FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 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
--------------------------------------- ----------------------------
(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 October 31, 2001, 75,477,946 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 September 30, 2001 (unaudited)
and December 31, 2000 3
Consolidated Statements of Operations
- Nine-Month Period Ended
September 30, 2001 and 2000 (unaudited) 4
Consolidated Statements of Operations
- Three-Month Period Ended
September 30, 2001 and 2000 (unaudited) 5
Consolidated Statements of Cash Flows
- Nine-Month Period Ended
September 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 19
PART II OTHER INFORMATION 20
Signatures 21
2
Celgene Corporation
Consolidated Balance Sheets
September 30, 2001 December 31, 2000
------------------ -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 41,497,801 $ 161,393,835
Marketable securities available for sale 260,708,915 144,767,777
Accounts receivable, net of allowance of $1,009,614 and $382,577
at September 30, 2001 and December 31, 2000, respectively 11,058,690 9,846,000
Inventory 4,201,172 4,266,257
Other current assets 6,678,242 11,747,727
------------- -------------
Total current assets 324,144,820 332,021,596
Plant and equipment, net 10,269,184 8,395,902
Other assets 7,165,718 6,308,417
------------- -------------
Total assets $ 341,579,722 $ 346,725,915
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,394,920 $ 10,868,473
Accrued expenses 8,575,412 9,511,507
Current portion of capital leases 772,180 929,258
Current portion of deferred revenue 5,732,212 12,473,574
------------- -------------
Total current liabilities 24,474,724 33,782,812
Long term convertible notes 11,713,600 11,713,600
Capitalized leases, net of current portion 90,505 632,946
Deferred revenue, net of current portion 1,116,000 4,866,000
Other non-current liabilities 1,618,887 197,685
------------- -------------
Total liabilities 39,013,716 51,193,043
------------- -------------
Stockholders' equity:
Preferred stock,$.01 par value per share;
5,000,000 authorized; none outstanding at
September 30, 2001 and December 31, 2000, respectively -- --
Common stock, $.01 par value per share; 120,000,000 shares authorized;
issued and outstanding 75,401,153 and 73,999,889 shares
at September 30, 2001 and December 31, 2000, respectively 754,012 739,999
Additional paid-in capital 526,156,047 519,290,323
Accumulated deficit (229,102,879) (220,454,722)
Deferred compensation (2,512,217) (4,890,607)
Notes receivable from stockholders (62,000) (62,000)
Accumulated other comprehensive income 7,333,043 909,879
------------- -------------
Total stockholders' equity 302,566,006 295,532,872
------------- -------------
Total liabilities and stockholders' equity $ 341,579,722 $ 346,725,915
============= =============
See accompanying notes to unaudited consolidated financial statements.
3
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Month Period Ended September 30,
-----------------------------------------------------------
2001 2000
---- ----
Revenue:
Product sales $ 57,383,731 $ 45,599,828
Research contracts 13,225,394 6,700,283
Related-party collaborative agreement
revenue 1,898,605 5,025,000
------------ -------------
Total revenue 72,507,730 57,325,111
Expenses:
Cost of goods sold 8,766,149 6,802,467
Research and development 47,306,438 42,059,772
Selling, general and administrative 41,122,061 31,445,658
Merger-related costs - 7,168,110
------------ -------------
Total expenses 97,194,648 87,476,007
------------ -------------
Operating loss (24,686,918) (30,150,896)
Other income and expense:
Interest and other income 16,112,142 12,634,860
Interest expense 73,381 2,461,785
------------- -------------
Net loss $ (8,648,157) $ (19,977,821)
============= =============
Net loss per share of common stock:
Basic and diluted $ (0.12) $ (0.31)
============= =============
Weighted average number of shares of
common stock outstanding 74,973,000 64,344,000
============= =============
See accompanying notes to unaudited consolidated financial statements.
