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 June 30, 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
------------------------------------------------------------------------
(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 July 31, 2000, 66,557,783 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 June 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations
- Six-Month Period Ended
June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Operations
- Three-Month Period Ended
June 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows
- Six-Month Period Ended
June 30, 2000 and 1999 (unaudited) 6
Notes to Unaudited Consolidated
Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 17
PART II OTHER INFORMATION 18
Signatures 20
2
CELGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30, 2000 DECEMBER 31, 1999
----------------- ------------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $122,450,487 $ 15,255,422
Marketable securities available for sale 169,498,195 4,271,221
Accounts receivable, net of allowance of $296,601 at June 30,
2000 and $121,437 at December 31, 1999 8,257,007 4,928,472
Other accounts receivable 10,113,973 --
Inventory 3,144,485 2,456,059
Other current assets 4,922,058 895,602
------------------ ------------------
Total current assets 318,386,205 27,806,776
Plant and equipment, net 3,080,085 2,336,242
Other assets 3,699,019 2,190,652
------------------ ------------------
Total assets $325,165,309 $ 32,333,670
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 4,413,031 $ 2,358,563
Accrued expenses 8,989,141 6,761,889
Deferred revenue 8,571,429 --
Capitalized lease obligations 96,527 179,885
------------------ ------------------
Total current liabilities 22,070,128 9,300,337
Capitalized lease obligation-net of current portion -- 22,924
Deferred revenue-net of current portion 1,043,955 --
Other non-current liabilities -- 225,000
Long term convertible notes 25,281,313 38,494,795
------------------ ------------------
Total liabilities 48,395,396 48,043,056
------------------ ------------------
Stockholders' equity (deficit):
Common stock, $.01 par value per share, 120,000,000 shares;
issued and outstanding 65,736,559 and 17,703,646 shares
at June 30, 2000 and December 31, 1999, respectively. 657,366 177,036
Additional paid-in capital 446,808,369 150,599,750
Accumulated deficit (170,365,446) (166,394,268)
Accumulated other comprehensive loss (330,376) (91,904)
------------------ ------------------
Total stockholders' equity (deficit) 276,769,913 (15,709,386)
------------------ ------------------
Total liabilities and stockholders' equity (deficit) $325,165,309 $ 32,333,670
================== ==================
See accompanying notes to consolidated financial statements.
3
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Month Period Ended June 30,
-----------------------------------------
2000 1999
------------ ------------
Revenues:
Product sales $ 27,875,220 $ 8,748,326
Research contracts 1,009,616 1,307,500
------------ ------------
Total revenues 28,884,836 10,055,826
Expenses:
Cost of goods sold 4,221,420 1,374,641
Research and development 14,905,248 9,432,815
Selling, general and administrative 19,388,453 11,228,154
------------ ------------
Total expenses 38,515,121 22,035,610
Operating loss (9,630,285) (11,979,784)
Interest income 7,096,193 255,443
Interest expense 1,437,086 1,093,022
------------ ------------
Net loss $ (3,971,178) $(12,817,363)
============ ============
Per share basic and diluted:
Net loss $ (0.06) $ (0.25)
============ ============
Weighted average number of shares of
common stock outstanding 61,866,000 50,517,000
============ ============
See accompanying notes to consolidated financial statements.
4
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended June 30,
-----------------------------------------
2000 1999
------------ ------------
Revenues:
Product sales $ 16,209,301 $ 5,256,258
Research contracts 809,616 495,000
------------ ------------
Total revenues 17,018,917 5,751,258
Expenses:
Cost of goods sold 2,557,708 718,790
Research and development 8,519,507 4,917,511
Selling, general and administrative 10,891,815 5,902,752
------------ ------------
Total expenses 21,969,030 11,539,053
Operating loss (4,950,113) (5,787,795)
Interest income 4,782,196 109,449
Interest expense 658,816 547,227
------------ ------------
Net loss $ (826,733) $ (6,225,573)
============ ============
Per share basic and diluted:
Net loss $ (0.01) $ (0.12)
============ ============
Weighted average number of shares of
common stock outstanding 65,026,000 50,763,000
============ ============
See accompanying notes to consolidated financial statements.
