FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2002
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 (Zip Code)
offices)
Registrant's telephone number, including area code: 732-271-1001.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _x__ No ___
At April 30, 2002, 75,691,698 shares of Common Stock par value $.01 per share,
were outstanding.
CELGENE CORPORATION
INDEX TO FORM 10-Q
Page No.
PART I FINANCIAL INFORMATION
Item I Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
as of March 31, 2002 (unaudited)
and December 31, 2001 3
Consolidated Statements of Operations
- Three-Month Period Ended
March 31, 2002 and 2001 (unaudited) 4
Consolidated Statements of Cash Flows
- Three-Month Period Ended
March 31, 2002 and 2001 (unaudited) 5
Notes to Unaudited Consolidated
Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 16
PART II OTHER INFORMATION 18
Signatures 19
2
Celgene Corporation
Consolidated Balance Sheets
March 31,2002 December 31, 2001
--------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,525,202 $ 47,141,291
Marketable securities available for sale 294,300,173 262,900,049
Accounts receivable, net of allowance of $1,138,391 and $998,395
at March 31, 2002 and December 31, 2001, respectively 13,775,421 13,415,101
Inventory 6,897,005 3,603,462
Other current assets 9,206,573 9,362,423
----------------- --------------
Total current assets 331,704,374 336,422,326
Plant and equipment, net 11,348,311 10,645,647
Other assets 6,525,006 6,914,445
----------------- --------------
Total assets $349,577,691 $353,982,418
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,640,137 $ 10,831,464
Accrued expenses 11,055,341 13,667,022
Current portion of capital leases and note obligation 388,383 586,731
Current portion of deferred revenue 3,626,418 4,882,668
----------------- --------------
Total current liabilities 29,710,279 29,967,885
Long term convertible notes 11,713,600 11,713,600
Capitalized leases and note obligation, net of current portion 17,103 46,215
Other non-current liabilities 2,488,254 1,829,251
----------------- --------------
Total liabilities 43,929,236 43,556,951
----------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value per share,
5,000,000 authorized; none outstanding at
March 31,2002 and December 31, 2001, respectively - -
Common stock, $.01 par value per share
120,000,000 shares authorized;
issued and outstanding 75,677,461 and 75,574,785 shares
at March 31, 2002 and December 31, 2001, respectively. 756,775 755,748
Common stock in treasury, at cost; none at March 31, 2002,
and 282 shares at December 31, 2001. - (2,804)
Additional paid-in capital 528,243,475 527,023,001
Accumulated deficit (223,190,328) (222,367,088)
Deferred compensation (1,108,383) (1,592,490)
Notes receivable from stockholders (42,000) (42,000)
Accumulated other comprehensive income 988,916 6,651,100
----------------- --------------
Total stockholders' equity 305,648,455 310,425,467
----------------- --------------
Total liabilities and stockholders' equity $349,577,691 $353,982,418
================= ==============
See accompanying notes to unaudited consolidated financial statements.
3
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Month Period Ended March 31
-------------------------------------,
2002 2001
---- ----
Revenue:
Product sales $ 27,638,509 $ 17,008,407
Collaborative agreements 3,055,637 4,742,293
Related-party collaborative agreement - 648,600
----------------- --------------
Total revenue 30,694,146 22,399,300
----------------- --------------
Expenses:
Cost of goods sold 3,664,142 2,694,967
Research and development 17,524,109 13,204,450
Selling, general and administrative 16,297,854 11,282,914
----------------- --------------
Total expenses 37,486,105 27,182,331
----------------- -------------
Operating loss (6,791,959) (4,783,031)
Other income and expense:
Interest and other income 5,978,595 4,927,943
Interest expense 9,876 32,405
----------------- --------------
Net income (loss) $ (823,240) $ 112,507
================== ==============
Net income (loss) per common share:
Basic $ (0.01) $ 0.00
================== ==============
Diluted $ (0.01) $ 0.00
================== ==============
Weighted average number of shares of
common stock outstanding:
Basic 75,625,000 74,439,000
================== ==============
Diluted 75,625,000 80,608,000
================== ==============
See accompanying notes to unaudited consolidated financial statements.
