FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended 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
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2711928
- ------------------------------------ ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
7 Powder Horn Drive, Warren, NJ 07059
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 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, 1997, 11,554,814 shares of Common Stock, and 188 shares of Series A
Convertible Preferred Stock, par value $.01 per share, were outstanding.
1
CELGENE CORPORATION
INDEX TO FORM 10-Q
Page No.
PART I FINANCIAL INFORMATION
Item I Unaudited Condensed Financial Statements
Condensed Balance Sheets as of
March 31, 1997 (unaudited)
and December 31, 1996 3
Unaudited Condensed Statements of
Operations - Three-Month Periods Ended
March 31, 1997 and 1996 4
Unaudited Condensed Statements of
Cash Flows - Three-Month Periods Ended
March 31, 1997 and 1996 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 13
Signatures 14
2
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
CELGENE CORPORATION
CONDENSED BALANCE SHEETS
ASSETS
Mar 31, 1997 Dec 31, 1996
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,944,371 $ 922,961
Marketable securities available
for sale 9,603,996 16,892,023
Accounts receivable 675,186 378,595
Other current assets 439,194 635,841
------------ ------------
Total current assets 13,662,747 18,829,420
Plant and equipment, net 1,932,612 1,940,615
Deferred costs 72,331 126,577
Other assets 41,250 41,250
------------ ------------
$ 15,708,940 $ 20,937,862
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,182,214 $ 1,552,674
Accrued expenses 922,899 881,604
------------ ------------
Total current liabilities 2,105,113 2,434,278
Convertible debentures 2,026,043 2,026,043
Convertible debentures - accrued
interest 458,475 412,532
------------ ------------
Total liabilities 4,589,631 4,872,853
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01 per
share. Authorized 5,000,000 shares
Series A convertible, redeemable,
cumulative preferred; issued and
outstanding 210 shares and 267 shares
at March 31, 1997, and December 31,
1996, respectively; includes
$546,404 and $533,416 accretion at
March 31, 1997 and December 31, 1996,
respectively 11,046,404 13,883,416
Common stock, par value $.01 per share.
Authorized 20,000,000 shares; issued
10,929,794 and 10,611,422 shares at
March 31, 1997 and December 31,
1996, respectively 109,298 106,114
Additional paid-in capital 97,754,994 94,770,176
Unamortized deferred compensation -
restricted stock -- (1,133)
Accumulated deficit (97,691,192) (92,599,039)
Net unrealized gain on marketable
securities available for sale 44 5,714
Common stock in treasury, at cost
29,985 shares at March 31,1997
and December 31, 1996 (100,239) (100,239)
------------ ------------
Total stockholders' equity 11,119,309 16,065,009
------------ ------------
$ 15,708,940 $ 20,937,862
============ ============
See accompanying notes to financial statements.
3
CELGENE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended March 31
---------------------------------
1997 1996
---- ----
Revenues:
Chirally pure intermediates $ 504,898 $ 516,505
Research contracts 249,999 150,000
------------ -----------
Total revenues 754,897 666,505
Expenses:
Cost of goods sold 210,964 269,522
Research and development 4,272,747 2,737,966
Selling, general and administrative 1,366,410 659,484
------------ -----------
Total expenses 5,850,121 3,666,972
------------ -----------
Operating loss ($ 5,095,224) ($3,000,467)
Interest income 208,234 152,302
Interest expense 68,379 109,660
------------ -----------
Net loss (4,955,369) (2,957,825)
Accretion of premium payable on
preferred stock 136,783 76,447
------------ -----------
Net loss applicable to common
shareholders ($ 5,092,152) ($3,034,272)
============ ===========
Net loss applicable to common
shareholders per share of common
stock ($ .47) ($ .34)
============ ===========
Weighted average number of shares of
common stock outstanding 10,816,000 9,001,000
============ ===========
See accompanying notes to financial statements.
4
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Three-month Period Ended March 31,
----------------------------------
1997 1996
---- ----
Operating activities:
Net loss ($ 4,955,369) ($ 2,957,825)
Non-cash items:
Depreciation and amortization 260,923 225,003
Amortization of deferred compensation 1,133 2,550
Interest on convertible debentures 68,379 109,660
Change in current assets and liabilities:
Decrease in accounts payable
and accrued expenses (329,165) (603,586)
Increase in accounts receivable (296,591) (195,553)
Increase (Decrease) in other
current assets 175,723 (180,738)
------------ ------------
Net cash used in operating activities ($ 5,074,967) ($ 3,600,489)
Investment activities:
Capital expenditures (198,675) (119,174)
Proceeds from sales and maturities of
marketable securities available for
sale 19,659,766 11,563,415
Purchase of marketable securities
available for sale (12,377,409) (32,128,630)
------------ ------------
Net cash provided by (used in)
investment activities 7,083,682 (20,684,389)
Financing activities:
Net proceeds from exercise of common
stock options 12,695 226,612
Net proceeds from sale of preferred stock -- 23,829,625
------------ ------------
Net cash provided by financing activities 12,695 24,056,237
------------ ------------
Net change in cash and cash equivalents $ 2,021,410 ($ 228,641)
------------ ------------
Cash and cash equivalents at
beginning of period 922,961 337,165
------------ ------------
Cash and cash equivalents at end of
period $ 2,944,371 $ 108,524
============ ============
Non-cash investing activities:
Net change in net, unrealized
gain(loss) on securities
available for sale $ (5,670) $ 69,825
============ ============
See accompanying notes to financial statements.
