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, 2001
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
----- -----
At July 31, 2001, 75,334,383 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 1 Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
as of June 30, 2001 (unaudited)
and December 31, 2000 3
Consolidated Statements of Operations
- Six-Month Period Ended
June 30, 2001 and 2000 (unaudited) 4
Consolidated Statements of Operations
- Three-Month Period Ended
June 30, 2001 and 2000 (unaudited) 5
Consolidated Statements of Cash Flows
- Six-Month Period Ended
June 30, 2001 and 2000 (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 18
PART II OTHER INFORMATION 19
Signatures 21
2
Celgene Corporation
Consolidated Balance Sheets
June 30, 2001 December 31, 2000
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 71,230,635 $161,393,835
Marketable securities available for sale 227,193,415 144,767,777
Accounts receivable, net of allowance of $443,930 and
$382,577 at June 30, 2001 and December 31, 2000, respectively 11,172,196 9,846,000
Inventory 4,549,397 4,266,257
Other current assets 7,606,110 11,747,727
------------- ------------
Total current assets 321,751,753 332,021,596
Plant and equipment, net 9,694,957 8,395,902
Other assets 6,482,331 6,308,417
------------- ------------
Total assets $337,929,041 $346,725,915
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,003,261 $ 10,868,473
Accrued expenses 6,659,522 9,511,507
Current portion of capital leases 906,367 929,258
Current portion of deferred revenue 6,853,501 12,473,574
------------- ------------
Total current liabilities 20,422,651 33,782,812
Long term convertible notes 11,713,600 11,713,600
Capitalized leases, net of current portion 182,597 632,946
Deferred revenue, net of current portion 2,366,000 4,866,000
Other non-current liabilities 1,424,313 197,685
------------- ------------
Total liabilities 36,109,161 51,193,043
============= ============
Stockholders' equity:
Preferred stock,$.01 par value per share;
5,000,000 authorized; none outstanding at
June 30, 2001 and December 31, 2000, respectively. - -
Common stock, $.01 par value per share, 120,000,000 shares authorized;
issued and outstanding 75,315,724 and 73,999,889 shares
at June 30, 2001 and December 31, 2000, respectively. 753,157 739,999
Additional paid-in capital 526,003,565 519,290,323
Accumulated deficit (222,761,253) (220,454,722)
Deferred compensation (3,570,054) (4,890,607)
Notes receivable from stockholders (62,000) (62,000)
Accumulated other comprehensive income 1,456,465 909,879
------------- ------------
Total stockholders' equity 301,819,880 295,532,872
------------- ------------
Total liabilities and stockholders' equity $337,929,041 $346,725,915
============= ============
See accompanying notes to unaudited consolidated financial statements.
3
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Month Period Ended June 30,
-------------------------------
2001 2000*
---- -----
Revenue:
Product sales $ 35,689,075 $ 28,146,972
Research contracts 9,367,422 2,996,624
Related-party collaborative agreement
revenue 1,273,600 3,350,000
---------------- -------------
Total revenue 46,330,097 34,493,596
Expenses:
Cost of goods sold 5,534,694 4,493,172
Research and development 28,928,820 27,877,782
Selling, general and administrative 24,391,095 19,904,091
---------------- -------------
Total expenses 58,854,609 52,275,045
---------------- -------------
Operating loss (12,524,512) (17,781,449)
Other income and expense:
Interest and other income 10,268,157 7,296,025
Interest expense 50,176 2,021,685
---------------- -------------
Net loss $ (2,306,531) $(12,507,109)
================ =============
Net loss per common share:
Basic and diluted $ (0.03) $ (0.20)
================ =============
Weighted average number of shares of
common stock outstanding 74,778,000 62,343,000
================ =============
* Restated-see note 2
See accompanying notes to unaudited consolidated financial statements.
