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 September 30, 1997
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 732-271-1001.
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 November 12, 1997, 13,189,596 shares of Common Stock and 76 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
September 30, 1997 (unaudited)
and December 31, 1996 3
Condensed Statement of 4
Operations - Nine-Month Periods Ended
September 30, 1997 and 1996 (unaudited)
Condensed Statements of
Operations - Three-Month Periods Ended
September 30, 1997 and 1996 (unaudited) 5
Condensed Statements of
Cash Flows - Nine-Month Periods Ended
September 30, 1997 and 1996 (unaudited) 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 17
Signatures 18
2
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
CELGENE CORPORATION
CONDENSED BALANCE SHEETS
ASSETS Sept 30, 1997 Dec 31, 1996
------------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 475,638 $ 922,961
Marketable securities available
for sale 4,527,139 16,892,023
Accounts receivable 168,426 378,595
Other current assets 638,017 635,841
------------- ------------
Total current assets 5,809,220 18,829,420
Plant and equipment, net 2,521,901 1,940,615
Deferred costs -- 126,577
Other assets 79,167 41,250
------------- ------------
$ 8,410,288 $ 20,937,862
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,308,110 $ 1,552,674
Accrued expenses 1,367,327 881,604
Capital lease obligation 210,499 --
------------- ------------
Total current liabilities 2,885,936 2,434,278
------------- ------------
Capitalized lease obligation-net of current
portion 420,997 --
Convertible debentures -- 2,026,043
Convertible debentures - accrued interest -- 412,532
------------- ------------
Total liabilities 3,306,933 4,872,853
------------- ------------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000
shares authorized Series A convertible,
redeemable 4.9% cumulative preferred; 80
shares and 267 shares issued and
outstanding at September 30, 1997 and
December 31, 1996 respectively; includes
$306,633 and $533,416 accretion at
September 30, 1997 and December 31, 1996,
respectively 4,306,633 13,883,416
Series B Convertible, redeemable, 9 %
cumulative preferred, par value $.01 per
share. Authorized 20,000 shares; issued
5,000 shares 0 shares outstanding at
September 30, 1997 -- --
Common stock, par value $.01 per share
Authorized 20,000,000 shares; issued
13,191,278 and 10,611,422 shares at
September 30, 1997 and December 31, 1996,
respectively 131,913 106,114
Additional paid-in capital 112,322,889 94,770,176
Unamortized deferred compensation -
restricted stock -- (1,133)
Accumulated deficit (111,581,674) (92,599,039)
Net unrealized gain on marketable
securities available for sale 128 5,714
Common stock in treasury, at cost, 22,888
shares at September 30,1997 and 29,985
shares at December 31, 1996 respectively (76,534) (100,239)
------------- ------------
Total stockholders' equity 5,103,355 16,065,009
------------- ------------
$ 8,410,288 $ 20,937,862
============= ============
See accompanying notes to financial statements.
3
CELGENE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Month Period Ended September 30,
-------------------------------------
1997 1996
------------ ------------
Revenues:
Chirally pure intermediates $ 896,870 $ 1,096,605
Research contracts 919,068 711,666
------------ ------------
Total revenues 1,815,938 1,808,271
Expenses:
Cost of goods sold 641,862 683,005
Research and development 13,285,060 10,981,813
Selling, general and administrative 5,780,827 2,738,528
------------ ------------
Total expenses 19,707,749 14,403,346
------------ ------------
Operating loss ($17,891,811) ($12,595,075)
Interest income 441,436 989,751
Interest expense 104,866 255,535
------------ ------------
Net loss ($17,555,241) ($11,860,859)
Accretion of premium payable on
Preferred Stock Series A and B 474,317 764,138
Deemed dividend and
fair value of warrants
on Series B Preferred Stock 953,077 2,777,777
------------ ------------
Net loss applicable to common
shareholders ($18,982,635) ($15,402,774)
============ ============
Net loss applicable to common
shareholders per share of common
stock ($ 1.63) ($ 1.67)
============ ============
Weighted average number of shares of
common stock outstanding 11,647,000 9,227,000
============ ============
See accompanying notes to financial statements.
