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, 1996
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
- --------------------------------------- ----------
(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, 1996, 9,590,653 shares of Common Stock, and 438
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
Unaudited Condensed Financial
Item 1 Statements Page No.
Condensed Balance Sheets as of
June 30, 1996 (unaudited) and
December 31, 1995 3
Unaudited Condensed Statements
of Operations - Six-Month Periods
Ended June 30, 1996 and 1995 4
Unaudited Condensed Statements
of Operations - Three-Month
Periods Ended June 30, 1996
and 1995 5
Unaudited Condensed Statements
of Cash Flows - Six-Month
Periods Ended June 30, 1996
and 1995 6
Notes to Unaudited Condensed
Financial Statements 8
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 14
Signatures 15
2
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
CELGENE CORPORATION
CONDENSED BALANCE SHEETS
ASSETS (Unaudited)
------ June 30 December 31
------- -----------
1996 1995
---- ----
Current assets:
Cash and cash equivalents $ 1,070,812 $ 337,165
Marketable securities available
for sale 26,956,556 11,375,740
Accounts receivable 728,500 397,241
Other current assets 984,550 404,011
------------ ------------
Total current assets 29,740,418 12,514,157
Plant and equipment, net 1,518,660 1,207,805
Deferred costs 239,424 448,006
Other assets 41,250 41,250
------------ ------------
$ 31,539,752 $ 14,211,218
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 701,426 $ 607,206
Accrued expenses 1,141,361 1,610,846
------------ ------------
Total current liabilities 1,842,787 2,218,052
Convertible debentures 2,026,043 4,592,366
Convertible debentures-
accrued interest 263,330 258,299
------------ ------------
Total liabilities 4,132,160 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
485 shares at June 30, 1996
includes $370,954 accrued
accretion 24,620,954
Common stock, par value $.01 per
share. Authorized 20,000,000
shares; issued 9,290,699
and 8,807,863 shares at
June 30,1996 and December 31,
1995, respectively 92,907 88,079
Additional paid-in capital 80,633,667 78,064,288
Unamortized deferred compensation -
restricted stock (3,401) (7,085)
Accumulated deficit (77,831,563) (70,989,400)
Net unrealized gain (loss) on
marketable securities available
for sale (4,734) (13,138)
Common stock in treasury, at cost
29,985 and 24,271 shares at
June 30, 1996 and December 31,
1995, respectively (100,239) (243)
------------ -----------
Total stockholders' equity 27,407,592 7,142,101
------------ -----------
$ 31,539,752 $ 14,211,218
============ ============
See accompanying notes to financial statements
3
CELGENE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Six-Month Period Ended June 30,
-------------------------------
1996 1995
--------- ---------
Revenues:
Sales of chemical
intermediates $ 1,018,805 $ 242,138
Research contracts 335,000 240,000
Investment income 630,665 188,740
----------- -----------
1,984,470 670,878
----------- -----------
Expenses:
Cost of goods sold 448,615 363,926
Research and development 6,320,423 3,346,294
Selling, general and
administrative 1,366,545 1,364,254
Interest expense and
other financing costs 308,850 -
----------- -----------
8,444,433 5,074,474
----------- -----------
Net loss ($6,459,963) ($4,403,596)
Accretion of premium payable
on preferred stock 382,200 -
----------- -----------
Net loss applicable to common
shareholders ($6,842,163) ($4,403,596)
=========== ===========
Net loss applicable to common
shareholders per share of
common stock ($.75) ($.56)
===== =====
Weighted average number
of shares of common stock
outstanding 9,079,000 7,863,000
=========== ===========
See accompanying notes to financial statements
4
CELGENE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three-Month Period Ended June 30,
---------------------------------
1996 1995
---------- -----------
Revenues:
Sales of chemical
intermediates $ 502,300 $ 223,550
Research contracts 185,000 100,000
Investment income 478,363 80,350
----------- -----------
1,165,663 403,900
----------- -----------
Expenses:
Cost of goods sold 179,093 203,549
Research and development 3,582,457 1,768,222
Selling, general and
administrative 804,994 689,143
Interest expense and
other financing costs 101,257 -
----------- -----------
4,667,801 2,660,914
----------- -----------
Net loss ($3,502,138) ($2,257,014)
Accretion of premium payable
on preferred stock 305,753 -
----------- -----------
Net loss applicable to common
shareholders ($3,807,891) ($2,257,014)
