of $6.50 per share. This warrant
was outstanding as of December 31, 1995.
In connection with the retention of an investment firm to assist in the sale
and issuance of convertible debentures, 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. These warrants were outstanding as of
December 31, 1995.
The following table summarizes restricted stock award activity:
1995 1994 1993
---- ---- ----
Shares granted -- -- --
Market price at date of grant -- -- --
Shares vested 1,333 22,996 31,101
Vested price $17.00 $ 7.375 $7.375-$17.00
Shares forfeited -- (4,000) --
The following table summarizes stock option activity:
1995 1994 1993
---- ---- ----
Options outstanding,
beginning of year ................ 1,304,799 1,145,969 1,002,472
Options granted .................. 209,368 418,994 282,000
Options exercised ................ (24,987) (26,422) (15,339)
Options cancelled ................ (78,712) (233,742) (123,164)
Options outstanding, end of
year ............................. 1,410,468 1,304,799 1,145,969
============ =========== ===========
Options exercisable, end of
year ............................. 973,514 924,493 936,616
============ =========== ============
Exercise prices .................. $8.50-$10.75 $6.00-$7.25 $6.63-$9.38
============ =========== ============
Options price range, end of
year ............................. $5.44-$17.75 $5.75-$17.75 $5.75-$17.75
============ ============ ============
Option price grant range ......... $5.44-$10.50 $6.63-$8.38 $7.13-$13.88
============ ============ ============
F-13
8. Income Taxes
At December 31, 1995 and 1994, the tax effects of temporary differences that
give rise to deferred tax assets are as follows:
Deferred Assets: 1995 1994
- --------------- ---- ----
Federal and state net operating loss
carryforwards ............................ $ 26,510,000 $ 22,280,000
Research and experimentation tax
credit carryforwards ..................... 1,851,000 1,777,000
Plant and equipment, principally due to
differences in depreciation .............. 1,226,000 1,184,000
Patents, principally due to differences
in amortization .......................... 90,000 97,000
Accrued expenses, principally due to
accrual for financial reporting
purposes ................................. 297,000 377,000
------------ ------------
Total deferred tax assets .................. 29,974,000 25,715,000
Valuation allowance ........................ (29,974,000) (25,715,000)
------------ ------------
Net deferred tax assets .................... $ -- $ --
============ ============
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, 1995, the Company had net operating loss carryforwards of
approximately $66,900,000 that will expire in the years 2001 to 2010. The
Company also has research and experimentation credit carryforwards of
approximately $1,851,000 that expire in the years 2001 to 2010. Ultimate
utilization/availability of such net operating losses and credits may be
curtailed if a significant change in ownership occurs.
9. Discontinued Operation
On June 16, 1994, the Company entered into an agreement with Sybron
Chemicals, Inc. ("Sybron Chemicals") pursuant to which the Company has
exclusively licensed its biotreatment technology and sold its biotreatment
laboratory and field demonstration equipment to Sybron Chemicals. Under the
terms of the agreement, Sybron Chemicals has the exclusive right to
commercialize the Company's biocatalysis technology for the removal of hazardous
wastes from manufacturing and process waste streams. During the next ten years,
under the terms of the agreement, the Company will receive royalty payments
based on a percentage of commercial net sales of biotreatment systems made by
Sybron Chemicals. The Company has not recorded any royalty revenues in 1995 and
1994.
During the second quarter of 1994, the Company recognized a charge to
discontinued operations of $839,000, or $.11 per share, for disposal of its
biotreatment business, of which $536,000 represents a non-cash loss on the sale
of capital equipment dedicated to the Company's biotreatment operations and
$303,000 relates to severance arrangements with biotreatment personnel.
F-14
For the years ended December 31, 1994, and 1993, revenues relative to the
biotreatment operations were approximately $38,000, and $195,000, respectively.
Direct expenses related to the biotreatment operations, primarily for personnel,
research and development and depreciation, including a $500,000 charge
representing management's best estimate of the impairment in value of the
biotreatment assets in 1993, amounted to $1,535,000, and $3,513,000 for the
years ended December 31, 1994, and 1993, respectively.
