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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
or
| o | 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 incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 86 Morris Avenue Summit, New Jersey |
07901 | |
| (Address of principal executive offices) | (Zip Code) |
(908) 673-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common Stock, par value $.01 per share | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
|
Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the
Act).
Yes o No þ
The aggregate market value of voting stock held by non-affiliates of the registrant on June 30,
2008, the last business day of the registrant’s most recently completed second quarter was
$29,035,709,107 based on the last reported sale price of the registrant’s Common Stock on the
NASDAQ Global Select Market on that date.
There were 459,463,167 shares of Common Stock outstanding as of February 5, 2009.
Documents Incorporated by Reference
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120
days of the end of the fiscal year ended December 31, 2008. The proxy statement is incorporated
herein by reference into the following parts of the Form 10-K:
Part III, Item 10, Directors, Executive Officers and Corporate Governance;
Part III, Item 11, Executive Compensation;
Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters;
Part III, Item 13, Certain Relationships and Related Transactions, and Director Independence;
Part III, Item 14, Principal Accountant Fees and Services.
Part III, Item 11, Executive Compensation;
Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters;
Part III, Item 13, Certain Relationships and Related Transactions, and Director Independence;
Part III, Item 14, Principal Accountant Fees and Services.
CELGENE CORPORATION
ANNUAL REPORT ON FORM 10-K
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Table of Contents
PART I
ITEM 1. BUSINESS
Celgene Corporation and its subsidiaries (collectively “we” or “our”) is a global integrated
biopharmaceutical company primarily engaged in the discovery, development and commercialization of
innovative therapies designed to treat cancer and immune-inflammatory related diseases. We are
dedicated to innovative research and development designed to bring new therapies to market and are
involved in research in several scientific areas that may deliver proprietary next-generation
therapies, targeting areas such as intracellular signaling pathways in cancer and immune cells,
immunomodulation in cancer and autoimmunity and placental cell, including stem and progenitor cell,
research. The drug and cell therapies we develop are designed to treat life-threatening diseases
or chronic debilitating conditions where patients are poorly served by current therapies. Building
on our growing knowledge of the biology underlying hematological and solid tumor cancers as well as
in immune-inflammatory diseases, we are investing in a range of innovative therapeutic programs
that are investigating ways to treat and manage chronic diseases by targeting the disease source
through multiple mechanisms of action.
Our commercial stage products include REVLIMID®, THALOMID® (inclusive of
Thalidomide PharmionTM subsequent to the acquisition of Pharmion Corporation, or
Pharmion, on March 7, 2008), VIDAZA®, ALKERAN® and FOCALIN®.
ALKERAN® is licensed from GlaxoSmithKline, or GSK, and sold under our label. The
agreement with GSK expires in March 2009 and will not be renewed. FOCALIN® is sold
exclusively to Novartis Pharma AG, or Novartis. We also derive revenues from a licensing agreement
with Novartis, which entitles us to royalties on FOCALIN XR® and the entire
RITALIN® family of drugs, and sales of bio-therapeutic products and services through our
Cellular Therapeutics subsidiary.
In 1986, we were spun off from Celanese Corporation and, in July 1987, we completed an initial
public offering. Our operations involved research and development of chemical and biotreatment
processes for the chemical and pharmaceutical industries. We subsequently completed the following
strategic acquisitions to strengthen our research and manufacturing capabilities in addition to
enhancing our commercialized products:
| • | In August 2000, we acquired Signal Pharmaceuticals, Inc., currently Signal Pharmaceuticals, LLC, d/b/a Celgene Research San Diego, a privately held biopharmaceutical company focused on the discovery and development of drugs that regulate genes associated with disease. |
| • | In December 2002, we acquired Anthrogenesis Corp., which was a privately held New Jersey-based biotherapeutics company and cord blood banking business, developing technologies for the recovery of stem cells from human placental tissues following the completion of full-term, successful pregnancies. Anthrogenesis d/b/a Celgene Cellular Therapeutics, or CCT, now operates as our wholly owned subsidiary engaged in the research, recovery culture-expansion, preservation, development and distribution of placental cells, including stem and progenitor cells, as therapeutic agents. |
| • | In October 2004, we acquired Penn T Limited, a UK-based global supplier of THALOMID®. This acquisition expanded our corporate capabilities and enabled us to control manufacturing for THALOMID® worldwide. |
| • | In December 2006, we acquired an active pharmaceutical ingredient, or API, manufacturing facility from Siegfried Ltd. and Siegfried Dienste AG (together “Siegfried”) located in Zofingen, Switzerland. The manufacturing facility has the capability to produce multiple drug substances and is being used to produce REVLIMID® and THALOMID® API to supply global markets. The facility may also be used to produce drug substance for our future drugs and drug candidates. |
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| • | In March 2008, we acquired Pharmion, a global biopharmaceutical company that acquired, developed and commercialized innovative products for the treatment of hematology and oncology patients. Pharmion was acquired to enhance our portfolio of therapies for patients with life-threatening illnesses worldwide with the addition of Pharmion’s marketed products, and several products in development for the treatment of hematological and solid tumor cancers. By combining this new product portfolio with our existing operational and financial capabilities, we enlarged our global market share through increased product offerings and expanded clinical, regulatory and commercial capabilities. |
| • | As part of our acquisition of Pharmion, we assumed Pharmion’s June 7, 2001 5-azacytidine license agreement with Pharmacia & Upjohn, now part of Pfizer, Inc., or Pfizer, in which Pharmion had obtained rights for VIDAZA®. Pursuant to our October 3, 2008 agreement with Pfizer, we prepaid our royalty obligation under the June 7, 2001 5-azacytidine license in full. |
For the year ended December 31, 2008, we reported revenue of $2.255 billion, net loss of $1.534
billion and diluted loss per share of $3.46. Revenue increased by $849.0 million in 2008 compared
to 2007 primarily due to the expanded use of REVLIMID® and the acquisition of former
Pharmion products, including VIDAZA® and THALOMID® outside of the United
States. The net loss and loss per share amounts were primarily due to in-process research and
development, or IPR&D, charges and amortization of acquired intangible assets related to the
Pharmion acquisition, in addition to the expensing of the October 3, 2008 royalty obligation
payment to Pfizer that related to the unapproved forms of VIDAZA®.
Our future growth and operating results will depend on continued acceptance of our currently
marketed products, regulatory approvals of both new products and the expanded use of existing
products, depth of our product pipeline and ability to commercialize these products, competition to
our marketed products and challenges to our intellectual property. See also Risk Factors contained
in Part I, Item 1A of this Annual Report on Form 10-K.
COMMERCIAL STAGE PRODUCTS
REVLIMID®
(lenalidomide): REVLIMID® is an oral immunomodulatory drug
approved by the U.S. Food and Drug Administration, or FDA, the European Commission, or EC, the
Swissmedic, the Australian Therapeutic Products Directorate, or TGA, and in October 2008 by Health
Canada for treatment in combination with dexamethasone for multiple myeloma patients who have
received at least one prior therapy. In addition, REVLIMID® was approved by the FDA and
the Canadian Therapeutic Products Directorate for treatment of patients with transfusion-dependent
anemia due to low- or intermediate-1-risk myelodysplastic syndromes, or MDS, associated with a
deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities. We
continue to launch REVLIMID® in the European markets and are preparing to launch in
Canada, Australia and Latin America. In February 2008, REVLIMID® was granted orphan
drug status by Japan’s Ministry of Health, Labour and Welfare, or MHLW, for treatment of both MDS
associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic
abnormalities and in combination with dexamethasone for multiple myeloma patients who have received
at least one prior therapy.
REVLIMID® is distributed in the United States primarily through contracted pharmacies
under the RevAssist® program, which is a proprietary risk-management distribution
program tailored specifically to help ensure the safe use of REVLIMID® and is being
distributed in additional countries where approval has been obtained as pricing, reimbursement and
details of controlled distribution in each market are determined.
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REVLIMID® continues to be evaluated in numerous clinical trials worldwide either alone
or in combination with one or more other therapies in the treatment of a broad range of
hematological malignancies, including multiple myeloma, MDS, non-Hodgkin’s lymphoma, or NHL,
chronic lymphocytic leukemia, or CLL, other cancers and other diseases.
THALOMID®: THALOMID® was approved by the FDA in May 2006 for use in
combination with dexamethasone for the treatment of patients with newly diagnosed multiple myeloma
and in July 1998 for the acute treatment of the cutaneous manifestations of moderate to severe
erythema nodosum leprosum, or ENL, and as maintenance therapy for prevention and suppression of the
cutaneous manifestation of ENL recurrence. In April 2008, the TGA approved a supplemental filing
granting THALOMID® marketing approval for use in combination with melphalan and
prednisone for patients with untreated multiple myeloma or ineligible for high dose chemotherapy,
and also granted THALOMID® marketing approval in combination with dexamethasone for
induction therapy prior to high dose chemotherapy with autologous stem cell rescue, for the
treatment of patients with untreated multiple myeloma. In addition, in April 2008,
THALOMID® was granted full marketing authorization by the EC for use in combination with
melphalan and prednisone as a treatment for patients with newly diagnosed multiple myeloma.
THALOMID®
is distributed in the United States under our “System for Thalidomide Education and Prescribing
Safety,” or S.T.E.P.S.®, program which we developed and is a proprietary comprehensive
education and risk-management distribution program with the objective of providing for the safe and
appropriate distribution and use of THALOMID®. Among other things,
S.T.E.P.S.® requires prescribers, patients and dispensing pharmacies to participate in a
registry and a prescription cannot be filled unless the physicians, patients and pharmacies have
been registered, trained and meet all qualification criteria.
VIDAZA®
(azacitidine for injection): VIDAZA® is a pyrimidine
nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote
subsequent gene re-expression. VIDAZA® was licensed from Pharmacia & Upjohn, now part
of Pfizer, and was approved by the FDA for the treatment of all subtypes of MDS. Additionally,
VIDAZA® was granted orphan drug designation by the FDA for the treatment of acute
myeloid leukemia, or AML. In December 2008, VIDAZA® was granted full marketing authorization by
the EC for the treatment of adult patients who are not eligible for haematopoietic stem cell
transplantation with Intermediate-2 and high-risk MDS according to the International Prognostic
Scoring System, or IPSS, or chronic myelomonocytic leukaemia, or CMML, with 10-29 percent marrow
blasts without myeloproliferative disorder, or AML with 20-30 percent
blasts and multi-lineage dysplasia, according to World Health Organization, or WHO, classification.
ALKERAN®
(melphalan): ALKERAN® is licensed from GSK and sold under
the Celgene label. ALKERAN® was approved by the FDA for the palliative treatment of
multiple myeloma and of carcinoma of the ovary. Under terms of the licensing agreement, we
purchase ALKERAN® tablets and ALKERAN® for injection from GSK and distribute
the products in the United States. The agreement with GSK expires in March 2009 and will not be
renewed.
RITALIN®
Family of Drugs: In April 2000, we licensed to Novartis the worldwide
rights (excluding Canada) to FOCALIN® and FOCALIN XR®, which are approved for
the treatment of attention deficit hyperactivity disorder, or ADHD. We retained the rights to
these products for the treatment of oncology-related disorders. We sell FOCALIN®
exclusively to Novartis and receive royalties on all of Novartis’ sales of FOCALIN XR®
and RITALIN® family of ADHD-related products.
FOCALIN® is formulated with the active d-isomer of methylphenidate and contains only the
more active isomer responsible for the effective management of the symptoms of ADHD.
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PRECLINICAL AND CLINICAL —STAGE PIPELINE
Our preclinical and clinical-stage pipeline of new drug candidates, in addition to our cell
therapies, is highlighted by multiple classes of small molecule, orally administered therapeutic
agents designed to selectively regulate disease-associated genes and proteins. The product
candidates in our pipeline are at various stages of preclinical and clinical development.
Successful results in preclinical or Phase I/II clinical studies may not be an accurate predictor
of the ultimate safety or effectiveness of a drug or product candidate.
| • | Phase I Clinical Trials |
If the FDA allows a request to initiate clinical investigations of a new drug or product
candidate to become effective, Phase I human clinical trials can begin. These tests usually
involve between 20 to 80 healthy volunteers or patients. The tests study a drug’s safety
profile, and may include preliminary determination of a drug or product candidate’s safe
dosage range. The Phase I clinical studies also determine how a drug is absorbed,
distributed, metabolized and excreted by the body, and therefore potentially the duration of
its action.
| • | Phase II Clinical Trials |
In Phase II clinical trials, studies are conducted on a limited number of patients with the
targeted disease. An initial evaluation of the drug’s effectiveness on patients is
performed and additional information on the drug’s safety and dosage range is obtained.
| • | Phase III Clinical Trials |
This phase typically includes controlled multi-center trials and involves a larger target
patient population to ensure that study results are statistically significant. During the
Phase III clinical trials, physicians monitor patients to determine efficacy and to gather
further information on safety.
IMiDs®
COMPOUNDS: IMiDs® compounds, which include
THALOMID® and REVLIMID®, are proprietary novel small molecule, orally
available compounds that modulate the immune system and other biologically important targets
through multiple mechanisms of action. The IMiDs® compound CC-4047 (pomalidomide) is
being evaluated in Phase I and Phase II clinical trials for various disease indications. CC-4047
is one of the most potent
IMiDs®
compounds that we are developing. Our initial Investigational New
Drug, or IND,
application was to evaluate CC-4047 in a U.S. proof-of-principle study in sickle cell anemia. We
are also evaluating CC-4047 for treatment of other diseases including myelofibrosis and multiple
myeloma. Additional compounds are in preclinical development. Our IMiDs® compounds are
covered by an extensive and comprehensive intellectual property estate of U.S. and foreign-issued
patents and pending patent applications including composition-of-matter, use and other patents and
patent applications.
ORAL ANTI-INFLAMMATORY AGENTS: Our oral PDE-4 inhibitor, CC-10004 (apremilast), is a
member of a proprietary pipeline of novel small molecules with anti-inflammatory activities that
impede the production of multiple proinflammatory mediators by
inhibiting PDE-4, also causing
reductions in TNF-a as well as interleukin-2 (IL-2), IL-17 and IL-23, interferon-gamma,
leukotrienes and nitric oxide synthase. Apremilast is our lead investigational drug in this class
of anti-inflammatory compounds. Based on results from proof-of-mechanism studies, we are
accelerating clinical and regulatory strategies for apremilast in psoriasis and psoriatic
arthritis, as well as embarking on exploratory clinical trials in additional rheumatic,
dermatologic and inflammatory diseases to determine the potential of apremilast. We are also
investigating our next oral PDE-4 inhibitor, CC-11050, which has completed Phase I trials, towards
evaluating its safety and efficacy in a number of inflammatory conditions and we are moving forward
with its development.
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KINASE INHIBITORS: We have generated valuable intellectual property in the identification
of kinases that regulate pathways critical in inflammation and oncology. Our kinase inhibitor
platform includes inhibitors of the c-Jun N-terminal kinase, or JNK, including CC-401, which has
successfully completed a Phase I trial in healthy volunteers and in AML
patients to determine safety and tolerability. No further studies with CC-401 are planned at this
time as we intend to advance our new second generation JNK inhibitors, specifically CC-930
currently in Phase I evaluation. We are also planning to investigate CC-930 in fibrotic conditions
assuming safety and tolerability continue to be acceptable.
SMALL CELL LUNG CANCER: In March 2008, amrubicin, a third-generation fully synthetic
anthracycline obtained in the Pharmion acquisition currently in Phase III clinical trials, was
granted orphan drug designation by the FDA for the treatment of small cell lung cancer. In
September 2008, amrubicin was granted fast track product designation by the FDA for the treatment
of small cell lung cancer after first-line chemotherapy. A drug designated as a fast track product
is intended for the treatment of a serious or life-threatening condition and demonstrates the
potential to provide a therapy where none exists or provide a therapy which may offer a significant
improvement in safety and/or effectiveness over existing therapy.
STEM CELLS: At CCT, we are researching stem cells derived from the human placenta as well
as from the umbilical cord. CCT is our state-of-the-art research and development division dedicated
to fulfilling the promise of cellular technologies by developing cutting-edge products and
therapies to significantly benefit patients. Our goal is to develop proprietary cell therapy
products for the treatment of unmet medical needs.
Stem cell based therapies offer the potential to provide disease-modifying outcomes for serious
diseases which lack adequate therapy. We have developed proprietary technology for collecting,
processing and storing placental stem cells with potentially broad therapeutic applications in
cancer, auto-immune diseases, including Crohn’s disease and multiple sclerosis, neurological
disorders including stroke and amyotrophic lateral sclerosis, or ALS,
graft-versus-host disease, or GVHD, and
other immunological / anti-inflammatory, rheumatologic and bone disorders. In October 2008, CCT
successfully filed an IND application with the FDA for its human
placenta derived cell product (PDA001). This filing allows a multi-center Phase I clinical trial
in patients with moderate-to-severe Crohn’s disease refractory to oral corticosteroids and immune
suppressants to proceed.
We also maintain an IND with the FDA for a trial with human umbilical cord blood in sickle cell
anemia and an IND for Human Placental-Derived Stem Cells, or HPDSC, to support a study to assess
the safety of its transplantation with umbilical cord blood obtained from fully or partially
matched related donors in subjects with certain malignant hematological diseases and non-malignant
disorders. Additional preclinical research to define further the potential of placental-derived
stem cells and to characterize other placental-derived products is continuing.
ACTIVIN
INHIBITORS: Based on our collaboration with Acceleron
Pharma, or Acceleron, we are investigating
a new biologic compound, ACE-011, with a novel mechanism of action. ACE-011 is an inhibitor of
activin, a member of the Growth and Differentiation Factor, or GDF, family of proteins responsible
for the growth and repair of a number of systems in the body. ACE-011 acts as a decoy receptor for
activin, blocking activin’s effects upon growth and repair of various tissues including bone and
red blood cells, as well as breast, ovary and other reproductive tissues.
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CELGENE LEADING PRODUCT CANDIDATES
The development of our leading new drug candidates and their targeted disease indications are
outlined in the following table:
| Disease | ||||
| Product | Indication | Status | ||
IMiDs® Compounds: |
||||
CC-4047 (pomalidomide)
|
Myelofibrosis | Phase II trial ongoing | ||
| Hemoglobinopathies | Phase I trial initiated | |||
| Multiple myeloma | Phase II trial ongoing | |||
CC-10015
|
Inflammatory diseases | Pre-clinical studies ongoing | ||
Oral Anti-Inflammatory: |
||||
CC-10004 (apremilast)
|
Psoriasis | Phase II trial ongoing | ||
| Psoriatic arthritis | Phase II trials ongoing | |||
| Inflammatory diseases | Phase II trials ongoing and planned | |||
CC-11050
|
Inflammatory diseases | Phase II trials planned | ||
Kinase Inhibitors: |
||||
JNK CC-930
|
Fibrotic diseases | Phase I trial initiated | ||
Small Cell Lung Cancer: |
||||
Amrubicin
|
Small cell lung cancer | Phase III study ongoing | ||
Stem Cells: |
||||
HPDSC / Human
umbilical cord blood
|
Transplants, hematological disorders | Phase I trials ongoing | ||
PDA001
|
Autoimmune/cancer | Pre-clinical studies ongoing | ||
| Crohn’s disease | Phase I study initiated | |||
| Multiple sclerosis | Pre-clinical studies ongoing | |||
| Stroke | Pre-clinical studies ongoing | |||
| ALS | Pre-clinical studies ongoing | |||
| GVHD | Pre-clinical studies ongoing | |||
Activin Biology: |
||||
ACE-011
|
Multiple myeloma/Bone loss | Phase II initiated |
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to our business. It is our policy to seek
patent protection for our inventions, and also to rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain our competitive
position.
We own or have exclusively licensed over 175 issued U.S. patents and over 325 additional U.S.
patent applications are pending. We have a policy to seek worldwide patent protection for our
inventions and have foreign patent rights corresponding to most of our U.S. patents. Further,
although THALOMID® is approved for use associated with ENL and we have patented claims
to the formulation, distribution and other indications for THALOMID®, we do not have
patent claims directed to the ENL indication.
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In August 2001, we entered into an agreement, termed the “New Thalidomide Agreement,” with
EntreMed, Inc., or EntreMed, Children’s Medical Center Corporation, or CMCC, and Bioventure
Investments kft relating to patents and patent applications owned by CMCC, which agreement
superceded several agreements already in place between CMCC, EntreMed and us. Pursuant to the New
Thalidomide Agreement, CMCC directly granted to us an exclusive worldwide license under the
relevant patents and patent applications relating to thalidomide. Several U.S. patents have been
issued to CMCC in this patent family and certain of these patents expire in 2013 and 2014.
Corresponding foreign patent applications and additional U.S. patent applications are still
pending.
In addition to the New Thalidomide Agreement, we entered into an agreement, entitled the “New
Analog Agreement,” with CMCC and EntreMed in December 2002, pursuant to which we have been granted
an exclusive worldwide license to certain CMCC patents and patent applications relating to
thalidomide analogs. The New Analog Agreement was executed in connection with the settlement of
certain pending litigation by and among us, EntreMed and the U.S. Patent and Trademark Office, or
PTO, relating to the allowance of certain CMCC patent applications covering thalidomide analogs.
These patent applications had been licensed exclusively to EntreMed in the field of thalidomide
analogs. In conjunction with the settlement of these suits, we acquired equity securities in
EntreMed, and EntreMed terminated its license agreements with CMCC relating to thalidomide analogs.
In turn, under the New Analog Agreement, CMCC exclusively licensed to us these patents and patent
applications, which relate to analogs, metabolites, precursors and hydrolysis products of
thalidomide, and stereoisomers thereof. Under the New Analog Agreement, we are obligated to comply
with certain milestones and other obligations, including those relating to REVLIMID®
approval and sales.
The New Analog Agreement grants us control over the prosecution and maintenance of the licensed
thalidomide analog patent rights. The New Analog Agreement also granted us an option to inventions
in the field of thalidomide analogs that may be developed at CMCC in the laboratory of Dr. Robert
D’Amato, pursuant to the terms and conditions of a separate Sponsored Research Agreement negotiated
between CMCC and us.
Our research led us to seek patent protection for molecular targets and drug discovery
technologies, as well as therapeutic and diagnostic products and processes. More specifically,
proprietary technology has been developed for use in molecular target discovery, the identification
of regulatory pathways in cells, assay design and the discovery and development of pharmaceutical
product candidates. An increasing percentage of our recent patent applications have been related
to potential product candidates or compounds. As of December 2008, included in those inventions
described above, we owned, in whole or in part, over 50 issued U.S. patents and have filed over 60
U.S. pending patent applications, including pending provisional applications, some of which are
licensed exclusively or sub-licensed to third parties in connection with sponsored or collaborative
research relationships.
CCT, our cellular therapeutics subsidiary, seeks patent protection for the collection, processing,
composition, formulation and uses of mammalian placental and umbilical cord tissue and placental
and umbilical cord stem cells, as well as cells and biomaterials derived from the placenta. As of
December 2008, CCT owned, in whole or in part, six U.S. patents, including claims to novel cells
and cellular compositions. In addition, we have approximately 50 U.S. patent applications,
including pending provisional applications, and hold licenses to U.S. patents and U.S. patent
applications.
Our success will depend, in part, on our ability to obtain and enforce patents, protect trade
secrets, obtain licenses to technology owned by third parties where it is necessary to conduct our
business without infringing upon the proprietary rights of others. The patent positions of
pharmaceutical and biotechnology firms, including ours, can be uncertain and involve complex legal
and factual questions. In addition, the coverage sought in a patent application can be
significantly reduced before the patent is issued.