4
CELGENE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Month Period Ended September 30,
--------------------------------------
1997 1996
------------ -----------
Revenues:
Chirally pure intermediates $ 137,130 $ 77,800
Research contracts 283,986 376,666
------------ -----------
Total revenues 421,116 454,466
Expenses:
Cost of goods sold 179,593 234,390
Research and development 4,175,469 4,661,390
Selling, general and administrative 2,253,621 1,274,289
------------ -----------
Total expenses 6,608,683 6,170,069
------------ -----------
Operating loss ($ 6,187,567) ($5,715,603)
Interest income 99,034 359,086
Interest expense 10,377 68,379
------------ -----------
Net loss ($ 6,098,910) ($5,424,896)
Accretion of premium payable on
Preferred Stock Series A and B 158,675 381,938
Deemed dividend and fair value of
warrants on Series B Preferred
stock 893,510 2,777,777
------------ -----------
Net loss applicable to common
shareholders ($ 7,151,095) ($8,584,611)
============ ===========
Net loss applicable to common
shareholders per share of common
stock ($ .58) ($ .90)
============ ===========
Weighted average number of shares of
common stock outstanding 12,362,000 9,520,000
============ ===========
See accompanying notes to financial statements.
5
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
Nine Month Period Ended September 30,
1997 1996
------------ -------------
Cash flows from operating activities:
- -------------------------------------
Net loss ($17,555,241) ($ 11,860,859)
Depreciation 747,096 684,983
Amortization of deferred compensation 1,133 4,818
Interest on convertible debentures 68,736 255,535
Issuance of stock for employee benefits 78,955 --
Issuance of stock award 55,625 --
Change in current assets and
liabilities:
Increase in accounts payable and
accrued expenses 65,152 187,199
Decrease in accounts
receivable 210,169 146,969
(Increase) in other assets (40,093) (317,570)
------------ -------------
Net cash used in operating activities (16,368,468) (10,898,925)
Cash flows from investing activities:
- -------------------------------------
Capital expenditures (1,201,805) (1,186,284)
Proceeds from sales and maturities of
marketable securities available
for sale 41,750,254 117,485,212
Purchases of marketable securities
available for sale (29,390,956) (126,698,269)
------------ -------------
Net cash provided by (used in)
investing activities 11,157,493 (10,399,341)
------------ -------------
Cash flows from financing activities:
- -------------------------------------
Net proceeds from exercise of
common stock options 12,695 237,946
Capital lease funding 631,496 --
Redemption of preferred shares (721,287) --
Net proceeds from issuance of
preferred stock 4,840,748 23,829,625
------------ -------------
Net cash provided by financing
activities 4,763,652 24,067,571
------------ -------------
Net increase (decrease) in cash and
cash equivalents (447,323) 2,769,305
Cash and cash equivalents at
beginning of period 922,961 337,165
------------ -------------
Cash and cash equivalents at end of
period $ 475,638 $ 3,106,470
============ =============
(continued)
See accompanying notes to financial statements.
6
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASH FLOW, continued
(unaudited)
Nine Month Period Ended September 30,
-------------------------------------
1997 1996
----------- ----------
Non-cash investing activity:
Change in net unrealized gain (loss)
on marketable securities available
for sale $ (5,586) $ 13,791
=========== ==========
Non-cash financing activities:
Issuance of common stock upon the
conversion of convertible
debentures and accrued interest
thereon, net $ 2,331,304 $2,649,115
=========== ==========
Accretion of premium payable on
preferred stock and warrants $ 474,317 $ 764,138
=========== ==========
Deemed dividend for preferred stock
conversion discount $ 953,077 $2,777,777
=========== ==========
Issuance of common stock upon the
conversion of convertible
preferred stock and
accretion thereon, net $14,329,813 $3,818,627
=========== ==========
Issuance of common stock upon
exercise of options through the
return of common stock previously
outstanding $ -- $ 99,996
=========== ==========
See Accompanying Notes to Financial Statements.
7
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements
September 30, 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 September 30, 1997 was $10.75.
The Company may redeem the shares in increments of not less than $1.5
million plus accretion commencing December 13, 1996, on thirty business
days written notice to the preferred stock holders, at a price that equals
a specified premium, ranging from 120% to 130%, of the purchase price plus
accretion premium. 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 Convertible
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.
As of September 30, 1997, 423 shares of the Series A preferred Stock, with
their respective accretion, had been converted or redeemed into 2,731,915
shares of common stock. Through September 30, 1997 the Company had accrued
$1,349,042 representing accretion of the premium on the Preferred Stock of
which $306,633 relates to preferred shares not yet tendered for conversion.
The Company agreed to reduce the maximum conversion price of 58 shares to
$8.50 per share of common stock from
8
$18.81 for holders who agreed to a lock-up through December 1, 1997. As of
September 30, 1997 the Company had also issued warrants valued at $138,156,
that entitle certain stockholders of the Series A Preferred Stock to
purchase 162,203 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. The warrants are still outstanding at September 30, 1997.