=========== ===========
Net loss applicable to common
shareholders per share of
common stock ($.41) ($.29)
===== =====
Weighted average number
of shares of common stock
outstanding 9,079,000 7,863,000
=========== ===========
See accompanying notes to financial statements
5
CELGENE CORPORATION
UNAUDITED STATEMENTS OF CASH FLOW
Six-Month Period Ended June 30,
-------------------------------
1996 1995
------------ -----------
Operating activities:
Net loss applicable to
common shareholders ($ 6,842,163) ($ 4,403,596)
Non-cash items:
Depreciation and
amortization 449,005 388,006
Amortization of
deferred compensation 3,684 6,988
Interest on convertible
debentures 174,712 -
Change in current assets
and liabilities:
Accretion of premium
payable on preferred
stock 382,200 -
Increase (decrease) in
accounts payable and
accrued expenses (374,066) 66,272
(Increase) decrease in
accounts receivable (331,259) 301,771
Increase in other
current assets (580,539) (51,323)
------------ ------------
Net cash used in
operating activities ($ 7,118,426) ($ 3,691,882)
Investment activities:
Capital expenditures (638,166) (9,246)
Proceeds from sales and
maturities of marketable
securities available
for sale 77,602,229 4,827,327
Purchase of marketable
securities available
for sale (93,174,641) (522,250)
------------ ------------
Net cash (used in)provided
by investment activities (16,210,578) 4,295,831
Financing activities:
Net proceeds from exercise
of common stock options 233,026 -
Net proceeds from sale of
preferred stock 23,829,625
------------
Net cash provided by
financing activities 24,062,651 -
6
CELGENE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF CASH FLOW (Continued)
Net change in cash and
cash equivalents $ 733,647 $ 603,949
Cash and cash equivalents
at beginning of period 337,165 292,925
---------- ----------
Cash and cash equivalents
at end of period $1,070,812 $ 896,874
========== ==========
Non-cash investing activities:
Net change in net,
unrealized loss on
securities available
for sale $ 8,404 $ 110,071
========== ==========
Non-cash financing activities:
Issuance of common
stock upon the
conversion of convertible
debentures and accrued
interest thereon, net $2,566,323 $ -
========== ==========
Issuance of common stock
upon the conversion of
convertible preferred
stock and accrued
accretion thereon, net $ 912,445 $ -
========== ==========
Issuance of common stock
upon exercise of
options through the
return of previously
outstanding common
stock $ 99,996 $ -
========== ==========
See accompanying notes to financial statements
7
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements
June 30, 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.
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 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 average closing price per share of common stock for the
seven trading days immediately prior to June 30, 1996 was $12.21. 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%, of 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 Company to file a registration statement covering the shares of
Common Stock of the Company underlying the Preferred Stock.
8
A registration statement with respect to investors resales of common shares
underlying the convertible preferred stock was filed and declared effective
on June 11, 1996. The Company had $369,755 accrued at June 30, 1996 for
accretion of the premium on the Preferred Stock.
As of June 30, 1996, 18 shares (as of July 31, 1996, 65 shares) of the
Series A Preferred Stock, with their respective accrued accretion, had been
converted into 68,906 (398,845 at July 31, 1996) shares of common stock.
While no conversion deferral warrants were issued as of June 30, 1996, as
of July 31, 1996 the Company had issued warrants that entitle certain
stockholders of the Series A Preferred Stock to purchase 24,358 shares of
common stock at an exercise price of $11.50. The warrants were issued
pursuant to the Company's right to defer conversion for 90 days. These
warrants are exercisable for a period of two years from the date of
issuance.
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. During the quarter ended June 30, 1996,
convertible debentures in the aggregate principal amount of $600,000, plus
accrued interest were converted into a total of 79,916 shares of common
stock. As of June 30, 1996, convertible debentures in the aggregate
principal amount of $9,750,000, plus accrued interest, had been converted
into a total of 1,268,597 shares of common stock. No interest was paid in
cash.