4
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Month Period Ended June 30,
---------------------------------
2001 2000*
---- -----
Revenue:
Product sales $ 18,680,668 $16,370,530
Research contracts 4,625,129 1,800,898
Related-party collaborative agreement
revenue 625,000 1,675,000
--------------- -------------
Total revenue 23,930,797 19,846,428
--------------- -------------
Expenses:
Cost of goods sold 2,839,727 2,718,937
Research and development 15,724,370 15,495,176
Selling, general and administrative 13,108,181 11,200,110
--------------- -------------
Total expenses 31,672,278 29,414,223
--------------- -------------
Operating loss (7,741,481) (9,567,795)
Other income and expense:
Interest and other income 5,340,214 4,866,262
Interest expense 17,771 1,180,531
--------------- -------------
Net loss $ (2,419,038) $(5,882,064)
=============== =============
Net loss per common share:
Basic and diluted $ (0.03) $ (0.09)
=============== =============
Weighted average number of shares of
common stock outstanding 75,113,000 65,544,000
=============== =============
* Restated-see note 2
See accompanying notes to unaudited consolidated financial statements.
5
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Month Period Ended June 30,
2001 2000*
---------------- --------------
Cash flows from operating activities:
Net loss $(2,306,531) (12,507,109)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of long-term assets 2,230,665 1,584,741
Provision for accounts receivable allowances - 15,000
Realized gain on marketable securities available
for sale (474,675) -
Non-cash stock-based compensation 1,917,488 1,592,169
Amortization of premium on marketable securities
available for sale 146,676 -
Amortization of debt issuance and warrant costs - 610,076
Amortization of discount on note obligations - 92,561
Shares issued for employee benefit plans 741,509 1,047,755
Change in current assets & liabilities:
Increase in accounts receivable (1,326,196) (3,234,576)
Increase in inventory (283,140) (688,426)
(Increase)decrease in other operating assets 3,974,972 (14,272,379)
Increase(decrease) in accounts payable and
accrued expenses (6,490,570) 5,165,439
Increase(decrease) in deferred revenue (8,120,073) 8,007,046
------------- -------------
Net cash used in operating activities (9,989,875) (12,587,703)
------------- -------------
Cash flows from investing activities:
Capital expenditures (3,536,989) (3,349,103)
Proceeds from sales and maturities of marketable
securities available for sale 89,239,926 6,579,144
Purchases of marketable securities
available for sale (170,790,979) (169,238,497)
------------- -------------
Net cash used in investing activities (85,088,042) (166,008,456)
------------- -------------
Cash flows from financing activities:
Net proceeds from follow-on public offering - 277,529,564
Proceeds from exercise of common stock
options and warrants 5,387,957 5,523,176
Repayment of capital lease and note obligations (473,240) (903,698)
------------- -------------
Net cash provided by financing activities 4,914,717 282,149,042
------------- -------------
Net increase (decrease) in cash and cash equivalents (90,163,200) 103,552,883
Cash and cash equivalents at beginning of period 161,393,835 21,869,256
------------- -------------
Cash and cash equivalents at end of period $71,230,635 $125,422,139
============= =============
* Restated-see note 2
See accompanying notes to consolidated financial statements.
6
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Six Month Period Ended June 30,
2001 2000 *
-------------- ---------------
Supplemental schedule of non-cash investing and
financing activity:
Change in net unrealized gain(loss) on
marketable securities available for sale $ 546,586 $ (238,472)
============== --==============
Conversion of convertible notes $ - $13,286,400
============== --==============
Issuance of common stock for promissory notes
from stockholders $ - $ 37,500
============== --==============
Deferred compensation related to stock options $ - $ 7,232,293
============== --==============
Supplemental disclosure of cash flow information:
Interest paid $ 50,176 $ 2,187,169
============== --==============
* Restated-see note 2
See accompanying notes to unaudited consolidated financial statements.
7
CELGENE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
1. Basis of Presentation
The unaudited consolidated financial statements have been prepared
from the books and records of Celgene Corporation and subsidiaries ("Celgene" or
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. Certain adjustments and reclassifications were made to
conform to the current year presentation.
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. Merger of Celgene and Signal
On August 31, 2000, Celgene completed the merger with Signal
Pharmaceuticals, Inc.("Signal") in a transaction accounted for as a
pooling-of-interests. Accordingly, all prior period consolidated financial
statements of Celgene have been restated to include the results of operations,
financial position and cash flows of Signal. The results of operations for the
separate companies and the combined amounts presented in the consolidated
financial statements for the periods prior to the merger follow:
Six Months Three Months
Ended Ended
June 30, June 30,
2000 2000
----------------- ---------------
Revenue:
Celgene $ 29,156,588 $17,180,146
Signal 5,337,008 2,666,282
----------------- ---------------
Combined $ 34,493,596 $19,846,428
================= ===============
Net loss:
Celgene $ (3,971,178) $ (826,733)
Signal (8,535,931) (5,055,331)
----------------- ---------------
Combined $(12,507,109) $(5,882,064)
================= ===============
8
3. Earnings per Share
"Basic" earnings (loss) per common share equals net income (loss)
divided by weighted average common shares outstanding during the period.