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Consequently, we do not know whether any of our owned or licensed pending patent applications,
which have not already been allowed, will result in the issuance of patents or, if any patents are
issued, whether they will be dominated by third-party patent rights, whether they will provide
significant proprietary
protection or commercial advantage or whether they will be circumvented, opposed or infringed by
others. Finally, we are also aware of third-party U.S. patents that relate to the use of certain
stem cell technologies and cannot guarantee that our patents or pending applications will not be
involved in, or be defeated as a result of, opposition proceedings before a foreign patent office
or any interference proceedings before the PTO.
With respect to patents and patent applications we have licensed-in, there can be no assurance that
additional patents will be issued to any of the third parties from whom we have licensed patent
rights, either with respect to thalidomide or thalidomide analogs, or that, if any new patents are
issued, such patents will not be opposed, challenged, invalidated, infringed or dominated or
provide us with significant proprietary protection or commercial advantage. Moreover, there can be
no assurance that any of the existing licensed patents will provide us with proprietary protection
or commercial advantage. Nor can we guarantee that these licensed patents will not be either
infringed, invalidated or circumvented by others, or that the relevant agreements will not be
terminated. Any termination of the licenses granted to us by CMCC could have a material adverse
effect on our business, financial condition and results of operations.
Because 1) patent applications filed in the United States on or before November 28, 2000 are
maintained in secrecy until patents issue, 2) patent applications filed in the United States on or
after November 29, 2000 are not published until approximately 18 months after their earliest
claimed priority date and 3) publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, we cannot be certain that we, or our licensors, were the first
to make the inventions covered by each of the issued patents or pending patent applications or that
we, or our licensors, were the first to file patent applications for such inventions. In the event
a third party has also filed a patent for any of our inventions, we, or our licensors, may have to
participate in interference proceedings before the PTO to determine priority of invention, which
could result in the loss of a U.S. patent or loss of any opportunity to secure U.S. patent
protection for the invention. Even if the eventual outcome is favorable to us, such interference
proceedings could result in substantial cost to us.
We are aware of U.S. patents that have been issued to third parties claiming subject matter
relating to the NFkB pathway, including U.S. patents which could overlap with technology claimed in
some of our owned or licensed NFkB patents or patent applications, and a U.S. patent that has been
asserted against certain pharmaceutical companies. With respect to those patents that overlap with
our applications, we believe that one or more interference proceedings may be initiated by the PTO
to determine priority of invention for this subject matter. While we cannot predict the outcome of
any such proceedings, in the event we do not prevail, we believe that we can use alternative
methods for our NFkB drug discovery program for which we have issued U.S. patents that are not
claimed by the subject matter of the third-party patents. We are also aware of third-party U.S
patents that relate to the use of certain
TNF-a inhibitors to treat inflammation or conditions such
as asthma.
We may in the future have to prove that we are not infringing patents or we may be required to
obtain licenses to such patents. However, we do not know whether such licenses will be available
on commercially reasonable terms, or at all. Prosecution of patent applications and litigation to
establish the validity and scope of patents, to assert patent infringement claims against others
and to defend against patent infringement claims by others can be expensive and time-consuming.
There can be no assurance that, in the event that claims of any of our owned or licensed patents
are challenged by one or more third parties, any court or patent authority ruling on such challenge
will determine that such patent claims are valid and enforceable. An adverse outcome in such
litigation could cause us to lose exclusivity relating to the subject matter delineated by such
patent claims and may have a material adverse effect on our business. If a third party is found to
have rights covering products or processes used by us, we
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could be forced to cease using the
products or processes covered by the disputed rights, subject to
significant liabilities to such third party and/or be required to license technologies from such third party. Also, different
countries have different procedures for obtaining patents, and patents issued by different
countries provide different degrees of protection against the use of a patented invention by
others. There can be no assurance, therefore, that the issuance to us in one country of a patent covering an
invention will be followed by the issuance in other countries of patents covering the same
invention or that any judicial interpretation of the validity, enforceability or scope of the
claims in a patent issued in one country will be similar to the judicial interpretation given to a
corresponding patent issued in another country. Competitors may choose to file oppositions to
patent applications, which have been deemed allowable by foreign patent examiners. Furthermore,
even if our owned or licensed patents are determined to be valid and enforceable, there can be no
assurance that competitors will not be able to design around such patents and compete with us using
the resulting alternative technology. Additionally, for these same reasons, we cannot be sure that
patents of a broader scope than ours may be issued and thereby create freedom to operate issues.
If this occurs we may need to reevaluate pursuing such technology, which is dominated by others’
patent rights, or alternatively, seek a license to practice our own invention, whether or not
patented.
We also rely upon unpatented, proprietary and trade secret technology that we seek to protect, in
part, by confidentiality agreements with our collaborative partners, employees, consultants,
outside scientific collaborators, sponsored researchers and other advisors. There can be no
assurance that these agreements provide meaningful protection or that they will not be breached,
that we would have adequate remedies for any such breach or that our trade secrets, proprietary
know-how and technological advances will not otherwise become known to others. In addition, there
can be no assurance that, despite precautions taken by us, others have not and will not obtain
access to our proprietary technology or that such technology will not be found to be
non-proprietary or not a trade secret.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and other countries is a significant
factor in the manufacture and marketing of pharmaceuticals and in our ongoing research and
development activities. Most, if not all, of our therapeutic products require regulatory approval
by governmental agencies prior to commercialization. In particular, human therapeutic products are
subject to rigorous preclinical testing and clinical trials and other pre-marketing approval
requirements by the FDA and regulatory authorities in other countries. In the United States,
various federal and in some cases state statutes and regulations also govern or impact upon the
manufacturing, testing for safety and effectiveness, labeling, storage, record-keeping and
marketing of such products. The lengthy process of seeking required approvals, and the continuing
need for compliance with applicable statutes and regulations, requires the expenditure of
substantial resources. Regulatory approval, if and when obtained, may be limited in scope which
may significantly limit the indicated uses for which a product may be marketed. Further, approved
drugs, as well as their manufacturers, are subject to ongoing review and discovery of previously
unknown problems with such products or the manufacturing or quality control procedures used in
their production may result in restrictions on their manufacture, sale or use or in their
withdrawal from the market. Any failure by us, our suppliers of manufactured drug product,
collaborators or licensees to obtain or maintain, or any delay in obtaining, regulatory approvals
could adversely affect the marketing of our products and our ability to receive product revenue,
license revenue or profit sharing payments.
The activities required before a product may be marketed in the United States begin with
preclinical testing not involving human subjects. Preclinical tests include laboratory evaluation
of a product candidate’s chemistry and its biological activities and the conduct of animal studies
to assess the potential safety and efficacy of a product candidate and its formulations. The
results of these studies must be submitted to the FDA as part of an IND which must be reviewed by
the FDA primarily for safety considerations before proposed clinical trials in humans can begin.
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Typically, clinical trials involve a three-phase process as previously described. In some cases,
further studies (Phase IV) are required as a condition for new drug application, or NDA, or
biologics license application, or BLA, approval, to provide additional information concerning the
drug or product. The FDA requires monitoring of all aspects of clinical trials, and reports of all
adverse events must be made to
the agency before drug approval. After approval, we have ongoing reporting obligations concerning
adverse reactions associated with the drug, including expedited reports for serious and unexpected
adverse events. Additionally, we may have limited control over studies conducted with our
proprietary compounds or biologics if such studies are performed by others (e.g., cooperative
groups).
The results of the preclinical testing and clinical trials are submitted to the FDA as part of an
NDA or BLA for evaluation to determine if the product is sufficiently safe and effective for
approval to commence commercial sales. In responding to an NDA or BLA, the FDA may grant marketing
approval, request additional information or deny the application if it determines that the
application does not satisfy its regulatory approval criteria. When an NDA or BLA is approved, the
NDA or BLA holder must a) employ a system for obtaining reports of experience and side effects
associated with the drug and make appropriate submissions to the FDA and b) timely advise the FDA
if any marketed product fails to adhere to specifications established by the NDA or BLA internal
manufacturing procedures.
Pursuant to the Orphan Drug Act, a sponsor may request that the FDA designate a drug intended to
treat a “rare disease or condition” as an “orphan drug.” The term “orphan drug” can refer to
either a drug or biologic. A rare disease or condition is defined as one which affects less than
200,000 people in the United States, or which affects more than 200,000 people, but for which the
cost of developing and making available the product is not expected to be recovered from sales of
the product in the United States. Upon the approval of the first NDA or BLA for a drug designated
as an orphan drug for a specified indication, the sponsor of that NDA or BLA is entitled to seven
years of exclusive marketing rights in the United States for such drug or product containing the
active ingredient for the same indication unless the sponsor cannot assure the availability of
sufficient quantities of the drug to meet the needs of persons with the disease. However, orphan
drug status is particular to the approved indication and does not prevent another company from
seeking approval of other labeled indications. The period of orphan exclusivity is concurrent with
any patent exclusivity that relates to the drug or biologic. Orphan drugs may also be eligible for
federal income tax credits for costs associated with the drug’s development. Possible amendment of
the Orphan Drug Act by the U.S. Congress and possible reinterpretation by the FDA has been
discussed by regulators and legislators. FDA regulations reflecting certain definitions,
limitations and procedures for orphan drugs initially went into effect in January 1993 and were
amended in certain respects in 1998. Therefore, there is no assurance as to the precise scope of
protection that may be afforded by orphan drug status in the future or that the current level of
exclusivity and tax credits will remain in effect. Moreover, even if we have an orphan drug
designation for a particular use of a drug, there can be no assurance that another company also
holding orphan drug designation will not receive approval prior to us for the same indication. If
that were to happen, our applications for that indication could not be approved until the competing
company’s seven-year period of exclusivity expired. Even if we are the first to obtain approval
for the orphan drug indication, there are certain circumstances under which a competing product may
be approved for the same indication during our seven-year period of exclusivity. First,
particularly in the case of large molecule drugs or biologics, a question can be raised whether the
competing product is really the “same drug” as that which was approved. In addition, even in cases
in which two products appear to be the same drug, the agency may approve the second product based
on a showing of clinical superiority compared to the first product. In order to increase the
development and marketing of drugs for rare disorders, regulatory bodies outside the United States
have enacted regulations similar to the Orphan Drug Act. REVLIMID® has been granted
orphan medicinal product designation by the EC for treatment of CLL
following the favorable opinion of the European Medicines
Agency’s Committee for Orphan Medicinal Products.
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Among the conditions for NDA or BLA approval is the requirement that the prospective manufacturer’s
quality control and manufacturing procedures continually conform with the FDA’s current Good
Manufacturing Practice, or cGMP, regulations (which are regulations established by the FDA
governing the manufacture, processing, packing, storage and testing of drugs and biologics intended
for human use). In complying with cGMP, manufacturers must devote extensive time, money and effort
in the area of production and quality control and quality assurance to maintain full technical
compliance. Manufacturing facilities and company records are subject to periodic inspections by
the FDA to ensure compliance. If a manufacturing facility is not in substantial compliance with these requirements,
regulatory enforcement action may be taken by the FDA, which may include seeking an injunction
against shipment of products from the facility and recall of products previously shipped from the
facility.
Under the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act, products covered by
approved NDAs or supplemental NDAs may be protected by periods of patent and/or non-patent
exclusivity. During the exclusivity periods, the FDA is generally prevented from granting
effective approval of an abbreviated NDA, or ANDA. Further, NDAs submitted under 505(b)(2) of the
Food, Drug and Cosmetic Act may not reference data contained in the NDA for a product protected by
an effective and unexpired exclusivity. ANDAs and 505(b)(2) applications are generally less
burdensome than full NDAs in that, in lieu of new clinical data, the applications rely in whole, or
in part, upon the safety and efficacy findings of the referenced approved drug in conjunction with
bridging data, typically bioequivalence data. Upon the expiration of the applicable exclusivities,
through passage of time or successful legal challenge, the FDA may grant effective approval of an
ANDA for a generic drug, or may accept reference to a previously protected NDA in a 505(b)(2)
application. Depending upon the scope of the applicable exclusivities, any such approval could be
limited to certain formulations and/or indications/claims, i.e., those not covered by any
outstanding exclusivities. While the Food, Drug and Cosmetic Act provides for ANDA and 505(b)(2)
abbreviated approval pathways for drugs submitted as NDAs and approved under section 505 of the
Act, there are no similar provisions for biologics submitted as BLAs and approved under the Public
Health Service, or PHS, Act. That is, there is currently no abbreviated application that would
permit approval of a generic or “follow-on” biologic based
on the FDA’s earlier approval of
another manufacturer’s application under section 351 of the PHS Act.
Failure to comply with applicable FDA regulatory requirements can result in enforcement actions
such as warning letters, recalls or adverse publicity issued by the FDA or in legal actions such as
seizures, injunctions, fines based on the equitable remedy of disgorgement, restitution and
criminal prosecution.
Approval procedures similar to those in the United States must be undertaken in virtually every
other country comprising the market for our products before any such product can be commercialized
in those countries. The approval procedure and the time required for approval vary from country to
country and may involve additional testing. There can be no assurance that approvals will be
granted on a timely basis or at all. In addition, regulatory approval of drug and biologics
pricing is required in most countries other than the United States. There can be no assurance that
the resulting pricing of our products would be sufficient to generate an acceptable return to us.
COMPETITION
The pharmaceutical and biotechnology industries in which we compete are each highly competitive.
Our competitors include major pharmaceutical and biotechnology companies, some of which have
considerably greater financial, scientific, technical and marketing resources than us. We also
experience competition in the development of our products and processes from universities and other
research institutions and, in some instances, compete with others in acquiring technology from such
sources.
Competition in the pharmaceutical industry, and specifically in the oncology and
immune-inflammatory areas being addressed by us, is particularly intense. Numerous pharmaceutical,
biotechnology and generic companies have extensive anti-cancer and anti-inflammatory drug
discovery, development and commercial resources. Amgen Inc., AstraZeneca PLC., Biogen Idec Inc.,
Bristol-Myers Squibb Co., Eisai Co., Ltd., Eli Lilly and Company, F. Hoffmann-LaRoche Ltd,
Genentech, Inc., Johnson and Johnson, Merck and Co., Inc., Novartis AG, Pfizer Inc., Sanofi-Aventis
SA. and Takeda Pharmaceutical Co. Ltd. are among some of the companies researching and developing
new compounds in the oncology, inflammation and immunology fields.
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The pharmaceutical and biotechnology industries have undergone, and are expected to continue to
undergo, rapid and significant technological change. Also, consolidation and competition are
expected to intensify as technical advances in each field are achieved and become more widely known. In order
to compete effectively, we will be required to continually upgrade and expand our scientific
expertise and technology, identify and retain capable personnel and pursue scientifically feasible
and commercially viable opportunities.
Our competition will be determined in part by the indications and geographic markets for which our
products are developed and ultimately approved by regulatory authorities. An important factor in
competition will be the timing of market introduction of our or our competitors’ products.
Accordingly, the relative speed with which we can develop products, complete clinical trials and
regulatory approval processes, receive pricing and reimbursement in certain markets and supply
commercial quantities of products to the market are expected to be important competitive factors.
Competition among products approved for sale will be based, among other things, on product
efficacy, safety, convenience, reliability, availability, price, third-party reimbursement and
patent and non-patent exclusivity.
SIGNIFICANT ALLIANCES
From time to time we enter into strategic alliances with third parties whereby we either grant
rights to certain of our compounds in exchange for rights to receive payments, or acquire rights to
compounds owned by other pharmaceutical or biotechnology companies in exchange for obligations to
make payments to the partnering companies. Payments either to or from third parties may be in the
form of upfront payments, milestone payments contingent upon the achievement of pre-determined
criteria and/or research and development funding. Under these arrangements, one of the parties may
also purchase product and pay royalties on product sales. The following are our most significant
alliances:
PFIZER: In March 2008, we acquired Pharmion. As part of our acquisition of Pharmion,
we assumed Pharmion’s June 7, 2001 5-azacytidine license agreement with Pharmacia & Upjohn, now
part of Pfizer, in which Pharmion had obtained rights for VIDAZA®. This agreement
specified future royalty payments due to Pfizer based upon the sales revenue of various forms of
VIDAZA®. On October 3, 2008 we entered into an agreement with Pfizer to prepay our
royalty obligation under the June 7, 2001 5-azacytidine license in full for $425.0 million.
ACCELERON
PHARMA: In February 2008, we announced a worldwide strategic collaboration
with Acceleron for the joint development and commercialization of ACE-011,
a first-in-class, novel bone-forming compound. The collaboration combines both companies’
resources and commitment to developing products for the treatment of cancer and cancer-related
bone loss. We also signed an option agreement for certain discovery stage programs. Under the
terms of the agreement, we and Acceleron will jointly develop, manufacture and commercialize
Acceleron’s products for bone loss. We made an upfront payment to Acceleron of $50.0 million,
which included a $5.0 million equity investment in Acceleron. In addition, in the event of an
initial public offering of Acceleron, we will purchase a minimum of $7.0 million of Acceleron
common stock.
Acceleron will retain responsibility for initial activities, including research and development,
through the end of Phase IIa clinical trials, as well as manufacturing the clinical supplies for
these studies. In turn, we will conduct the Phase IIb and Phase III clinical studies and will
oversee the manufacture of Phase III and commercial supplies. Acceleron will pay a share of the
development expenses and is eligible to receive development, regulatory and commercial
milestones of up to $510.0 million for the ACE-011 program and up to an additional $437.0
million for each of the three discovery stage programs. The companies will co-promote the
products in North America. Acceleron will receive tiered royalties on worldwide net sales.
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ARRAY BIOPHARMA INC.: In September 2007, we entered into a research collaboration
agreement with Array BioPharma Inc., or Array, focused on the discovery, development and
commercialization of novel therapeutics in cancer and inflammation. As part of this agreement,
we made an upfront payment of $40.0 million to Array in return for an option to receive
exclusive worldwide rights for certain mutually selected discovery target drugs developed under the
collaboration, except for Array’s limited U.S. co-promotional rights. Array will be responsible
for all discovery and clinical development through Phase I or Phase IIa and be entitled to
receive, for each drug, potential milestone payments of approximately $200.0 million, if certain
discovery, development and regulatory milestones are achieved and $300.0 million if certain
commercial milestones are achieved, as well as royalties on net sales.
GLAXOSMITHKLINE: In March 2003, we entered into a supply and distribution agreement
with GSK to distribute, promote and sell ALKERAN® (melphalan), a therapy approved by
the FDA for the palliative treatment of multiple myeloma and carcinoma of the ovary. Under the
terms of the agreement, we purchase ALKERAN® tablets and ALKERAN® for
injection from GSK and distribute the products in the United States under the Celgene label.
The agreement requires us to purchase certain minimum quantities each year under a take-or-pay
arrangement. The agreement with GSK expires in March 2009 and will not be renewed. All minimum
purchase requirements have been satisfied.
NOVARTIS: In April 2000, we entered into a development and license agreement with
Novartis in which we granted to Novartis an exclusive worldwide license (excluding Canada) to
further develop and market FOCALIN® and FOCALIN XR®, the
extended release drug formulation (d-methylphenidate, or d-MPH). We have retained the exclusive
commercial rights to FOCALIN IR® and FOCALIN XR® for oncology-related
disorders. We also granted Novartis rights to all of our related intellectual property and
patents, including new formulations of the currently marketed RITALIN®. Under the
agreement, we have received upfront and regulatory achievement milestone payments totaling $55.0
million through December 31, 2008 and are entitled to additional payments upon attainment of
certain other milestone events. We also sell FOCALIN® to Novartis and receive
royalties on all of Novartis’ sales of FOCALIN XR® and RITALIN® family of
ADHD-related products.
MANUFACTURING
We own and operate an FDA approved API manufacturing facility in Zofingen, Switzerland. The API
facility is used to produce REVLIMID® and THALOMID® API. We have contracted
with third-party manufacturing service providers in order to provide backup manufacturing
capabilities. These manufacturing service providers manufacture API in accordance with our
specifications and are required to meet the FDA’s and foreign regulatory authorities’ cGMP
regulations and guidelines. Our backup API manufacturing service provider is Aptuit Inc. UK
(previously Evotec) with respect to REVLIMID® and THALOMID®.
We own and operate an FDA approved drug product manufacturing facility in Boudry (near Neuchatel),
Switzerland to perform formulation, encapsulation, packaging, warehousing and distribution. We
maintain backup FDA approved drug product manufacturing service providers for the manufacture of
REVLIMID® and THALOMID®. These drug product manufacturing service providers
include Penn Pharmaceutical Ltd, Institute of Drug Technology Australia Ltd and OSG Norwich
Pharmaceuticals. Our packaging service providers include Sharp Corporation for worldwide
packaging, Norwich Pharmaceuticals and Cimex AG for U.S. packaging and non-U.S. packaging,
respectively.
The API for VIDAZA® is supplied by Ash Stevens, Inc. We have a contract manufacturing
agreement with Baxter GmBH and Ben Venue Laboratories, Inc. for product formulation, filling of
vials and packaging.
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The API for FOCALIN® and FOCALIN XR® is currently obtained from two
suppliers, Johnson Matthey Inc. and Siegfried USA Inc., and we rely on a single manufacturer,
Mikart, Inc., for the tableting and packaging of FOCALIN® finished product.
CCT currently operates an FDA compliant facility for the recovery and storage of cord blood and
placental stem cells for LifeBankUSA®. In addition, in our Warren, NJ facility we are
producing PDA001, a culture expanded placenta derived stem cell under cGMP to supply clinical
studies. This is a multi-purpose facility also capable of supporting future products.
INTERNATIONAL OPERATIONS
Our international headquarters and a drug product manufacturing facility to perform formulation,
encapsulation, packaging, warehousing and distribution are located in Boudry, Switzerland. We also
maintain an API manufacturing facility located in Zofingen, Switzerland which has the capability to
produce multiple drug substances, expanding our global commercial manufacturing capabilities. We
continue to expand our international regulatory, clinical and commercial infrastructure and
currently conduct our international operations in over 65 countries and regions including Eastern
Europe, Japan, Australia, Canada, Russia, Southeast Asia and Latin America . We maintain office
facilities in most of these markets on a leased basis. The number of full-time employees has grown
from 436 at the end of 2007 to 789 at the end of 2008.
SALES AND COMMERCIALIZATION
We have a global pharmaceutical commercial organization that has considerable experience in the
pharmaceutical industry, and many of our employees have experience with oncological and
immunological products. We will continue to expand our sales and commercialization group to
support products we develop to treat oncological and immunological diseases. We intend to market
and sell the products we develop for indications with accessible patient populations. For products
with indications involving larger patient populations, we may partner with other pharmaceutical
companies. In addition, we are positioned to accelerate the expansion of these sales and marketing
resources as appropriate to take advantage of product in-licensing and product acquisition
opportunities.
EMPLOYEES
As of December 31, 2008, we had 2,441 full-time employees, 1,331 of whom were engaged primarily in
research and development activities, 655 who were engaged in sales and commercialization activities
and the remainder of which were engaged in executive and general and administrative activities.
The number of international full-time employees included above has grown to 789 as of December 31,
2008. We also employ a number of part-time employees and maintain consulting arrangements with a
number of researchers at various universities and other research institutions around the world.