3. Series B Convertible Preferred Stock
------------------------------------
On June 9, 1997, in a private placement with Chancellor LGT Asset
Management, Inc. ("Chancellor") on behalf of certain Chancellor clients,
the Company completed the sale of 5,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred"), par value $.01 per share, at an
issue price of $1,000 per share. A shelf registration statement with
respect to holders' resales of Common Stock issuable upon conversion of
Series B Preferred was filed and declared effective on August 6, 1997. The
Company received net proceeds of $4,840,748, after offering costs. Subject
to the satisfaction of certain conditions, the Company may, at its option,
during specified periods ending June 9, 1998, issue and sell to such
purchasers up to an additional 15,000 shares of Series B preferred Stock,
at an aggregate purchase price of $15 million, in increments of $5 million
(5,000 shares). With respect to the third and fourth increments ($10
million) certain FDA approvals are necessary before Chancellor is obligated
to buy the additional Series B Preferred Stock. As of September 30, 1997,
all shares of Series B Preferred had been converted into Common Stock.
Upon request of the purchasers of the Series B Preferred (but no later than
June 1, 1998)(in either case, the "Issuance Date"), the Company will issue
warrants to acquire a number of shares of Common Stock equal to (i)
1,500,000 divided by the Conversion Price in effect on the Issuance Date
(230,769 warrants as of September 30, 1997) plus (ii) 37.5% of the
conversion Shares issuable on such Issuance Date upon conversion of all
shares of Series B Preferred Stock issued through the Issuance Date
(288,461 warrants as of September 30, 1997). All such warrants will have a
term of four years from the Issuance Date and an exercise price equal to
115% of the Conversion Price in effect on the Issuance Date. The fair value
of warrants at the issuance date was $1.28 per warrant.
Through September 30, 1997, the Company had recorded $953,077 representing
accretion of the deemed dividend on the Series B Preferred Stock. The
deemed dividend represents the difference between the Series B Preferred
Stock conversion price and the Company's Common Stock fair market value at
the date of issuance. The deemed dividend and the fair value of the
warrants was accreted over the lock-up period subject to acceleration
contingencies. Such contingencies were met and the full deemed dividend was
recognized at that time.
4. 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.
9
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 June 30, 1997, the convertible debenture fully
converted. As of September 30, 1997, convertible debentures in the
aggregate principal amount of $12,000,000, plus accrued interest, had been
converted into a total of 1,709,845 shares of common stock. No interest was
paid in cash.
5. Marketable Securities Available for Sale
----------------------------------------
Marketable securities available for sale at September 30, 1997 include debt
securities with maturities ranging from October, 1997 to April, 1998. A
summary of marketable securities at September 30, 1997 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
---------- ---------- ---------- ----------
Commercial
Paper $ 733,793 $ -- $ -- $ 733,793
Corporate Bonds 999,790 210 -- 1,000,000
US Government &
agency obligations 2,793,428 -- (82) 2,793,346
---------- ---- ---- ----------
Total $4,527,011 $210 $(82) $4,527,139
========== ==== ==== ==========
10
PART I - FINANCIAL INFORMATION
ITEM 2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
- ---------------------
Nine-month period ended September 30, 1997 vs.
Nine-month period ended September 30, 1996
- ------------------------------------------
Total revenues; Revenue Backlog. Revenues for the nine months ended
September 30, 1997 were $1,816,000, which was an increase of $8,000, or less
than 1%, as compared to the same period in 1996. The Company's order backlog for
chirally pure intermediates and research contracts at September 30, 1997 was
approximately $797,000.
Sales of Chirally Pure Intermediates. Sales of chirally pure
intermediates for the nine months ended September 30, 1997 were $897,000, which
was a decrease of $200,000, or 18%, as compared to the same period in 1996. The
decrease in revenues for chirally pure intermediates was due primarily to the
variant nature of orders resulting from the cyclicality of customer research
programs.
Research Contracts. Chiral research contract revenues for the nine
months ended September 30, 1997 were $919,000, which was an increase of
$207,000, or 29%, as compared to the same period in 1996. The increase in
research contract revenues was due to the Company entering into research
contracts to expand development of existing compounds. During the 1997 period,
the Company received increased research and development support payments from
BASF, a major multinational agrochemical customer.
Cost of Goods Sold. Costs of goods sold (which includes certain fixed
manufacturing costs) for the nine months ended September 30, 1997 were $642,000,
which was a decrease of $41,000, or 6%, as compared to the same period in 1996,
due to decreased sales of chirally pure intermediates.