"Diluted" earnings per common share equals net income (loss) 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
for the three and six month periods ended June 30, 2001 and 2000 are the same
since the assumed exercise of stock options and warrants, and the conversion of
convertible notes and preferred stock are all anti-dilutive because of the loss
incurred by the Company during these periods. The amount of common stock
equivalents excluded from the calculation were 10,355,447 at June 30, 2001 and
17,523,405 at June 30, 2000.
4. New Accounting Pronouncement
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 currently is not party to any Derivative Instruments. Any future
transactions involving Derivative Instruments will be evaluated based on SFAS
No.133.
In July 2001, the FASB issued SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that
all business combinations be accounted for under a single method -- the purchase
method. Use of the pooling-of-interests method no longer is permitted. SFAS 141
requires that the purchase method be used for business combinations initiated
after June 30, 2001. SFAS 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The amortization of goodwill
ceases upon adoption of the Statement, which for calendar year-end companies,
will be January 1, 2002. SFAS No. 142 has no financial impact on the Company as
the Company does not have any goodwill or intangible assets which resulted from
business combinations.
9
5. Marketable Securities Available for Sale
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value of available for sale securities by major security
type at June 30, 2001 and December 31, 2000 were as follows:
Gross Gross Estimated
JUNE 30, 2001 Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------------- ------------ -------------- --------------
Government agencies $ 25,011,720 $ 136,780 $ - $ 25,148,500
Government bonds & notes 553,594 3,771 (233) 557,132
Corporate debt securities 200,171,636 2,365,425 (1,049,278) 201,487,783
--------------- ------------ -------------- --------------
Total $225,736,950 $2,505,976 $(1,049,511) $227,193,415
=============== ============ ============== ==============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
DECEMBER 31, 2000 Cost Gain Loss Value
--------------- ------------ -------------- --------------
Government agencies $113,811,071 $ 411,117 $ (776) $114,221,412
Government bonds & notes 301,758 - (822) 300,936
Corporate debt
securities 29,745,069 500,360 - 30,245,429
--------------- ------------ -------------- --------------
Total $143,857,898 $ 911,477 $ (1,598) $144,767,777
=============== ============ ============== ==============
6. Inventory
June 30, December 31,
2001 2000
-------------- -------------
Raw materials $1,291,627 $ 985,556
Work in process 1,952,768 1,869,104
Finished goods 1,305,002 1,411,597
-------------- -------------
Total $4,549,397 $4,266,257
============== =============
7. Convertible Notes
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 these notes
are being amortized over three years. During 2000, $13,286,400 of the notes were
converted into
10
2,214,399 common shares. At June 30, 2001, the remaining notes have a carrying
value of $1,713,600 and are convertible into 285,601 common shares.
On July 6, 1999, the Company issued to the same 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. On July
6, 2000, $5,000,000 of the notes were converted to 789,474 common shares. At
June 30, 2001, the remaining notes have a carrying value of $10,000,000 and are
convertible into 1,578,948 common shares.
On September 26, 2000, the Company entered into an agreement with the
note holders of the January 1999 and the July 1999 notes which allows the note
holders to take a "short position" in the common stock (as defined in the
respective Note Purchase Agreements) of the Company with certain limitations on
transactions resulting in a "short position" based upon the level of the stock
price. In exchange for the Company consenting to waive the provisions that
prohibit short sales, the note holders waive the right to the receipt of any
interest after the effective date of August 24, 2000.
8. Comprehensive Income (Loss)
Comprehensive income(loss) includes net income(loss) and other
comprehensive income(loss) which refers to those revenues, expenses, gains and
losses which are excluded from net income(loss). Other comprehensive income
(loss) includes unrealized gains and losses on marketable securities classified
as available-for-sale.