5
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Period Ended June 30,
----------------------------------------
2000 1999
------------- -------------
Cash flows from operating activities:
- -------------------------------------
Net loss $ (3,971,178) $ (12,817,363)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of long-term assets 587,774 444,198
Provision for accounts receivable allowances 175,164 46,948
Shares issued for employee benefit plans 1,047,755 799,823
Amortization of debt issuance costs 160,076 125,000
Amortization of discount on convertible note 72,918 72,918
Change in current assets & liabilities:
Increase in inventory (688,426) (577,020)
Increase in accounts payable and accrued expenses 4,141,971 3,007,136
Increase in deferred revenue 9,615,384 --
Increase in accounts receivable (3,503,699) (1,188,383)
Increase in other accounts receivable (10,113,973) --
Increase in other assets (4,250,126) (338,705)
------------- -------------
Net cash used in operating activities (6,726,360) (10,425,448)
Cash flows from investing activities:
- -------------------------------------
Capital expenditures (3,073,474) (312,846)
Proceeds from sales and maturities of marketable securities available for sale 1,510,859 1,995,132
Purchases of marketable securities available for sale (166,976,305) (4,301,719)
------------- -------------
Net cash used in investing activities (168,538,920) (2,619,433)
Cash flows from financing activities:
- -------------------------------------
Net proceeds from follow-on public offering 277,529,564 --
Proceeds from exercise of common stock options and warrants 5,037,064 2,158,625
Capital lease buyout (106,283) (105,456)
Debt issuance costs -- (750,000)
Net proceeds from issuance of convertible notes -- 15,000,000
------------- -------------
Net cash provided by financing activities 282,460,345 16,303,169
------------- -------------
Net increase in cash and cash equivalents 107,195,065 3,258,288
Cash and cash equivalents at beginning of period 15,255,422 3,066,953
------------- -------------
Cash and cash equivalents at end of period $ 122,450,487 $ 6,325,241
============= =============
See accompanying notes to consolidated financial statements.
6
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Six Month Period Ended June 30,
---------------------------------------
2000 1999
------------ ------------
Non-cash investing activity:
Change in net unrealized gain(loss) on
marketable securities available for sale $ (238,472) $ (51,430)
============ ============
Non-cash financing activity:
Issuance of common stock upon conversion of
convertible notes $ 13,286,400 $ --
============ ============
Supplemental disclosure of cash flow information:
Interest Paid $ 1,933,657 $ 7,383
============ ============
See accompanying notes to consolidated financial statements.
7
CELGENE CORPORATION
Notes to Unaudited Consolidated Financial Statements
June 30, 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. Common Stock Split and Authorized Shares
On April 14, 2000, the Company effected a three-for-one stock split for
stockholders of record as of April 11, 2000. On April 10, 2000, the Company's
stockholders approved an increase in the number of authorized shares of common
stock from 30,000,000 to 120,000,000. All share and per share amounts in the
consolidated statements of operations and share and per share amounts disclosed
in the accompanying notes to unaudited consolidated financial statements have
been retroactively restated to reflect the three-for-one stock split. Share and
per share amounts in the consolidated balance sheets have not been retroactively
restated to reflect the stock split. During the second quarter 2000, the Company
recorded a reclassification of approximately $429,000 to decrease additional
paid-in capital and to increase common stock in order to reflect the
three-for-one stock split.
3. 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 14,013,027 at June 30, 2000 and 15,446,634 at June 30,1999.
4. Inventory
June 30, December 31,
2000 1999
----------------------- ----------------------
Raw materials $1,075,942 $1,411,663
Work in process 1,505,719 647,841
Finished goods 562,824 396,555
----------------------- ----------------------
$3,144,485 $2,456,059
======================= ======================
5. 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.
6. Long-Term Incentive Plan
8
At the Company's Annual Meeting of Stockholders on June 20, 2000, the
stockholders of the Company approved an amendment to the 1998 Incentive Plan to
increase the number of shares that may be subject to awards thereunder from
4,500,000 shares to 6,000,000 shares.
7. Warrants to Acquire Common Stock
Under the terms of a private placement of Series B Preferred Stock with
Chancellor LGT Asset Management, Inc. ("Chancellor") entered into on June 9,
1997, the Company was obligated to issue warrants to Chancellor to acquire a
number of shares of Common Stock. As of June 30, 2000 there were a total of
1,557,690 warrants outstanding. All such warrants have an exercise price of
$2.49 per share and expire on June 1, 2002.
8. Convertible Notes
On September 16, 1998, the Company issued convertible notes to an
institutional investor in the amount of $8,750,000. The notes have a five year
term and a coupon rate of 9.25% with interest payable on a semi-annual basis.