Research and Development Expenses. Research and development expenses
for the nine months ended September 30, 1997 were $13,300,000, which was an
increase of $2,300,000 or 21%, as compared to the same period in 1996. This
increase was due to an increase in expense of $787,000 associated with the
Company's immunotherapeutic and Thalomid programs, $1,100,000 of expenses
associated with the new Celgro(TM) subsidiary and $687,000 of expenses
associated with the chiral pharmaceutical development program. The increased
cost of the Company's immunotherapeutic and Thalomid programs included increases
in manufacturing costs for developmental quantities of Thalomid of $990,000 and
personnel related expenses of $625,000. These expenses were partially offset by
the absence of expenses associated with preparing the NDA filed in 1996 and by
lower preclinical and clinical
11
trial expenses ($828,00). Major components contributing to the increased costs
of the new Celgro subsidiary are personnel related expenses of $464,000;
facilities-related spending of $303,000; and other ongoing research expenses of
$333,000. The higher costs associated with the Company's chiral pharmaceutical
program are due primarily to higher preclinical and clinical trial expenses of
$282,000; personnel related costs of $148,000 and other ongoing research
expenses of $257,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1997 were
$5,800,000, which was an increase of $3,100,000, or 115%, as compared to the
same period in 1996, 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, all in anticipation of approval of thalidomide by the
FDA, of approximately $1,600,000; development of a Medical Affairs Department
costing $230,000 (in anticipation of the Thalomid launch upon approval by the
FDA); higher legal fees of $269,000; costs associated with the formation of the
Celgro subsidiary of approximately $374,000; and higher personnel related
expenses of $676,000.
Interest Income and Interest Expense. Interest income for the nine
months ended September 30, 1997 was $441,000, which was a decrease of $549,000,
or 55%, as compared to the same period in 1996. This decrease was attributable
to lower average cash balances in 1997. Interest expense for the nine months
ended September 30, 1997 was $105,000, which was a decrease of $151,000, or 59%,
as compared to the same period in 1996. This decrease was due to the conversion
to equity of the remaining 8% Convertible Debentures.
Net Loss. The net loss for the nine months ended September 30, 1997 was
$17,600,000, which was an increase of $5,700,000, or 48%, as compared to the
same period in 1996. This increase was due primarily to higher spending on
Thalomid and the immunotherapeutics program, the creation of the Celgro
subsidiary, and the continued development of the chiral pharmaceutical programs.
Three-month period ended September 30, 1997 vs.
Three-month period ended September 30, 1996
- -------------------------------------------
Total revenues. The Company's total revenues for the three months ended
September 30, 1997 decreased by 7% to approximately $421,000 from approximately
$454,000 in the same period of 1996.
Chirally pure intermediate revenues. Chirally pure intermediate
revenues for the three months ended September 30, 1997 increased by 76% to
approximately $137,000 from approximately $78,000 in the same period of 1996.
The increase in chirally pure intermediate revenues was due primarily to the
sporadic nature of orders.
12
Research contract revenues. Research contract revenues for the three
months ended September 30, 1997 decreased by 25% to approximately $284,000 from
$377,000 for the same period of 1996. This decrease was primarily due to higher
sales in 1996 to Sandoz, a multinational agrochemical customer.
Cost of goods sold. Cost of goods sold in the three months ended
September 30, 1997 decreased by 23% to approximately $180,000 from approximately
$234,000 in the same period of 1996. This decrease in cost of goods sold was due
primarily to the decrease in revenues.
Research and development expenses. Research and development expenses
for the three months ended September 30, 1997 decreased by 10% to approximately
$4.2 million from approximately $4.7 million in the same period in 1996. This
decrease was due to lower expenses of approximately ($781,000) associated with
the Company's immunotherapeutic and Thalomid(TM) program, lower expenses of
($155,000) associated with the chiral intermediates program, offset by increased
expenses of $252,000 associated with the new Celgro(TM) subsidiary and $160,000
of expenses associated with the chiral pharmaceutical development program. The
decrease in expenses in the Company's immunotherapeutic and Thalomid(TM)
programs resulted from lower spending in clinical and pre-clinical toxicology
($1.2 million), offset by higher manufacturing costs for developmental
quantities of Thalomid(TM), approximately $390,000. All other expenses were
higher by $29,000. The major components contributing to the increased costs of
the new Celgro(TM) division are personnel related expenses, approximately
$77,000 and facilities related spending, approximately $190,000. The higher
costs associated with the Company's chiral pharmaceutical program are due
primarily to higher preclinical and clinical trial expenses, approximately
$43,000; personnel related costs, approximately $25,000; higher legal and
consulting fees $58,000; and other on-going research expenses, approximately
$34,000.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended September 30, 1997 increased
by 77% to approximately $2.3 million from approximately $1.3 million in the
three month period ended September 30, 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 $738,000; a Medical Affairs department, approximately $94,000
(both in anticipation of the Thalomid(TM) launch upon approval by the FDA);
higher personnel related expenses, approximately $285,000. All other expenses
were lower by ($117,000).