Six Month Period Ended
------------------------------------------------------
June 30, 2001 June 30, 2000
------------------------ ----------------------------
Net loss $(2,306,531) $(12,507,109)
Other comprehensive income(loss):
Unrealized holding gains(losses)
arising during period 1,021,261 (238,472)
Less: reclassification adjustment
for gains included in net
income (474,675) -
----------- ------------
Net unrealized gains(losses) on
securities 546,586 (238,472)
----------- ------------
Total comprehensive loss $(1,759,945) $(12,745,581)
=========== ============
Three Month Period Ended
------------------------------------------------------
June 30, 2001 June 30, 2000
----------------------- ---------------------
Net loss $(2,419,038) $(5,882,064)
Other comprehensive income(loss):
Unrealized holding gains(losses)
arising during period (799,223) 40,284
Less: reclassification adjustment
for gains included in net
income (474,675) -
----------- ------------
Net unrealized gains(losses) on
securities (1,273,898) 40,284
----------- ------------
Total comprehensive loss $(3,692,936) $ (5,841,780)
=========== ============
11
9. Stockholders' Equity
Warrants to Acquire Common Stock
Under the terms of a private placement of Series B Preferred Stock
entered into on June 9, 1997, the Company was obligated to issue warrants to
acquire a number of shares of common stock. As of June 30, 2001, there were a
total of 1,067,693 warrants outstanding. All such warrants have an exercise
price of $2.50 per share and expire on June 1, 2002.
Long-Term Incentive Plan
At the Company's Annual Meeting of Stockholders on June 19, 2001, 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
6,500,000 shares to 8,500,000 shares.
Deferred Compensation Expense
Prior to the merger, Signal recorded an aggregate of approximately
$9.4 million of deferred compensation for stock options granted from 1997
through 2000, representing the difference between the option exercise price and
the estimated fair value of the underlying stock for financial statement
presentation purposes. The deferred compensation is being amortized over the
vesting period of the options. Through June 30, 2001, the Company has recorded
approximately $5.8 million of compensation expense of which approximately
$615,000 and $1.3 million was recorded during the three and six month periods
ended June 30, 2001, respectively, and approximately $902,000 and $1.5 million
was recorded during the three and six month periods ended June 30, 2000,
respectively.
The Company recorded compensation expense relating to stock options
and warrants issued to consultants, advisors or financial institutions and other
stock-based compensation of approximately $451,000 and $597,000 for the three
and six month periods ended June 30, 2001, respectively, and approximately
$30,000 and $66,000 for the three and six month periods ended June 30, 2000,
respectively.
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 30,2001 vs.
Six month period ended June 30,2000
- -----------------------------------
Total revenue. Our total revenue for the six months ended June 30, 2001
increased 34% to $46.3 million compared with $34.5 million in the same period of
2000. Total revenue in 2001 consisted of THALOMID sales of $35.7 million,
research contract revenue of $9.4 million and related-party collaborative
agreement revenue of $1.3 million compared with THALOMID sales of $28.1 million,
research contract revenue of $3.0 million and related-party revenue of $3.4
million in the same period of 2000. Increasing use of THALOMID by oncologists in
the treatment of various types of cancer contributed to the 27% growth in
Thalomid sales. The increase in research contract revenue is primarily
attributable to the amortization of the up-front payments on two separate
research agreements with Novartis Pharma AG which began in June and December
2000, respectively. Related-party revenue declined in 2001 as a result of the
initial term of one of our agreements ending in November 2000. The agreement has
been extended and the future revenue is classified as research contract revenue.
Cost of goods sold. Cost of goods sold during the first six months of
2001 was $5.5 million compared with approximately $4.5 million in the comparable
period in 2000. The increase in cost of goods sold reflects the higher volume of
THALOMID sold in the first half of 2001.
Research and development expenses. Research and development expenses
increased by 4% for the six months ended June 30, 2001 to $28.9 million from
$27.9 million in the same period in 2000. The increase was primarily for
regulatory expenses associated with the preparation of a Supplimental New Drug
Application ("SNDA") for THALOMID in multiple myeloma, expenses for phase I and
phase II clinical trials for IMiDs and SelCIDs, and preclinical development for
our Selective Estrogen Receptor Modulators ("SERMs") cancer program.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 23% for the six months ended June 30, 2001
to $24.4 million from $19.9 million in the same period in 2000. The increase was
due primarily to
13
the expansion of the sales and marketing organization and related expenses.
