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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to _____________
Commission File Number 0-16132
CELGENE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-2711928
- ----------------------------------------------- ---------------------------
(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: 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 April 30, 1998, 16,031,450 shares of Common 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, 1998 (unaudited)
and December 31, 1997 3
Condensed Statements of
Operations - Three-Month Periods Ended
March 31, 1998 and 1997 (unaudited) 4
Condensed Statements of
Cash Flows - Three-Month Periods Ended
March 31, 1998 and 1997 (unaudited) 5
Notes to Unaudited Condensed Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II OTHER INFORMATION 12
Signatures
2
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements
CELGENE CORPORATION
CONDENSED BALANCE SHEETS
ASSETS Mar. 31,1998 Dec. 31, 1997
------ ----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $10,554,217 $13,583,445
Marketable securities available for sale 4,945,340 --
Accounts receivable 180,287 1,430,384
Other current assets 707,450 353,266
Assets held for disposal -- 485,170
----------- -----------
Total current assets 16,387,294 15,852,265
Plant and equipment, net 2,324,469 2,286,024
Other assets 79,167 79,167
----------- -----------
Total assets $18,790,930 $18,217,456
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 1,703,094 $ 842,262
Accrued expenses 1,072,113 1,388,933
Capitalized lease obligations 139,494 210,499
----------- -----------
Total current liabilities 2,914,701 2,441,694
Capitalized lease obligation-net of
current portion 184,814 350,670
----------- -----------
Total liabilities 3,099,515 2,792,364
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value per share
5,000,000 shares authorized; Series A
convertible, redeemable, cumulative preferred;
none outstanding at March 31, 1998 and
74 shares issued and outstanding at
December 31, 1997, plus $329,455
accretion premium -- 4,029,455
Common stock, $.01 par value per share
20,000,000 shares authorized; issued and
outstanding 16,054,338 and 15,427,949 shares
at March 31, 1998 and December 31,1997,
respectively 160,543 154,279
Common stock in treasury, at cost -
22,888 shares at March 31, 1998 and
December 31,1997 (76,535) (76,535)
Additional paid-in capital 135,035,247 130,838,433
Accumulated deficit (119,427,840) (119,520,540)
----------- -----------
Total stockholders' equity 15,691,415 15,425,092
----------- -----------
Total liabilities and stockholders' equity $18,790,930 $18,217,456
=========== ===========
See accompanying notes to financial statements.
3
CELGENE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended March 31
---------------------------------
1998 1997
---- ----
Revenues:
Research contracts $ 80,000 $ 249,999
----------- -----------
Expenses:
Research and development 3,940,227 3,975,756
Selling, general and administrative 3,225,915 1,286,963
----------- -----------
Total Expenses 7,166,142 5,262,719
Operating Loss (7,086,142) (5,012,720)
Interest income 249,861 208,234
Interest expense 1,364 68,379
----------- -----------
Loss from continuing operations (6,837,645) (4,872,865)
Discontinued Operations: (Note 5)
Loss from operations (59,837) (82,504)
Gain on sale of chiral assets 7,014,830 --
----------- -----------
Net income (loss) 117,348 (4,955,369)
Accretion of premium payable on preferred
stock 24,648 136,783
Net income (loss) applicable to common ----------- ------------
shareholders $ 92,700 $(5,092,152)
=========== ===========
Per share basic and diluted :
Loss from continuing operations $ (0.44) $ (0.45)
Discontinued operations:
Loss from operations $ (0.00) $ (0.01)
Gain on sale of chiral assets $ 0.45 $ --
Net income (loss) applicable to common
shareholders per basic share of common $ 0.01 $ (0.47)
stock =========== ===========
Weighted average number of shares of
common stock outstanding 15,673,000 10,816,000
=========== ===========
See accompanying notes to financial statements.