The notes contain a conversion feature that allows the note holders to convert
the notes into common shares at $3.67 per share. The Company can redeem the
notes after three years at 103% of the principal amount (two years if the
Company's stock trades at $8.26 or higher for a period of 20 consecutive trading
days). These notes were 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
convertible notes in the amount of $15,000,000. The notes have a five year term
and a coupon rate of 9% with interest payable on a semi-annual basis. The notes
contain a conversion feature that allows the note holders to convert the notes
into common shares after one year at $6 per share. The Company can redeem the
notes 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. Just prior to the Company's public
offering on February 16, 2000, a portion of the notes totaling $9,288,000 were
converted into 1,548,000 common shares and included in the public offering. On
May 17, 2000 an additional $3,998,400 of the notes were converted into 666,399
common shares and issued to the noteholder. The remaining carrying value of the
notes at June 30, 2000 is $1,713,600, convertible into 285,601 shares of common
stock.
On July 6, 1999, the Company issued to a third institutional investor
convertible notes in the amount of $15,000,000. The notes have a five year term
and a coupon rate of 9% with interest payable on a semi-annual basis. The notes
contain a conversion feature that allows the note holders to convert the notes
into common shares after one year at $6.33 per share. The Company can redeem the
notes after three years at 103% of the principal amount (two years under certain
conditions). There was no fee or discount associated with these notes.
9
9. Public Offering
On February 16, 2000, the Company completed an offering to sell 10,350,000
shares of its common stock at a price of $33.67 per share. 8,802,000 shares were
for the account of the Company and 1,548,000 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.
10. Marketable Securities Available for Sale
Marketable securities available for sale at June 30, 2000 include debt
securities with maturities ranging from November 2000 to August 2004. A summary
of marketable securities at June 30, 2000 is as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
-------------------- ----------------- ------------------ -------------------
Government Bonds & Notes $2,798,320 -- $(9,149) $2,789,171
Government Agencies 167,030,251 -- (321,227) 166,709,024
-------------------- ----------------- ------------------ -------------------
Total $169,828,571 -- $(330,376) $169,498,195
==================== ================= ================== ===================
10
11. Comprehensive Loss and Recently Issued Accounting Pronouncements
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 unrealized gains and losses on
marketable securities classified as available-for-sale.
Three Months ended
---------------------------------------------------------
June 30, 2000 June 30, 1999
------------------------- ----------------------------
Net Loss $(826,733) $(6,225,573)
Other Comprehensive Gain/(Loss) 40,284 (51,430)
----------- -------------
Total Comprehensive Loss $(786,449) $(6,277,003)
========== ============
Six Months ended
---------------------------------------------------------
June 30, 2000 June 30, 1999
------------------------- ----------------------------
Net Loss $(3,971,178) $(12,817,363)
Other Comprehensive Loss (238,472) (51,430)
-------------- -------------
Total Comprehensive Loss $(4,209,650) $(12,868,793)
============ =============
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 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 fourth 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.
In June 1998, Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued and,
as amended, 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.
12. Agreements
On April 26, 2000, the Company announced that it had entered into an
agreement with Novartis Pharma AG wherein the Company granted to Novartis an
exclusive worldwide license for the development and marketing of
d-methylphenidate, its chirally pure version of Ritalin. The Company also
granted rights to all its related intellectual property and patents, including
new formulations of the currently marketed Ritalin. Celgene
11
received a $10 million, nonrefundable, upfront license fee payment in July 2000
and is entitled to receive substantial milestone payments in addition to
royalties on the entire family of Ritalin drugs. The agreement was subject to
regulatory approval in the United States under the Hart-Scott-Rodino Pre-Merger
Notification Act for which the waiting period ended on June 10, 2000. Upon
receipt of the Hart-Scott-Rodino approval, the Company recorded a receivable for
the up-front payment plus interest in the amount of $10.1 million which is
included in other accounts receivable at June 30, 2000. The upfront license fee
of $10 million is being recognized as revenue over a 14 month period which is
management's estimate of the period of time required to fulfill its development
efforts related to obtaining FDA approval of the immediate release form of
d-methylphenidate. This estimate is subject to change due to uncertainties
inherent in the regulatory approval process, which change could have a material
impact on the timing of the recognition of revenue. Accordingly, the Company
recognized approximately $385,000 of research contract revenue for the quarter
ended June 30, 2000 with the remainder of the $10 million fee recorded as
deferred revenue at June 30, 2000.