Interest income and expense. Interest and other income for the first
six months of 2001 increased 41% to approximately $10.3 million from $7.3
million in the same period in 2000. The increase was primarily due to the
investment of the net proceeds of approximately $278.0 million from the
secondary public offering in February 2000 as well as $25.0 million in up-front
and milestone payments received since July 2000.
Interest expense for the first six months of 2001 decreased to
approximately $50,000 from approximately $2.0 million in the same period in
2000. The decrease was due primarily to the conversion of a significant portion
of our convertible notes and an agreement with our remaining note holders to
waive their rights to interest on the notes in exchange for a waiver of certain
trading restrictions.
Net loss. The net loss for the six month period ended June 30, 2001
decreased significantly to $2.3 million from $12.5 million in the same period of
2000. The decreased net loss was due to the combined increase in revenue and
interest and other income of approximately $14.8 million and lower interest
expense of approximately $2.0 million offset by higher costs and operating
expenses of approximately $6.6 million.
Three month period ended June 30, 2001 vs.
Three month period ended June 30, 2000
- --------------------------------------
Total revenue. Our total revenue for the three month period ended June
30, 2001 increased 21% to approximately $23.9 million compared with
approximately $19.8 million for the same period in 2000. Total revenue in the
second quarter of 2001 consisted of THALOMID sales of $18.7 million, research
contract revenue of $4.6 million, and related party revenue of $0.6 million
compared with THALOMID sales of $16.4 million, research contract revenue of $1.8
million, and related party revenue of $1.7 million during the comparable period
in 2000. The growth in THALOMID sales primarily is related to increased use in
oncology indications. The increase in research contract revenue is primarily
related to the amortization of a portion of the up-front payments from two
separate research agreements with Novartis Pharma AG. Revenue from related party
collaborative agreements decreased in the second quarter of 2001 as a party to
one of the agreements, Serono S.A., is no longer classified as a related party
after the initial term of the agreement has been
14
completed. While the agreement has been extended, the revenue is classified
as research contract revenue.
Cost of goods sold. Cost of goods sold during the second quarter 2001
was $2.8 million compared with approximately $2.7 million in the comparable
period in 2000. The cost of goods sold relates entirely to sales of THALOMID and
accordingly, the increase in cost of goods sold is related primarily to the
increased volume of THALOMID sales.
Research and development expenses. Research and development expenses
increased slightly in the second quarter 2001 to approximately $15.7 million
compared to approximately $15.5 million for the second quarter 2000. The
increase was primarily due to spending for preclinical development for our
Selective Estrogen Receptor Modulators ("SERMs") cancer program and spending for
clinical trials for THALOMID and the IMiDs and SelCIDs. These expenses are
partially offset by decreased spending for Ritadex(TM), (d-methylphenidate), our
chirally pure version of Ritalin(R), as our new drug application is being
reviewed by the Food and Drug Administration.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended June 30, 2001 increased by
17% to approximately $13.1 million compared with approximately $11.2 million for
the same period in 2000. The increase was due primarily to the expansion of the
sales and marketing organization and related expenses.
Interest income and expense. Interest and other income for the second
quarter 2001 increased approximately 10% to approximately $5.3 million compared
with approximately $4.9 million for the same period in 2000. The increase was
due to the investment of the net proceeds of approximately $278.0 million from
the follow-on public offering in February 2000 and $25.0 million received from
Novartis Pharma AG for up-front and milestone payments in the second half of
2000 and first quarter of 2001.
Interest expense for the second quarter 2001 decreased to approximately
$18,000 compared to approximately $1.2 million for the same period in 2000. The
decrease was due primarily to the conversion of a significant portion of our
convertible notes during 2000 and an agreement with the remaining note holders
which waives their rights to interest on the notes in exchange for a waiver of
certain trading restrictions.
15
Net loss. The net loss for the second quarter 2001 decreased to $2.4
million compared with a loss of $5.9 million for the same period in 2000. The
decreased net loss was due to the increase in total revenue and interest and
other income and the decrease in interest expense, offset in part by increased
selling, general and administrative expenses as described above.
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 proceeds from the
sale of such securities and revenue from product sales, research contracts and
license and milestone payments. Since our initial product launch in the third
quarter of 1998, we have recorded net sales totaling $125.0 million through June
30, 2001. We also received $25.0 million from two separate research and license
agreements during 2000 and the first quarter of 2001.