4
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended September 30,
--------------------------------------
2001 2000
---- ----
Revenue:
Product sales $ 21,694,656 $ 17,452,857
Research contracts 3,857,972 3,703,660
Related-party collaborative agreement
revenue 625,005 1,675,000
-------------- -------------
Total revenue 26,177,633 22,831,517
-------------- -------------
Expenses:
Cost of goods sold 3,231,456 2,309,295
Research and development 18,377,619 14,184,019
Selling, general and administrative 16,730,965 11,539,656
Merger-related costs -- 7,168,110
-------------- -------------
Total expenses 38,340,040 35,201,080
-------------- -------------
Operating loss (12,162,407) (12,369,563)
Other income and expense:
Interest and other income 5,843,986 5,338,838
Interest expense 23,205 440,100
-------------- -------------
Net loss $ (6,341,626) $(7,470,825)
============== =============
Net loss per share of common stock:
Basic and diluted $ (0.08) $ (0.11)
============== =============
Weighted average number of shares of
common stock outstanding 75,356,000 65,026,000
============== =============
See accompanying notes to unaudited consolidated financial statements.
5
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Month Period Ended September 30,
-------------------------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (8,648,157) $ (19,977,821)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of long-term assets 3,563,999 2,614,081
Provision for accounts receivable allowance 530,669 55,000
Realized gain on marketable securities available
for sale (1,019,175) -
Non-cash stock-based compensation 2,682,766 2,518,307
Amortization of premium on marketable securities
available for sale 185,143 -
Amortization of debt issuance and warrant costs - 617,216
Amortization of discount on note obligations - 109,377
Shares issued for employee benefit plans 741,509 1,047,755
Change in current assets & liabilities:
Increase in accounts receivable (1,743,359) (3,679,470)
Increase(decrease) in inventory 65,085 (1,898,779)
(Increase)decrease in other operating assets 5,064,084 (6,697,755)
Increase(decrease) in accounts payable and
accrued expenses (988,446) 11,525,711
Increase(decrease) in deferred revenue (10,491,362) 5,795,830
------------- -------------
Net cash used in operating activities (10,057,244) (7,970,548)
------------- -------------
Cash flows from investing activities:
Capital expenditures (6,289,181) (5,587,989)
Proceeds from sales and maturities of marketable
securities available for sale 119,789,801 73,313,515
Purchases of marketable securities
available for sale (228,473,743) (205,976,305)
------------- -------------
Net cash used in investing activities (114,973,123) (138,250,779)
------------- -------------
Cash flows from financing activities:
Net proceeds from follow-on public offering - 277,391,860
Proceeds from exercise of common stock
options and warrants 5,833,852 7,484,135
Repayment of capital lease and note obligations (699,519) (1,147,691)
------------- -------------
Net cash provided by financing activities 5,134,333 283,728,304
------------- -------------
Net increase (decrease) in cash and cash
equivalents (119,896,034) 137,506,977
Cash and cash equivalents at beginning of period 161,393,835 21,869,256
------------- -------------
Cash and cash equivalents at end of period $ 41,497,801 $159,376,233
============= =============
See accompanying notes to unaudited consolidated financial statements.
6
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Nine Month Period Ended September 30,
-------------------------------------
2001 2000
---- ----
Supplemental schedule of non-cash investing
and financing activity:
Change in net unrealized gain on marketable
securities available for sale $ 6,423,164 $ 194,194
=========== ===========
Conversion of convertible notes $ -- $18,286,400
=========== ===========
Deferred compensation related to stock options $ -- $ 6,706,274
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 73,381 $ 3,358,151
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
7
CELGENE CORPORATION
Notes to Unaudited Consolidated Financial Statements
September 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 its merger with Signal
Pharmaceuticals Inc. ("Signal") in a transaction accounted for as a
pooling-of-interests. Celgene and Signal incurred direct transaction expenses of
approximately $7.0 million which were recognized upon consummation of the
merger. The merger-related costs consisted of transaction fees for financial
advisors, attorneys, accountants, financial printing and other related charges.
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 nine month periods ended September 30, 2001 and 2000 are the
same since the assumed exercise of stock options and warrants, and the
conversion of convertible notes 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 10,378,910 at September 30, 2001
and 13,839,493 at September 30, 2000.
8
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 No. 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 No.