On June 29, 2000, the Company entered into an agreement to merge with
Signal Pharmaceuticals, Inc., ("Signal") a privately held San Diego-based
biopharmaceutical company focused on the discovery and development of drugs that
regulate genes associated with disease. The agreement is subject to standard
closing conditions. The merger is expected to be accounted for using the
pooling-of-interest method of accounting. In accordance with the merger
agreement, Celgene will exchange all of the outstanding shares of Signal common
and preferred stock for approximately 3.7 million shares of Celgene common
stock. The merger agreement provides that Signal shareholders will receive in
the merger .1257 of a share of common stock, par value $.01 per share, of
Celgene in exchange for each share of common stock of Signal that they own. In
addition, based on Signal's options and warrants outstanding as of July 31,
2000, Celgene will issue options and warrants for approximately 450,000 shares
of Celgene common stock. On July 26, 2000, the Company filed a registration
statement with the Securities and Exchange Commission to register the common
shares of Celgene Corporation to be issued to holders of Signal common stock. As
part of the merger, it is anticipated that certain former non-employee directors
of Signal, who hold unvested Signal options which would convert into
approximately 40,000 Celgene options, will enter into consulting agreements with
Signal to provide services to Signal to be effective upon consummation of the
merger. As a result, Celgene will be required to record compensation expense
relative to the fair value of such options which will be recognized over the
remaining vesting period. Celgene and Signal estimate that they will incur
direct transaction costs of approximately $7.5 million associated with the
merger, which will be charged to operations upon consummation of the merger.
Also, in accordance with the terms of the merger agreement, under certain
circumstances Celgene would be obligated to pay a fee to Signal, as liquidated
damages.
13. Subsequent Event
On July 6, 2000, $5,000,000 of the July 6, 1999 convertible notes were
converted into 789,474 shares of Celgene common stock. The remaining carrying
value of the notes is $10,000,000 and is convertible into 1,578,948 shares of
common stock.
12
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Six month period ended June 30,2000 vs.
Six month period ended June 30,1999
- -----------------------------------
Total Revenues. Our total revenues for the six months ended June 30, 2000
increased significantly to $28.9 million compared with $10.1 million for the
same period in 1999. Revenue in 2000 consisted of THALOMID sales of $27.9
million and research contract revenue of $1.0 million compared with THALOMID
sales of $8.7 million and research contract revenue of $1.3 million for the same
period in 1999. Included in the research contract revenue for 2000 was
approximately $385,000 of the $10 million nonrefundable upfront license fee
payment received in connection with a collaborative agreement with Novartis
Pharma AG.
Cost of Goods Sold. Cost of goods sold during the first six months of 2000
was $4.2 million compared with approximately $1.4 million in the comparable
period in 1999. The increase in cost of goods sold reflects the higher volume of
THALOMID sold in the first half of 2000. The cost of goods sold during 1999 and
first quarter 2000 does not reflect raw material or formulation and
encapsulation costs associated with 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 58% for the six months ended June 30, 2000 to $14.9 million
compared to $9.4 million for the same period in 1999. The increase was primarily
in spending for preclinical toxicology studies and phase I and phase II clinical
trials for SelCIDs and IMiDs, as well as spending on the completion of the
pivotal trials for our chirally pure version of Ritalin.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 73% for the six months ended June 30, 2000
to $19.4 million compared to $11.2 million for the same period in 1999. The
increase was due primarily to the expansion of the sales and marketing
organization and related expenses.
13
Interest income and expense. Interest income for the first six months of
2000 increased significantly to approximately $7.1 million compared to $255,000
for 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 six months of 2000 increased to
approximately $1.4 million compared to approximately $1.1 million for the same
period in 1999. The increase was due primarily to the interest expense
associated with the convertible notes issued in July 1999.
Net loss. The net loss for the six month period ended June 30, 2000
decreased by 69% to $4.0 million compared to $12.8 million for the same period
in 1999. The decrease was due to the increase of $19.1 million in THALOMID sales
and higher net interest income of approximately $6.5 million offset by a
decrease in research contract revenue of approximately $298,000 and higher costs
and expenses, approximately $16.5 million.
Results of Operations
Three month period ended June 30,2000 vs.
Three month period ended June 30,1999
- -------------------------------------
Total Revenues. Our total revenues for the three month period ended June
30, 2000 increased significantly to $17.0 million compared with $5.8 million for
the same period in 1999. Revenue in 2000 consisted of THALOMID sales of $16.2
million and research contract revenue of $810,000 compared with THALOMID sales
of $5.3 million and research contract revenue of $495,000 during the comparable
period in 1999.
Cost of Goods Sold. Cost of goods sold during the second quarter 2000 was
$2.6 million compared with approximately $719,000 in the comparable period in
1999. The cost of goods sold relates entirely to sales of THALOMID. The cost of
goods sold during the second quarter 1999 does not reflect raw material or
formulation and encapsulation costs associated with 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 73% in the second quarter 2000 to approximately $8.5 million
compared to approximately $4.9 million for the second quarter 1999. The increase
was primarily in spending for preclinical toxicology studies and phase I and
14
phase II clinical trials for the SelCIDs and IMiDs and additional headcount and
related expenses to support the increased activity.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended June 30, 2000 increased by
85% to approximately $10.9 million compared to $5.9 million for the same period
in 1999. The increase was due primarily to the expansion of the sales and
marketing organization and related expenses.