4
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASHFLOW
(Unaudited)
Three Month Period
Ended March 31,
--------------------------
1998 1997
---- ----
Cash flows from operating activities:
- -------------------------------------
Loss from continuing operations $(6,837,645) $(4,872,865)
Depreciation 206,927 260,923
Amortization of deferred compensation -- 1,133
Interest on convertible debentures -- 68,736
Change in current assets & liabilities:
Increase (Decrease) in accounts payable
and accrued expenses 544,012 (329,165)
Decrease (Increase) in accounts receivable 1,250,097 (296,591)
(Increase) Decrease in other assets (354,184) 175,723
----------- -----------
Net cash used in continuing operations (5,190,793) (4,992,106)
Net cash used in discontinued operations (59,835) (82,504)
----------- -----------
Net cash used in operating activities (5,250,628) (5,074,610)
----------- -----------
Cash flows from investing activities:
- -------------------------------------
Capital expenditures (245,372) (198,675)
Proceeds from sales and maturities of
marketable securities available for sale -- 19,659,766
Purchases of marketable securities
available for sale (4,945,340) (12,377,409)
Proceeds from sale of chiral assets 7,500,000 --
----------- -----------
Net cash provided by (used in) investing
activities 2,309,288 7,083,682
----------- -----------
Cash Flows from financing activities:
- -------------------------------------
Expenditures for public offering costs (228,989) --
Net proceeds from exercise of common stock
options 362,348 12,695
Capital lease buyout (236,861) --
----------- -----------
Net cash provided by financing activities (103,502) 12,695
----------- -----------
Net (decrease) increase in cash and cash
equivalents (3,044,842) 2,021,767
Cash and cash equivalents at beginning of period 13,583,445 922,961
----------- -----------
Cash and cash equivalents at end of period $10,538,603 $ 2,944,728
=========== ===========
See accompanying notes to financial statements.
5
CELGENE CORPORATION
CONDENSED STATEMENTS OF CASHFLOW (continued)
(Unaudited)
Three Month Period
Ended March 31,
--------------------------
1998 1997
---- ----
Non - cash investing activity:
Change in net unrealized gain (loss) on
marketable securities available for sale $ -- $ (5,670)
========== ==========
Non - cash financing activities:
Accretion of premium payable on preferred
stock and warrants $ 24,648 $ 136,783
========== ==========
Issuance of common stock upon the conversion
of convertible preferred stock and accrued
accretion thereon, net $4,054,103 $2,975,306
========== ==========
See accompanying notes to financial statements.
6
CELGENE CORPORATION
Notes to Unaudited Condensed Financial Statements
March 31, 1998
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
The Series A Convertible Preferred Stock ("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.
As of March 31, 1998 , all 503 shares of the Series A preferred Stock, with
their respective accretion, had been converted or redeemed into 3,342,202
shares of common stock. Through March 31, 1998 the Company had accrued
$1,420,770 representing accretion of the premium on the Preferred Stock.
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
Chancellor clients 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 which have not yet occurred are
necessary before Chancellor is obligated to buy the
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additional Series B Preferred Stock. As of March 31, 1998, all issued
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 ($6.50 at March 31, 1998) in
effect on the Issuance Date (230,769 warrants as of March 31, 1998) 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 March 31, 1998). 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.
4. Marketable Securities Available for Sale
Marketable securities available for sale at March 31, 1998 include debt
securities with maturities ranging from May, 1998 to March, 1999. A summary
of marketable securities at March 31, 1998 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
---------- ---------- ---------- ----------
Commercial
Paper $3,640,980 $ -- $ -- $3,640,980
Corporate Bonds 1,004,360 -- -- 1,004,360
---------- ---------- ---------- ----------
Total $4,945,340 $ -- $ -- $4,945,340
========== ========== ========== ==========
5. Discontinued Operations
On January 9, 1998, the Company sold its chiral intermediates business to
Cambrex Corporation for approximately $15.0 million. The terms of the
agreement provided for a sale of assets of approximately $485,000 for
proceeds of $7.5 million on the contract date plus future royalties with a
present value not exceeding $7.5 million, with certain minimum royalty
payments in the third through sixth year following the closing of the
transaction. Included in the transaction are the rights to the Company's
enzymatic technology for the production of chirally pure intermediates for
the pharmaceutical industry, including the current pipeline of third party
products and the equipment and personnel associated with the business.