5
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASH FLOW (Continued)
(Unaudited)
Three-Month Period Ended March 31,
----------------------------------
1997 1996
---- ----
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 the
conversion of convertible
preferred stock and accrued
accretion thereon, net $ 2,975,306 $ --
=========== ==========
Issuance of common stock upon
exercise of options through the
return of previously outstanding
common stock $ -- $ 99,996
=========== ==========
Accretion of premium payable on
preferred stock $ 136,783 $ 76,447
=========== ==========
See accompanying notes to financial statements
6
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements
March 31, 1997
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 accretion 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 March 31, 1997 was $8.03. The
Company may redeem the shares in increments of no less than $1.5 million,
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.
A registration statement covering the shares of Common Stock of the Company
underlying the Preferred Stock was filed and declared effective on June 10,
1996. Through March 31, 1997 the Company had accrued $1,013,018
representing accretion of premium on the Preferred Stock of which $546,404
relates to preferred shares not yet tendered for conversion.
7
As of March 31, 1997, 293 shares (as of May 12, 1997, 341 shares) of the
Series A Preferred Stock, with their respective accrued accretion, had been
converted into 1,705,148 (2,154,657 at May 12, 1997) shares of common
stock. As of March 31, 1997 the Company had issued warrants that entitle
certain stockholders of the Series A Preferred Stock to purchase 153,507
shares of common stock at an exercise price of $11.50. The warrants were
issued in exchange for the deferral of conversion for 90 days. These
warrants are exercisable for a period of two years from the date of
issuance.
3. Convertible Debentures
During 1995, the Company 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. The recorded value of the debentures at the date of issuance
was discounted to produce a market interest rate approximating 13.5%. 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.
During the quarter ended March 31, 1997, there were no conversions of
convertible debentures. As of March 31, 1997, 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. The Company has classified the debentures at March 31, 1997
as a long-term liability since it has the ability and intent to convert
them into common stock.
Subsequent to the end of the first quarter, the balance of the convertible
debenture was converted into 441,248 shares of common stock. The full
amount of the convertible debenture, plus accrued interest, converted into
a total of 1,709,845 shares of common stock.
4. Marketable Securities Available for Sale
Marketable securities available for sale at March 31, 1997 include debt
securities with maturities ranging from April, 1997 to April, 1998.
A summary of marketable securities at March 31, 1997 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
---------- ---------- ---------- ---------
Commercial
paper $4,574,574 -- ($353) $4,574,221
Corporate
bonds $4,029,334 $416 -- $4,029,750
Certificates
of deposit $1,000,044 -- ($ 19) $1,000,025
---------- ---- ----- ----------
Total $9,603,952 $416 ($372) $9,603,996
========== ==== ===== ==========
8
The net change in the gross unrealized gain for the quarter ended March 31, 1997
was a decrease of $5,670. The proceeds from sales for the quarter ended March
31, 1997 included gross realized gains and losses of $71 and $21 respectively.
The commercial paper rating is A1P1 or better, the corporate bonds are A rated
or better, and the certificate of deposit is rated A1P1.
9
PART I - FINANCIAL INFORMATION
ITEM 2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Three-month period ended March 31, 1997 vs.
Three-month period ended March 31, 1996
Total revenues. The Company's total revenues for the three months ended
March 31, 1997 increased by 13% to approximately $755,000 from approximately
$667,000 in the same period of 1996.
Chirally pure intermediate revenues. Chirally pure intermediate
revenues for the three months ended March 31, 1997 decreased by 2% to
approximately $505,000 from approximately $517,000 in the same period of 1996.
The decrease in chirally pure intermediate revenues was due primarily to the
sporadic nature of orders.
Research contract revenues. Research contract revenues for the three
months ended March 31, 1997 increased by 67% to approximately $250,000 from
$150,000 for the same period of 1996. This increase was primarily due to an
increase in R&D support from a major multinational agrochemical customer.
Cost of goods sold. Cost of goods sold in the three months ended March
31, 1997 decreased by 22% to approximately $211,000 from approximately $270,000
in the same period of 1996. This decrease in cost of goods sold was due
primarily to lower raw materials cost.