9
4. Marketable Securities Available for Sale
Marketable securities available for sale at June 30, 1996 include debt
securities with maturities ranging from July, 1996 to August, 1997. A
summary of marketable securities at June 30, 1996 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
----------- ---------- ----------- -----------
US Government and agency
Obligations $ 3,972,096 - ($1,502) $ 3,970,594
Certificates of deposit $ 3,999,981 - (62) $ 3,999,919
Asset backed security $ 1,000,554 - ($554) $ 1,000,000
Corporate Bonds $ 1,528,618 - ($2,128) $ 1,526,490
Commercial Paper $16,460,041 - (488) $16,459,553
----------- ----------- --------- -----------
Total $26,961,290 - ($4,734) $26,956,556
=========== =========== ========= ===========
The net change in the gross unrealized gain for the quarter ended June 30,
1996 was a decrease of approximately $61,400. The proceeds from sales
included gross realized gains and losses of approximately $192,000 and
$11,000 respectively, for the quarter ended June 30, 1996.
The assets that back the asset backed security are credit card receivables
held in an irrevocable trust. The trust has received the highest possible
rating from Moodys, Standard & Poors and Fitch. The corporate bonds are A
rated or better and the commercial paper rating is A1P1.
10
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis
Financial Condition and Results of Operations
Liquidity and Capital Resources
On June 30, 1996 the Company had available working capital of approximately
$27,898,000, consisting principally of cash, cash equivalents and marketable
securities available for sale, which represents an increase of approximately
$17,602,000, 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 $500,000 within the next
eighteen 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 facility payments
are $268,000, which commence in the month the first milestone is completed. Penn
will manufacture SYNOVIR(TM) and sell it 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 the terms of the contract extension,
the Company is committed to an annual fee to Rockefeller University of $504,000
paid semi-annually in April and October.
Six-month period ended June 30, 1996 vs.
Six-month period ended June 30, 1995
- ----------------------------------------
Revenues for the six-month period ended June 30, 1996 were approximately
$1,985,000, which was an increase of approximately $1,314,000, approximately
triple, over the comparable period in 1995. Chiral intermediate revenues
increased $777,000 to $1,019,000 for the six-month period ended June 30, 1996 as
compared to the comparable 1995 period. This increase in chiral intermediate
revenues was due primarily to repeat orders reflecting customers' increased
requirements as their
11
products advance through clinical trials. Chiral intermediate revenues are
derived from developmental projects that may or may not move forward in
development or to commercialization. Therefore, these revenues are sporadic in
nature. Chiral research contract revenues for the first six months were $335,000
which was an increase of $195,000 over the first six months of 1995. This
increase in contract revenues was due to the Company entering into new research
contracts for developmental compounds and for expanding development of existing
compounds. Revenue backlog at June 30, 1996, for chiral intermediates and
research contracts decreased $162,000 or 28%, to $425,000 as compared to the
June 30, 1995 backlog. 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 increased $442,000, to $631,000 in the six months of 1996 as compared to
the six months of 1995 due to the increase in funds available for investment.
Investment income is expected to decline as the Company continues to utilize its
funds towards the commercialization of SYNOVIR(TM).
For the six months ended June 30, 1996, cost of goods sold increased
$85,000, or 24%, to $449,000 (which includes certain fixed manufacturing costs)
as compared to the six months of 1995, due to the higher volume of chiral
intermediate revenues. Research and development expenses for the six month
period ended June 30, 1996 increased by $2,974,000, or 89%, to $6,320,000 as
compared to the same period in 1995. This increase was due to an increase of
approximately $2.6 million in expenses associated with the immunotherapeutic
program and approximately $400,000 in 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
$1.1 million; regulatory and compliance expenses, which increased $775,000;
manufacturing of development quantities of SYNOVIR(TM), which increased expenses
approximately $475,000; and other research and development expenses, which rose
approximately $250,000. Research and development expenses associated with the
immunotherapeutic programs are anticipated to increase to an even greater degree
as the Company expects to incur substantial regulatory and clinical trial
related expenses related to the filing of an NDA for SYNOVIR(TM). Selling,
general and administrative expenses for the six-month period ended June 30, 1996
increased $2,000, to $1,366,000 as compared to the 1995 comparable period,
primarily due to the amortization of the convertible debenture offering cost
expense and the addition of product liability insurance. Interest expense and
amortization of offering costs, related to the convertible debenture was
$309,000 for the six months ended June 30,1996.
Net loss, applicable to common shareholders, for the six-month period ended
June 30, 1996 was approximately $6,842,000 which was an increase of
approximately $2,438,000, or 55%, over the comparable period in 1995, due
primarily to the increase in research and development spending as the Company
moves toward the filing of its first NDA.