6. New Accounting Pronouncement
Effective January 1, 1998, the Company adopted Statement of Financial
Standards (SFAS) No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive income,
which consists of all changes in equity from non-shareholder sources. Prior
year financial statements conform to the requirements of SFAS No. 130
Comprehensive income includes net income and other comprehensive income
which refers to those revenues, expenses, gains and losses which are
excluded from net income. Other comprehensive income includes
8
unrealized gains and losses on marketable securities classified as
available-for-sale, which prior to adoption were reported separately in
shareholders' equity.
March 31, 1998 March 31, 1997
-------------- --------------
Net Income (Loss) $ 92,700 $(5,092,152)
Other Comprehensive Expense -- (5,670)
----------- -----------
Total Comprehensive Income $ 92,700 $(5,097,822)
=========== ===========
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Part 1 - 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, 1998 vs.
Three month period ended March 31, 1997
- ---------------------------------------
Total Revenues. The Company's total revenues for the three months ended
March 31, 1998 decreased by 68% to approximately $80,000 from approximately
$250,000 in the same period of 1997. Revenue for the period in both years was
entirely from research contracts. The decrease in revenue in 1998 was primarily
due to the completion of a research contract with BASF, in December 1997.
Research and development expenses. Research and development expenses were
essentially flat versus the same period in 1997 at approximately $3.9 million in
both years.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended March 31, 1998 increased by
151% to approximately $3.2 million from $1.3 million in the same period of 1997.
The increase was due primarily to the formation of a sales and marketing
organization and related expenses of approximately $1.5 million and the
formation of a medical affairs department resulting in expenses of approximately
$0.4 million, both in anticipation of the commercial launch of THALOMID(TM)
pending FDA approval.
Interest income and expense. Interest income for the first quarter 1998
increased 20% to approximately $250,000 from $208,000 in the same period of
1997. The increase was due to higher average cash balances in 1998. Interest
expense decreased to approximately $1,000 from $68,000 in 1997. The decrease was
due to the conversion to equity of all of the 8% convertible debentures by mid
1997.
Net loss from continuing operations. The net loss from continuing
operations for the period ended March 31, 1998 increased by 40% to $6.8 million
from $4.9 million in the same period of 1997. The increase was due primarily to
the increased spending on the sales and marketing organization and the medical
affairs department as described above.
Discontinued Operations. The net loss from discontinued operations
decreased by 27% in the first quarter 1998 to approximately $60,000 from $83,000
in the same period of 1997.
10
The decrease was due to the fact that the Chiral Intermediates business was sold
on January 9, 1998. The $60,000 loss in 1998 represents expenses for the nine
day period preceding the sale. The loss in 1997 represents revenues of
approximately $504,000 offset by expenses of $587,000 for the discontinued
operations. In January the Company recorded a net gain of approximately $7.0
million from the sale of the Chiral Intermediate assets consisting of proceeds
of $7.5 million for assets sold of approximately $485,000.
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 research contracts and product sales. The Company
has raised approximately $99.5 million in net proceeds from three public and
three private offerings, including its initial public offering in July 1987.
The Company's net working capital at March 31, 1998, $13.5 million was
essentially unchanged from the same period in 1997. Net working capital
consisted principally of cash, cash equivalents, and marketable securities.
Cash and cash equivalents decreased by $3.0 million in the three months
ended March 31, 1998. The decrease resulted primarily from the investment of
cash in marketable securities.
The Company expects that its rate of spending will 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 may need to
seek additional capital resources. However, no assurances can be given that the
Company will be successful in raising additional capital.
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
11
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 15, 1998 BY /s/ John W. Jackson
------------------------------ -----------------------------------
John W. Jackson
Chairman of the Board
Chief Executive Officer
DATE MAY 15, 1998 BY /s/ James R. Swenson
------------------------------ -----------------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
14