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, 2000
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
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(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
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At April 30, 2000, 64,415,089 shares of Common Stock par value $.01 per share,
were outstanding.
CELGENE CORPORATION
INDEX TO FORM 10-Q
Page No.
PART I FINANCIAL INFORMATION
Item I Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
as of March 31, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations
- three-Month Period Ended
March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows
- Three-Month Period Ended
March 31, 2000 and 1999 (unaudited) 5
Notes to Unaudited Consolidated
Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 13
PART II OTHER INFORMATION 14
Signatures 15
2
CELGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS March 31,2000 December 31,1999
- ------ ------------- ----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 162,907,319 $ 15,255,422
Marketable securities available for sale 129,457,911 4,271,221
Accounts receivable, net of allowance of $186,317 at March 31,
2000 and $121,437 at December 31, 1999 5,689,067 4,928,472
Inventory 2,614,501 2,456,059
Other current assets 1,701,074 895,602
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Total current assets 302,369,872 27,806,776
Plant and equipment, net 2,436,231 2,336,242
Other assets 2,358,486 2,190,652
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Total assets $ 307,164,589 $ 32,333,670
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 2,573,316 $ 2,358,563
Accrued expenses 4,071,529 6,761,889
Capitalized lease obligations 145,226 179,885
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Total current liabilities 6,790,071 9,300,337
Capitalized lease obligations-net of current portion 8,469 22,924
Other non-current liabilities - 225,000
Long term convertible notes 29,243,254 38,494,795
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Total liabilities 36,041,794 48,043,056
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Stockholders' equity (deficit):
Common stock, $.01 par value per share,
120,000,000 shares authorized; issued and outstanding
21,439,513 and 17,703,646 shares at March 31, 2000 and
December 31, 1999, respectively 214,395 177,036
Additional paid-in capital 440,817,775 150,599,750
Accumulated deficit (169,538,715) (166,394,268)
Accumulated other comprehensive loss (370,660) (91,904)
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Total stockholders' equity (deficit) 271,122,795 (15,709,386)
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Total liabilities and stockholders' equity (deficit) $ 307,164,589 $ 32,333,670
============= =============
See accompanying notes to consolidated financial statements.
3
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended March 31,
----------------------------------
2000 1999
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Revenues:
Product sales $ 11,665,919 $ 3,492,068
Research contracts 200,000 812,500
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Total revenues 11,865,919 4,304,568
Expenses:
Cost of goods sold 1,663,712 655,850
Research and development 6,385,741 4,515,304
Selling, general and administrative 8,496,638 5,325,402
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Total expenses 16,546,091 10,496,556
Operating loss (4,680,172) (6,191,988)
Interest income 2,313,997 145,994
Interest expense 778,271 545,795
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Net loss $ (3,144,446) $ (6,591,789)
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Per share basic and diluted:
Net loss (0.05) (0.13)
============ ============
Weighted average number of shares of
common stock outstanding 58,706,000 50,265,000
============ ============
See accompanying notes to the consolidated financial statements.
4
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Month Period Ended March 31,
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2000 1999
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Cash flows from operating activities:
Net loss (3,144,446) $ (6,591,789)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 265,234 205,322
Provision for losses on accounts receivable 64,880 17,574
Shares issued for employee benefit plans 1,047,755 799,823
Amortization of debt issuance costs 62,500 62,500
Amortization of discount on convertible note 36,459 36,459
Change in current assets & liabilities:
Increase in inventory (158,442) (287,908)
Increase(decrease) in accounts payable
and accrued expenses (2,615,357) 646,640
Increase in accounts receivable (825,475) (577,502)
Increase in other assets (960,472) (112,855)
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Net cash used in operating activities (6,227,364) (5,801,736)
Cash flows from investing activities:
Capital expenditures (737,642) (53,043)
Proceeds from sales and maturities of marketable
securities available for sale 1,510,859 1,046,570
Purchases of marketable securities
available for sale (126,976,305) (4,495,493)
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Net cash used in investing activities (126,203,088) (3,501,966)
Cash Flows from financing activities:
Net proceeds from follow-on public offering 277,896,182 -
Proceeds from exercise of common stock
options and warrants 2,235,281 1,324,165
Capital lease buyout (49,114) (41,888)
Debt issuance costs - (750,000)
Net proceeds from issuance of convertible notes - 15,000,000
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Net cash provided by financing activities 280,082,349 15,532,277
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Net (decrease) increase in cash and cash equivalents 147,651,897 6,228,575
Cash and cash equivalents at beginning of period 15,255,422 3,066,953
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Cash and cash equivalents at end of period $ 162,907,319 $ 9,295,528
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See accompanying notes to consolidated financial statements.