4
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Month Period Ended March 31,
2002 2001
----------------------- -----------------------
Cash flows from operating activities:
Net income (loss) $ (823,240) $ 112,507
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization of long-term assets 1,580,216 1,104,906
Provision (recovery) for accounts receivable allowances 89,665 (1,104)
Realized gain on marketable securities available
for sale (1,154,676) -
Non-cash stock-based compensation 637,261 851,284
Amortization of premium on marketable securities
available for sale 37,218 -
Shares issued for employee benefit plans 614,037 695,966
Change in current assets & liabilities:
Increase in accounts receivable (449,985) (139,281)
Increase in inventory (3,293,543) (1,033,308)
Decrease in other operating assets 164,705 5,892,083
Increase(decrease) in accounts payable and
accrued expenses 1,855,994 (6,204,191)
Decrease in deferred revenue (1,256,250) (4,216,295)
----------------------- ------------------------
Net cash used in operating activities (1,998,598) (2,937,433)
----------------------- ------------------------
Cash flows from investing activities:
Capital expenditures (1,902,294) (1,905,500)
Proceeds from sales and maturities of marketable
securities available for sale 4,020,874 53,815,293
Purchases of marketable securities
available for sale (39,965,724) (107,347,832)
----------------------- -----------------------
Net cash used in investing activities (37,847,144) (55,438,039)
----------------------- -----------------------
Cash flows from financing activities:
Proceeds from exercise of common stock
options and warrants 458,660 3,027,801
Repurchase of employee stock options (1,547) -
Repayment of capital lease and note obligation (227,460) (249,220)
----------------------- ------------------------
Net cash provided by financing activities 229,653 2,778,581
----------------------- ------------------------
Net decrease in cash and cash equivalents (39,616,089) (55,596,891)
Cash and cash equivalents at beginning of period 47,141,291 161,393,835
----------------------- ------------------------
Cash and cash equivalents at end of period $ 7,525,202 $ 105,796,944
======================= ========================
See accompanying notes to unaudited consolidated financial statements.
5
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Three Month Period Ended March 31,
2002 2001
------------------------ ------------------------
Supplemental schedule of non-cash investing and
financing activity:
Change in net unrealized gain(loss) on
marketable securities available for sale $ (5,662,184) $ 1,820,484
========================= ========================
Deferred compensation relating to stock options $ 42,269 $ -
========================= ========================
Supplemental disclosure of cash flow information:
Interest paid $ 9,876 $ 32,405
========================= ========================
See accompanying notes to unaudited consolidated financial statements.
6
CELGENE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
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 accounting principles generally accepted in
the United States of America 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 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. 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 for the three month period ended March 31,
2001 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 for the three month period ended
March 31, 2002 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 this period. The amount of common
stock equivalents excluded from the calculation were 10,993,779 at March 31,
2002 and 4,695,804 at March 31, 2001.
7
3. 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 March 31, 2002 and December 31, 2001 were as follows:
Gross Gross Estimated
March 31, 2002 Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
-------------------- ----------------- -------------------- -------------------
Government agencies $ 57,927,844 $ - $ (475,904) $ 57,451,940
Government bonds & notes 553,594 9,295 - 562,889
Corporate debt securities 234,829,819 4,135,579 (2,680,054) 236,285,344
-------------------- ----------------- -------------------- -------------------
Total $293,311,257 $4,144,874 $(3,155,958) $294,300,173
==================== ================= ==================== ===================
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2001 Cost Gain Loss Value
-------------------- ----------------- -------------------- -------------------
Government agencies $ 24,668,882 $ 318,218 $ - $ 24,987,100
Government bonds & notes 553,594 15,076 - 568,670
Corporate debt
securities 231,026,473 7,603,951 (1,286,145) 237,344,279
-------------------- ----------------- -------------------- -------------------
Total $256,248,949 $7,937,245 $(1,286,145) $262,900,049
==================== ================= ==================== ===================
4. Inventory
---------
March 31, December 31,
2002 2001
----------------------- ----------------------
Raw materials $3,354,816 $ 763,662
Work in process 1,351,257 1,710,305
Finished goods 2,190,932 1,129,495
----------------------- ----------------------
Total $6,897,005 $3,603,462
======================= ======================
8
5. 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 net unrealized gains and losses on marketable securities
classified as available-for-sale.