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FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Annual Report are forward-looking
statements concerning our business, results of operations, economic performance and financial
condition based on our current expectations. Forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and within the meaning of Section 21E of the Securities
Exchange Act of 1934 are included, for example, in the discussions about:
| • | strategy; |
| • | new product discovery, development or product introduction; |
| • | product manufacturing; |
| • | product sales, royalties and contract revenues; |
| • | expenses and net income; |
| • | credit risk management; |
| • | liquidity; |
| • | asset and liability risk management; and |
| • | operational and legal risks. |
These and other forward-looking statements are not guarantees of future performance and involve
risks and uncertainties that could cause actual results to differ materially from those implied by
such forward-looking statements. Given these risks and uncertainties, you are cautioned not to
place undue reliance on any forward-looking statements.
We have tried, wherever possible, to identify these forward-looking statements by using words such
as “forecast,” “project,” “anticipate,” “plan,” “strategy,” “intend,” “potential,” “outlook,”
“target,” “seek,” “continue,” “believe,” “could,” “estimate,” “expect,” “may,” “probable,”
“should,” “will” or other words of similar meaning in conjunction with, among other things,
discussions of future operations, financial performance, our strategy for growth, product
development, regulatory approval and market position. You also can identify them by the fact that
they do not relate strictly to historical or current facts.
Reference is made, in particular, to forward-looking statements regarding the results of current or
pending clinical trials, our products’ ability to demonstrate efficacy or an acceptable safety
profile, actions by the FDA, the financial conditions of suppliers including their solvency and
ability to supply product, and other factors detailed in “Item 1A. Risk Factors” and “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We note
these factors as permitted by the Private Securities Litigation Reform Act of 1995.
Except as required under the federal securities laws and the rules and regulations of the
Securities and Exchange Commission, or SEC, we disclaim and do not undertake any obligations to update or
revise publicly any forward-looking statements in this report, whether as a result of new
information, future events, changes in assumptions, or otherwise. You are advised, however, to
consult any further disclosure we make on related subjects in our Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K filed with or furnished to the SEC.
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ITEM 1A. RISK FACTORS
The statements in this section describe the major risks to our business and should be considered
carefully. Any of the factors described below could significantly and negatively affect our
business, prospects, financial condition, operating results or credit ratings, which could cause
the trading price of our common stock to decline. Additional risks and uncertainties not presently
known to us, or risks that we currently consider immaterial, could also negatively affect our
business and operations.
We may experience significant fluctuations in our quarterly operating results.
We have historically experienced, and may continue to experience, significant fluctuations in our
quarterly operating results. These fluctuations are due to a number of factors, many of which are
outside our control, and may result in volatility of our stock price. Future operating results
will depend on many factors, including:
| • | demand for our products; |
| • | pricing decisions, and those of our competitors, including decisions to increase or decrease prices; |
| • | regulatory approvals for our products; |
| • | timing and levels of spending for research and development, sales and marketing; |
| • | timing and levels of reimbursement from third-party payors for our products; |
| • | timing and market acceptance of new product introductions by us and/or competitors; |
| • | development or expansion of business infrastructure in new clinical and geographic markets; |
| • | acquisition of new products and companies; |
| • | tax rates in the jurisdictions in which we operate; |
| • | timing and recognition of certain research and development milestones and license fees; |
| • | ability to control our costs; |
| • | fluctuations in foreign currency exchange rates; and |
| • | economic and market instability. |
During the next several years, we will be very dependent on the continued commercial success of our
primary products REVLIMID®, THALOMID® and VIDAZA®.
During the next several years, the growth of our business will be largely dependent on the
commercial success of REVLIMID® and our other products. REVLIMID® was
approved by the FDA, the EC, the Swissmedic, the TGA, and in October 2008 by Health Canada for
treatment in combination with dexamethasone for multiple myeloma patients who have received at
least one prior therapy. In addition, REVLIMID® was approved by the FDA and the
Canadian Therapeutic Products Directorate for treatment of patients with transfusion-dependent
anemia due to low- or intermediate-1-risk MDS, associated with a deletion 5q cytogenetic
abnormality with or without additional cytogenetic abnormalities. We cannot
predict whether REVLIMID® will continue to gain the acceptance of regulators,
physicians, patients and other key opinion leaders as a relatively safe and effective drug that has
certain advantages as compared to existing or future therapies. We are also seeking to introduce
REVLIMID® in additional international markets as well as obtaining approvals for
additional indications both in the United States and internationally. A delay in gaining the
requisite regulatory approvals could negatively impact our growth plans and the value of our common
stock.
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THALOMID® was approved by the FDA for treatment in combination with dexamethasone for
patients with newly diagnosed multiple myeloma and is also approved for the treatment and
suppression of cutaneous manifestations of ENL, an inflammatory complication of leprosy. In April
2008, the TGA approved a supplemental filing granting THALOMID® marketing approval for
use in combination with melphalan and prednisone for patients with untreated multiple myeloma or
ineligible for high dose chemotherapy and also granted THALOMID® marketing approval in
combination with dexamethasone for induction therapy prior to high dose chemotherapy with
autologous stem cell rescue, for the treatment of patients with untreated multiple myeloma. In
addition, in April 2008, THALOMID® was granted full marketing authorization by the EC
for use in combination with melphalan and prednisone as a treatment for patients with newly
diagnosed multiple myeloma. If unexpected adverse experiences are reported in connection with the
use of THALOMID® by patients, physician and patient comfort with the product could be
undermined, the commercial success of THALOMID® could be affected and the acceptance of
our other products, including REVLIMID®, may be adversely impacted.
VIDAZA® has been shown to reverse the effects of DNA hypermethylation and promote
subsequent gene re-expression. VIDAZA® was licensed from Pharmacia & Upjohn, now part
of Pfizer, and was approved by the FDA for the treatment of all subtypes of MDS.
Additionally, VIDAZA® was granted orphan drug designation by the FDA for the treatment
of AML. In December 2008, VIDAZA® was granted full marketing
authorization by the EC for the treatment of adult patients who are not eligible for haematopoietic
stem cell transplantation with Intermediate-2 and high-risk MDS according to the IPSS or CMML with
10-29 percent marrow blasts without myeloproliferative disorder, or AML with 20-30 percent blasts
and multi-lineage dysplasia, according to WHO classification.
Our revenues and profits would be negatively impacted if adverse experiences were reported in
connection with any of these three products or generic versions were to be approved and launched.
See “We may not be able to protect our intellectual property and our products may be subject to
generic competition” for further discussion related to possible generic competition for
THALOMID®.
Sales of our products are dependent on third-party reimbursement.
Sales of our products will depend, in part, on the extent to which the costs of our products will
be paid by health maintenance, managed care, pharmacy benefit and similar health care management
organizations, or reimbursed by government health administration authorities, private health
coverage insurers and other third-party payors. These health care management organizations and
third-party payors are increasingly challenging the prices charged for medical products and
services. Additionally, the containment of health care costs has become a priority of federal and
state governments, and the prices of drugs have been a focus in this effort. The U.S. government,
state legislatures and foreign governments have shown significant interest in implementing
cost-containment programs, including price controls, restrictions on reimbursement and requirements
for substitution of generic products. Adoption of price controls and cost-containment measures in
new jurisdictions or programs, and adoption of more restrictive policies in jurisdictions with
existing controls and measures, could further limit our net revenue and results. If these
organizations and third-party payors do not consider our products to be cost-effective compared to
other available therapies, they may not reimburse providers or consumers of our products or, if
they do, the level of reimbursement may not be sufficient to allow us to sell our products on a
profitable basis.
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If we are unsuccessful in developing and commercializing our products, our business, financial
condition, results of operations and liquidity could be materially adversely affected which could
have a negative impact on the value of our securities.
Many of our drug candidates are in the early or mid-stages of research and development and will
require the commitment of substantial financial resources, extensive research, development,
preclinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being
ready for sale. Moreover, our commercially available products may require additional studies with
respect to approved indications as well as new indications pending approval. If it becomes too
expensive to sustain our present commitment of resources on a long-term basis, we will be unable to
continue certain necessary research and development activities. Furthermore, we cannot be certain
that our clinical testing will render satisfactory results, or that we will receive required
regulatory approvals for our new products or new indications. If any of our products, even if
developed and approved, cannot be successfully commercialized, our business, financial condition,
results of operations and liquidity could be materially adversely affected which could have a
negative impact on the value of our common stock.
If our products are not accepted by the market, demand for our products will deteriorate or not
materialize at all.
It is necessary that REVLIMID®, THALOMID®, VIDAZA®,
FOCALIN® and FOCALIN XR®, and the RITALIN® family of drugs achieve
and maintain market acceptance. A number of factors may adversely impact the degree of market
acceptance of our products, including the products’ efficacy, safety and advantages, if any, over
competing products, as well as the reimbursement policies of third-party payors, such as government
and private insurance plans. In particular, thalidomide, when used by pregnant women, has resulted
in serious birth defects, and the negative history associated with thalidomide and birth defects
may decrease the market acceptance of THALOMID®. In addition, the stem cell products
that we are developing through our Celgene Cellular Therapeutics subsidiary may represent
substantial departures from established treatment methods and will compete with a number of
traditional products and therapies which are now, or may be in the future, manufactured and
marketed by major pharmaceutical and biopharmaceutical companies. Furthermore, public attitudes
may be influenced by claims that stem cell therapy is unsafe, and stem cell therapy may not gain
the acceptance of the public or the medical community. If our products are not accepted by the
market, demand for our products will deteriorate or not materialize at all.
The pharmaceutical industry is subject to extensive government regulation which presents numerous
risks to us.
The discovery, preclinical development, clinical trials, manufacturing, restricted distribution
systems (such as our S.T.E.P.S.® and RevAssist® programs), marketing and
labeling of pharmaceuticals and biologics are all subject to extensive regulation, including,
without limitation, the U.S. Federal Food, Drug, and Cosmetic Act, the U.S. Public Health Service
Act, the U.S. Foreign Corrupt Practices Act and other federal and state statutes, including
anti-kickback, antitrust and false claims laws, as well as similar laws in foreign jurisdictions.
If we or our contractors and collaborators are delayed in receiving, or are unable to obtain at
all, necessary governmental approvals, we will be unable to effectively market our products.
The testing, marketing and manufacturing of our products require regulatory approval, including
approval from the FDA and, in some cases, from the Environmental
Protection Agency, or EPA, or governmental authorities outside of the
United States that perform roles similar to those of the FDA and EPA, including the EC, the
Swissmedic, the TGA and Health Canada. Certain of our pharmaceutical products, such as
FOCALIN®, fall under the Controlled Substances Act of 1970 that requires authorization
by the U.S. Drug Enforcement Agency, or DEA, of the U.S. Department of Justice in order to handle
and distribute these products.
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The regulatory approval process presents several risks to us:
| • | In general, preclinical tests and clinical trials can take many years, and require the expenditure of substantial resources, and the data obtained from these tests and trials can be susceptible to varying interpretation that could delay, limit or prevent regulatory approval; |
| • | Delays or rejections may be encountered during any stage of the regulatory process based upon the failure of the clinical or other data to demonstrate compliance with, or upon the failure of the product to meet, a regulatory agency’s requirements for safety, efficacy and quality or, in the case of a product seeking an orphan drug indication, because another designee received approval first or receives approval of other labeled indications; |
| • | Requirements for approval may become more stringent due to changes in regulatory agency policy, or the adoption of new regulations or legislation; |
| • | The scope of any regulatory approval, when obtained, may significantly limit the indicated uses for which a product may be marketed and reimbursed and may impose significant limitations in the nature of warnings, precautions and contra-indications that could materially affect the sales and profitability of the drug; |
| • | Pricing and reimbursement controls and policies may become more stringent both inside and outside the United States which could affect the sales and profitability of our drugs; |
| • | Approved products, as well as their manufacturers, are subject to continuing and ongoing review, and discovery of previously unknown problems with these products or the failure to adhere to manufacturing or quality control requirements may result in restrictions on their manufacture, sale or use or in their withdrawal from the market; |
| • | Regulatory authorities and agencies of the United States or foreign governments may promulgate additional regulations restricting the sale of our existing and proposed products; |
| • | Guidelines and recommendations published by various non-governmental organizations can reduce the use of our products; |
| • | Once a product receives marketing approval, we may not market that product for broader or different applications, and the FDA may not grant us approval with respect to separate product applications that represent extensions of our basic technology. In addition, the FDA may withdraw or modify existing approvals in a significant manner or promulgate additional regulations restricting the sale of our present or proposed products. The FDA may also request that we perform additional clinical trials or change the labeling of our existing or proposed products if we or others identify side effects after our products are on the market; |
| • | Products, such as REVLIMID®, that are subject to accelerated approval can be subject to an expedited withdrawal if the post-marketing study commitments are not completed with due diligence, the post-marketing restrictions are not adhered to or are shown to be inadequate to assure the safe use of the drug, or evidence demonstrates that the drug is not shown to be safe and effective under its conditions of use. Additionally, promotional materials for such products are subject to enhanced surveillance, including pre-approval review of all promotional materials used within 120 days following marketing approval and a requirement for the submissions 30 days prior to initial dissemination of all promotional materials disseminated after 120 days following marketing approval; and |
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| • | Our labeling and promotional activities relating to our products as well as our post marketing activities are regulated by the FDA, the Federal Trade Commission, The United States Department of Justice, the DEA, state regulatory agencies and foreign regulatory agencies and are subject to associated risks. In addition, individual states, acting through their attorneys general, have become active as well, seeking to regulate the marketing of prescription drugs under state consumer protection and false advertising laws. If we fail to comply with regulations regarding the promotion and sale of our products, such as prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained, such agencies could bring an enforcement action against us that could inhibit our marketing capabilities as well as result in significant penalties. |
We recently sent a letter to doctors warning that a study of the drug Innohep to treat dangerous
blood clots suggests that the drug may increase the risk of death in elderly patients. The FDA has
posted the letter on its website, which recommends that doctors consider alternatives to Innohep in
patients with deep vein thrombosis, life-threatening blood clots in major veins such as in the
legs. As a result, the FDA has requested that we revise the package insert to reference the
suggested study results relating to Innohep. Innohep was being marketed by Pharmion at the time we
acquired the company on March 7, 2008. Since our acquisition of Pharmion, all Innohep sales are
included in other product sales since we consider Innohep to be non-core.
The FDA approval process would allow for the approval of an ANDA or 505(b)(2)
application for a generic version of our approved products upon the expiration, through passage of
time or successful legal challenge, of relevant patent or non-patent exclusivity protection. ANDAs
and 505(b)(2) applications are generally less burdensome than full NDAs in that, in lieu of
clinical data, these applications rely in whole, or in part, upon the safety and efficacy findings
of the referenced approved product in conjunction with bridging data, typically bioequivalence
data.
The FDA’s Center for Biologics Evaluation and Research currently regulates under 21 CFR Parts 1270
and 1271 human tissue or cells intended for transplantation, implantation, infusion or transfer to
a human recipient. Part 1271 requires tissue establishments to screen and test donors, to prepare
and follow written procedures for the prevention of the spread of communicable disease and to
register the establishment with FDA. It also provides for inspection by the FDA of tissue
establishments.
Currently, we are required to be, and are, licensed to operate in New York, New Jersey, Maryland
and California, four of the states in which we currently collect placentas and umbilical cord blood
for our allogeneic and private stem cell banking businesses. If other states adopt similar
licensing requirements, we would need to obtain such licenses to continue operating. If we are
delayed in receiving, or are unable to obtain at all, necessary licenses, we will be unable to
provide services in those states and this would impact negatively on our revenues.
We may not be able to protect our intellectual property and our products may be subject to generic
competition.
Our success depends, in part, on our ability to obtain and enforce patents, protect trade secrets,
obtain licenses to technology owned by third parties and to conduct our business without infringing
upon the proprietary rights of others. The patent positions of pharmaceutical and
biopharmaceutical firms, including ours, can be uncertain and involve complex legal and factual
questions including those related to our restricted distribution systems (such as our
S.T.E.P.S.® and RevAssist® programs).
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Under the current U.S. patent laws, patent applications filed in the United States on or before
November 28, 2000 are maintained in secrecy until patents issue. Patent applications filed in the
U.S. on or after November 29, 2000 are not published until approximately 18 months after their
earliest claimed priority date, and publication of discoveries in the scientific and patent
literature often lag behind actual discoveries. Thus, we may discover sometime in the future that
we, or the third parties from whom we
have licensed patents or patent applications, were not the first to make and/or file the inventions
covered by the patents and patent applications in which we have or seek rights. In the event that a
third party has also filed a patent application for any of the inventions claimed in our patents or
patent applications, or those we have licensed-in, we could become involved in an interference
proceeding declared by the PTO, to determine priority of invention or an opposition proceeding in
other places such as Europe. Such an interference or opposition could result in the loss of an
issued U.S. or foreign patent, respectively, or loss of any opportunity to secure U.S. patent
protection for that invention. Even if the eventual outcome is favorable to us, such proceedings
could result in substantial cost and delay to us and limit the scope of the claimed subject matter.
In addition, the coverage sought in a patent application may not be obtained or may be
significantly reduced before the patent is issued. Consequently, if our pending applications, or
pending applications that we have licensed-in from third parties, do not result in the issuance of
patents or if any patents that are issued do not provide significant proprietary protection or
commercial advantage, our ability to sustain the necessary level of intellectual property rights
upon which our success depends may be restricted.
Moreover, different countries have different procedures for obtaining patents, and patents issued
in different countries provide different degrees of protection against the use of a patented
invention by others. Therefore, if the issuance to us or our licensors, in a given country, of a
patent covering an invention is not followed by the issuance in other countries of patents covering
the same invention, or if any judicial interpretation of the validity, enforceability or scope of
the claims in a patent issued in one country is not similar to the interpretation given to the
corresponding patent issued in another country, our ability to protect our intellectual property in
other countries may be limited.
Furthermore, even if our patent applications, or those we have licensed-in, are issued, our
competitors may still challenge the scope, validity or enforceability of such patents in court,
requiring us to engage in complex, lengthy and costly litigation. Alternatively, our competitors
may be able to design around such patents and compete with us using the resulting alternative
technology. If any of our issued or licensed patents are infringed, we may not be successful in
enforcing our or our licensor’s intellectual property rights or defending the validity or
enforceability of our issued patents and subsequently not be able to develop or market applicable
product exclusively.
We rely upon unpatented proprietary and trade secret technology that we try to protect, in part, by
confidentiality agreements with our collaborative partners, employees, consultants, outside
scientific collaborators, sponsored researchers and other advisors. If these agreements are
breached, we may not have adequate remedies for any such breach. Despite precautions taken by us,
others may obtain access to or independently develop our proprietary technology or such technology
may be found to be non-proprietary or not a trade secret.
Our right to practice the inventions claimed in certain patents that relate to THALOMID®
arises under licenses granted to us by others, including The Rockefeller University, EntreMed and
CMCC. In addition to these patents, which relate to thalidomide, we have also licensed from CMCC
certain patents relating to thalidomide analogs. In December 2002, we entered into an exclusive
license agreement with CMCC and EntreMed Inc. pursuant to which CMCC exclusively licensed to us
certain patents and patent applications that relate to analogs, metabolites, precursors and
hydrolysis products of thalidomide, and all stereoisomers thereof. Our license under the December
2002 agreement is worldwide and royalty-bearing, and we have complete control over the prosecution
of the licensed thalidomide analog patent rights. Under this December 2002 agreement, we are
obligated to comply with certain milestones for a REVLIMID® approval and royalties with
respect to sales of REVLIMID®. The December 2002 agreement also grants us an option for
a certain time period to inventions in the field of thalidomide analogs that may be developed at
CMCC in the laboratory of Dr. Robert D’Amato, pursuant to the terms and conditions of a separate
Sponsored Research Agreement negotiated between CMCC and us.
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Further, while we believe these confidentiality agreements and license agreements to be valid and
enforceable, our rights under these agreements may not continue or disputes concerning these
agreements may arise. If any of the foregoing should occur, we may be unable to rely upon our
unpatented proprietary and trade secret technology, or we may be unable to use the third-party
proprietary technology we have licensed-in, either of which may prevent or hamper us from
successfully pursuing our business.
It is also possible that third-party patent applications and patents could issue with claims that
broadly cover certain aspects of our business or of the subject matter claimed in the patents or
patent applications owned or optioned by us or licensed to us, which may limit our ability to
conduct our business or to practice under our patents, and may impede our efforts to obtain
meaningful patent protection of our own. If patents are issued to third parties that contain
competitive or conflicting claims, we may be legally prohibited from pursuing research, development
or commercialization of potential products or be required to obtain licenses to these patents or to
develop or obtain alternative technology. We may be legally prohibited from using patented
technology, may not be able to obtain any license to the patents and technologies of third parties
on acceptable terms, if at all, or may not be able to obtain or develop alternative technologies.
Consequently, if we cannot successfully defend against any patent infringement suit that may be
brought against us by a third-party, we may lose the ability to continue to conduct our business as
we presently do, or to practice certain subject matter delineated by patent claims that we have
exclusive rights to, whether by ownership or by license, and that may have a material adverse
effect on our business.
Under the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act, products covered by
approved NDAs or supplemental NDAs may be protected by periods of patent and/or non-patent
exclusivity. During the exclusivity periods, the FDA is generally prevented from granting
effective approval of an ANDA. Upon the expiration of the applicable
exclusivities, through passage of time or successful legal challenge, the FDA may grant effective
approval of an ANDA for a generic drug, or may accept reference to a previously protected NDA in a
505(b)(2) application. Depending upon the scope of the applicable exclusivities, any such approval
could be limited to certain formulations and/or indications/claims, i.e., those not covered by any
outstanding exclusivities.
We rely upon trademarks and service marks to protect our rights to the intellectual property used
in our business.
We have grown rapidly, and if we fail to adequately manage that growth our business could be
adversely impacted.
We have an aggressive growth plan that has included substantial and increasing investments in
research and development, sales and marketing, and facilities. We plan to continue to grow and our
plan of growth contains various risks, some of which we cannot control. For example:
| • | we will need to generate higher revenues to cover a higher level of operating expenses (including clinical trial costs, expenses associated with the regulatory approval process and commercialization of our products), and our ability to do so may depend on factors that we do not control; |
| • | we will need to manage complexities associated with a larger and faster growing multinational organization; and |
| • | we will need to accurately anticipate demand for the products we manufacture and maintain adequate manufacturing, marketing and distribution capacity, and our ability to do so may depend on factors that we do not control. |
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If the third parties upon whom we rely fail to produce on a timely basis the API, encapsulation,
finishing and packaging services in the volumes that we require or fail to meet quality standards
and maintain necessary licensure from regulatory authorities, we may be unable to meet demand for
our products, potentially resulting in lost revenues.
We have contracted with third party manufacturers to provide API, encapsulation, finishing services
and packaging to meet our needs. We intend to continue to utilize third parties as needed to
produce certain of our products on a commercial scale.
The API for THALOMID® is manufactured in our Zofingen, Switzerland, manufacturing
facility. We have a contract manufacturing agreement with Aptuit Inc. UK as a secondary API
supplier. With regard to drug product manufacturing, we have contract manufacturing relationships
with Penn Pharmaceuticals Services Limited and Institute of Drug Technology Australia Limited, for
the formulation and encapsulation of the finished dosage form of THALOMID® capsules.
Sharp Corporation performs the packaging of the final product.