12
Three-month period ended June 30, 1996 vs.
Three-month period ended June 30, 1995
- ------------------------------------------
Revenues for the three-month period ended June 30, 1996 were approximately
$1,166,000, which was an increase of approximately $762,000, over the comparable
period in 1995. Chiral intermediate revenues increased $278,000 to $502,000 for
the three-month period of 1996, as compared to the comparable 1995 period. The
increase in chiral intermediate revenues was due primarily to repeat orders
reflecting customers' increased requirements as their products advance through
clinical trials. Chiral research contract revenues for the second quarter were
$185,000, which was an increase of $85,000 over the second quarter of 1995.
Revenue backlog at June 30, 1996, for chiral intermediates and research
contracts, was approximately $425,000. Investment income increased $398,000, to
approximately double in the three months of 1996, as compared to the three
months of 1995, due to the increase in funds invested. Investment income is
expected to decline as the Company continues to utilize its funds towards the
commercialization of SYNOVIR(TM).
For the second quarter ended June 30, 1996, cost of goods sold decreased
$25,000, or 12%, to $179,000 (which includes certain fixed manufacturing costs)
as compared to the second quarter of 1995, due to improved manufacturing
efficiencies. Research and development expenses for the three-month period ended
June 30, 1996 increased by $1,814,000, approximately double, to $3,582,000 as
compared to the same period in 1995. This increase was due to approximately $1.5
million in higher expenses associated with the immunotherapeutic program and
approximately $314,000 in expenses for the chiral research group. The increase
in expenses associated with immunotherapeutic programs reflected growing
preclinical and clinical trials expenses, which increased approximately
$760,000; regulatory and compliance expenses, which increased $220,000,
manufacturing of development quantities of SYNOVIR(TM) which increased
approximately $220,000; manufacturing of development quantities of SYNOVIR(TM),
which increased approximately $160,000; and other research and development
expenses, which increased $360,000. Research and development expenses associated
with the immunotherapeutic programs are anticipated to increase to an even
greater degree as the Company expects to incur substantial regulatory and
clinical trial related expenses related to filing an NDA for SYNOVIR(TM).
Selling, general and administrative expenses for the three-month period ended
June 30, 1996 increased $116,000, or 17%, to $810,000 as compared to the 1995
comparable period due primarily to the addition of product liability insurance.
Interest expense, and amortization of offering costs related to the convertible
debenture was $101,000 for the three-month period ended June 30, 1996.
Net loss, applicable to common shareholders, for the three-month period
ended June 30, 1996 was approximately $3,808,000 which was an increase of
approximately $1,551,000, or 69%, over the comparable period in 1995, due to the
increase in R&D expenditures for the immunotherapeutic program.
13
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 14, 1996. At this
meeting stockholders of the Company were asked to vote for the election of
directors, act upon the proposal to approve the amendment of the Corporation's
1992 Long-Term Incentive Plan to continue to qualify it under Section 162(m) of
the Internal Revenue Code of 1986, 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, 1996. All nominated
directors were elected, the proposal to amend the Corporation's 1992 Long-Term
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
--- -------- ---------
John W. Jackson 7,605,288 491,435 -
Sol J. Barer 7,603,927 492,796 -
Frank T. Cary 7,605,088 491,635 -
Richard C. E. Morgan 7,605,588 491,135 -
Walter L. Robb 7,604,088 492,635 -
Lee J. Schroeder 7,604,388 492,335 -
Arthur Hull Hayes, Jr 7,602,988 493,735 -
B. Adoption of the amendment to the Corporation's 1992 Long-Term
Incentive Plan :
Name Number of Shares
---- ---------------------------------------
For Withheld Abstained
--- -------- ---------
5,875,064 710,878 33,095
C. Appointment of Auditors:
Name Number of Shares
---- ---------------------------------------
For Withheld Abstained
--- -------- ---------
8,029,493 49,600 17,630
Item 5. - None
Item 6. - Exhibits
27 Financial Data Schedule - Article 5 for second
quarter Form 10-Q.
14
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
August 14, 1996 /s/ John W. Jackson
DATE ____________________________ BY ________________________________
John W. Jackson
Chairman of the Board
Chief Executive Officer
August 14, 1996 /s/ Sanford Kaston
DATE ____________________________ BY ________________________________
Sanford Kaston
Controller
(Chief Accounting Officer)
15