Interest income and expense. Interest income for the second quarter 2000
increased significantly to approximately $4.8 million compared to $109,000 for
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 second quarter 2000 increased to approximately
$659,000 compared to approximately $547,000 for the same period in 1999. The
increase was due primarily to the interest expense associated with the
convertible notes issued in July 1999.
Net loss. The net loss for the second quarter 2000 decreased by 87% to
approximately $827,000 compared to $6.2 million for the same period in 1999. The
decrease was due to the increase in sales of THALOMID of approximately $11.0
million, higher net interest income of approximately $4.6 million and an
increase in research contract revenue of approximately $315,000 offset by an
increase in costs and operating expenses of approximately $10.4 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 10,350,000 shares of
our common stock at a price of $33.67 per share. 8,802,000 shares were for the
account of Celgene and
15
1,548,000 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. Our proceeds, net of expenses, were approximately $278 million.
On April 19, 2000, we signed a development and license agreement with
Novartis Pharma AG in which we granted to Novartis rights to our chirally pure
version of Ritalin in return for certain upfront and milestone payments and
royalties upon commercialization of the product. The agreement became effective
on June 10, 2000 upon which a payment of $10 million was due to us. The $10
million was received in early July, 2000.
On June 29, 2000, we signed an agreement to merge with Signal
Pharmaceuticals, Inc., a privately held San Diego-based biopharmaceutical
company focused on the discovery and development of drugs that regulate genes
associated with disease. Subject to standard closing conditions, the merger is
expected to close later this year. The merger is expected to be accounted for as
a pooling of interests. We expect to incur direct transaction costs of
approximately $7.5 million associated with the merger, which will be charged to
operations upon consummation of the merger.
Our net working capital at June 30, 2000 increased significantly to
approximately $304.9 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 $107.2 million in the second quarter
2000 and marketable securities increased by $165.2 million from December 31,
1999. This reflects the receipt in February 2000 of funds from the follow-on
public offering.
We expect that our rate of spending will increase as the result of the
merger with Signal Pharmaceuticals, 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, funds received and the
possibility of additional milestone payments in connection with the Novartis
16
collaboration, as well as the increasing revenues from sales of THALOMID should
be sufficient to fund the combined 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 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 fourth quarter 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 future
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
the pending merger with Signal, 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
Market Risk
We do not use derivative financial instruments. Our convertible notes
have a fixed interest rate.
17
PART II - OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4.- Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 20, 2000. At this
meeting stockholders of the Company were asked to vote for the election of
directors, and act upon the proposals, (1) to approve an amendment to the 1998
Long-Term Incentive Plan (the "1998 Incentive Plan") to increase the number of
shares that may be subject to awards thereunder from 4,500,000 shares to
6,500,000 shares; (2) to consider and act upon a proposal to confirm the
appointment of KPMG LLP as the independent certified public accountants of the
Company for the current fiscal year. All nominated directors were elected, the
proposal to amend the 1998 Incentive Plan was approved and the proposal
regarding the appointment of auditors was approved. The election of directors
and the various proposals were approved by the following votes:
A. Election of Directors:
Name Number of Shares
- ---- -----------------------------------------------------------------------
For Withheld Abstained
--- -------- ---------
John W. Jackson 58,005,323 93,871 -
Sol J. Barer 58,001,423 97,771 -
Frank T. Cary 58,004,423 94,771 -
Richard C. E. Morgan 58,006,223 92,971 -
Walter L. Robb 58,006,223 92,971 -
Lee J. Schroeder 58,006,223 92,971 -
Arthur Hull Hayes, Jr. 58,002,323 96,871 -
Gila Kaplan 57,992,323 106,871 -
Jack L. Bowman 58,006,223 92,971 -
18
B. Adoption of amendment to the 1998 Incentive Plan:
Number of Shares
-----------------------------------------------------------------------
For Against Abstained
--- ------- ---------
40,881,957 17,085,673 131,564
C. Appointment of Auditors:
Number of Shares
-----------------------------------------------------------------------
For Against Abstained
--- ------- ---------
57,984,035 42,825 72,334
Item 5.--Other Information:
None
Item 6. Exhibits
A. 27 Financial Data Schedule - Article 5 for second 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 August 14, 2000 BY /s/ Robert J. Hugin
------------------ --------------------------------
Robert J. Hugin
Senior Vice President
Chief Financial Officer
DATE August 14, 2000 BY /s/ James R. Swenson
------------------ --------------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
20