The API for REVLIMID® is manufactured in our Zofingen, Switzerland, manufacturing
facility. We have a contract manufacturing agreement with Aptuit Inc. UK as a secondary API
supplier. With regard to drug product manufacturing, we perform the formulation and encapsulation
of the finished dosage form of REVLIMID® capsules in our Boudry, Switzerland
manufacturing facility. We have a contract manufacturing relationship with Penn Pharmaceuticals
Services Limited as a secondary supplier. Our Boudry, Switzerland facility performs the packaging
of final product. In addition, Sharp Corporation and Cimex AG perform packaging of the final
product.
The API for VIDAZA® is supplied by Ash Stevens, Inc. We have a contract
manufacturing agreement with Baxter GmBH and Ben Venue Laboratories, Inc. for the packaging,
formulation and filling the product into vials.
The API for FOCALIN® is currently obtained from two suppliers, Johnson Matthey Inc. and
Siegfried USA, Inc., and we rely on a single manufacturer, Mikart, Inc., for the tableting and
packaging of FOCALIN® finished product. The API for FOCALIN XR® is supplied
by both Siegfried and Johnson Matthey Inc. on behalf of Novartis for the manufacture of FOCALIN
XR®.
In all the countries where we sell our products, governmental regulations exist to define standards
for manufacturing, packaging, labeling and storing. All of our suppliers of raw materials and
contract manufacturers must comply with these regulations. Failure to do so could result in supply
interruptions. In the United States, the FDA requires that all suppliers of pharmaceutical bulk
material and all manufacturers of pharmaceuticals for sale in or from the United States achieve and
maintain compliance with the FDA’s cGMP regulations and guidelines. Failure of our third-party
manufacturers to comply with applicable regulations could result in sanctions being imposed on them
or us, including fines, injunctions, civil penalties, disgorgement, suspension or withdrawal of
approvals, license revocation, seizures or recalls of products, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect supplies of our products. In
addition, before any product batch produced by our manufacturers can be shipped, it must conform to
release specifications pre-approved by regulators for the content of the pharmaceutical product.
If the operations of one or more of our manufacturers were to become unavailable for any reason,
any required FDA review and approval of the operations of an alternative supplier could cause a
delay in the manufacture of our products. If our outside manufacturers do not meet our
requirements for quality, quantity or timeliness, or do not achieve and maintain compliance with
all applicable regulations, demand for our products or our ability to continue supplying such
products could substantially decline.
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We utilize third parties for the distribution of our products in the U.S.
We have contracted with Ivers Lee Corporation, d/b/a Sharp, a specialty distributor, to distribute
THALOMID® and REVLIMID® in the United States. If Sharp does not perform its
obligations, our ability to distribute THALOMID® and REVLIMID® in the United
States may be impacted for a limited period of time.
We have contracted with Cardinal Health SPS, a specialty distributor, to distribute
VIDAZA® in the United States. If Cardinal Health SPS does not perform its obligations,
our ability to distribute VIDAZA® in the United States may be impacted for a limited
period of time.
If our distributors fail to perform and we cannot secure a replacement distributor within a
reasonable period of time, we may experience adverse effects to our business and results of
operations.
We are continuing to establish foreign marketing and distribution capabilities.
We are continuing to establish marketing and distribution capabilities in international markets
with respect to our products. At the same time, we are in the process of obtaining necessary
governmental and regulatory approvals to sell our products in certain countries. If we have not
successfully completed and implemented adequate marketing and distribution support services upon
our receipt of such approvals, our ability to effectively launch our products in these countries
would be severely restricted.
Certain risks related to the commercial success of VIDAZA® may present significant
challenges to us.
Risks related to the commercial success and future growth of VIDAZA® are
summarized as follows:
| • | our ability to achieve additional marketing authorizations for VIDAZA®; |
| • | continued acceptance by regulators, physicians, patients and other key decision-makers as a safe, superior therapeutic as compared to currently existing or future treatments for MDS; and |
| • | our ability to successfully compete with other approved MDS therapies. |
The integration of entities we acquire may present significant challenges to us.
Achieving the anticipated benefits of our acquisition of entities will depend in part upon
whether we can integrate our businesses in an efficient and effective manner. Our
integration of these entities involves a number of risks, including, but not limited to:
| • | demands on management related to the increase in our size after the acquisition; |
| • | the diversion of management’s attention from the management of daily operations to the integration of operations; |
| • | higher integration costs than anticipated; |
| • | failure to achieve expected synergies and costs savings; |
| • | difficulties in the assimilation and retention of employees; |
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| • | difficulties in the assimilation of different cultures and practices, as well as in the assimilation of broad and geographically dispersed personnel and operations; and |
| • | difficulties in the integration of departments, systems, including accounting systems, technologies, books and records, and procedures, as well as in maintaining uniform standards, controls (including internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002) and related procedures and policies. |
If we cannot successfully integrate acquired businesses, we may experience material negative
consequences to our business, financial condition or results of operations.
We may be unable to retain skilled personnel and maintain key relationships.
The success of our business depends, in large part, on our continued ability to (i) attract and
retain highly qualified management, scientific, manufacturing and sales and marketing personnel,
(ii) successfully integrate large numbers of new employees into our corporate culture and (iii)
develop and maintain important relationships with leading research and medical institutions and key
distributors. Competition for these types of personnel and relationships is intense.
Among other benefits, we use stock options to attract and retain personnel. Stock option
accounting rules require us to recognize all stock-based compensation costs as expenses. These or
other factors could reduce the number of shares management and our board of directors grants under
our stock option plans. We cannot be sure that we will be able to attract or retain skilled
personnel or maintain key relationships, including key employees of Pharmion, or that the costs of
retaining such personnel or maintaining such relationships will not materially increase.
The hazardous materials we use in our research, development and other business operations could
result in significant liabilities, which could exceed our insurance coverage and financial
resources.
We use certain hazardous materials in our research, development and general business activities.
While we believe we are currently in substantial compliance with the federal, state and local laws
and regulations governing the use of these materials, we cannot be certain that accidental injury
or contamination will not occur. Any such accident or contamination could result in substantial
liabilities that could exceed our insurance coverage and financial resources. Additionally, the
cost of compliance with environmental and safety laws and regulations may increase in the future,
requiring us to expend more financial resources either in compliance or in purchasing supplemental
insurance coverage.
Litigation on a variety of matters may subject us to significant legal expenses and liability.
From time to time, we may be subject to litigation on a variety of matters, including intellectual property, licensing arrangements with other persons and product liability.
Litigation requires the expenditure of significant time and resources, and is inherently
unpredictable. If any litigation were to have an unanticipated adverse result, there could be a
material impact on our results of operations, cash flows, or financial position. See also Legal
Proceedings contained in Part I, Item 3 of this Annual Report on Form 10-K.
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The pharmaceutical and biotech industry is highly competitive and subject to rapid and significant
technological change.
The
pharmaceutical and biotech industry in which we operate is highly competitive and subject to rapid and
significant technological change. Our present and potential competitors include major
pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms, including
but not limited to:
| • | Amgen, which potentially competes with our TNF-a and kinase inhibitors; |
| • | AstraZeneca plc, which potentially competes in clinical trials with our IMiDs® compounds and TNF-a inhibitors; |
| • | Biogen Idec Inc. and Genzyme Corporation, both of which are generally developing drugs that address the oncology and immunology markets; |
| • | Bristol Myers Squibb Co., which potentially competes in clinical trials with our IMiDs® compounds and TNF-a inhibitors; |
| • | Eisai Co., Ltd., SuperGen, Inc. and Johnson & Johnson compete or may potentially compete with VIDAZA®; |
| • | Genentech, Inc., which potentially competes in clinical trials with our IMiDs® compounds and TNF-a inhibitors; |
| • | Johnson & Johnson, which potentially competes with certain of our proprietary programs including our oral anti-inflammatory programs; |
| • | Novartis, which potentially competes with our IMiDs® compounds and kinase programs; |
| • | Pfizer, which potentially competes in clinical trials with our kinase inhibitors; and |
| • | Takeda and Johnson & Johnson, which compete with REVLIMID® and THALOMID® in the treatment of multiple myeloma and in clinical trials with our IMiDs® compounds. |
Many of these companies have considerably greater financial, technical and marketing resources than
we do. We also experience competition from universities and other research institutions, and in
some instances, we compete with others in acquiring technology from these sources. The
pharmaceutical industry has undergone, and is expected to continue to undergo, rapid and
significant technological change, and we expect competition to intensify as technical advances in
the field are made and become more widely known. The development of products, including generics,
or processes by our competitors with significant advantages over those that we are seeking to
develop could cause the marketability of our products to stagnate or decline.
Changes in our effective income tax rate could impact our earnings.
Various factors may have favorable or unfavorable effects on our effective income tax rate. These
factors include, but are not limited to, interpretations of existing tax laws, the accounting for
stock options and other share-based payments, changes in tax laws and rates, future levels of
research and development spending, changes in accounting standards, future levels of capital
expenditures, changes in the mix of earnings in the various tax jurisdictions in which we operate,
the outcome of examinations by the IRS and other jurisdictions, the accuracy of our estimates for
unrecognized tax benefits and changes in overall levels of pre-tax earnings. The impact on our
income tax provision resulting from the above-mentioned factors may be significant and could have
an impact on our results of operations.
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Our operations may be impacted by currency fluctuations that may cause our earnings to fluctuate.
We utilize foreign currency forward contracts to manage foreign currency risk, but not to engage in
currency speculation. We use these forward contracts to hedge certain forecasted transactions and
balance sheet exposures denominated in foreign currencies. We use derivative instruments,
including those not designated as part of a hedging transaction, to manage our exposure to movements in
foreign exchange rates but not eliminate our anticipated exposure to currency fluctuations. The
use of these derivative instruments modifies the exposure of these risks with the intent to reduce
our risk or cost. Any significant foreign exchange rate fluctuations within a short period of time
could adversely affect our financial condition and results of operations.
We may experience an adverse market reaction if we are unable to meet our financial reporting
obligations.
As we continue to expand at a rapid pace, the development of new and/or improved automated systems
will remain an ongoing priority. During this expansion period, our internal control over financial
reporting may not prevent or detect misstatements in our financial reporting. Such misstatements
may result in litigation and/or negative publicity and possibly cause an adverse market reaction
that may negatively impact our growth plans and the value of our common stock.
The current global credit and financial market conditions may exacerbate certain risks affecting
our business.
Sales of our products are dependent, in large part, on reimbursement from government health
administration authorities, private health insurers, distribution partners and other organizations.
As a result of the current global credit and financial market conditions, these organizations may
be unable to satisfy their reimbursement obligations or may delay payment. In addition, federal
and state health authorities may reduce Medicare and Medicaid reimbursements, and private insurers
may increase their scrutiny of claims. A reduction in the availability or extent of reimbursement
could negatively affect our product sales and revenue.
Due to the recent tightening of global credit, there may be a disruption or delay in the
performance of our third-party contractors, suppliers or collaborators. We rely on third parties
for several important aspects of our business, including portions of our product manufacturing,
royalty revenue, clinical development of future collaboration products, conduct of clinical trials
and raw materials. If such third parties are unable to satisfy their commitments to us, our
business would be adversely affected.
The price of our common stock may fluctuate significantly, which may make it difficult for you to
sell the common stock when you want or at prices you find attractive.
The market for our shares of common stock may be subject to disruptions that could cause volatility
in their prices. In general, the current global economic crisis has caused substantial market
volatility and instability. Any such disruptions or continuing volatility may adversely affect the
value of our common stock. The intra-day price of our common stock fluctuated from a high of
$77.39 per share to a low of $45.44 per share in 2008. On December 31, 2008, our common stock
closed at a price of $55.28 per share. We expect that the market price of our common stock will
continue to fluctuate. In addition to current global economic instability in general, the
following key factors may have an adverse impact on the market price of our common stock:
| • | results of our clinical trials or adverse events associated with our marketed products; |
| • | fluctuations in our commercial and operating results; |
| • | announcements of technical or product developments by us or our competitors; |
| • | market conditions for pharmaceutical and biotechnology stocks in particular; |
| • | stock market conditions generally; |
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| • | governmental regulation; |
| • | new accounting pronouncements or regulatory rulings; |
| • | health care legislation; |
| • | public announcements regarding medical advances in the treatment of the disease states that we are targeting; |
| • | patent or proprietary rights developments; |
| • | changes in pricing and third-party reimbursement policies for our products; |
| • | the outcome of litigation involving our products or processes related to production and formulation of those products or uses of those products; |
| • | competition; and |
| • | investor reaction to announcements regarding business or product acquisitions. |
The number of shares of our common stock eligible for future sale could also adversely affect the
market price of our common stock. As of December 31, 2008, there were outstanding stock options
and warrants for 34,184,262 shares of common stock, of which 19,015,262 were currently vested and
exercisable at an exercise price between $0.04 and $73.92, per share, with a weighted average
exercise price of $25.15 per share.
In addition, our operations may be materially affected by conditions in the global markets and
economic conditions throughout the world, including the current global economic and market
instability. The global market and economic climate may continue to deteriorate because of many
factors beyond our control, including continued economic instability and market volatility, rising
interest rates or inflation, terrorism or political uncertainty. In the event of a continued or
future market downturn in general and/or the biotechnology sector in particular, the market price
of our common stock may be adversely affected.
Our shareholder rights plan and certain charter and by-law provisions may deter a third-party from
acquiring us and may impede the stockholders’ ability to remove and replace our management or board
of directors.
Our board of directors has adopted a shareholder rights plan, the purpose of which is to protect
stockholders against unsolicited attempts to acquire control of us that do not offer a fair price
to all of our stockholders. The rights plan may have the effect of dissuading a potential acquirer
from making an offer for our common stock at a price that represents a premium to the then current
trading price.
Our board of directors has the authority to issue, at any time, without further stockholder
approval, up to 5,000,000 shares of preferred stock, and to determine the price, rights, privileges
and preferences of those shares. An issuance of preferred stock could discourage a third-party
from acquiring a majority of our outstanding voting stock. Additionally, our board of directors
has adopted certain amendments to our by-laws intended to strengthen the board’s position in the
event of a hostile takeover attempt. These provisions could impede the stockholders’ ability to
remove and replace our management and/or board of directors. Furthermore, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law, which may
also dissuade a potential acquirer of our common stock.
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AVAILABLE INFORMATION
Our current reports on Form 8-K, quarterly reports on Form 10-Q and Annual Reports on Form 10-K are
electronically filed with or furnished to the SEC, and all such reports and amendments to such
reports filed have been and will be made available, free of charge, through our website
(http://www.celgene.com) as soon as reasonably practicable after such filing. Such reports will
remain available on our website for at least 12 months. The contents of our website are not
incorporated by reference into this Annual Report. The public may read and copy any materials
filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NW, Washington, D.C.
20549.
The public may obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding issuers that file electronically
with the SEC.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters, which is located in Summit, New Jersey on approximately 45 acres of
land, was purchased in 2004 and consists of several buildings, which house our administrative,
sales, marketing and research functions.
Our international headquarters is located in Boudry, Switzerland and includes a drug product
manufacturing facility to perform formulation, encapsulation, packaging, warehousing and
distribution. We operate an API manufacturing facility located in Zofingen, Switzerland which has
the capability to produce multiple drug substances. The facility is being used to produce
REVLIMID® and THALOMID® API to supply global markets and may also be used to
produce drug substance for our future drugs and drug candidates.
We occupy the following facilities under operating lease arrangements that have remaining lease
terms greater than one year. Under these lease arrangements, we also are required to reimburse the
lessors for real estate taxes, insurance, utilities, maintenance and other operating costs. All
leases are with unaffiliated parties.
| • | 73,500-square feet of laboratory and office space in Warren, New Jersey. The two leases for this facility extend through May 2012 and July 2010, respectively, and contain five-year renewal options. Annual rent for these facilities is approximately $1.1 million. |
| • | 78,200-square feet of laboratory and office space in San Diego, California. The lease for this facility has a term ending in August 2012 with one five-year renewal option. Annual rent for this facility is approximately $2.2 million and is subject to specified annual rental increases. |
| • | 78,000-square feet of office space in Basking Ridge, New Jersey with a term ending September 2011 at an annual cost of $1.4 million. |
| • | 20,800-square feet of office and laboratory space in Cedar Knolls, New Jersey. The lease for this facility has a term ending in October 2010 with renewal options for additional five-year terms. Annual rent for this facility is approximately $0.3 million and is subject to specified annual rental increases. |
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| • | 27,700-square feet of office space in Overland Park, Kansas with a term ending in May 2010 at an annual cost of $0.4 million. |
| • | 55,900-square feet of office and research space in San Francisco, California with a term ending in September 2016 at an annual cost of $2.4 million. |
We also lease a number of offices under various lease agreements in Europe, Canada, Australia
and Asia. The minimum annual rents may be subject to specified annual rent increases. At
December 31, 2008, the non-cancelable lease terms for these operating leases expire at various
dates between 2009 and 2017 and in some cases include renewal options.
ITEM 3. LEGAL PROCEEDINGS
THALOMID®
Barr Laboratories, Inc., (“Barr”) a generic drug manufacturer located in Pomona, New York, filed an
ANDA for the treatment of ENL in the manner described in our label and seeking permission from the
FDA to market a generic version of 50mg, 100mg and 200mg THALOMID®. Under the federal
Hatch-Waxman Act of 1984, any generic manufacturer may file an ANDA with a certification (a
“Paragraph IV certification”) challenging the validity or infringement of a patent listed in the
FDA’s Orange Book four years after the pioneer company obtains approval of its NDA. On or after December 5, 2006, Barr mailed notices of Paragraph IV
certifications alleging that the following patents listed for THALOMID® in the Orange
Book are invalid, unenforceable, and/or not infringed: U.S. Patent Nos. 6,045,501 (“the ‘501
patent”), 6,315,720 (“the ‘720 patent”), 6,561,976 (“the ‘976 patent”), 6,561,977 (“the ‘977
patent”), 6,755,784 (“the ‘784 patent”), 6,869,399 (“the ‘399 patent”), 6,908,432 (“the ‘432
patent”), and 7,141,018 (“the ‘018 patent”). The ‘501, ‘976, and ‘432 patents do not expire until
August 28, 2018, while the remaining patents do not expire until October 23, 2020. On January 18,
2007, we filed an infringement action in the United States District Court of New Jersey against
Barr. By bringing suit, we are entitled up to a maximum 30-month stay, from the date of Celgene’s
receipt of a Paragraph IV certification, against the FDA’s approval of a generic applicant’s
application to market a generic version of THALOMID®. In June 2007, United States Patent No.
7,230,012, or ‘012 patent, was issued to us claiming formulations of thalidomide and was then
timely listed in the Orange Book. Barr sent us a supplemental Paragraph IV certification against
the ‘012 patent and alleged that the claims of the ‘012 patent, directed to formulations which
encompass THALOMID®, were invalid. On August 23, 2007, we filed an infringement action in the
United States District Court of New Jersey with respect to the ‘012 patent. On or after October 4,
2007, Barr filed a second supplemental notice of Paragraph IV certifications relating to the 150mg
dosage strength of THALOMID® alleging that the ‘501 patent, ‘720 patent, ‘976 patent,
‘977 patent, ‘784 patent, ‘399 patent, ‘432 patent and the ‘018 patent are invalid, unenforceable,
and/or not infringed. On November 14, 2007, we filed an infringement action in the United States
District Court of New Jersey against Barr. All three actions have subsequently been consolidated.
We intend to enforce our patent rights. If the ANDA is approved by the FDA, and Barr is successful
in challenging our patents listed in the Orange Book for THALOMID®, Barr would be permitted to sell
a generic thalidomide product. If we are unsuccessful in the suits
and the FDA were to approve a comprehensive education and
risk-management distribution program for a generic version of
thalidomide, sales of
THALOMID®
could be significantly reduced in the United States by the entrance
of a generic thalidomide product, consequently reducing our revenue. On July 3, 2008, we filed a motion to amend the complaint in the
case to assert our 5,629,327 and 6,235, 756 patents (“the cancer patents”) licensed from Children’s
Hospital in Boston. That same day we also filed a new and separate complaint against Barr
asserting those same two patents.
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FOCALIN® and FOCALIN XR®
On August 19, 2004, we, together with our exclusive licensee Novartis, filed an infringement action
in the United States District Court of New Jersey against Teva Pharmaceuticals USA, Inc., (“Teva”)
in response to notices of Paragraph IV certifications made by Teva in connection with the filing of an ANDA for
FOCALIN®. The notification letters from Teva contend that United States Patent Nos. 5,908,850, or
‘850 patent, and 6,355,656, or ‘656 patent, are invalid. After the suit was filed, Novartis listed
another patent, United States Patent No. 6,528,530, or ‘530 patent, in the Orange Book in
association with the FOCALIN® NDA. The original 2004 action asserted infringement of the ‘850
patent. Teva amended its answer during discovery to contend that the ‘850 patent was not infringed
by the filing of its ANDA, and that the ‘850 patent is not enforceable due to an allegation of
inequitable conduct. Fact discovery in the original 2004 action expired on February 28, 2006. At
about the time of the filing of the ‘850 patent infringement action, reexamination proceedings for
the ‘656 patent were initiated in the U.S. PTO. On September 28, 2006, the U.S. PTO issued a
Notice of Intent to Issue Ex Parte Reexamination Certificate, and on March 27, 2007, the
Reexamination Certificate for the ‘656 patent issued. On December 21, 2006, Celgene and Novartis
filed an action in the United States District Court of New Jersey against Teva for infringement of
the ‘656 patent. Teva filed an amended answer and counterclaim on March 23, 2007. The amended
counterclaim seeks a declaratory judgment of patent invalidity, noninfringement, and
unenforceability. The statutory 30-month stay, to which
Paragraph IV certifications (including those below) are entitled
to, expired on January 9,
2007, and Teva proceeded to market with a generic version of FOCALIN®. Novartis’ sales of FOCALIN®
have been significantly reduced in the United States by the entrance of a generic FOCALIN® product,
consequently reducing our revenue from royalties associated with these sales. A claim has been
made for damages resulting from Teva’s sales and for a permanent injunction prohibiting future
sales by Teva. The parties currently are engaged in fact discovery with respect to the ‘656 patent
and other issues related to Teva’s product launch. No trial date has been set. The ‘530 patent is
not part of this patent infringement action against Teva.
On September 14, 2007, we, together with our exclusive licensee Novartis, filed an infringement
action in the United States District Court for the District of New Jersey against Teva
Pharmaceuticals USA, Inc. in response to a notice of a Paragraph IV certification made by Teva in
connection with the filing of an ANDA for FOCALIN XR®. The notification letter from Teva contends
that claims in United States Patent Nos. 5,908,850 and 6,528,530 are invalid, unenforceable, and
not infringed by the proposed Teva products, and it contends that United States Patent Nos.
5,837,284 and 6,635,284 are invalid and not infringed by the proposed Teva products. Celgene and
Novartis asserted each of these patents and additionally asserted United States Patent No.
6,355,656 in their complaint against Teva. Teva filed an answer and counterclaim on November 5,
2007. The counterclaim seeks a declaratory judgment of patent invalidity, noninfringement, and
unenforceability with respect to the patents-in-suit. No trial date has been set. If we are
unsuccessful in proving infringement or defending our patents, Novartis’ sales of FOCALIN XR® could
be significantly reduced in the United States by the entrance of a generic FOCALIN XR® product,
consequently reducing our revenue from royalties associated with these sales.
On October 5, 2007, we, together with our exclusive licensee Novartis, filed an infringement action
in the United States District Court for the District of New Jersey against IntelliPharmaCeutics
Corp. (“IPC”) in response to a notice of a Paragraph IV certification made by IPC in connection
with the filing of an ANDA for FOCALIN XR®. The notification letter from IPC contends that claims
in United States Patent Nos. 5,908,850, 5,837,284, and 6,635,284 are not infringed by the proposed
IPC products. The notification letter also contends that claims in United States Patent Nos.