141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. SFAS No. 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 September 30, 2001 and December 31, 2000 were as follows:
Gross Gross Estimated
September 30, 2001 Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
------------- ----------- ----------- -----------
Government agencies $ 24,659,665 $ 642,685 $ - $ 25,302,350
Government bonds & notes 553,594 16,377 - 569,971
Corporate debt securities 228,162,613 7,949,893 (1,275,912) 234,836,594
------------ ---------- ----------- ------------
Total $253,375,872 $8,608,955 $(1,275,912) $260,708,915
============ ========== =========== ============
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 debts securities 29,745,069 500,360 - 30,245,429
------------- --------- --------- ------------
Total $143,857,898 $911,477 $(1,598) $144,767,777
============= ========= ========= ============
6. Inventory
---------
September 30, December 31,
2001 2000
------------- ------------
Raw materials $ 974,527 $ 985,556
Work in process 1,764,517 1,869,104
Finished goods 1,462,128 1,411,597
---------- ----------
Total $4,201,172 $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 September 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
September 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 Loss
------------------
Comprehensive loss includes net loss and other comprehensive income
which refers to those revenues, expenses, gains and losses which are excluded
from net loss. Other comprehensive income includes unrealized gains and losses
on marketable securities classified as available-for-sale.
Nine Month Period Ended
-----------------------------------------------------------
September 30, 2001 September 30, 2000
---------------------------- --------------------------
Net loss $ (8,648,157) $(19,977,821)
Other comprehensive income:
Unrealized holding gains
arising during period 7,442,339 194,194
Less: reclassification adjustment
for gains included in net
income (1,019,175) -
----------- -------------
Net unrealized gains on
securities 6,423,164 194,194
----------- -------------
Total comprehensive loss $(2,224,993) $(19,783,627)
=========== =============
11
Three Month Period Ended
-----------------------------------------------------------
September 30, 2001 September 30, 2000
---------------------------- --------------------------
Net loss $(6,341,626) $(7,470,825)
Other comprehensive income:
Unrealized holding gains
arising during period 6,421,078 432,666
Less: reclassification adjustment
for gains included in net
income (544,500) -
----------- ------------
Net unrealized gains on
securities 5,876,578 432,666
----------- ------------
Total comprehensive loss $ (465,048) $(7,038,159)
=========== ============
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 September 30, 2001, there were
a total of 967,693 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 Company's merger with Signal, 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 September 30,
2001, the Company has recorded approximately $6.4 million of compensation
expense of which approximately $600,000 and $1.9 million was recorded during
the three and nine month periods ended September 30, 2001, respectively, and
approximately $883,000 and $2.4 million was recorded during the three and nine
month periods ended September 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 $165,000 and $762,000 for the three
and nine month periods ended September 30, 2001, respectively, and approximately
$43,000 and $109,000 for the three and nine month periods ended September 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
---------------------
Nine month period ended September 30,2001 vs.
Nine month period ended September 30,2000
-----------------------------------------
Total revenue. Our total revenue for the nine months ended September
30, 2001 increased 26% to $72.5 million compared to $57.3 million in the same
period of 2000. Revenue in 2001 consisted of THALOMID sales of $57.4 million,
research contract revenue of $13.2 million and related-party collaborative
agreement revenue of $1.9 million compared to THALOMID sales of $45.6 million,
research contract revenue of $6.7 million and related-party revenue of $5.0
million in the same period of 2000. Increasing use of THALOMID by oncologists in
the treatment of various types of cancer contributed to the 26% growth in
product sales. The increase in research contract revenue is primarily
attributable to the amortization of a portion of the up-front payments on two
separate research agreements with Novartis Pharma AG. 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 nine months of
2001 was $8.8 million compared with approximately $6.8 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 by 12.5% for the nine months ended September 30, 2001 to $47.3 million
from $42.1 million in the same period in 2000. The increase was primarily for
regulatory expenses associated with the preparation of a supplemental 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. In
addition, approximately $1.5 million for the purchase of bulk active drug supply
for d-methylphenidate (Ritadex(R)), prior to approval by the FDA, was recorded
as research and development expense during the third quarter 2001.
13
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by approximately 31% for the nine months ended
September 30, 2001 to $41.1 million from $31.4 million in the same period in
2000. The increase was due primarily to the expansion of the sales and marketing
organization and related expenses, as well as expenses related to a new customer
service and enhanced S.T.E.P.S.(TM) system (System for Thalidomide Education and
Prescribing Safety).
Merger-related costs. $7.2 million of costs associated with the merger
of Celgene and Signal Pharmaceuticals, Inc. were recorded in the third quarter
of 2000. The one time costs were primarily for fees for financial advisors,
attorneys, accountants, financial printing and other related charges.
Interest and other income and expense. Interest and other income for
the first nine months of 2001 increased 27.5% to approximately $16.1 million
from $12.6 million in the same period in 2000. The increase was primarily due to
the investment for the full nine months of 2001 of the net proceeds of
approximately $278 million from the secondary public offering in February 2000
as well as $25 million in up-front and milestone payments received since July of
2000. Approximately $1.0 million was recorded as realized gains on the sale of
securities during 2001.