Three Month Period Ended
---------------------------------------------------------
March 31, 2002 March 31, 2001
------------------------ ----------------------------
Net income (loss) $ (823,240) $ 112,507
Other comprehensive income (loss):
Unrealized holding gains (loss)
arising during period (4,507,508) 1,820,484
Less: reclassification adjustment
for gains included in net
income (1,154,676) -
----------- ----------
Net unrealized gain (loss) on
securities (5,662,184) 1,820,484
------------ ---------
Total comprehensive income (loss) $(6,485,424) $1,932,991
============ ==========
6. 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 March 31, 2002, 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.
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 March 31, 2002, the
Company has recorded approximately $7.4 million of compensation expense of which
approximately $442,000 and $705,000 was recorded during the three month periods
ended March 31, 2002 and 2001, respectively. Upon the termination of certain
employees and consultants, the Company reversed approximately $875,000 of
unamortized deferred compensation relating to their unvested options through
March 31, 2002.
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 $195,000 and $146,000 for the three
month periods ended March 31, 2002 and 2001, respectively.
9
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
---------------------
Three month period ended March 31, 2002 vs.
Three month period ended March 31, 2001
---------------------------------------
Total revenue. Our total revenue for the three months ended March 31,
2002 increased 37% to $30.7 million compared to $22.4 million in the same period
of 2001. Revenue in 2002 consisted of THALOMID(R) sales of $26.2 million,
Focalin(TM) sales of $1.4 million, collaborative agreement revenue of $2.4
million and royalty revenue of $0.7 million on Ritalin(R) sales compared to
THALOMID(R) sales of $17.0 million, collaborative agreement revenue of $4.7
million and related-party collaborative agreement revenue of $0.6 million in the
same period of 2001. Increasing use of THALOMID(R) by oncologists in the
treatment of various types of cancer contributed to the 54% growth in product
sales. The decrease in collaborative agreement revenue is primarily attributable
to the completion of the amortization of the up-front payment from Novartis
Pharma AG related to the license agreement on Focalin(TM). Related-party
collaborative agreement revenue declined in 2002 as a result of the initial term
of our agreement with Axys Inc. ending in October 2001. The agreement has not
been extended. The first quarter 2002 marked the first reporting period for
royalty revenue related to sales of Ritalin(R) by Novartis Pharma AG. This
revenue stream was initiated by the successful launch of Focalin(TM) in January
2002.
Cost of goods sold. Cost of goods sold during the first three months of
2002 was $3.7 million compared with approximately $2.7 million in the comparable
period in 2001. The cost of goods sold relates to both sales of THALOMID(R) and
Focalin(TM) and accordingly, the increase in cost of goods sold is related
primarily to the increased volume of THALOMID(R) sales and our first quarter
sales of Focalin(TM) to Novartis. Cost of goods sold for the first quarter of
2002 relating to Focalin(TM) sales was lower than the normal cost at standard as
some manufacturing costs incurred prior to Focalin's(TM) approval in November
2001 were expensed as research and development expenses. This favorability will
continue until the quantity previously expensed is completely sold.
10
Research and development expenses. Research and development expenses
consist primarily of salaries and benefits, contractor fees, principally with
contract research organizations to assist in our clinical development programs,
clinical drug supplies for our clinical and preclinical programs as well as
other consumable research supplies, and allocated facilities charges such as
building rent and utilities. Research and development expenses for the first
quarter of 2002 increased 33% to $17.5 million from $13.2 million in 2001.
During the first quarter of 2002, approximately $9.8 million was spent on
THALOMID(R) and its follow on compounds, the IMiDs(R) and SeLCIDs(TM), primarily
for preclinical toxicology, phase I/II and phase III clinical trials and
regulatory expenses. We spent approximately $7.2 million in our gene regulation,
target discovery and agro-chemical programs, primarily for internal headcount
related expenses, laboratory supplies and product development costs.
As a percent of total revenue, research and development expenses were
approximately 57% and 59% for the quarters ended March 31, 2002 and 2001,
respectively. As a result of increasing revenue, research and development
expense will continue to decrease as a percent of total revenue although the
actual dollar amount will continue to increase as we move our earlier stage
compounds through preclinical and clinical programs. In general, time to
completion would be as follows:
Phase I ----- 1-2 years
Phase II ---- 2-3 years
Phase III --- 2-3 years
Due to the significant risks and uncertainties inherent in preclinical
tests and clinical trials associated with each of our research and development
projects, the cost to complete such projects is not reasonably estimable. The
data obtained from these tests and trials may be susceptible to varying
interpretation that could delay, limit or prevent a project's advancement
through the various stages of clinical development, which would significantly
impact the costs incurred to bring a project to completion.