Research and development expenses. Research and development expenses
for the three months ended March 31, 1997 increased by 56% to approximately $4.3
million from approximately $2.7 million in the same period in 1996. This
increase was due to an increase of approximately $900,000 of expenses associated
with the Company's immunotherapeutic and SYNOVIR(R) program, $400,000 of
expenses associated with the new Celgro(TM) subsidiary and $300,000 of expenses
associated with the chiral pharmaceutical development program. The major factors
contributing to the increased cost of the Company's immunotherapeutic and
SYNOVIR(R) programs resulted from increases in the following expense categories:
preclinical and clinical trial expenses, approximately $266,000; manufacturing
costs for developmental quantities of SYNOVIR(R), approximately $261,000;
personnel related expenses, approximately $249,000; and other ongoing research
expenses, approximately $124,000. The major components contributing to the
increased costs of the new Celgro(TM) division are personnel related expenses,
approximately $183,000; facilities related spending, approximately $85,000; and
other on-going research expenses, approximately $132,000. The higher costs
associated with the Company's chiral pharmaceutical program are due primarily to
higher preclinical and clinical trial expenses, approximately $120,000;
personnel related costs, approximately $79,000; and other on-going research
expenses, approximately $101,000.
10
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended March 31, 1997 increased by
119% to approximately $1.4 million from approximately $700,000 in the three
month period ended March 31, 1996. This increase was primarily due to the
formation of a small Sales and Marketing group and associated expenses for
market research and the development of a launch program and materials,
approximately $280,000; a Medical Affairs department, approximately $40,000
(both in anticipation of the SYNOVIR(R) launch upon approval by the FDA); higher
insurance costs, approximately $120,000; higher personnel related expenses,
approximately $200,000; and other administrative expenses, approximately
$60,000.
Interest income and interest expense. Interest income for the three
month period ended March 31, 1997 increased by 37% to approximately $208,000
from approximately $152,000 in the same period of 1996. This increase was
attributable to higher average cash balances in 1997 due to the $23.8 million of
net proceeds from the Series A Convertible Preferred Stock offering in March
1996. Interest expense for three month period ended March 31, 1997 decreased by
38% to approximately $68,000 from approximately $110,000. This decrease was due
to the conversion to equity of a substantial portion of the 8% Convertible
Debentures.
Net loss. The net loss for the three month period ended March 31, 1997
increased by 68% to approximately $5.0 million from approximately $3.0 million
in the same period of 1996. This increase was due primarily to higher spending
on the immunotherapeutics and Synovir programs, the creation of the Celgro(TM)
subsidiary, and the continued development of the chiral pharmaceutical programs.
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. The Company has raised
approximately $76.0 million in net proceeds from two public and two private
offerings, including its initial public offering in July 1987.
In July 1995, the Company issued and sold in a private placement
offering $12.0 million aggregate principal amount of 8% Convertible Debentures
due July 31, 1997 for total net proceeds, after offering costs, of approximately
$11.0 million. As of May 12, 1997, the entire $12.0 million principal amount of
the 8% Convertible Debentures had been converted into Common Stock. 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 approximately $25.2 million and net proceeds, after offering costs,
of approximately $23.8 million. See Notes 2 and 3 to the Financial Statements.
11
The Company's net working capital at March 31, 1997, decreased by 30%
to approximately $11.5 million from approximately $16.4 million at December 31,
1996. This decrease in working capital was due primarily to the use of cash to
fund operations. The Company's net working capital at March 31, 1997 consisted
principally of cash, cash equivalents, and marketable securities.
Cash and cash equivalents increased by $2,021,000 in the three months
ended March 31, 1997. This increase was due to shifting certain investments out
of marketable securities and into short-term mutual funds.
The Company's rate of spending may increase as the result of increased
clinical trial costs and expenses associated with the regulatory approval
process and commercialization of products now in development. In order to assure
funding for the Company's future operations, the Company needs to seek
additional capital resources. However, no assurances can be given that the
Company will be successful in raising additional capital. If the Company is
unable to raise additional funds, the Company believes that its current
financial resources could fund operations based on reduced levels of research
and development and administrative activities through 1997.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("EPS"), which is
effective as of December 31, 1997. This standard changes the way companies
compute EPS to require all companies to show "basic" and "dilutive" EPS and is
to be retroactively applied, including each 1997 interim quarter. The statement
is not expected to have a material effect on the calculation of EPS.
Cautionary Statements For Forward Looking Information
The Management Discussion and Analysis of Financial Condition and Results of
Operations provided above contains certain forward-looking statements which
involve known and unknown risks, delays, uncertainties and other factors not
under the Company's control which may cause actual results, performance or
achievements of the Company to be materially different from the results,
performance or other expectations implied by these forward looking statements.
These factors include results of current or pending clinical trials, actions by
the FDA and those factors detailed in the company's filings with the Securities
and Exchange Commission.
12
PART II - OTHER INFORMATION
Item 1.- None
Item 2.- None
Item 3.- None
Item 4.- None
Item 5.- None
Item 6.- Exhibits
27 Financial Data Schedule - Article 5 for first quarter
Form 10-Q.
13
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 14, 1997 BY /s/John W. Jackson
---------------- --------------------------
John W. Jackson
Chairman of the Board
Chief Executive Officer
DATE May 14, 1997 BY /s/Sanford Kaston
---------------- --------------------------
Sanford Kaston
Controller
(Chief Accounting Officer)
14