Our net working capital at June 30, 2001 increased moderately to
approximately $301.3 million from approximately $298.2 million at December 31,
2000. The increase in working capital was due primarily to a decrease in
accounts payable and accrued expenses and the amortization of deferred revenue,
offset in part by a decrease in current assets.
Cash and cash equivalents and marketable securities decreased during
the first six months of 2001 to $298.4 million from $306.2 million at December
31, 2000 due to increased levels of spending for research and development, sales
and marketing, and for an enhanced version of S.T.E.P.S.(TM), our System For
Thalidomide Education and Prescribing Safety.
We expect that our rate of spending will increase as the result of
increased research and preclinical development spending, 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 capital requirements.
We believe that our current cash resources, revenue from various research
collaborations, as well as the increasing revenue from sales of THALOMID will
provide sufficient capital for our operations for the foreseeable future.
16
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.
17
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Our holdings of financial instruments are comprised of commercial paper, U.S.
government and corporate securities. These financial instruments may be
classified as securities available for sale and carried at fair value or held to
maturity and carried at amortized cost depending upon our intent. Securities
classified as available for sale are held for an indefinite period of time and
are intended to be used to meet the ongoing liquidity needs of the Company.
Unrealized gains and losses (which are deemed to be temporary) on available for
sale securities, if any, are reported in a separate component of stockholders'
equity. The cost of all debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. The amortization, along with realized
gains and losses, is included in interest income. We do not use financial
derivatives for investment or trading purposes. As of June 30, 2001, all
securities have been classified as available for sale.
The Company has established guidelines relative to diversification and
maturities to maintain safety and liquidity. These guidelines are reviewed
periodically and may be modified depending on market conditions. Although our
investments are subject to credit risk, our Investment Policy specifies credit
quality standards for our investments and limits the amount of credit exposure
from any single issue, issuer or type of investment. Our investments are also
subject to interest rate risk and will decrease in value if market interest
rates increase. Due to the limited number of foreign currency transactions, our
foreign exchange currency risk is minimal.
The table below presents the principal amounts and related weighted average
interest rates by year of maturity for our investment portfolio as of June 30,
2001:
2006 and
2001 2002 2003 2004 2005 beyond Total Fair Value
----------- ----------- ----------- ---------- ----------- ------------- -------------- -------------
(in Thousands $)
Fixed Rate $25,000 $5,250 $37,050 $5,000 $28,510 $122,557 $223,367 $227,193
Average Interest Rate 6.64% 6.75% 6.62% 6.88% 7.70% 7.18% 7.07%
At June 30, 2001, our 9% January 1999 and July 1999 convertible notes with
outstanding principal amounts of $1,713,600 and $10,000,000, respectively no
longer accrue interest. These convertible notes are convertible into the
Company's common stock at a conversion price of $6.00 and $6.33 per share,
respectively. The fair value of fixed interest rate instruments are affected by
changes in interest rates and in the case of the convertible notes by changes in
the price of the Company's common stock.
18
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 19, 2001. 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 6,500,000 shares to
8,500,000 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 58,452,808 5,433,105 -
Sol J. Barer, Ph.D. 57,868,588 6,017,325 -
Frank T. Cary 63,754,898 131,015 -
Richard C. E. Morgan 63,746,798 139,115 -
Walter L. Robb, Ph.D. 63,742,998 142,915 -
Lee J. Schroeder 63,746,748 139,165 -
Arthur Hull Hayes, Jr.,M.D. 63,754,748 131,165 -
Gila Kaplan, Ph.D. 63,749,018 136,895 -
Jack L. Bowman 63,751,648 134,265 -
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B. Adoption of amendment to the 1998 Incentive Plan:
Number of Shares
--------------------------------------------------
For Against Abstained
--- ------- ---------
54,011,738 9,632,640 241,535
C. Appointment of Auditors:
Number of Shares
--------------------------------------------------
For Against Abstained
--- ------- ---------
63,539,704 258,683 87,526
Item 5.--Other Information:
None
Item 6. Exhibits
None
20
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, 2001 BY /S/Robert J. Hugin
-------------------------- ---------------------------
Robert J. Hugin
Senior Vice President
Chief Financial Officer
DATE August 14, 2001 BY /s/James R. Swenson
-------------------------- ---------------------------
James R. Swenson
Controller
Chief Accounting Officer
21