Selling, general and administrative expenses. Selling expenses consist
of salaries and benefits for sales and marketing and customer service personnel,
warehousing and distribution costs, and other commercial expenses to support the
sales force and the education and registration efforts underlying the
S.T.E.P.S.(R) program. General and administrative expenses consist primarily of
salaries and benefits, outside services for legal, audit, tax and investor
activities and allocations of facilities costs, principally for rent, utilities
and property taxes. Selling, general and administrative expenses increased by
approximately 44% for the three months ended March 31, 2002 to $16.3 million
from $11.3 million in the same period in 2001. The increase was due primarily to
the expansion of the sales and marketing organization and related expenses, an
increase in customer service staff as well as expenses related to a new customer
service and enhanced S.T.E.P.S.(R) system (System for Thalidomide Education and
Prescribing Safety). As a percent of total revenue, selling, general and
administrative expenses were approximately 53% and 50% for the three month
periods ended March 31, 2002 and 2001, respectively.
11
Interest and other income and expense. Interest and other income for
the first three months of 2002 increased approximately 21% to approximately $6.0
million from $4.9 million in the same period in 2001. The increase was primarily
due to a realized gain of $1.2 million on the sale of a security in January,
2002.
Interest expense for the first three months of 2002 decreased to
approximately $10,000 from approximately $32,000 in the same period in 2001. The
decrease was due primarily to the expiration of a three year capital equipment
lease in July, 2001.
Net income (loss). We recorded a net loss of $823,000 in the three
month period ended March 31, 2002 compared to a gain of $113,000 in the same
period in 2001. The loss was due to the increase in costs and expenses of $10.3
million partially offset by increased revenue of $8.3 million and higher
interest and other income of $1.1 million.
Liquidity and Capital Resources. Since inception, we have financed
our working capital requirements primarily through product sales, 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 research contracts
and license and milestone payments. Since our initial product launch in the
third quarter of 1998, we have recorded net product sales totaling approximately
$202.0 million through March 31, 2002. We also received $37.5 million from two
separate research and license agreements during 2000 and 2001.
12
Our net working capital at March 31, 2002 decreased approximately 1.5%
to $302.0 million from $306.5 million at December 31, 2001. The decrease in
working capital was primarily due to lower total cash, cash equivalents and
marketable securities offset by higher inventories.
Cash and cash equivalents decreased to $7.5 million in the first
quarter of 2002 from $47.1 million at December 31, 2001 while investments in
marketable debt securities increased to $294.3 million from $262.9 million in
the same period. Total cash, cash equivalents and marketable securities
decreased by approximately $8.2 million reflecting the increase in research and
development and selling, general and administrative spending during the first
quarter of 2002.
We expect that our rate of spending will increase as the result of
research and product 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(R) and increased capital investments. On
February 16, 2000, we completed a public offering of 10,350,000 shares of our
common stock. Proceeds from the transaction net of expenses, were approximately
$278.0 million. These funds, combined with the increasing revenue from sales of
Thalomid(R) and various research agreements and collaborations are expected to
provide sufficient capital for our operations for the foreseeable future.
Contractual Obligations
Our major outstanding contractual obligations relate to our operating
(facilities) leases. Our facilities lease expense in future years will increase
over previous years as a result of a new lease arrangement entered into in 2001.
We lease a 44,500-square foot laboratory and office facility in Warren,
New Jersey, under a lease with an unaffiliated party, which has a term ending in
May 2002 with three five-year renewal options, and an adjoining 29,000-square
foot area which has a lease term ending in July 2010 with two five-year renewal
options. Monthly rental expenses for this facility are approximately $64,000. We
also lease an 18,000-square foot laboratory and office facility in North
Brunswick, New Jersey, under a lease with an unaffiliated party which has a term
ending in December 2009 with two five-year renewal options. Monthly rental
expenses for this facility are approximately $46,000. We believe that our
laboratory facilities are adequate for our research and development activities
for at least the next 12 months.