5
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Three Month Period Ended March 31,
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2000 1999
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Non-cash investing activity:
Change in net unrealized gain(loss) on
marketable securities available for sale $ 278,756 $ -
========== ==========
Non-cash financing activity:
Conversion of convertible notes $9,288,000 $ -
========== ==========
Supplemental disclosure of cash flow information:
Interest Paid $1,811,026 $ 410,638
========== ==========
See accompanying notes to consolidated financial statements.
6
CELGENE CORPORATION
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
1. Basis of Presentation
The unaudited consolidated 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 annual 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 consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10K.
2. Earnings per Share
"Basic" earnings per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" earnings per
common share equals net income divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents if dilutive.
The Company's basic and diluted per share amounts are the same since the assumed
exercise of stock options and warrants, and the conversion of convertible notes
are all anti-dilutive. The amount of common stock equivalents excluded from the
calculation were 15,219,159 at March 31, 2000 and 14,400,195 at March 31,1999.
3. Inventory
March 31, December 31,
2000 1999
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Raw materials $1,249,564 $1,411,663
Work in process 1,178,898 647,841
Finished goods 186,039 396,555
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$2,614,501 $2,456,059
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4. Rights Plan
On February 17, 2000, the Company's Board of Directors approved an
amendment to the Company's shareholder rights plan adopted in 1996 ("Rights
Plan"), changing the initial exercise price thereunder from $100.00 per Right
(as defined in the original Rights Plan agreement) to $700.00 per Right and
extending the final expiration date of the Rights Plan to February 17, 2010.
7
5. Convertible Notes
On September 16, 1998, the Company issued a convertible note to an
institutil investor in the amount of $8,750,000. The note has a five year
term and a coupon rate of 9.25% with interest payable on a semi-annual basis.
The note contains a conversion feature that allows the note holder to convert
the note into common shares at $3.67 per share. The Company can redeem the note
after three years at 103% of the principal amount, (two years if the Company's
stock trades at $24.75 or higher for a period of 20 consecutive trading days).
This note was issued at a discount of $437,500 which is being amortized over
three years.
On January 20, 1999, the Company issued to an institutional investor a
convertible note in the amount of $15,000,000. The note has a five year term and
a coupon rate of 9% with interest payable on a semi-annual basis. The note
contains a conversion feature that allows the note holder to convert the note
into common shares after one year at $6 per share. The Company can redeem the
note after three years at 103% of the principal amount (two years under certain
conditions). Issuance costs of $750,000 incurred in connection with this note
are being amortized over three years. At March 31, 2000, $5,712,000 of this
convertible note remains outstanding (See note 6).
On July 6, 1999, the Company issued to a third institutional investor a
convertible note in the amount of $15,000,000. The note has a five year term and
a coupon rate of 9% with interest payable on a semi-annual basis. The note
contains a conversion feature that allows the note holder to convert the note
into common shares after one year at $6.33 per share. The Company can redeem the
note after three years at 103% of the principal amount (two years under certain
conditions). There was no fee or discount associated with this note.
6. Public Offering
On February 16, 2000, the company completed an offering to sell
3,450,000 shares of its common stock at a price of $101 per share. 2,934,000
shares were for the account of the Company and 516,000 were for the account of a
selling shareholder pursuant to the conversion of $9,288,000 of the 9%, January
1999 convertible notes held by that shareholder. Proceeds to the Company, net of
expenses, were approximately $278 million.