5,908,850, 6,355,656, 6,528,530, 5,837,284, and 6,635,284 are invalid, and that claims in United
States Patent Nos. 5,908,850, 6,355,656 and 6,528,530 are unenforceable. In their complaint
against IPC, Celgene and Novartis asserted United States Patent Nos. 5,908,850, 6,355,656,
6,528,530, 5,837,284, and 6,635,284. IPC filed an answer and counterclaim on November 20, 2007.
The counterclaim seeks a declaratory judgment of patent invalidity, noninfringement, and
unenforceability with respect to Patent Nos. 5,908,850, 6,355,656, and 6,528,530, and it seeks a
declaratory judgment of patent invalidity and noninfringement with respect to Patent Nos. 5,837,284
and 6,635,284. No pretrial or trial dates have been set. If we are unsuccessful in proving
infringement or defending our patents, Novartis’ sales of FOCALIN XR® could be significantly
reduced in the United States by the entrance of a generic FOCALIN XR® product, consequently
reducing our revenue from royalties associated with these sales.
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On November 8, 2007, we, together with our exclusive licensee Novartis, filed an infringement
action in the United States District Court for the District of New Jersey against Actavis South
Atlantic LLC and Abrika Pharmaceuticals, Inc. (collectively, “Abrika”) in response to a notice of a
Paragraph IV certification made by Abrika in connection with the filing of an ANDA for FOCALIN XR®.
The notification letter from Abrika contends that claims in United States Patent Nos. 5,908,850,
6,355,656, 5,837,284, and 6,635,284 are not infringed by the proposed Abrika products, and it
contends that claims in United States Patent Nos. 5,908,850, 6,355,656, 6,528,530, 5,837,284 and
6,635,284 are invalid. In their complaint against Abrika, Celgene and Novartis asserted United
States Patent Nos. 5,908,850, 6,355,656, 6,528,530, 5,837,284, and 6,635,284. No pretrial or trial
dates have been set. If we are unsuccessful in proving infringement or defending our patents,
Novartis’ sales of FOCALIN XR® could be significantly reduced in the United States by the entrance
of a generic FOCALIN XR® product, consequently reducing our revenue from royalties associated with
these sales.
On November 16, 2007, we, together with our exclusive licensee Novartis, filed an infringement
action in the United States District Court for the District of New Jersey against Barr and Barr
Pharmaceuticals, Inc. in response to a notice of a Paragraph IV certification made by Barr in
connection with the filing of an ANDA for FOCALIN XR®. The notification letter from Barr contends
that claims in United States Patent Nos. 5,908,850, 6,355,656, 5,837,284, and 6,635,284 are not
infringed by the proposed Barr products, and it contends that claims in United States Patent Nos.
5,908,850, 6,355,656, 6,528,530, 5,837,284 and 6,635,284 are invalid. In their complaint against
Barr, Celgene and Novartis asserted United States Patent Nos. 5,908,850, 6,355,656, 6,528,530,
5,837,284, and 6,635,284. No pretrial or trial dates have been set. If we are unsuccessful in
proving infringement or defending our patents, Novartis’ sales of FOCALIN XR® could be
significantly reduced in the United States by the entrance of a generic FOCALIN XR® product,
consequently reducing our revenue from royalties associated with these sales.
RITALIN LA®
On December 4, 2006, we, together with our exclusive licensee Novartis, filed an infringement
action in the United States District Court for the District of New Jersey against Abrika
Pharmaceuticals, Inc. and Abrika Pharmaceuticals, LLP, (collectively, “Abrika Pharmaceuticals”) in
response to a notice of a Paragraph IV certification made by Abrika Pharmaceuticals in connection
with the filing of an ANDA for RITALIN LA® 20 mg, 30 mg, and 40 mg generic products. The
notification letter from Abrika Pharmaceuticals contends that claims in United States Patent Nos.
5,837,284 and 6,635,284 are invalid and are not infringed by the proposed Abrika Pharmaceuticals
products. In their complaint against Abrika Pharmaceuticals, Celgene and Novartis asserted United
States Patent Nos. 5,837,284 and 6,635,284. Abrika Pharmaceuticals filed an answer and
counterclaim in the New Jersey court on June 1, 2007. The counterclaim seeks a declaratory
judgment of patent invalidity, noninfringement, and unenforceability with respect to the
patents-in-suit. On September 26, 2007, Abrika Pharmaceuticals sent a Paragraph IV certification
to Celgene and Novartis in connection with the filing of an ANDA supplement with respect to Abrika
Pharmaceuticals’ proposed generic 10 mg RITALIN LA® product. Celgene and Novartis filed an amended
complaint against Abrika Pharmaceuticals on November 5, 2007 that includes infringement allegations
directed to Abrika Pharmaceuticals’ proposed generic 10 mg RITALIN LA® product. Abrika
Pharmaceuticals filed an answer and counterclaim to the amended complaint on December 5, 2007. The
counterclaim seeks a declaratory judgment of patent invalidity, noninfringement, and
unenforceability with respect to the patents-in-suit. No trial date has been set. If we are
unsuccessful in proving infringement or defending our patents, Novartis’ sales of RITALIN LA® could
be significantly reduced in the United States by the entrance of a generic RITALIN LA® product,
consequently reducing our revenue from royalties associated with these sales.
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On October 4, 2007, we, together with our exclusive licensee Novartis, filed an infringement action
in the United States District Court for the District of New Jersey against KV Pharmaceutical
Company (“KV”) in response to a notice of a Paragraph IV certification made by KV in connection
with the filing of an ANDA for RITALIN LA®. The notification letter from KV contends that claims in United States Patent
Nos. 5,837,284 and 6,635,284 are not infringed by the proposed KV products. In their complaint
against KV, Celgene and Novartis asserted United States Patent Nos. 5,837,284 and 6,635,284. KV
filed an answer and counterclaim on November 26, 2007. The counterclaim seeks a declaratory
judgment of patent invalidity, noninfringement, and unenforceability with respect to the
patents-in-suit. No pretrial or trial dates have been set. If we are unsuccessful in proving
infringement or defending our patents, Novartis’ sales of RITALIN LA® could be significantly
reduced in the United States by the entrance of a generic RITALIN LA® product, consequently
reducing our revenue from royalties associated with these sales.
On October 31, 2007, we, together with our exclusive licensee Novartis, filed an infringement
action in the United States District Court for the District of New Jersey against Barr and Barr
Pharmaceuticals, Inc. in response to a notice of a Paragraph IV certification made by Barr in
connection with the filing of an ANDA for RITALIN LA®. The notification letter from Barr contends
that claims in United States Patent Nos. 5,837,284 and 6,635,284 are invalid and not infringed by
the proposed Barr products. In their complaint against Barr, Celgene and Novartis asserted United
States Patent Nos. 5,837,284 and 6,635,284. No pretrial or trial dates have been set. If we are
unsuccessful in proving infringement or defending our patents, Novartis’ sales of RITALIN LA® could
be significantly reduced in the United States by the entrance of a generic RITALIN LA® product,
consequently reducing our revenue from royalties associated with these sales.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
(a) MARKET INFORMATION
Our common stock is traded on the NASDAQ Global Select Market under the symbol “CELG.” The
following table sets forth, for the periods indicated, the intra-day high and low prices per share
of common stock on the NASDAQ Global Select Market:
| High | Low | |||||||
2008 |
||||||||
Fourth Quarter |
$ | 66.50 | $ | 45.44 | ||||
Third Quarter |
77.39 | 56.00 | ||||||
Second Quarter |
65.90 | 56.88 | ||||||
First Quarter |
62.20 | 46.07 | ||||||
2007 |
||||||||
Fourth Quarter |
$ | 75.44 | $ | 41.26 | ||||
Third Quarter |
72.23 | 56.50 | ||||||
Second Quarter |
66.95 | 52.40 | ||||||
First Quarter |
58.60 | 49.46 | ||||||
| Cumulative Total Return | ||||||||||||||||||||||||
| 12/03 | 12/04 | 12/05 | 12/06 | 12/07 | 12/08 | |||||||||||||||||||
Celgene Corporation |
$ | 100.00 | $ | 118.18 | $ | 288.77 | $ | 512.75 | $ | 411.85 | $ | 492.69 | ||||||||||||
S&P 500 |
100.00 | 108.99 | 112.26 | 127.55 | 132.06 | 81.23 | ||||||||||||||||||
NASDAQ Composite |
100.00 | 108.59 | 110.08 | 120.56 | 132.39 | 78.72 | ||||||||||||||||||
NASDAQ Biotechnology |
100.00 | 106.13 | 109.14 | 110.25 | 115.30 | 100.75 | ||||||||||||||||||
| * | $100 Invested on 12/31/03 in Stock or Index — Including Reinvestment of Dividends, Fiscal Year Ending December 31. |
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(b) HOLDERS
The closing sales price per share of common stock on the NASDAQ Global Select Market on February 5,
2009 was $55.08. As of January 31, 2009, there were approximately 319,292 holders of record of our
common stock.
(c) DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We currently intend to
retain any future earnings for funding growth and, therefore, do not anticipate paying any cash
dividends on our common stock in the foreseeable future.
(d) EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes the equity compensation plans under which our common stock may be
issued as of December 31, 2008:
| Number of | Number of | |||||||||||
| securities to be issued | Weighted average | securities remaining | ||||||||||
| upon exercise of | exercise price of | available for future | ||||||||||
| outstanding | outstanding | issuance under equity | ||||||||||
| Plan Category | options and warrants | options and warrants | compensation plans | |||||||||
Equity compensation plans
approved by security holders |
32,326,528 | $ | 41.84 | 16,938,083 | ||||||||
Equity compensation plans not
approved by security holders |
1,857,734 | $ | 7.55 | — | ||||||||
Total |
34,184,262 | $ | 39.98 | 16,938,083 | ||||||||
The acquisition of Pharmion in March 2008 resulted in our acquisition of Pharmion’s 2000 Stock
Incentive Plan and the 2001 Non-Employee Director Stock Option Plan. Neither plan has been
approved by our stockholders and no future awards will be granted under either plan.
As a result of the acquisition of Anthrogenesis in December 2002, we acquired the Anthrogenesis
Qualified Employee Incentive Stock Option Plan and the Non-Qualified Recruiting and Retention Stock
Option Plan. Neither plan has been approved by our stockholders. No future awards will be granted
under either plan.
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ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in conjunction with our
Consolidated Financial Statements and the related Notes thereto, Management’s Discussion and
Analysis of Financial Condition and Results of Operations and other financial information included
elsewhere in this Annual Report. The data set forth below with respect to our Consolidated
Statements of Operations for the years ended December 31, 2008, 2007 and 2006 and the Consolidated
Balance Sheet data as of December 31, 2008 and 2007 are derived from our Consolidated Financial
Statements which are included elsewhere in this Annual Report and are qualified by reference to
such Consolidated Financial Statements and related Notes thereto. The data set forth below with
respect to our Consolidated Statements of Operations for the years ended December 31, 2005 and 2004
and the Consolidated Balance Sheet data as of December 31, 2006, 2005 and 2004 are derived from our
Consolidated Financial Statements, which are not included elsewhere in this Annual Report.
| Years ended December 31, | ||||||||||||||||||||
| In thousands, except per share data | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||
Consolidated Statements
of Operations Data: |
||||||||||||||||||||
Total revenue |
$ | 2,254,781 | $ | 1,405,820 | $ | 898,873 | $ | 536,941 | $ | 377,502 | ||||||||||
Costs and operating expenses |
3,718,999 | 980,699 | 724,182 | 453,357 | 334,774 | |||||||||||||||
Operating income (loss) |
(1,464,218 | ) | 425,121 | 174,691 | 83,584 | 42,728 | ||||||||||||||
Interest and investment income, net |
84,835 | 109,813 | 40,352 | 24,557 | 28,340 | |||||||||||||||
Equity in losses of affiliated companies |
9,727 | 4,488 | 8,233 | 6,923 | — | |||||||||||||||
Interest expense |
4,437 | 11,127 | 9,417 | 9,497 | 9,551 | |||||||||||||||
Other income (expense), net |
24,722 | (2,350 | ) | 5,502 | (7,509 | ) | 1,654 | |||||||||||||
Income (loss) before tax |
(1,368,825 | ) | 516,969 | 202,895 | 84,212 | 63,171 | ||||||||||||||
Income tax provision |
164,828 | 290,536 | 133,914 | 20,556 | 10,415 | |||||||||||||||
Net income (loss) |
$ | (1,533,653 | ) | $ | 226,433 | $ | 68,981 | $ | 63,656 | $ | 52,756 | |||||||||
| Years ended December 31, | ||||||||||||||||||||
| 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Net income (loss) per
common share (1): |
||||||||||||||||||||
Basic |
$ | (3.46 | ) | $ | 0.59 | $ | 0.20 | $ | 0.19 | $ | 0.16 | |||||||||
Diluted |
$ | (3.46 | ) | $ | 0.54 | $ | 0.18 | $ | 0.18 | $ | 0.15 | |||||||||
Weighted average shares (1): |
||||||||||||||||||||
Basic |
442,620 | 383,225 | 352,217 | 335,512 | 327,738 | |||||||||||||||
Diluted |
442,620 | 431,858 | 407,181 | 390,585 | 345,710 | |||||||||||||||
| (1) | Amounts have been adjusted for the two-for-one stock split effected in February 2006. |
| As of December 31, | ||||||||||||||||||||
| 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Consolidated Balance Sheets Data: |
||||||||||||||||||||
Cash, cash equivalents and marketable
securities |
$ | 2,222,091 | $ | 2,738,918 | $ | 1,982,220 | $ | 724,260 | $ | 748,537 | ||||||||||
Total assets |
4,445,270 | 3,611,284 | 2,735,791 | 1,258,313 | 1,107,293 | |||||||||||||||
Convertible notes |
— | 196,555 | 399,889 | 399,984 | 400,000 | |||||||||||||||
(Accumulated deficit) retained
earnings |
(1,408,993 | ) | 124,660 | (101,773 | ) | (170,754 | ) | (234,410 | ) | |||||||||||
Stockholders’ equity |
3,491,328 | 2,843,944 | 1,976,177 | 635,775 | 477,444 | |||||||||||||||
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| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Executive Summary
Celgene Corporation and its subsidiaries (collectively “we” or “our”) is a global biopharmaceutical
company primarily engaged in the discovery, development and commercialization of innovative
therapies designed to treat cancer and immune-inflammatory related diseases. In March 2008, we
acquired Pharmion Corporation to enhance our portfolio of therapies for patients with
life-threatening illnesses worldwide with the addition of Pharmion’s marketed products, and several
products in development for the treatment of hematological and solid tumor cancers. By combining
this new product portfolio with our existing operational and
financial capabilities, we enlarged our global market share through increased product offerings and expanded clinical,
regulatory and commercial capabilities.
Our primary commercial stage products include REVLIMID®, THALOMID® and
VIDAZA®. REVLIMID® is an oral immunomodulatory drug marketed for multiple
myeloma patients who have received at least one prior therapy and for treatment of patients with
transfusion-dependent anemia due to low- or intermediate-1-risk MDS
associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic
abnormalities. THALOMID® is marketed for patients with newly diagnosed multiple myeloma
and for the acute treatment of the cutaneous manifestations of moderate to severe ENL, an inflammatory complication of leprosy. VIDAZA® is a pyrimidine
nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote
subsequent gene re-expression. VIDAZA® was licensed from Pharmacia & Upjohn, now part
of Pfizer, and is marketed for the treatment of all subtypes of MDS. VIDAZA® was
granted orphan drug designation by the FDA for the treatment of MDS in the United States through
May 2011. In December 2008, VIDAZA® was granted full marketing authorization by the EC
for the treatment of adult patients who are not eligible for haematopoietic stem cell
transplantation with Intermediate-2 and high-risk MDS according to the IPSS or CMML with 10-29
percent marrow blasts without myeloproliferative disorder, or AML with 20-30 percent blasts and
multi-lineage dysplasia, according to WHO classification.
We continue to invest substantially in research and development, and the drug candidates in our
pipeline are at various stages of preclinical and clinical development. These candidates include
our IMiDs® compounds, which are a class of compounds proprietary to us and having
certain immunomodulatory and other biologically important properties in addition to our leading
oral anti-inflammatory agents and cell products. We believe that our primary commercial stage
products and depth of our product pipeline provide the catalysts for future growth.
For the year ended December 31, 2008, we reported revenue of $2.255 billion, a net loss of $1.534
billion and a diluted loss per share of $3.46. Revenue increased by $849.0 million in 2008
compared to 2007 primarily due to the expanded use of REVLIMID® and the acquisition of
former Pharmion products, including VIDAZA® and THALOMID® outside of the
United States. The net loss and loss per share amounts were primarily due to IPR&D charges and amortization of acquired intangible assets related to the
Pharmion acquisition, in addition to the expensing of the October 3, 2008 royalty obligation
payment to Pfizer that related to the unapproved forms of VIDAZA®.
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Factors Affecting Future Results
Future operating results will depend on many factors, including demand for our existing products,
regulatory approvals of our products and product candidates, the timing and market acceptance of
new products launched by us or competing companies, the timing of research and development
milestones, challenges to our intellectual property and our ability to control costs. See also Risk Factors
contained in Part I, Item 1A of this Annual Report on Form 10-K. Some of the more significant
factors that we are focused on include:
The ability of our products to successfully penetrate and expand in relevant markets:
REVLIMID® was approved by the FDA, the EC, the Swissmedic, the TGA, and in October 2008
by Health Canada for treatment in combination with dexamethasone for multiple myeloma patients who
have received at least one prior therapy. In addition, REVLIMID® was approved by the
FDA and the Canadian Therapeutic Products Directorate for treatment of patients with
transfusion-dependent anemia due to low- or intermediate-1-risk MDS, associated with a deletion 5q
cytogenetic abnormality with or without additional cytogenetic abnormalities. We do not have
long-term data on the use of the product and cannot predict whether REVLIMID® will
continue to gain the acceptance of regulators, physicians, patients and other key opinion leaders
as a relatively safe and effective drug that has certain advantages as compared to existing or
future therapies. We are also seeking to introduce REVLIMID® in additional
international markets as well as obtaining approvals for additional indications both in the United
States and internationally. A delay in gaining the requisite regulatory approvals could negatively
impact our growth plans.
THALOMID® was approved by the FDA for treatment in combination with dexamethasone for
patients with newly diagnosed multiple myeloma and is also approved for the treatment and
suppression of cutaneous manifestations of ENL, an inflammatory complication of leprosy. In April
2008, the TGA approved a supplemental filing granting THALOMID® marketing approval for
use in combination with melphalan and prednisone for patients with untreated multiple myeloma or
ineligible for high dose chemotherapy and also granted THALOMID® marketing approval in
combination with dexamethasone for induction therapy prior to high dose chemotherapy with
autologous stem cell rescue, for the treatment of patients with untreated multiple myeloma. In
addition, in April 2008, THALOMID® was granted full marketing authorization by the EC
for use in combination with melphalan and prednisone as a treatment for patients with newly
diagnosed multiple myeloma. If unexpected adverse experiences are reported in connection with the
use of THALOMID® by patients, physician and patient comfort with the product could be
undermined, the commercial success of THALOMID® could be affected and the acceptance of
our other products, including REVLIMID®, may be adversely impacted.
VIDAZA® has been shown to reverse the effects of DNA hypermethylation and promote
subsequent gene re-expression. VIDAZA® was licensed from Pharmacia & Upjohn, now part
of Pfizer, and was approved by the FDA for the treatment of all subtypes of MDS.
Additionally, VIDAZA® was granted orphan drug designation by the FDA for the treatment
of AML. In December 2008, VIDAZA® was granted full marketing
authorization by the EC for the treatment of adult patients who are not eligible for haematopoietic
stem cell transplantation with Intermediate-2 and high-risk MDS according to the IPSS or CMML with
10-29 percent marrow blasts without myeloproliferative disorder, or AML with 20-30 percent blasts
and multi-lineage dysplasia, according to WHO classification.
Our ability to advance regulatory and clinical programs: Many of our drug candidates are in the
early or mid-stages of research and development and will require the commitment of substantial
financial resources, extensive research, development, preclinical testing, clinical trials,
manufacturing scale-up and regulatory approval prior to being ready for sale. Moreover, our
commercially available products may require additional studies with respect to approved indications
as well as new indications pending approval. If it becomes too expensive to sustain our present
commitment of resources on a long-term basis, we will be unable to continue certain necessary
research and development activities. Furthermore, we cannot be certain that our clinical testing
will render satisfactory results, or that we will receive required regulatory approvals for our new
products or new indications. A major objective of our ongoing clinical programs is to broaden our
knowledge about the full potential of REVLIMID® and our other proprietary
IMiDs® compounds and to continue to evaluate them in a broad range of hematological
malignancies and other cancers. Our near-term focus is on evaluating REVLIMID® as a
treatment of CLL and NHL.
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Competitive Risks: While competition could limit our products’ sales, we do not believe that
competing products would eliminate their use entirely. Moreover, while generic competitors have
and could seek to challenge our THALOMID® franchise, we own intellectual property which
includes, for example, U.S. patents covering our S.T.E.P.S.® distribution program for
the safe distribution and appropriate use of thalidomide, which all physicians, patients and
pharmacies prescribing, receiving or dispensing thalidomide in the United States must follow. We
also have exclusive rights to several issued patents covering THALOMID® formulations, as
well as the use of THALOMID® in oncology and other therapeutic areas.
Results of Operations —
Fiscal Years Ended December 31, 2008, 2007 and 2006
Total Revenue: Total revenue and related percentages for the years ended December 31, 2008, 2007
and 2006 were as follows:
| % Change | ||||||||||||||||||||
| 2008 | 2007 | |||||||||||||||||||
| versus | versus | |||||||||||||||||||
| In thousands $ | 2008 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||
Net product sales: |
||||||||||||||||||||
REVLIMID ® |
$ | 1,324,671 | $ | 773,877 | $ | 320,558 | 71.2 | % | 141.4 | % | ||||||||||
THALOMID ® |
504,713 | 447,089 | 432,950 | 12.9 | % | 3.3 | % | |||||||||||||
VIDAZA ® |
206,692 | — | — | N/A | N/A | |||||||||||||||
ALKERAN ® |
81,734 | 73,551 | 50,337 | 11.1 | % | 46.1 | % | |||||||||||||
Other |
19,868 | 5,924 | 7,760 | 235.4 | % | -23.7 | % | |||||||||||||
Total net product sales |
$ | 2,137,678 | $ | 1,300,441 | $ | 811,605 | 64.4 | % | 60.2 | % | ||||||||||
Collaborative agreements and
other revenue |
14,945 | 20,109 | 18,189 | -25.7 | % | 10.6 | % | |||||||||||||
Royalty revenue |
102,158 | 85,270 | 69,079 | 19.8 | % | 23.4 | % | |||||||||||||
Total revenue |
$ | 2,254,781 | $ | 1,405,820 | $ | 898,873 | 60.4 | % | 56.4 | % | ||||||||||
2008 compared to 2007: Total revenue increased by $849.0 million, or 60.4%, in 2008 compared to
2007. This increase is due to increased revenue in the United States of $379.8 million, or 31.6%,
compared to 2007 and increased revenue in international markets of $469.2 million, or 230.2%.