13
We also lease offices and research facilities in San Diego, California
under three operating lease agreements for our Signal Research operations. The
minimum annual rents are subject to specified annual rental increases. Signal
also reimburses the lessor for taxes, insurance and operating costs associated
with the leases. Monthly rental expense for these facilities is approximately
$81,000. Under the terms of the lease, we have an outstanding letter of credit
for $150,000 in favor of the lessor, which is fully collateralized by cash. In
December 2001, we entered into a new ten-year lease for a 78,200 square foot
facility to consolidate the Signal Research Division into one building. It is
anticipated that we will occupy that facility during the fourth quarter of 2002.
Monthly rental expense will be approximately $172,000. Rental expense will be
incurred when we occupy the building. We intend to sublease the current
facilities until the lease expires in 2003.
We have entered into agreements with various contractors to improve the new
facility we are leasing in San Diego, California. Under such agreements, we have
contracted to spend approximately $6.7 million for tenant improvements in the
new research facility and expend to expend funds on this project over the next
seven months. This project will be funded through our current capital resources.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. While
our significant accounting policies are more fully described in Note 2 to our
consolidated financial statements included in our annual report on Form 10K, we
believe the following accounting policy to be critical:
Revenue Recognition. We have formed collaborative research and
development agreements and alliances with several pharmaceutical companies.
These agreements are in the form of research and development and license
agreements. The agreements are for both early and late stage compounds and are
focused on specific disease areas. For the early stage compounds, the agreements
are relatively short term agreements that are renewable depending on the success
of the compounds as they move through preclinical development. The agreements
call for nonrefundable upfront payments, milestone payments on achieving
significant milestone events, and in some cases on going research funding. The
agreements also contemplate royalty payments on sales if and when the compound
receives FDA marketing approval.
14
In accordance with Staff Accounting Bulletin No. 101 ("SAB 101")
Revenue Recognition in Financial Statements, upfront payments are recorded as
deferred revenue and recognized over the estimated service period. If the
estimated service period is subsequently modified, the period over which the
upfront fee is recognized is modified accordingly on a prospective basis.
Revenue from the achievement of research and development milestones, which
represent the achievement of a significant step in the research and development
process, are recognized when and if the specific milestones are achieved.
Continuation of certain contracts is dependent upon our achieving specific
contractual milestones; however, none of the payments received to date are
refundable regardless of the outcome of the project. Research funding is
recorded in the period during which the expenses covered by the funding
occurred.
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.
15
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 as 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 and other income. We do not use
financial derivatives for investment or trading purposes. As of March 31, 2002,
all securities have been classified as available for sale.
We have 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 March 31, 2002:
16
2007 and
2002 2003 2004 2005 2006 beyond Total Fair Value
----------- ----------- ----------- ----------- ----------- ------------- -------------- -------------
(in Thousands $)
Fixed Rate $38,280 $37,350 $5,000 $28,510 $70,902 $109,775 $289,817 $292,300
Average Interest
Rate 5.66% 6.61% 6.75% 7.70% 6.81% 6.96% 6.78%
Variable Rate - - - - - $ 2,000 $ 2,000 $ 2,000
Average Interest
Rate - - - - - 8.00% 8.00%
----------- ----------- ----------- ----------- ----------- ------------- -------------- -------------
Total $38,280 $37,350 $5,000 $28,510 $70,902 $111,775 $291,817 $294,300
At March 31, 2002, 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 our 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 our
common stock. An increase in the price of our common stock results in an
increase in the fair value of the convertible notes.
17
PART II - OTHER INFORMATION
Item 1. - None
Item 2. - None
Item 3. - None
Item 4. - None
Item 5.--Other Information:
None
Item 6. Exhibits
10.1 Agreement dated August 2001 by and among the Company, Children's
Medical Center Corporation, Bioventure Investments KFT and EntreMed,
Inc. (certain portions of the agreement have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment).
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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 May 15, 2002 BY /S/Robert J. Hugin
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Robert J. Hugin
Senior Vice President
Chief Financial Officer
DATE May 15, 2002 BY /s/James R. Swenson
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James R. Swenson
Controller
(Chief Accounting Officer)
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