7. Common Stock Split and Authorized Shares
On April 11, 2000, the Company effected a three-for-one stock split by
amending its certificate of incorporation to increase the number of authorized
shares of common stock from 30,000,000 to 120,000,000. As a result, the
Company's shares outstanding increased from approximately 21.4 million shares to
aproximately 64.3 milion shares. The reporting of the Company's share price on a
split adjusted basis commenced on April 17, 2000. All share and per share
amounts in the consolidated statements of operations and share amounts disclosed
in the accompanying notes thereto have been restated to reflect the thre-for-one
stock split. Shares issued and outstanding at March 31, 2000 and December 21,
1999 in the consolidated balance sheets have not been restated to reflect the
stock split.
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8. Marketable Securities Available for Sale
Marketable securities available for sale at March 31, 2000 include debt
securities with maturities ranging from November 2000 to August 2004. A summary
of marketable securities at March 31, 2000 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
-------------------- ----------------- ------------------ -------------------
Government Bonds & Notes $2,798,321 - $(12,207) $2,786,114
Government Agencies 127,030,250 - (358,453) 126,671,797
-------------------- ----------------- ------------------ -------------------
Total $129,828,571 - $(370,660) $129,457,911
==================== ================= ================== ===================
9. Comprehensive Loss and Recently Issued Accounting Pronouncement
Comprehensive loss includes net loss and other comprehensive loss which
refers to those revenues, expenses, gains and losses which are excluded from net
loss. Other comprehensive loss includes the change in unrealized gains and
losses on marketable securities classified as available-for-sale.
Three Months ended
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March 31, 2000 March 31, 1999
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Net Loss $(3,144,446) $(6,591,789)
Other Comprehensive Loss (278,756) -
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Total Comprehensive Loss $(3,423,202) $(6,591,789)
========================= ========================
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletinh ("SAB") NO. 101, Revenue Recognition in
Financial Statements. SAB 101 summarizes certain of the staff's views in
applying generaly accepted accounting principles to the revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. SAB 101, as amended, must be adopted no later
than the second quarter of 2000 with an effective date of January 1, 2000. The
Company is in the process of evaluating this SAB and the effect it will have on
our consolidated financial statements and future revenue recognition policy.
In June 1998, Statement of Financial Accounting Standard ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities", was issued
and is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 requires derivative instruments to be recognized as
Assets and Liabilities and be recorded at Fair Value. The Company is currently
not party to any Derivative Instruments. Any future transactions involving
Derivative Instruments will be evaluated based on SFAS No.133.
10. Subsequent Event
On April 26, 2000, the Company announced that it had entered into an
agreement with Novartis Pharma AG wherein the Company granted an
9
exclusive worldwide license (excluding Canada) for the development and marketing
of d-methylphenidate, its chirally pure version of Ritalin(R), to Novartis. The
Company also granted rights to all its related intellectual property and
patents, including new formulations of the currently marketed Ritalin. The
Company will receive substantial upfront and milestone payments in addition to
royalties on the entire family of Ritalin drugs. The agreement is subject to
regulatory approval in the United States under the Hart-Scott-Rodino Pre-Merger
Notification Act.
10
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 31,2000 vs.
Three month period ended March 31,1999
Total Revenues. Our total revenues for the three months ended March 31,
2000 increased significantly to $11.9 million compared with $4.3 million in the
same period of 1999. Revenue in 2000 consisted of THALOMID sales of $11.7
million and research contract revenue of $200,000 compared with 1999 first
quarter THALOMID sales of $3.5 million and research contract revenue of
$813,000. 1999 research contract revenue included a milestone payment of
$500,000 related to the development of ATTENADE.
Cost of Goods Sold. Cost of goods sold during the first quarter 2000
was $1.7 million compared with approximately $656,000 in the comparable period
in 1999. The cost of goods sold in both years does not reflect raw material or
formulation and encapsulation costs of THALOMID, as these costs were charged as
research and development expenses prior to receiving FDA approval.
Research and development expenses. Research and development expenses
increased by 41% in the first quarter 2000 to approximately $6.4 million from
approximately $4.5 million in the same period in 1999. The increase was
primarily in spending for preclinical toxicology studies and clinical trials for
ATTENADE, THALOMID, and the SelCIDs and IMiDs.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended March 31, 2000 increased by
60% to approximately $8.5 million from $5.3 million in the same period in 1999.