2007
compared to 2006: Total revenue increased by $506.9 million, or 56.4%, in 2007 compared to
2006. This increase is due to increased revenue in the United States of $356.6 million, or 42.2%,
compared to 2006 and increased revenue in international markets of $150.3 million, or 281.2%.
Net Product Sales:
2008 compared to 2007: REVLIMID® net sales increased by $550.8 million, or 71.2%, in
2008 compared to 2007 primarily due to increased sales in the United States and continued expansion
in international markets. Increased market penetration and the increase in duration of patients
using REVLIMID® in multiple myeloma accounted for most of the U.S. growth.
International sales growth primarily reflects the impact of the
June 2007 EC’s approval for the use of REVLIMID® for treatment in combination with dexamethasone of
patients with multiple myeloma who have received at least one prior therapy and continued expansion
in international markets and subsequent pricing, reimbursement and marketing approvals in each
country. REVLIMID® continued to receive positive
clinical study results which were reported at major medical conferences and in peer-reviewed
publications.
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THALOMID® net sales increased by $57.6 million, or 12.9%, in 2008 compared to 2007
primarily due to the 2008 inclusion of international sales, resulting from the acquisition of
Pharmion. In addition, U.S. price increases were offset by lower
sales volumes.
VIDAZA® represents sales recorded subsequent to the March 7, 2008 Pharmion acquisition
in both the United States and international markets.
ALKERAN® net sales increased by $8.2 million, or 11.1%, in 2008 compared to 2007
primarily due to an increase in unit sales of the injectable form. The agreement with GSK to
distribute, promote and sell ALKERAN® expires on March 31, 2009 and will not be renewed.
Net product sales increased by $837.2 million, or 64.4% in 2008 compared to 2007. The change was
comprised of net volume increases of $742.8 million, or 57.1%, as well as price increases of $93.0
million, or 7.2%, and impact of foreign exchange of $1.4 million, or 0.1%.
2007 compared to 2006: REVLIMID® net sales increased in 2007 compared to 2006 primarily
due to the product’s expanded use in the United States resulting from the FDA’s June 2006 approval
for treatment in combination with dexamethasone of patients with multiple myeloma who have received
at least one prior therapy in multiple myeloma and growth in Europe resulting from the June 2007
EC’s approval for the use of REVLIMID® in this same indication. Also contributing to
the increase in sales were price increases and increased sales from our European Named Patient
Program, or NPP, which offers European patients in need of treatment
access to REVLIMID® on a compassionate use basis.
Net sales of THALOMID® were higher in 2007 compared to 2006 primarily due to price
increases, partly offset by lower sales volumes as written prescriptions declined, reflecting the
expanded use of REVLIMID®.
ALKERAN® net sales were higher in 2007 compared to 2006 primarily due to increased
prices and a decrease in product returns.
Gross to Net Sales Accruals: We record gross to net sales accruals for sales returns and
allowances; sales discounts; government rebates; and chargebacks and distributor service fees.
| • | We base our sales returns allowance on estimated on-hand retail/hospital inventories, measured end-customer demand as reported by third-party sources, actual returns history and other factors, such as the trend experience for lots where product is still being returned or inventory centralization and rationalization initiatives conducted by major pharmacy chains, as applicable. If the historical data we use to calculate these estimates does not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Under this methodology, we track actual returns by individual production lots. We analyze historic returns experience on closed lots and historical return trend rates on open lots. Any changes from the historical trend rates are considered in determining the current sales return allowance. THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a result, wholesalers do not stock the product. REVLIMID® is distributed primarily through contracted specialty pharmacies lending itself to tighter controls of inventory quantities within the supply channel and, thus, resulting in lower returns activity to date. VIDAZA® and ALKERAN® are sold in the United States to pharmaceutical wholesalers, who in turn distribute product to physicians, retail pharmacies, hospitals and other institutional customers. |
| • | Sales discount accruals are based on payment terms extended to customers. |
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| • | Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate amount formula established by the Center for Medicaid and Medicare Services. Certain foreign markets have government-sponsored programs that require rebates to be paid and accordingly the rebate accruals are determined primarily on estimated eligible sales. |
| • | Chargebacks accruals are based on the differentials between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs. Distributor services accruals are based on contractual fees to be paid to the wholesale distributor for services provided. On January 28, 2008, the Fiscal Year 2008 National Defense Authorization Act was enacted, which expands TRICARE to include prescription drugs dispensed by TRICARE retail network pharmacies. TRICARE rebate accruals reflect this program expansion and are based on estimated Department of Defense eligible sales multiplied by the TRICARE rebate formula. |
See Critical Accounting Policies for further discussion of gross to net sales accruals.
Gross to net sales accruals and the balance in the related allowance accounts for the years ended
December 31, 2008, 2007 and 2006 were as follows:
| Returns | Chargebacks | |||||||||||||||||||
| and | Government | and Dist. | ||||||||||||||||||
| In thousands $ | Allowances | Discounts | Rebates | Service Fees | Total | |||||||||||||||
Balance at December 31, 2005 |
$ | 5,017 | $ | 1,447 | $ | 20,960 | $ | 6,778 | $ | 34,202 | ||||||||||
Allowances for sales during 2006 |
23,944 | 18,847 | 22,353 | 57,750 | 122,894 | |||||||||||||||
Allowances for sales during prior periods |
30,607 | 34 | — | — | 30,641 | |||||||||||||||
Credits/deductions issued for prior year sales |
(35,624 | ) | (1,481 | ) | (20,357 | ) | (6,315 | ) | (63,777 | ) | ||||||||||
Credits/deductions issued for sales during
2006 |
(14,464 | ) | (16,551 | ) | (15,488 | ) | (47,580 | ) | (94,083 | ) | ||||||||||
Balance at December 31, 2006 |
$ | 9,480 | $ | 2,296 | $ | 7,468 | $ | 10,633 | $ | 29,877 | ||||||||||
Allowances for sales during 2007 |
22,303 | 27,999 | 28,420 | 72,982 | 151,704 | |||||||||||||||
Allowances for sales during prior periods |
17,498 | — | — | (2,776 | ) | 14,722 | ||||||||||||||
Credits/deductions issued for prior year sales |
(26,979 | ) | (2,206 | ) | (7,071 | ) | (6,725 | ) | (42,981 | ) | ||||||||||
Credits/deductions issued for sales during
2007 |
(5,568 | ) | (25,194 | ) | (19,615 | ) | (65,275 | ) | (115,652 | ) | ||||||||||
Balance at December 31, 2007 |
$ | 16,734 | $ | 2,895 | $ | 9,202 | $ | 8,839 | $ | 37,670 | ||||||||||
Pharmion balance at March 7, 2008 |
926 | 283 | 1,266 | 2,037 | 4,512 | |||||||||||||||
Allowances for sales during 2008 |
20,624 | 36,024 | 35,456 | 100,258 | 192,362 | |||||||||||||||
Credits/deductions issued for prior year sales |
(17,066 | ) | (2,428 | ) | (7,951 | ) | (4,127 | ) | (31,572 | ) | ||||||||||
Credits/deductions issued for sales during
2008 |
(3,419 | ) | (33,115 | ) | (27,163 | ) | (83,621 | ) | (147,318 | ) | ||||||||||
Balance at December 31, 2008 |
$ | 17,799 | $ | 3,659 | $ | 10,810 | $ | 23,386 | $ | 55,654 | ||||||||||
2008 compared to 2007: Returns and allowances decreased by $19.2 million in 2008 compared 2007
primarily due to reduced THALOMID® inventory in the sales channel resulting from the
2007 THALOMID® inventory centralization and rationalization at several major pharmacy
chains, which also resulted in additional returns during 2007. In addition, 2007 includes an
increase in THALOMID® returns resulting from the anticipated increase in use of
REVLIMID® in multiple myeloma. We anticipate another inventory centralization and
rationalization initiative to be conducted by a major pharmacy chain in early 2009 and believe that
our ending returns and allowances reserve reflects the anticipated effects thereof.
Discounts increased by $8.0 million in 2008 compared to 2007 primarily due to increased sales of
REVLIMID® as well as the inclusion of former Pharmion products, which resulted in
additional discounts taken.
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Government rebates increased by $7.0 million in 2008 compared to 2007 primarily due to the
increased international government rebates resulting from our global expansion, as well as the
inclusion of former Pharmion products.
Chargebacks and distributor service fees increased by $30.1 million in 2008 compared to 2007
primarily due to the new TRICARE rebate program, as well as the inclusion of former Pharmion
products.
2007 compared to 2006: Sales return allowances decreased in 2007 compared to 2006 due primarily to
lower returns of ALKERAN® IV resulting from improved expiration dating on 2006 and
2007 product sales. In addition, THALOMID® returns were lower than the prior year
primarily due to a 2006
THALOMID® returns initiative undertaken by one large retail
pharmacy chain. In response to this initiative, we introduced single sleeves of
THALOMID® for sale in June of 2006. Previously, THALOMID® was
sold only in multi-sleeve package configurations. The additional trade package configuration
enabled all retailers to more efficiently manage their THALOMID® inventories
resulting in lower 2007 returns. This decrease was partly offset by current year
THALOMID®returns, reflecting the impact of a 2007 inventory centralization and
rationalization initiative conducted by several major pharmacy chains. Under this initiative,
inventory was redistributed amongst individual chain stores in a S.T.E.P.S.®
compliant manner. This resulted in an increase in THALOMID® returns as these
major pharmacy chains more effectively managed their inventory levels at the chain stores.
Discounts increased in 2007 compared to 2006 due primarily to increased sales of
REVLIMID®.
Government rebate allowances increased in 2007 compared to 2006 due to increased sales of
REVLIMID® as well as price increases for both THALOMID® and
REVLIMID®. Our Medicaid rebate accruals are based on the Medicaid Unit Rebate
Amount formula established by the Center for Medicaid and Medicare Services using the estimated
Medicaid dispense quantities. REVLIMID® dispenses increased resulting from the
introduction of the 15mg and 25mg strength tablets.
Distributor chargebacks increased in 2007 compared to 2006 primarily due to
REVLIMID®, THALOMID® and ALKERAN® IV price
increases, which increased the differential between annual contract pricing available to federally
funded healthcare providers and our wholesale acquisition cost.
Collaborative Agreements and Other Revenue:
2008 compared to 2007: Revenues from collaborative agreements and other sources totaled $14.9
million and $20.1 million for 2008 and 2007, respectively. The $5.2 million decrease in 2008
compared to 2007 was primarily due to the elimination of license fees and amortization of deferred
revenues related to Pharmion.
2007 compared to 2006: Revenues from collaborative agreements and other sources increased by $1.9
million in 2007 from the $18.2 million recorded in 2006. The increase was primarily due to an
increase in license fees generated from our S.T.E.P.S.® program and an increase in
umbilical cord blood enrollment, collection and storage fees generated through our LifeBank
USASM business.
Royalty Revenue:
2008 compared to 2007: Revenues from royalties totaled $102.2 million in 2008, representing an
increase of $16.9 million compared to 2007. The increase was primarily due to amounts received
from Novartis on sales of FOCALIN XR®, partly due to patients transitioning from
FOCALIN® to FOCALIN XR®. We sell FOCALIN® to Novartis and receive
royalties on sales of Novartis’ FOCALIN XR®.
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2007 compared to 2006: Revenues from royalties totaled $85.3 million in 2007, representing an
increase of $16.2 million compared to 2006. The increase was primarily due to amounts received
from Novartis on sales of their entire family of Ritalin® drugs and FOCALIN
XR®. Royalty revenue totaled $69.1 million in 2006.
Cost of Goods Sold (excluding amortization expense): Cost of goods sold and related percentages
for the years ended December 31, 2008, 2007 and 2006 were as follows:
| In thousands $ | 2008 | 2007 | 2006 | |||||||||
Cost of goods sold (excluding
amortization expense) |
$ | 258,267 | $ | 130,211 | $ | 125,759 | ||||||
Increase from prior year |
$ | 128,056 | $ | 4,452 | $ | 44,974 | ||||||
Percent increase from prior year |
98.3 | % | 3.5 | % | 55.7 | % | ||||||
Percent of net product sales |
12.1 | % | 10.0 | % | 15.5 | % | ||||||
2008 compared to 2007: Cost of goods sold increased by $128.1 million in 2008 compared to 2007
primarily due to the inclusion of costs related to VIDAZA® and
THALOMID®, which were obtained in the Pharmion acquisition. Also included in 2008
is $24.6 million of the $25.0 million of inventory step-up cost related to the acquisition date
fair value of former Pharmion inventories. Cost of sales also increased due to an increase in
material costs for ALKERAN® for injection and an increase in unit volume for
REVLIMID®, resulting in higher royalties. As a percent of net product sales, cost
of goods sold increased to 12.1% in the 2008 from 10.0% in 2007 primarily due to the inclusion of
higher costs for VIDAZA® and ALKERAN® and the $24.6 million of
inventory step-up cost.
2007 compared to 2006: Cost of goods sold increased in 2007 compared to 2006 primarily due to
increases in REVLIMID® material costs and royalty payments related to both
REVLIMID® and THALOMID® as sales increased for these two
products. The increase was partly offset by lower ALKERAN® material costs related
to ALKERAN® for injection. As a percentage of net product sales, cost of goods
sold decreased from 15.5% in 2006 to 10.0% in 2007 primarily due to the growth of
REVLIMID® and that product’s lower cost relative to our other products and sales
price increases.
Research and Development: Research and development expenses and related percentages for the years
ended December 31, 2008, 2007 and 2006 were as follows:
| In thousands $ | 2008 | 2007 | 2006 | |||||||||
Research and development |
$ | 931,218 | $ | 400,456 | $ | 259,956 | ||||||
Increase from prior year |
$ | 530,762 | $ | 140,500 | $ | 66,890 | ||||||
Percent increase from prior year |
132.5 | % | 54.0 | % | 34.6 | % | ||||||
Percent of total revenue |
41.3 | % | 28.5 | % | 28.9 | % | ||||||
2008 compared to 2007: Research and development expenses increased by $530.8 million in 2008
compared to 2007, primarily due to a $303.1 million charge for the October 3, 2008 royalty
obligation payment to Pfizer that related to the unapproved forms of VIDAZA®. In
addition, spending on clinical programs increased by $147.4 million in support of ongoing clinical
progress in multiple proprietary development programs as noted below. Regulatory spending
increased by $20.2 million primarily due to the expansion of REVLIMID® in international markets and costs related to
apremilast, as described below. Also included in 2008 was $45.0 million in upfront payments made
to Acceleron related to a research and development collaboration
arrangement. The increase was partly offset by the 2007 inclusion of a combined $41.1 million in
upfront payments for collaborative research and development arrangements for early stage compounds
with Array BioPharma Inc. and PTC Therapeutics.
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The following table provides an additional breakdown of research and development expenses:
| In thousands $ | 2008 | 2007 | Increase | |||||||||
Human pharmaceutical clinical programs |
$ | 287,412 | $ | 140,021 | $ | 147,391 | ||||||
Other pharmaceutical programs |
579,210 | 202,855 | 376,355 | |||||||||
Biopharmaceutical discovery and
development |
47,989 | 42,865 | 5,124 | |||||||||
Placental stem cell programs |
16,607 | 14,715 | 1,892 | |||||||||
Total |
$ | 931,218 | $ | 400,456 | $ | 530,762 | ||||||
Research and development expenditures support ongoing clinical progress in multiple proprietary
development programs for
REVLIMID®, pomalidomide and other
IMiDs® compounds across a broad range of diseases, including NHL and CLL; for
VIDAZA®; amrubicin, our lead compound for small cell lung cancer; apremilast
(CC-10004), our lead anti-inflammatory compound that inhibits PDE-4, which results in the
inhibition of multiple proinflammatory mediators such as TNF-a and which is currently being
evaluated in Phase II clinical trials in the treatment of psoriasis and psoriatic arthritis;
pomalidomide and CC-11050, which are currently either being evaluated in Phase I and Phase II
clinical trials and additional trials are being planned or ongoing for various disease indications;
and our kinase inhibitor program, our activin inhibitor program as well as the placental stem cell
program. We and Acceleron have initiated Phase II studies of ACE-011 in multiple myeloma patients
suffering from cancer-related bone loss.
2007 compared to 2006: Research and development expenses increased by $140.5 million in 2007
compared to 2006 primarily due to spending related to clinical research and development in support
of multiple programs, including REVLIMID® and other IMiDs® across
a broad range of cancers, including NHL and CLL. Expenses also increased to support ongoing
research of other compounds, such as our kinase and ligase inhibitor programs and placental stem
cell program. Regulatory spending increased primarily due to the expansion of
REVLIMID® in international markets. The expense for 2007 also included a combined
$41.1 million in collaborative research and development arrangements for early stage compounds with
Array and PTC.
Research and development expense may continue to grow as earlier stage compounds are moved through
the preclinical and clinical stages. Due to the significant risk factors and uncertainties
inherent in preclinical tests and clinical trials associated with each of our research and
development projects, the cost to complete such projects can vary. 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.
For information about the commercial and development status and target diseases of our drug
compounds, refer to the product overview table contained in Part I, Item I, “Business,” of this
Annual Report on Form 10-K.
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Selling, General and Administrative: Selling, general and administrative expenses and related
percentages for the years ended December 31, 2008, 2007 and 2006 were as follows:
| In thousands $ | 2008 | 2007 | 2006 | |||||||||
Selling, general and administrative |
$ | 685,547 | $ | 440,962 | $ | 329,749 | ||||||
Increase from prior year |
$ | 244,585 | $ | 111,213 | $ | 152,079 | ||||||
Percent increase from prior year |
55.5 | % | 33.7 | % | 85.6 | % | ||||||
Percent of total revenue |
30.4 | % | 31.4 | % | 36.7 | % | ||||||
2008 compared to 2007: Selling, general and administrative expenses increased by $244.6 million in
2008 compared to 2007, primarily reflecting an increase in marketing expenses of $101.6 million,
sales related costs of $65.9 million, general and administrative expenses of $63.8 million and an
increase in donations to non-profit foundations that assist patients with their co-payments of
$13.3 million. The increase reflects marketing and sales expenses related to product launch
activities for REVLIMID®and THALOMID® in Europe, Canada and Australia.
The increase also reflects the activities related to the relaunch of VIDAZA® in
the United States after obtaining an expanded FDA approval to reflect new overall survival achieved
in the AZA-001 survival study of patients with higher-risk MDS and launch in Europe. In addition,
the increase also reflects the continued expansion of our international commercial activities in
over 65 countries.
2007 compared to 2006: Selling, general and administrative expenses increased by $111.2 million in
2007 compared to 2006, reflecting an increase in sales force costs related to REVLIMID®
product launch activities in Europe and an increase in spending related to our continued
expansion throughout Europe, Japan, Australia and Canada. Donations to non-profit foundations
that assist patients with their co-payments also increased in 2007 compared to 2006.
Amortization of Acquired Intangible Assets: The $104.0 million in amortization of acquired
intangible assets in 2008 included $102.4 million related to the March 2008 acquisition of Pharmion
and $1.6 million resulting from the October 2004 acquisition of Penn T Limited. The Pharmion
intangible assets are being amortized over a weighted average period of 6.5 years. The $9.1
million in amortization of acquisition intangibles in 2007 all related to the acquisition of Penn T
Limited.
Acquired In-Process Research and Development: IPR&D represents compounds under development by
Pharmion at the date of acquisition that had not yet achieved regulatory approval for marketing in
certain markets or had not yet been completed and have no alternative future use. The $1.74
billion estimated fair value of these intangibles was derived using the multi-period
excess-earnings method, a form of the income approach. The IPR&D primarily related to development
and approval initiatives for VIDAZA® IV in the EU market, the oral form of
azacitidine in the U.S. and EU markets and THALOMID® in the EU market. The projected
cash flows for valuation purposes were based on key assumptions such as estimates of revenues and
operating profits related to the programs considering their stages of development; the time and
resources needed to complete the regulatory approval process for the products; and the life of the
potential commercialized products and associated risks, including the inherent difficulties and
uncertainties in obtaining regulatory approvals.
For VIDAZA® IV in the EU market, the related future net cash flows were estimated using
a risk-adjusted discount rate of 10.0% and an anticipated regulatory approval date in late 2008
with market exclusivity rights expected to continue through 2019. In December 2008,
VIDAZA® was granted full marketing authorization by the EC for the treatment of certain
adult patients who are not eligible for haematopoietic stem cell transplantation. For the oral
form of azacitidine in the United States and European Union, the future net cash flows were
estimated using a risk-adjusted discount rate of 11.0% for each market. The anticipated regulatory
approval in the European Union was assumed for 2013 with exclusivity continuing
through 2023, and the anticipated regulatory approval in the United States was assumed for 2013
with exclusivity continuing through 2018. For THALOMID® in the EU market, the future
net cash flows were estimated by using a risk-adjusted discount rate of 9.5% and an anticipated
regulatory approval date in 2008 with exclusivity continuing through 2018. In April 2008,
THALOMID® was granted full marketing authorization by the EC for use in combination with
melphalan and prednisone as a treatment for patients with newly diagnosed multiple myeloma.
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Interest and investment income, net: Interest and investment income, net and related percentages
for the years ended December 31, 2008, 2007 and 2006 were as follows:
| In thousands $ | 2008 | 2007 | 2006 | |||||||||
Interest and investment income, net |
$ | 84,835 | $ | 109,813 | $ | 40,352 | ||||||
Increase (decrease) from prior year |
$ | (24,978 | ) | $ | 69,461 | $ | 15,755 | |||||
Percentage increase (decrease)
from prior year |
(22.7 | )% | 172.1 | % | 64.3 | % | ||||||
Interest and investment income was $84.8 million in 2008, representing a $25.0 million decrease
from the $109.8 million recorded in 2007. The decrease was primarily due to lower average cash,
cash equivalents and marketable securities balances resulting from the March 2008 cash payment of
$746.8 million related to the Pharmion acquisition and the October 3, 2008 payment of $425.0
million to Pfizer where we prepaid our royalty obligation under the June 7, 2001 5-azacytidine
license in full, in addition to reduced yields on invested balances. Interest and investment
income, net included other-than-temporary impairment losses on marketable securities available for
sale totaling $2.4 million in 2008 and $5.5 million 2007.
Interest and investment income, net increased by $69.5 million in 2007 compared to 2006 due to
higher average cash, cash equivalents and marketable securities balances resulting from the
November 2006 issuance of an additional 20,000,000 shares of our common stock, which generated net
proceeds of $1.006 billion.
Equity in losses of affiliated companies: Under the equity method of accounting, we recorded
losses of $3.7 million, $4.5 million and $8.2 million in 2008, 2007 and 2006, respectively. In
addition, impairment losses of $6.0 million were recorded in 2008. The impairment losses were
based on an evaluation of several factors, including an other than temporary decrease in fair value
of an equity investment below our cost. The $3.7 million decrease in losses in 2007 compared to
2006 was primarily due to a charge of $3.1 million for in-process research and development related
to an acquisition made by one of our investment companies in 2006.
Interest expense: Interest expense was $4.4 million, $11.1 million and $9.4 million in 2008, 2007
and 2006, respectively, and primarily reflected interest and amortization of debt issuance costs
related to the $400 million convertible notes issued on June 3, 2003. The $6.7 million decrease in
2008 was primarily due to a substantial conversion of convertible debt into our common stock in
December 2007 and the completion of conversions in June 2008. Interest expense increased $1.7
million in 2007 compared to 2006 due to the inclusion of a full year’s interest on the note payable
to Siegfried Ltd. and Siegfried Dienste AG (together referred to herein as Siegfried), resulting
from the December 2006 acquisition of the API manufacturing facility in Zofingen, Switzerland.