Interest expense for the first nine months of 2001 decreased to
approximately $73,000 from approximately $2.5 million in the same period in
2000. The decrease was due primarily to the conversion of a significant portion
of our convertible notes throughout 2000 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 nine month period ended September 30,
2001 decreased significantly to $8.6 million from approximately $20.0 million in
the same period of 2000. The decreased loss was due to the increase in revenue
and higher net interest income of approximately $18.7 million and lower interest
expense of approximately $2.4 million offset by higher costs and operating
expenses of approximately $9.7 million. Included in the net loss for 2000 were
$7.2 million of merger-related costs.
14
Three month period ended September 30, 2001 vs.
Three month period ended September 30, 2000
-------------------------------------------
Total revenue. Our total revenue for the three month period ended
September 30, 2001 increased 14.7% to approximately $26.2 million compared with
approximately $22.8 million for the same period in 2000. Revenue in 2001
consisted of THALOMID sales of $21.7 million, research contract revenue of $3.9
million, and related party revenue of $0.6 million compared with THALOMID sales
of $17.5 million, research contract revenue of $3.7 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 third 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 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 third quarter 2001
was $3.2 million compared with approximately $2.3 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 by approximately 30% in the third quarter 2001 to approximately $18.4
million compared to approximately $14.2 million for the third quarter 2000. The
increase was primarily due to spending for preclinical development for our
Selective Estrogen Receptor Modulators ("SERMs") cancer program, spending for
clinical trials for THALOMID and the IMiDs and SelCIDs, and expenses associated
with the preparation of a supplemental New Drug Application for THALOMID in
multiple myeloma. In addition, approximately $1.5 million for the purchase of
bulk active drug supply for d-methylphenidate (Ritadex(R)), prior to approval by
the FDA, was recorded as research and development expense during the third
quarter of 2001.
15
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended September 30, 2001 increased
by 45% to approximately $16.7 million compared to approximately $11.5 million
for the same period in 2000. The increase was due primarily to the expansion of
the sales and marketing organization and related expenses and expenses related
to a new customer service and enhanced S.T.E.P.S. system.
Merger-related costs. $7.2 million of costs associated with the merger of
Celgene and Signal Pharmaceuticals, Inc. were recorded in the third quarter of
2000. The one time costs were primarily for fees for financial advisors,
attorneys, accountants, financial printing and other related charges.
Interest and other income and expense. Interest and other income for
the third quarter 2001 increased approximately 9.5% to approximately $5.8
million compared with approximately $5.3 million for the same period in 2000.
The increase was due primarily to a gain recognized on the sale of securities of
approximately $0.5 million during the third quarter of 2001.
Interest expense for the third quarter 2001 decreased to approximately
$23,000 compared to approximately $440,000 for the same period in 2000. The
decrease was due primarily to the conversion of $27.0 million of the convertible
notes throughout 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.
Net loss. The net loss for the third quarter 2001 decreased to $6.3
million compared to a loss of $7.5 million for the same period in 2000. The
decreased loss was due to the increase in total revenue and interest income and
a one time charge in the third quarter of 2000 for merger-related costs, offset
in part by increased research and development expenses, 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 $147.0 million through
September 30, 2001.
16
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 September 30, 2001 increased slightly to
approximately $299.7 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 nine months of 2001 to $302.2 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., 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.
17
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 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.
18
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 September 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 September
30, 2001:
2007 and
2002 2003 2004 2005 2006 beyond Total Fair Value
----------- ----------- ----------- ----------- ----------- ------------- -------------- -------------
(in Thousands $)
Fixed Rate $5,250 $37,050 $5,000 $28,510 $63,557 $113,000 $252,367 $260,709
Average Interest Rate 6.75% 6.62% 6.75% 7.70% 6.83% 7.16% 7.04%
At September 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.
19
PART II - OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4. - None
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 November 13, 2001 BY /S/Robert J. Hugin
------------------------------- ---------------------------------
Robert J. Hugin
Senior Vice President
Chief Financial Officer
DATE November 13, 2001 BY /s/James R. Swenson
------------------------------- ---------------------------------
James R. Swenson
Controller
(Chief Accounting Officer)
21