10. Marketable Securities Available for Sale
Marketable securities available for sale at December 31, 1995 include debt
securities with maturities ranging from January, 1996 to June, 1998. A summary
of marketable securities at December 31, 1995 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------ ----------- -------------- ------------
US Government and agency
obligations $ 8,892,723 -- ($ 13,301) $ 8,879,422
Certificates of deposit 1,000,017 -- ( 22) 999,995
Asset backed security 500,665 -- ( 509) 500,156
Commercial Paper 995,473 694 -- 996,167
------------ ------------ ------------ ------------
$ 11,388,878 $ 694 ($ 13,832) $ 11,375,740
============ ============ ============ ============
The net change in the gross unrealized loss for the year ended December 31,
1995 decreased by approximately $254,000. The proceeds from sales and maturities
of marketable securities available for sale included gross realized gains and
losses of approximately $34,000 and $148,000 respectively, for the year ended
December 31, 1995.
A summary of marketable securities at December 31, 1994 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------ ----------- -------------- ------------
US Government and agency
obligations $ 6,852,770 -- ($ 161,048) $ 6,691,722
Corporate obligations 1,621,669 -- ( 106,230) 1,515,439
----------- ----------- ----------- -----------
$ 8,474,439 -- ($ 267,278) $ 8,207,161
=========== =========== =========== ===========
The gross unrealized loss as of the January 1, 1994 adoption date was
approximately $110,000. The net change in the gross unrealized loss for the year
ended December 31, 1994 was an increase of approximately $157,000. The proceeds
from sales and maturities of marketable securities available for sale included
gross realized gains and losses of approximately $7,000 and $47,000,
respectively, for the year ended December 31, 1994.
F-15
11. Commitments and Contingencies
(a) Lease
Celgene leases its laboratory and office facilities in Warren Township, New
Jersey. The current lease term expires in 1997 and has two five-year renewal
options. 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 $448,000, $474,000,
and $479,000 in 1995, 1994 and 1993, respectively.
(b) Employment Agreements
Celgene has employment agreements with certain officers and employees. The
related outstanding commitments at December 31, 1995 total approximately
$826,000, and $44,000 for 1996, and 1997, respectively. Employment contracts
provide for an increase in compensation reflecting annual reviews and related
salary adjustments.
(c) Contracts
The Company enters into sponsored research contracts from which certain
revenues are derived. Aggregate research and development costs incurred in
connection with such contracts totalled $403,000, $247,000, and $120,000 in
1995, 1994 and 1993 respectively.
In August 1992, the Company entered into a two-year research and development
agreement with The Rockefeller University to prove the effectiveness of certain
glutarimides and their derivatives in reducing symptoms associated with elevated
TNF[A] levels in patients. Under the terms of the agreement, the Company has
the world-wide exclusive license to manufacture and market any drugs, including
SYNOVIR, which may result from the research performed at The Rockefeller
University. Rockefeller is entitled to receive royalties based on commercial
sales of any such drugs. In July 1994 this agreement was extended for an
additional two years. Under terms of the extension, the Company is committed to
pay the Rockefeller University $504,000 annually. The Company intends to seek in
1996 to extend the agreement an additional two years.
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, 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 facility payments are
$268,000, which commences in the month the first milestone is completed. Penn
will manufacture SYNOVIR and sell it to the Company at a price to be agreed
upon.
(d) Insurance
Liability insurance market conditions have resulted in various coverages,
including product liability coverages, becoming either unavailable or
excessively expensive. Celgene has obtained limited general liability and
umbrella insurance coverage. If a lawsuit were filed and a judgement entered
against the
F-16
Company, it could have a material adverse effect on the business and financial
condition of Celgene if such judgment were not covered by the limited insurance
or exceeded the policy limits.
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 on Market Risk
During 1995, one customer accounted for approximately 40% of the total chiral
revenues. During 1994, three customers accounted for approximately 83% (57%, 14%
and 12% individually) of the total chiral revenues. During 1993, three customers
accounted for approximately 96% (35%, 31% and 30% individually) of the total
chiral revenues.
12. Subsequent Event
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, for total
gross proceeds of $25,150,000. The Company received net proceeds, after offering
costs, of approximately $23,800,000. 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 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 a holder, the Company has
the right (i) to redeem shares presented for conversion, or (ii) to defer
conversion for 90 days, in which case the Company would issue warrants to any
holder of Preferred Stock affected by the deferral of the conversion. 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 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.
In connection with the private placement, the Company granted to certain
executives and affiliates of the placement agent warrants 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.
F-17
STATEMENT OF DIFFERENCES
The lower case Greek letter alpha associated with Tumor Necrosis Factor Alpha
shall be expressed as [A]