Other income (expense), net: Other income (expense), net for the years ended December 31, 2008,
2007 and 2006 were as follows:
| In thousands $ | 2008 | 2007 | 2006 | |||||||||
Other income (expense), net |
$ | 24,722 | $ | (2,350 | ) | $ | 5,502 | |||||
Increase (decrease) in income from
prior year |
$ | 27,072 | $ | (7,852 | ) | $ | 12,220 | |||||
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Other income (expense), net was income of $24.7 million in 2008 and an expense of $2.4 million in
2007. The $27.1 million increase in income was primarily due to favorable foreign exchange rates,
which was partly offset by an other-than-temporary impairment loss recorded on an equity
investment. The expense in 2007 included expenses related to a termination benefit resulting from
the modification of certain outstanding stock options of a terminated employee and was partly
offset by foreign exchange gains.
The $7.9 million decrease in other income (expense), net in 2007 compared to 2006 was partly due to
the modification of certain outstanding stock options and a $3.8 million decrease in foreign
exchange gains.
Income tax provision: The income tax provision for 2008 was $164.8 million with an effective tax
rate of negative 12.0%. The effective tax rate was negatively impacted by non-deductible IPR&D
charges incurred in connection with the acquisition of Pharmion. The effective tax rate, excluding
the impact of the IPR&D and the expense related to the prepayment of our royalty obligation for
unapproved products, was 24.8% which reflects the benefit of our low tax Swiss manufacturing
operations and our overall global mix of income. The income tax provisions for 2007 and 2006 were
$290.5 million and $133.9 million, respectively, with effective tax rates of 56.2% and 66.0%,
respectively, and reflected the impact of certain expenses incurred in taxing jurisdictions outside
the United States for which we did not receive a tax benefit and nondeductible expenses which
included share-based compensation expense related to incentive stock options.
Net income (loss): Net income (loss) and per common share amounts for the years ended December 31,
2008, 2007 and 2006 were as follows:
| In thousands $, except per share amounts | 2008 | 2007 | 2006 | |||||||||
Net income (loss) |
$ | (1,533,653 | ) | $ | 226,433 | $ | 68,981 | |||||
Per common share amounts: |
||||||||||||
Basic |
$ | (3.46 | ) | $ | 0.59 | $ | 0.20 | |||||
Diluted (1) |
$ | (3.46 | ) | $ | 0.54 | $ | 0.18 | |||||
Weighted average shares: |
||||||||||||
Basic |
442,620 | 383,225 | 352,217 | |||||||||
Diluted |
442,620 | 431,858 | 407,181 | |||||||||
| (1) | In computing diluted earnings per share for 2007 and 2006, the numerator has been adjusted to add back the after-tax amount of interest expense recognized in the year on our convertible debt. No adjustment to the numerator or denominator was made in 2008 due to the anti-dilutive effect of any potential common stock as a result of our net loss. |
2008 compared to 2007: Net income decreased by $1.760 billion in 2008 compared to 2007 primarily
due to $1.740 billion in IPR&D charges and $102.3 million in acquired intangibles amortization
related to the acquisition of Pharmion in March 2008, in addition to a $303.1 million charge for
the October 3, 2008 royalty obligation payment to Pfizer that related to the unapproved forms of VIDAZA®.
These costs were partly offset by an increase in net revenues provided by REVLIMID® and
VIDAZA®.
2007 compared to 2006: Net income increased by $157.5 million in 2007 compared to 2006 primarily
due to an increase in total revenues, primarily from the sales of REVLIMID®; increase in
interest and investment income resulting from the issuance of an additional 20,000,000 shares of
common stock in November 2006; decrease in the overall income tax rate from 66% in 2006 to 56% in
2007; partially offset by increased operating expenses required to support organizational growth,
research and development and the launch of REVLIMID® in Europe.
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Liquidity and Capital Resources
Cash flows from operating, investing and financing activities for the years ended December 31,
2008, 2007 and 2006 were as follows:
| Increase (Decrease) | ||||||||||||||||||||
| 2008 | 2007 | |||||||||||||||||||
| versus | versus | |||||||||||||||||||
| In thousands $ | 2008 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||
Net cash provided by
operating activities |
$ | 182,187 | $ | 477,500 | $ | 83,561 | $ | (295,313 | ) | $ | 393,939 | |||||||||
Net cash (used in) provided by
investing activities |
$ | (522,246 | ) | $ | (990,186 | ) | $ | 6,784 | $ | 467,940 | $ | (996,970 | ) | |||||||
Net cash provided by
financing activities |
$ | 281,629 | $ | 287,695 | $ | 1,221,246 | $ | (6,066 | ) | $ | (933,551 | ) | ||||||||
Operating Activities: Net cash provided by operating activities in 2008 decreased by $295.3
million to $182.2 million as compared to 2007. The decrease in net cash provided by operating
activities was primarily attributable to:
| • | the October 3, 2008 prepayment of our royalty obligation under the June 7, 2001 5-azacytidine license in full for $425.0 million, |
| • | timing of receipts and payments in the ordinary course of business and |
| • | partly offset by an expansion of our operations. |
Also see discussion of cash, cash equivalents, marketable securities and working capital below.
Investing Activities: Net cash used in investing activities in 2008 decreased by $467.9 million to
$522.2 million as compared to 2007. The decrease in net cash used in by investing activities was
primarily attributable to:
| • | net proceeds from net sales of marketable securities available for sale of $312.1 million in 2008 compared to net purchases of $893.3 million in 2007 and |
| • | offset by the $746.8 million of cash paid to acquire Pharmion. |
Capital expenditures made in 2008, 2007 and 2006 related primarily to the expansion of our
manufacturing capabilities, upgrades to our facilities, as well as spending on computer and
laboratory equipment to accommodate our business growth. In 2008, capital expenditures also
included the cost of implementing the Oracle Enterprise Business Suite, or EBS. In 2007, capital
expenditures also included the cost of building our international headquarters in Boudry,
Switzerland and computer equipment. In 2006, capital expenditures also included the purchase of
machinery and equipment to support our business growth. For 2009, we are forecasting capital
expenditures in the range of approximately $60 million to $70 million compared to approximately
$77.4 million in 2008, and we expect to fund this with our operating cash flows.
Financing Activities: Net cash provided by financing activities for 2008 decreased by $6.1 million
to $281.6 million as compared to 2007. The decrease in net cash provided by financing activities
was primarily attributable to:
| • | a decrease in the proceeds from the exercise of common stock options and warrants |
| • | partly offset by an increase in the tax benefit from share-based compensation arrangements. |
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Cash, cash equivalents, marketable securities and working capital: Working capital and cash, cash
equivalents and marketable securities for the years ended December 31, 2008 and 2007 were as
follows:
| 2008 | ||||||||||||
| In thousands $ | 2008 | 2007 | Decrease | |||||||||
Cash, cash equivalents and
marketable securities |
$ | 2,222,091 | $ | 2,738,918 | $ | 756,698 | ||||||
Working capital (1) |
$ | 2,299,122 | $ | 2,835,205 | $ | 844,236 | ||||||
| (1) | Includes cash, cash equivalents and marketable securities, accounts receivable, net of allowances, inventory and other current assets, less accounts payable, accrued expenses, income taxes payable and other current liabilities. |
Cash, Cash Equivalents and Marketable Securities Available for Sale: We invest our excess cash
primarily in money market funds, U.S. Treasury fixed rate securities, U.S. government-sponsored
agency fixed rate securities, U.S. government-sponsored agency mortgage-backed fixed rate
securities, and FDIC guaranteed fixed rate corporate debt. All liquid investments with maturities
of three months or less from the date of purchase are classified as cash equivalents and all
investments with maturities of greater than three months from the date of purchase are classified
as marketable securities available for sale. We determine the appropriate classification of our
investments in marketable debt and equity securities at the time of purchase. The decrease in
cash, cash equivalents and marketable securities available for sale in 2008 compared to 2007 was
primarily due to the net payment of $746.8 million relating to the Pharmion acquisition and the
October 3, 2008 prepayment of our royalty obligation under the June 7, 2001 5-azacytidine license
in full for $425.0 million, which was partly offset by increased cash generated from operations.
Accounts Receivable, Net: Accounts receivable, net increased by $145.0 million to $312.2 million
in 2008 compared to 2007 partly due to the inclusion of receivables related to sales of
VIDAZA® and THALOMID®, which were obtained from the Pharmion acquisition and
an increase in sales of REVLIMID®. Days of sales outstanding, or DSO, in 2008 amounted
to 42 days compared to 41 days in 2007. The increase in DSO reflects increased international sales
for which collection periods are longer than for U.S. sales.
Inventory: Inventory in 2008 totaled $100.2 million and increased by $51.1 million compared to
2007 primarily as a result of the addition of VIDAZA® inventory and a higher level of
THALOMID® inventory in anticipation of launches in European markets.
Other Current Assets: Other current assets in 2008 totaled $190.4 million and increased by $81.8
million compared to 2007 primarily due to an increase in sales, use and value-added taxes as a
result of our continued international expansion, in addition to the current portion of the prepaid
VIDAZA® royalty obligation.
Accounts Payable, Accrued Expenses and Other Current Liabilities: Accounts payable, accrued
expenses and other current liabilities totaled $474.7 million in 2008 and increased $250.9 million
compared to 2007. The increase was primarily due to $27.6 million remaining balance in
restructuring reserves related to the acquisition of Pharmion, the inclusion of a net liability of
$59.1 million for foreign currency forward hedging contracts, a $35.4 million increase in clinical
related spending, a $34.5 million increase in compensation related liabilities and an increase in
sales return, rebate and chargeback accruals of $17.2 million.
Income Taxes Payable (Current and Non-Current): Income taxes payable increased $193.4 million in
2008 compared to 2007 primarily from provisions for income taxes of $290.8 million and tax
liabilities acquired in the Pharmion acquisition of $108.8 million partially offset by tax payments of $29.3
million and a tax benefit on stock option exercises of $172.6 million.
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We expect continued growth in our expenditures, particularly those related to research and product
development, clinical trials, regulatory approvals, international expansion, commercialization of
products and capital investments. However, we anticipate that existing cash, cash equivalents and
marketable securities available for sale, combined with cash received from expected net product
sales and royalty agreements, will provide sufficient capital resources to fund our operations for
the foreseeable future.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2008:
| Payment Due By Period | ||||||||||||||||||||
| Less than | More than | |||||||||||||||||||
| In thousands $ | 1 Year | 1 to 3 Years | 3 to 5 Years | 5 Years | Total | |||||||||||||||
Operating leases |
$ | 19,334 | $ | 32,325 | $ | 14,804 | $ | 13,767 | $ | 80,230 | ||||||||||
Manufacturing facility note payable |
$ | 3,835 | $ | 7,671 | $ | 7,484 | $ | 11,225 | $ | 30,215 | ||||||||||
Other contract commitments |
$ | 43,135 | $ | 5,437 | $ | — | $ | — | $ | 48,572 | ||||||||||
Total |
$ | 66,304 | $ | 45,433 | $ | 22,288 | $ | 24,992 | $ | 159,017 | ||||||||||
Operating leases: We lease office and research facilities under various operating lease agreements
in the United States and various international markets. The non-cancelable lease terms for the
operating leases expire at various dates between 2009 and 2017 and include renewal options. In
general, we are also required to reimburse the lessors for real estate taxes, insurance, utilities,
maintenance and other operating costs associated with the leases. For more information on the
major facilities that we occupy under lease arrangements refer to Part I, Item 2, “Properties” of
this Annual Report on Form 10-K.
Manufacturing Facility Note Payable: In December 2006, we purchased an active pharmaceutical
ingredient, or API, manufacturing facility and certain other assets and liabilities from Siegfried
located in Zofingen, Switzerland. At December 31, 2008, the fair value of our note payable to
Siegfried approximated the carrying value of the note of $26.0 million. Assuming other factors are
held constant, an increase in interest rates generally will result in a decrease in the fair value
of the note. The note is denominated in Swiss francs and its fair value will also be affected by
changes in the U.S. dollar / Swiss franc exchange rate. The carrying value of the note reflects
the U.S. dollar / Swiss franc exchange rate and Swiss interest rates.
Other Contract Commitments: Other contract commitments include $31.2 million in contractual
obligations related to product supply contracts that were assumed by us with the Pharmion
acquisition.
We have committed to invest $20.0 million in an investment fund over a ten-year period, which is
callable at any time. On December 31, 2008, our remaining investment commitment was $14.1 million.
For more information refer to Note 19 of the Notes to the Consolidated Financial Statements
included in this Annual Report on Form 10-K.
Income Taxes Payable: We have provided a liability for unrecognized tax benefits related to
various federal, state and foreign income tax matters of $385.2 million at December 31, 2008 of
which $26.6 million is classified as current. The remaining balance of $358.6 million is classified
as non-current because the timing of the settlement of these amounts is not reasonably estimable as
of December 31, 2008. We do not expect a settlement of the unrecognized tax benefits classified as
non-current within the next 12 months.
Collaboration Arrangements: We have entered into certain research and development collaboration
arrangements with third parties that include the funding of certain development, manufacturing and
commercialization efforts with the potential for future milestone and royalty payments upon the
achievement of pre-established developmental, regulatory and /or commercial targets. Our
obligation to fund these efforts is contingent upon continued involvement in the programs and/or
the lack of any adverse events which could cause the discontinuance of the programs. Due to the
nature of these arrangements, the future potential payments are inherently uncertain, and
accordingly no amounts have been recorded on our contractual obligations table.
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New Accounting Principles
In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards, or SFAS, No. 157, “Fair Value Measurements,” or SFAS 157, which establishes a
framework for measuring fair value and expands disclosures about fair value measurements. The FASB
partially deferred the effective date of SFAS 157 for non-financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal
years beginning after November 15, 2008. The effective date for financial assets and liabilities
that are recognized on a recurring basis was January 1, 2008. We have determined that our adoption
of SFAS 157 on January 1, 2008 for financial assets and liabilities did not have a material impact
on our consolidated financial statements. See Note 5 of the Notes to the Consolidated Financial
Statements included in this Annual Report for expanded disclosures required by SFAS 157. We
currently do not expect that the adoption of SFAS 157 related to non-financial assets will have a
material impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities,” or SFAS 159, which provides companies with an option to report selected
financial assets and liabilities at fair value. SFAS 159 establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities and highlights the effect of a company’s
choice to use fair value on its earnings. It also requires a company to display the fair value of
those assets and liabilities for which it has chosen to use fair value on the face of the balance
sheet. SFAS 159 was effective for us beginning January 1, 2008 and did not have an impact on our
consolidated financial statements as we did not choose to use the fair value option.
In June 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue No. 07-3, “Accounting
for Non-Refundable Advance Payments for Goods or Services to be Used in Future Research and
Development Activities,” or EITF 07-3, which provides that non-refundable advance payments for
future research and development activities should be deferred and capitalized until the related
goods are delivered or the related services are performed. EITF 07-3 was effective for us on a
prospective basis beginning January 1, 2008 and did not have a material impact on our consolidated
financial statements.
In December 2007, the FASB ratified EITF Issue No. 07-1, “Accounting for Collaborative Arrangements
Related to the Development and Commercialization of Intellectual Property,” or EITF 07-1, which
provides guidance on how the parties to a collaborative agreement should account for costs incurred
and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration
agreement should be presented in the income statement and certain related disclosure requirements.
EITF 07-1 will be effective for us beginning January 1, 2009 on a retrospective basis. We
currently do not expect that the adoption of EITF 07-1 will have a material impact on our
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” or SFAS 141R, which
replaces FASB Statement No. 141, “Business Combinations,” and requires an acquirer to recognize the
assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited exceptions specified
in SFAS 141R. SFAS 141R amended SFAS No. 109, “Accounting for Income Taxes,” or SFAS 109, and FASB
Interpretation No., or FIN, 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement
No. 109,” or FIN 48. Previously, SFAS 109 and FIN 48, respectively, generally required
post-acquisition adjustments to a
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business combination related deferred tax asset valuation
allowance and liabilities related to uncertain tax positions to be recorded as an increase or
decrease to goodwill. SFAS 141R does not permit this accounting and generally will require any
such changes to be recorded in current period income tax expense. Thus, after SFAS 141R is
adopted, all changes to valuation allowances and liabilities related to uncertain tax positions
from an acquisition (whether the combination was accounted for under SFAS 141 or
SFAS 141R) must be recognized in current period income tax expense. SFAS 141R is effective
prospectively to business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after December 15, 2008. SFAS 141R is
effective for us beginning January 1, 2009 and we will account for future business combinations in
accordance with its provisions, in addition to adopting its provisions related to post-acquisition
adjustments to taxes.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51,” or SFAS 160, which changes the accounting for and
reporting of noncontrolling interests (formerly known as minority interests) in consolidated
financial statements. It is effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008, with early adoption prohibited. Upon implementation,
prior periods will be recast for the changes required by SFAS 160. We currently do not expect that
the adoption of SFAS 160 will have a material impact on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities,” or SFAS 161, which is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial performance and cash flows.
It is effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early adoption encouraged. SFAS 161 is effective for us during the
interim period beginning January 1, 2009 and we will adopt the disclosure provisions in our
financial statements as of March 31, 2009.
In April 2008, the FASB issued FASB Staff Position, or FSP, No. FAS 142-3, “Determination of the
Useful Life of Intangible Assets,” or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP
FAS142-3 is effective for fiscal years beginning after December 15, 2008, with early adoption
prohibited. We currently do not expect that the adoption of FSP FAS 142-3 will have a material
impact on our consolidated financial statements.
In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” or FSP APB 14-1, which
requires separate accounting for the debt and equity components of convertible debt issuances that
have a cash settlement feature permitting settlement partially or fully in cash upon conversion. A
component of such debt issuances representative of the approximate fair value of the conversion
feature at inception should be bifurcated and recorded to equity, with the resulting debt discount
amortized to interest expense in a manner that reflects the issuer’s nonconvertible, unsecured debt
borrowing rate. The requirements for separate accounting must be applied retrospectively to
previously issued convertible debt issuances as well as prospectively to newly issued convertible
debt issuances, negatively affecting both net income and earnings per share, in financial
statements issued for fiscal years beginning after December 15, 2008. Since our past convertible
debt issuance did not include a cash settlement feature, the adoption of FSP APB 14-1 will not have
any impact on our consolidated financial statements.
In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities,” or FSP EITF 03-6-1. The FSP
addresses whether instruments granted in share-based payment transactions are participating
securities prior to vesting and therefore need to be included in the earnings allocation in calculating
earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share.” The
FSP requires companies to treat unvested share-based payment awards that have non-forfeitable
rights to dividends or dividend equivalents as a separate class of securities in calculating
earnings per share. The FSP is effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited. Since our past share-based payment awards did not include
non-forfeitable rights to dividends or dividend equivalents, the adoption of FSP EITF 03-6-1 will
not have any impact on our consolidated financial statements.
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In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active,” or FSP FAS 157-3. The FSP clarifies the
application of FASB Statement No. 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset when the market
for that financial asset is not active. The FSP was effective upon issuance, including prior
periods for which financial statements have not been issued and did not have a material impact on
our financial statements.
In November 2008, the FASB ratified EITF Issue No. 08-6, “Equity Method Investment Accounting
Considerations,” or EITF 08-6, which clarifies the accounting for certain transactions and
impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal
years beginning after December 15, 2008, with early adoption prohibited. We currently do not
expect that the adoption of EITF 08-6 will have a material impact on our consolidated financial
statements.
In November 2008, the FASB ratified EITF Issue No. 08-7, “Accounting for Defensive Intangible
Assets,” or EITF 08-7, which clarifies the accounting for certain separately identifiable
intangible assets which an acquirer does not intend to actively use but intends to hold to prevent
its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business
combination to account for a defensive intangible asset as a separate unit of accounting which
should be amortized to expense over the period the asset diminishes in value. EITF 08-7 is
effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. It
is effective prospectively for intangible assets acquired on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. EITF 08-7 is effective for us
beginning January 1, 2009 and we will account for defensive intangible assets acquired in future
business combinations in accordance with its provisions.
Critical Accounting Estimates and Significant Accounting Policies
A critical accounting policy is one that is both important to the portrayal of our financial
condition and results of operation 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 1
of the Notes to the Consolidated Financial Statements included in this Annual Report, we believe
the following accounting estimates and policies to be critical:
Revenue Recognition on Collaboration Agreements: 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 call for
non-refundable upfront payments, milestone payments on achieving significant milestone events and
in some cases ongoing research funding. The agreements also contemplate royalty payments on sales
if and when the compounds receive regulatory marketing approval.
Our revenue recognition policies for all non-refundable upfront license fees and milestone
arrangements are in accordance with the guidance provided in the Securities and Exchange
Commission’s Staff Accounting Bulletin, or SAB, No. 101, “Revenue Recognition in Financial
Statements,” as amended by SAB No. 104, “Revenue Recognition,” or SAB 104. In addition, we follow
the provisions of EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables,” or EITF 00-21, for multiple element
revenue arrangements entered into or materially amended after June 30, 2003. EITF 00-21 provides
guidance on how to determine when an arrangement that involves multiple revenue-generating
activities or deliverables should be divided into separate units of accounting for revenue
recognition purposes and, if this division is required, how the arrangement consideration should be
allocated among the separate units of accounting. If the deliverables in a revenue arrangement
constitute separate units of accounting according to the EITF’s separation criteria, the revenue
recognition policy must be determined for each identified unit. If the arrangement is a single
unit of accounting, the revenue recognition policy must be determined for the entire arrangement.
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Under arrangements where the license fees and research and development activities can be accounted
for as a separate unit of accounting, non-refundable upfront license fees are deferred and
recognized as revenue on a straight-line basis over the expected term of our continued involvement
in the research and development process. Revenues from the achievement of research and development
milestones, if deemed substantive, are recognized as revenue when the milestones are achieved, and
the milestone payments are due and collectible. Milestones are considered substantive if all of
the following conditions are met: (1) the milestone is non-refundable; (2) achievement of the
milestone was not reasonably assured at the inception of the arrangement; (3) substantive effort is
involved to achieve the milestone; and (4) the amount of the milestone appears reasonable in
relation to the effort expended, the other milestones in the arrangement and the related risk
associated with achievement of the milestone. If any of these conditions are not met, we would
recognize a proportionate amount of the milestone payment upon receipt as revenue that correlates
to work already performed and the remaining portion of the milestone payment will be deferred and
recognized as revenue as we complete our performance obligations.
Gross to Net Sales Accruals for Sales Returns, Government Rebates and Chargebacks and Distributor
Service Fees: Our gross to net sales accruals for Sales Returns, Government Rebates and
Chargebacks and Distributor Service Fees are based on our sales and/or estimates of third-party
inventories. Our distribution programs in certain markets and our accrual methodologies are described in more detail below.
THALOMID®
is distributed under our S.T.E.P.S.® distribution program. Among
other things, S.T.E.P.S.®, which is a proprietary comprehensive education and
risk-management distribution program, requires prescribers, patients and dispensing pharmacies to
participate in a registry and prohibits the filling of a THALOMID® order unless the
physician, patient and pharmacy have all obtained an appropriate authorization number. Automatic
refills are not permitted under the program. Each prescription may not exceed a 28-day supply and
a new prescription is required with each order. Although we invoice through traditional
pharmaceutical wholesalers, all THALOMID® orders are drop-shipped directly to the
prescribing pharmacy overnight. Wholesaler stocking of this product is prohibited. In addition,
we do not offer commercial discounts on our products to pharmacies or hospitals and, therefore,
have no commercial distributor chargebacks.