The increase was due primarily to the expansion of the sales and marketing
organization and related expenses of approximately $2.6 million, and
approximately $240,000 for warehousing and distribution.
Interest income and expense. Interest income for the first quarter 2000
increased significantly to approximately $2.3 million from $146,000 in the same
period in 1999. The increase was due to the investment of the net proceeds of
approximately $278 million from the follow-on public offering in February 2000.
Interest expense for the first quarter 2000 increased to approximately
$778,000 from approximately $546,000 in the same period in 1999. The increase
was due primarily to the interest expense associated with the convertible notes
issued in January and July 1999.
Net loss. The net loss for the period ended March 31, 2000 decreased by
52% to $3.1 million from $6.6 million in the same period of 1999. The decrease
was due to the increase in gross profit of $7.2
11
million on the THALOMID sales and higher net interest income of approximately
$1.9 million offset by a decrease in research contract revenue of approximately
$613,000 and higher operating expenses, approximately $5.0 million.
Liquidity and Capital Resources. Since inception, we have financed our
working capital requirements primarily through private and public sales of our
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. Through December 31, 1999, we raised approximately $100.0 million in net
proceeds from three public and three private offerings, including our initial
public offering in July 1987. We also issued convertible notes in September
1998, January 1999, and July 1999 with net proceeds aggregating approximately
$38 million.
On February 16,2000, we completed an offering to sell 3,450,000 shares
of our common stock at a price of $101 per share. 2,934,000 shares were for the
account of Celgene and 516,000 shares were for the account of a selling
shareholder pursuant to the conversion of $9,288,000 of the 9%, January 1999
convertible notes held by that shareholder. Proceeds to Celgene, net of
expenses, were approximately $278 million.
Our net working capital at March 31, 2000 increased significantly to
approximately $295.6 million (primarily cash and cash equivalents and marketable
securities) from approximately $18.5 million at December 31, 1999. The increase
in working capital was primarily due to the net proceeds received from the
public offering in February, 2000.
Cash and cash equivalents increased by $147.7 million in the first
quarter 2000 and marketable securities increased by $125.2 million from December
31, 1999. This reflects the receipt in February 2000 of funds from the public
offering.
We expect that our rate of spending will increase as the result of
increased clinical trial costs, increased expenses associated with the
regulatory approval process and commercialization of products currently in
development, increased costs related to the commercialization of THALOMID and
increased working capital requirements. We believe that the funds received from
the public offering as well as the increasing revenues from sales of THALOMID
should be sufficient to fund our operations for the foreseeable future.
Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") NO. 101, Revenue Recognition in
Financial Statements. SAB 101 summarizes certain of
12
the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements, including the recognition of
non-refundable fees received upon entering into arrangements. SAB 101, as
amended, must be adopted no later than the second quarter of 2000 with an
effective date of January 1, 2000 . We are in the process of evaluating this SAB
and the effect it will have on our consolidated financial statements and future
revenue recognition policy.
Cautionary Statements for Forward-Looking Information
The Management's 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 our control which may cause actual results, performance and
achievements of Celgene 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
other factors detailed herein and in our other filings with the Securities and
Exchange Commission.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
We do not use derivative financial instruments. Our convertible notes
have a fixed interest rate.
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 a Special Meeting of Stockholders of Celgene Corporation on
April 10, 2000. At this meeting, The Company's stockholders were asked to vote
for an amendment to the Company's Certificate of Incorporation that would
increase the number of authorized shares of the Company's common stock from
30,000,000 to 120,000,000 shares in order to effect a three-for-one stock split
that was approved by the Company's Board of Directors on March 13, 2000. The
Amended Certificate of Incorporation was filed with the State of Delaware on
April 11, 2000. The amendment was approved by the following votes:
A. Adoption of amendment to the Company's Certificate of Incorporation:
Number of Shares
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For Against Abstained
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17,841,499 261,979 8,492
Item 5.--Other Information:
None
Item 6. Exhibits
A. 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
DATE May 12, 2000 BY /S/ Robert J. Hugin
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Robert J. Hugin
Senior Vice President
Chief Financial Officer
DATE May 12, 2000 BY /s/James R. Swenson
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James R. Swenson
Controller
(Chief Accounting Officer)
15