Interest income and interest expense. Interest income for the three
month period ended September 30, 1997 decreased by 72% to approximately $99,000
from approximately $359,000 in the same period of
13
1996. This decrease was attributable to lower average cash balances in 1997.
Interest expense for three month period ended September 30, 1997 decreased by
85% to approximately $10,000 from approximately $68,000. This decrease was due
to the conversion to equity of the remaining portion of the 8% Convertible
Debentures.
Net loss. The net loss for the three month period ended September 30,
1997 increased by 11% to approximately $6.1 million from approximately $5.5
million in the same period of 1996. This increase was due primarily to higher
spending in the sales and marketing area for Thalomid(TM) pre-launch 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 $81.0 million in net proceeds from two public and three 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 September 30, 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 $25.2 million. The Company received net
proceeds, after offering costs, of approximately $23.8 million.
In June, 1997 the Company issued and sold in a private placement
offering 5,000 shares of Series B Convertible Preferred Stock at $1,000 per
share, for total gross proceeds of $5.0 million and net proceeds, after offering
costs, of approximately $4.8 million. On September 18,1997 all 5,000 shares were
converted to 788,469 common shares. The Company's Series B Preferred Stock
purchase agreement provides for the sale of an additional $15 million of Series
B Preferred Stock in $5 million increments through June 2, 1998, at the
Company's option. The third and fourth increments ($10 million) are subject to
certain FDA approvals. The second $5 million is available to the Company after
October 1, 1997. See Notes 2, 3 and 4 to the unaudited condensed Financial
Statements.
14
On September 30, 1997, the Company had available cash, cash equivalents
and marketable securities of approximately $5,000,000. In the nine months ended
September 30, 1997, working capital decreased approximately $13,500,000, or 82%,
from December 31, 1996, which was attributable to the cash used in operations
which more than offset receipt of funds from the sale of Series B Convertible
Preferred Stock.
During the nine months ended September 30, 1997, capital expenditures
totaled approximately $1,200,000, primarily for equipment and leasehold
improvements to expand its research development and manufacturing capabilities.
In September 1997, the Company received from the FDA an approvable
letter for its NDA for Thalomid for the treatment of ENL, a disease state
associated with leprosy. At present, the Company cannot estimate the impact of
potential sales of Thalomid on future revenues.
The Company expects to make substantial expenditures to further its
immunotherapeutic program, to commercialize Thalomid and to expand its chiral
business and, based on these expenditures, it is probable that losses will
continue for at least the next 18 to 24 months.
The Company is currently utilizing its cash resources at a rate of
approximately $2,000,000 per month. The Company expects that its rate of
spending will remain high 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 is seeking 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. In particular, each of the persons who purchased
Series B Preferred also agreed to purchase, at the option of the Company and
subject to the satisfaction of certain conditions, an aggregate of up to 15,000
additional shares of Series B Preferred Stock for an aggregate purchase price of
$15 million at subsequent closings. However, no assurances can be given that the
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.
If the Company is unable to raise additional funds, the Company
believes that its current financial resources, including its option to
15
issue and sell an additional $5,000,000 of Series B Preferred Stock (which is
subject to the satisfaction of certain customary conditions), could fund
operations through early 1998. The Company's actual cash requirements may vary
materially from those now planned and will depend upon numerous factors,
including the results of the Company's development and commercialization
programs, the timing and results of preclinical and clinical trials, the timing
and costs of obtaining regulatory approvals, the level of resources that the
Company commits to the development of manufacturing, marketing and sales
capabilities, the ability of the Company to license its biocatalytic chiral
process technology to agrochemical companies, the technological advances and
activities of competitors, and other factors.
As of September 30, 1997, the Company had for Federal income tax
purposes a net operating loss carryforward of approximately $104,000,000. If not
utilized to offset future taxable income, such loss carryforward will expire
between 2001 and 2012. Certain events, including any sales by the Company of
shares of its stock, including pursuant to this Offering, and/or transfers of a
substantial number of shares of Common Stock by the current stockholders, may
partially restrict the ability of the Company to utilize its net operating loss
carryforward.
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 Company's 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.
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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 third quarter
Form 10-Q.
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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 November 14, 1997 BY /s/ John W. Jackson
--------------------------- -----------------------------------
John W. Jackson
Chairman of the Board
Chief Executive Officer
DATE November 14, 1997 BY /s/ James R. Swenson
--------------------------- -----------------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
18