REVLIMID® is distributed under the RevAssist® program, which is a proprietary
risk-management distribution program tailored specifically to help ensure the safe use of
REVLIMID®, and is sold primarily through contracted pharmacies lending itself to tighter
controls of inventory quantities within the supply channel. The RevAssist® program
includes most of the same attributes of the S.T.E.P.S.® program mentioned above.
VIDAZA® is distributed through the more traditional pharmaceutical industry supply
chain. VIDAZA® is not subjected to S.T.E.P.S.® or
RevAssist® distribution restrictions. It may be stocked by multiple wholesalers and
prescribed by physicians without our preauthorization.
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ALKERAN® is distributed in a similar fashion as VIDAZA®.
Sales Returns: We base our sales returns allowance on estimated on-hand retail/hospital
inventories, measured end-customer demand as reported by third-party sources, actual returns
history and other factors, such as the trend experience for lots where product is still being
returned or inventory centralization and rationalization initiatives conducted by major pharmacy
chains, as applicable. If the historical data we use to calculate these estimates does not
properly reflect future returns, then a change in the allowance would be made in the period in
which such a determination is made and revenues in that period could be materially affected. Under
this methodology, we track actual returns by individual production lots. We analyze historic
returns experience on closed lots and historical return trend rates on open lots. Any changes from
the historical trend rates are considered in determining the current sales return allowance.
THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a result,
wholesalers do not stock the product, although the prescribing pharmacy/hospital may stock
THALOMID®. REVLIMID® is distributed primarily through contracted specialty
pharmacies lending itself to tighter controls of inventory quantities within the supply channel
and, thus, resulting in lower returns activity to date. VIDAZA® and ALKERAN®
are sold in the United States to pharmaceutical wholesalers, who in turn distribute product to
physicians, retail pharmacies, hospitals and other institutional customers.
External factors such as price changes from competitors and introductions of new and generic
competing products could have an impact on our sales returns. Our sales returns have not been
impacted thus far by such external factors; however, we continue to monitor such factors.
Government Rebates: Government rebate accruals are based on estimated payments due to governmental
agencies for purchases made by third parties under various governmental programs. U.S. Medicaid
rebate accruals are based on historical payment data and estimates of future Medicaid beneficiary
utilization applied to the Medicaid unit rebate amount formula established by the Center for
Medicaid and Medicare Services. Certain foreign markets have government-sponsored programs that
require rebates to be paid and accordingly the rebate accruals are determined primarily on
estimated eligible sales.
Chargebacks and Distributor Service Fees: Chargebacks are based on the differentials between
product acquisition prices paid by wholesalers and lower government contract pricing paid by
eligible customers covered under federally qualified programs. Distributor service fees accruals
are based on contractual fees to be paid to the wholesale distributor for services provided. On
January 28, 2008, the Fiscal Year 2008 National Defense Authorization Act was enacted, which
expands TRICARE to include prescription drugs dispensed by TRICARE retail network pharmacies.
TRICARE rebate accruals reflect this program expansion and are based on estimated Department of
Defense eligible sales multiplied by the TRICARE rebate formula.
Other Gross to Net Sales Accruals: We record sales discounts accruals based on payment terms
extended to customers.
Income Taxes: We utilize the asset and liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities using enacted tax
rates in effect for years in which the temporary differences are expected to reverse. We provide a
valuation allowance when it is more likely than not that deferred tax assets will not be realized.
We adopted the provisions of FIN 48 and FSP FIN 48-1, “Definition of Settlement in FASB
Interpretation No. 48,” or FSP FIN 48-1, effective January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in
accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. We had no cumulative effect
adjustment related to the adoption. We account for interest and penalties related to uncertain tax
positions as part of our provision for income taxes.
These unrecognized tax benefits relate primarily to issues common among multinational corporations
in our industry. We apply a variety of methodologies in making these estimates which include
studies performed by independent economists, advice from industry and subject experts, evaluation
of public actions taken by the Internal Revenue Service and other taxing authorities, as well as
our own industry experience. We provide estimates for unrecognized tax benefits. If our estimates
are not representative of actual outcomes, our results of operations could be materially impacted.
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We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the
carrying amount of these deferred tax assets by a valuation allowance to the extent we believe a
portion will not be realized. We consider many factors when assessing the likelihood of future
realization of deferred tax assets, including our recent cumulative earnings experience by taxing
jurisdiction, expectations of future taxable income, carryforward periods available to us for tax
reporting purposes, various income tax strategies and other relevant factors. Significant judgment
is required in making this assessment and, to the extent future expectations change, we would have
to assess the recoverability of our deferred tax assets at that time. At December 31, 2008, it was
more likely than not that we would realize our deferred tax assets, net of valuation allowances.
Share-Based Compensation: We adopted the provisions of SFAS, No. 123R, “Share-Based Payment,” or
SFAS 123R, effective January 1, 2006, which requires that all share-based payment transactions be
recognized in the financial statements at their fair values. We adopted SFAS 123R using the
modified prospective application method under which the provisions of SFAS 123R apply to new awards
and to awards modified, repurchased or cancelled after the adoption date. We use the Black-Scholes
option pricing model to estimate the fair value of options on the date of grant which requires
certain estimates to be made by management including the expected forfeiture rate and expected term
of the options. Management also makes decisions regarding the method of calculating the expected
volatilities and the risk-free interest rate used in the model. Fluctuations in the market that
affect these estimates could have an impact on the resulting compensation cost. Additionally,
compensation cost for the portion of awards for which the requisite service has not been rendered
that are outstanding as of the adoption date is recognized over the remaining service period after
the adoption date (for additional information refer to Note 15 of the Notes to the Consolidated
Financial Statements included in this Annual Report on Form 10-K).
Other-Than-Temporary Impairments of Available-For-Sale Marketable Securities: A decline in the
market value of any available-for-sale marketable security below its cost that is deemed to be
other-than-temporary results in a reduction in carrying amount to fair value. The impairment is
charged to operations and a new cost basis for the security established. The determination of
whether an available-for-sale marketable security is other-than-temporarily impaired requires
significant judgment and requires consideration of available quantitative and qualitative evidence
in evaluating the potential impairment. Factors evaluated to determine whether the investment is
other-than-temporarily impaired include: significant deterioration in the issuer’s earnings
performance, credit rating, asset quality, business prospects of the issuer, adverse changes in the
general market conditions in which the issuer operates, length of time that the fair value has been
below our cost, our expected future cash flows from the security and our intent and ability to
retain the investment for a sufficient period of time to allow for recovery in the market value of
the investment. Assumptions associated with these factors are subject to future market and
economic conditions, which could differ from our assessment.
Derivatives and Hedging Activities: SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” or SFAS 133, as amended, requires that all derivative instruments be
recognized on the balance sheet at their fair value. Changes in the fair value of derivative
instruments are recorded each period in current earnings or other comprehensive income (loss),
depending on whether a derivative instrument is designated as part of a hedging transaction and, if
it is, the type of hedging transaction. For a derivative to qualify as a hedge at inception and
throughout the hedged period, we formally document the nature and relationships between the hedging
instruments and hedged item. We assess, both at
inception and on an on-going basis, whether the derivative instruments that are used in cash flow
hedging transactions are highly effective in offsetting the changes in cash flows of hedged items.
We assess hedge ineffectiveness on a quarterly basis and record the gain or loss related to the
ineffective portion of derivative instruments, if any, to current earnings. If we determine that a
forecasted transaction is no longer probable of occurring, we discontinue hedge accounting and any
related unrealized gain or loss on the derivative instrument is recognized in current earnings. We
use derivative instruments, including those not designated as part of a hedging transaction, to
manage our exposure to movements in foreign exchange rates. The use of these derivative
instruments modifies the exposure of these risks with the intent to reduce our risk or cost. We do
not use derivative instruments for speculative trading purposes and are not a party to leveraged
derivatives.
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Investment in Affiliated Companies: Our investment in affiliated companies is comprised of
investments in common stock of affiliated companies and investment funds which primarily invest in
companies conducting business in life sciences such as biotechnology, pharmaceuticals, medical
technology, devices, diagnostics and health and wellness. If the carrying value of an asset were
to exceed its fair value, we would review it to determine if an other-than-temporary decline in
value of the investment has been sustained. If the investment is determined to have sustained an
other-than-temporary decline in value, the investment would be written down to its fair value.
Such an evaluation is judgmental and dependent on the specific facts and circumstances. Factors
that we consider in determining whether an other-than-temporary decline in value has occurred
include: the market value of the security in relation to its cost basis, the period of time that
the market value is below cost, the financial condition of the investee and our intent and ability
to retain the investment for a sufficient period of time to allow for recovery in the market value
of the investment. We evaluate information that we are aware of in addition to quoted market
prices, if any, in determining if an other-than-temporary decline in value exists.
Accounting for Long-Term Incentive Plans: We have established a Long-Term Incentive Plan, or
LTIP, designed to provide key officers and executives with performance-based incentive
opportunities contingent upon achievement of pre-established corporate performance objectives
covering a three-year period. We currently have two three-year performance cycles running
concurrently ending December 31, 2009 and 2010. We also anticipate the approval of a new 3-year
performance cycle ending December 31, 2011 to be adopted by the Board of Directors at the end of
February 2009. Performance measures for each LTIP are based on the following components in the
last year of the three-year cycle: 25% on earnings per share, 25% on net income and 50% on total
revenue, as defined.
Payouts may be in the range of 0% to 200% of the participant’s salary for the plans. Awards are
payable in cash or, at our discretion, in our common stock based upon our stock price at the payout
date. We accrue the long-term incentive liability over each three-year cycle. Prior to the end of
a three-year cycle, the accrual is based on an estimate of our level of achievement during the
cycle. Upon a change in control, participants will be entitled to an immediate payment equal to
their target award, or, if higher, an award based on actual performance through the date of the
change in control.
Accruals recorded for the LTIP entail making certain assumptions concerning future earnings per
share, net income and revenues, as defined; the actual results of which could be materially different than the
assumptions used. Accruals for the LTIP are reviewed on a regular basis and revised accordingly so
that the liability recorded reflects updated estimates of future payouts. In estimating the
accruals, management considers actual results to date for the performance period, expected results
for the remainder of the performance period, operating trends, product development, pricing and
competition.
Valuation of acquired intangible assets and acquired in-process research and development: We have
acquired intangible assets primarily through business combinations. When identifiable intangible
assets, including in-process research and development, are acquired we determine the fair values of
these assets as of the acquisition date. Discounted cash flow models are typically used in these
valuations, and the models require the use of significant estimates and assumptions including but
not limited to:
| • | projecting regulatory approvals, |
| • | estimating future cash flows from product sales resulting from completed products and in-process projects and |
| • | developing appropriate discount rates and probability rates. |
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Goodwill and Other Intangible Assets: We account for goodwill and other intangible assets in
accordance with SFAS 141, “Business Combinations,” or SFAS 141, (replaced by SFAS 141R for business
combinations consummated on or after January 1, 2009) and SFAS 142, “Goodwill and Other Intangible
Assets,” or SFAS 142. SFAS 141 requires that the purchase method of accounting be used for all
business combinations. It specifies the criteria which intangible assets acquired in a business
combination must meet in order to be recognized and reported apart from goodwill. SFAS 142
requires that goodwill and intangible assets determined to have indefinite lives be tested for
impairment at least annually and whenever events or circumstances occur that indicate impairment
might have occurred.
Our identifiable intangible assets are subject to amortization. SFAS 142 requires that intangible
assets with finite useful lives be amortized over their respective estimated useful lives and
reviewed for impairment in accordance with SFAS 144. SFAS 144 requires, among other things, that
long-lived assets be measured at the lower of carrying amount or fair value, less cost to sell. We
review our intangibles with determinable lives and other long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset may not be
recoverable.
Our
judgment regarding the existence of impairment indicators is based on historical and projected
future operating results, changes in the manner of our use of the acquired assets or our overall
business strategy, and market and economic trends. In the future, events could cause us to
conclude that impairment indicators exist and that certain other intangibles with determinable
lives and other long-lived assets are impaired which may result in an adverse impact on our
financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion provides forward-looking quantitative and qualitative information about
our potential exposure to market risk. Market risk represents the potential loss arising from
adverse changes in the value of financial instruments. The risk of loss is assessed based on the
likelihood of adverse changes in fair values, cash flows or future earnings.
We have established guidelines relative to the diversification and maturities of investments to
maintain safety and liquidity. These guidelines are reviewed periodically and may be modified
depending on market conditions. Although investments may be 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. At December 31, 2008, our market
risk sensitive instruments consisted of marketable securities available for sale, our note payable
and certain foreign currency forward contracts.
Marketable Securities Available for Sale: At December 31, 2008, our marketable securities
available for sale consisted of U.S. Treasury fixed rate securities, U.S. government-sponsored
agency fixed rate securities, U.S. government-sponsored agency mortgage-backed fixed rate
securities, Federal Deposit Insurance Corporation, or FDIC, guaranteed fixed rate corporate debt,
private cash fund shares and a marketable equity security. U.S. government-sponsored agency
securities include general unsecured obligations of the issuing agency, including issues from the
Federal Home Loan Bank, or FHLB, Fannie Mae, and Freddie Mac. U.S. government-sponsored agency
mortgage-backed securities include fixed rate asset-backed securities issued by Fannie Mae, Freddie
Mac and the Government National Mortgage Association, or GNMA. FDIC guaranteed corporate debt
includes obligations of bank holding companies that meet certain criteria set forth under the Temporary Liquidity Guaranty Program, or TLGP, and
is unconditionally guaranteed by the FDIC.
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Fannie Mae, Freddie Mac, FHLB and GNMA are regulated by the recently established Federal Housing
Finance Agency, or FHFA. On September 7, 2008, the U.S. government, through the FHFA and the U.S.
Treasury, announced that it was placing both Fannie Mae and Freddie Mac into conservatorship, with
the FHFA assuming their day-to-day operations. On that same day, the U.S. Treasury established a
new secured lending credit facility available to Fannie Mae and Freddie Mac, which is intended to
serve as an ultimate liquidity backstop. This action, in essence, implemented the temporary
liquidity backstop authority granted to the U.S. Treasury by Congress in July 2008, and will be
available until December 2009. These measures were taken with the goal of preserving the value of
the debt and mortgage-backed securities issued by these U.S. government-sponsored agencies as well
as to ensure that these agencies have future access to capital. The U.S. Treasury and the Federal
Reserve Bank, or Fed, continue to monitor the capital requirements and access to liquidity for the
U.S. government-sponsored agencies. Working with the Congress and the Office of the President, the
U.S. Treasury and the Fed have pledged to continue to provide capital and liquidity to the U.S.
government-sponsored agencies. We have not recorded any impairments against our holdings in these
securities.
Marketable securities available for sale are carried at fair value, held for an unspecified period
of time and intended for use in meeting our ongoing liquidity needs. Unrealized gains and losses
on available-for-sale securities, which are deemed to be temporary, are reported as a separate
component of stockholders’ equity, net of tax. The cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. The amortization, along with
realized gains and losses and other than temporary impairment charges, is included in interest and
investment income, net.
As of December 31, 2008, the principal amounts, fair values and related weighted average interest
rates of our investments in debt securities classified as marketable securities available-for-sale
were as follows:
| Duration | ||||||||||||||||||||
| Less than | More Than | |||||||||||||||||||
| In thousands $ | 1 Year | 1 to 3 Years | 3 to 5 Years | 5 Years | Total | |||||||||||||||
Principal amount |
$ | 402,472 | $ | 595,359 | $ | 73,611 | $ | 21,328 | $ | 1,092,770 | ||||||||||
Fair value |
$ | 408,274 | $ | 617,802 | $ | 80,138 | $ | 23,084 | $ | 1,129,298 | ||||||||||
Average interest rate |
1.6 | % | 1.8 | % | 1.6 | % | 3.9 | % | 1.8 | % | ||||||||||
Note Payable: In December 2006, we purchased an active pharmaceutical ingredient, or API,
manufacturing facility and certain other assets and liabilities from Siegfried. At December 31,
2008, the fair value of our note payable to Siegfried approximated the carrying value of the note
of $26.0 million (See Note 10 of the Notes to the Consolidated Financial Statements included in
this Annual Report). Assuming other factors are held constant, an increase in interest rates
generally will result in a decrease in the fair value of the note. The note is denominated in
Swiss francs and its fair value will also be affected by changes in the U.S. dollar / Swiss franc
exchange rate. The carrying value of the note reflects the U.S. dollar / Swiss franc exchange rate
and Swiss interest rates.
Foreign Currency Forward Contracts: We use foreign currency forward contracts to hedge specific
forecasted transactions denominated in foreign currencies and to reduce exposures to foreign
currency fluctuations of certain assets and liabilities denominated in foreign currencies.
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We enter into foreign currency forward contracts to protect against changes in foreign currency
cash flows resulting from changes in foreign currency exchange rates, primarily associated with
U.S. dollar denominated expenses incurred by subsidiaries in Europe. We also enter into foreign
currency forward contracts to protect against changes in anticipated foreign currency cash flows
resulting from changes in foreign currency exchange rates, primarily associated with product sales in Europe. These foreign
currency forward contracts are designated as cash flow hedges and accordingly, to the extent
effective, any unrealized gains or losses on them are reported in other comprehensive income (loss)
and reclassified to earnings in the same periods during which the underlying hedged transactions
affect earnings. Any ineffectiveness on these foreign currency forward contracts is reported in
other income (expense), net. The foreign currency forward hedging contracts outstanding at
December 31, 2008 had an aggregate notional amount of approximately $704.2 million and had
settlement dates within 24 months. The fair value of these contracts was a net liability of $48.4
million at December 31, 2008 and is reflected in other current assets of $1.6 million and other
current liabilities of $50.0 million.
We also enter into foreign currency forward contracts to reduce exposures to foreign currency
fluctuations of certain recognized assets and liabilities denominated in foreign currencies. At
December 31, 2008, we had foreign currency forward contracts outstanding denominated in various
currencies, including Euros, Swiss Francs, British Pounds, Japanese Yen and U.S. Dollars, with an
aggregate notional amount of approximately $56.6 million and expiring within 12 months. The
foreign currency forward contracts are economic hedges of certain assets and liabilities that are
remeasured through earnings each period along with the underlying hedged item. At December 31,
2008, the fair value of these foreign currency forward contracts was a net liability of $9.1
million and is included in other current liabilities.
Although not predictive in nature, we believe a hypothetical 10% threshold reflects a reasonably
possible near-term change in foreign currency rates. Assuming that the December 31, 2008 exchange
rates were to change by a hypothetical 10%, the fair value of the foreign currency forward
contracts would change by approximately $75.8 million. However, since the contracts either hedge
specific forecasted intercompany transactions denominated in foreign currencies or hedge assets and
liabilities denominated in currencies other than the entities’ functional currencies, any change in
the fair value of the contract would be either reported in other comprehensive income (loss) and
reclassified to earnings in the same periods during which the underlying hedged transactions affect
earnings or remeasured through earnings each period along with the underlying hedged item.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CELGENE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
Consolidated Financial Statements |
||||
| 62 | ||||
| 63 | ||||
| 64 | ||||
| 65 | ||||
| 67 | ||||
| 68 | ||||
Financial
Statement Schedule |
||||
| 120 | ||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Celgene Corporation:
Celgene Corporation:
We have audited the accompanying consolidated balance sheets of Celgene Corporation and
subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, cash flows and stockholders’ equity for each of the years in the
three-year period ended December 31, 2008. In connection with our audits of the consolidated
financial statements, we also have audited the consolidated financial statement schedule, “Schedule
II — Valuation and Qualifying Accounts.” These consolidated financial statements and consolidated
financial statement schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and consolidated financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Celgene Corporation and subsidiaries as of December
31, 2008 and 2007, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Notes 1, 5, 15 and 18 to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” on January 1, 2008,
Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes,” on January 1, 2007 and Statement of Financial Accounting Standards No. 123R, “Share-Based
Payment,” on January 1, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 17, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
/s/ KPMG LLP
Short Hills, New Jersey
February 17, 2009
Short Hills, New Jersey
February 17, 2009
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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,092,386 | $ | 1,218,273 | ||||
Marketable securities available for sale |
1,129,705 | 1,520,645 | ||||||
Accounts receivable, net of allowances of $9,391 and $4,659
at December 31, 2008 and 2007, respectively |
312,243 | 167,252 | ||||||
Inventory |
100,176 | 49,076 | ||||||
Deferred income taxes |
16,415 | 20,506 | ||||||
Other current assets |
190,441 | 108,669 | ||||||
Total current assets |
2,841,366 | 3,084,421 | ||||||
Property, plant and equipment, net |
248,971 | 197,428 | ||||||
Investment in affiliated companies |
18,392 | 14,422 | ||||||
Intangible assets, net |
434,764 | 92,658 | ||||||
Goodwill |
588,822 | 39,033 | ||||||
Other assets |
312,955 | 183,322 | ||||||
Total assets |
$ | 4,445,270 | $ | 3,611,284 | ||||
Liabilities and Stockholders’ Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 53,859 | $ | 37,876 | ||||
Accrued expenses |
306,120 | 159,220 | ||||||
Income taxes payable |
51,162 | 4,989 | ||||||
Convertible notes |
— | 196,555 | ||||||
Current portion of deferred revenue |
1,419 | 7,666 | ||||||
Other current liabilities |
114,688 | 26,625 | ||||||
Total current liabilities |
527,248 | 432,931 | ||||||
Deferred revenue, net of current portion |
3,127 | 60,303 | ||||||
Non-current income taxes payable |
358,578 | 211,307 | ||||||
Other non-current liabilities |
64,989 | 62,799 | ||||||
Total liabilities |
953,942 | 767,340 | ||||||
Commitments and Contingencies |
||||||||
Stockholders’ equity: |
||||||||
Preferred stock, $.01 par value per share, 5,000,000 shares
authorized; none outstanding at December 31, 2008 and 2007 |
— | — | ||||||
Common stock, $.01 par value per share, 575,000,000 shares authorized; issued
463,274,296 and 407,150,694 shares at December 31, 2008 and 2007,
respectively |
4,633 | 4,072 | ||||||
Common stock in treasury, at cost; 4,144,667 and 4,026,116 shares
at December 31, 2008 and 2007, respectively |
(157,165 | ) | (149,519 | ) | ||||
Additional paid-in capital |
5,180,397 | 2,780,849 | ||||||
(Accumulated deficit) retained earnings |
(1,408,993 | ) | 124,660 | |||||
Accumulated other comprehensive (loss) income |
(127,544 | ) | 83,882 | |||||
Total stockholders’ equity |
3,491,328 | 2,843,944 | ||||||
Total liabilities and stockholders’ equity |
$ | 4,445,270 | $ | 3,611,284 | ||||
See accompanying Notes to Consolidated Financial Statements
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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
| Years ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Revenue: |
||||||||||||
Net product sales |
$ | 2,137,678 | $ | 1,300,441 | $ | 811,605 | ||||||
Collaborative agreements and other revenue |
14,945 | 20,109 | 18,189 | |||||||||
Royalty revenue |
102,158 | 85,270 | 69,079 | |||||||||
Total revenue |
2,254,781 | 1,405,820 | 898,873 | |||||||||
Expenses: |
||||||||||||
Cost of goods sold (excluding amortization expense) |
258,267 | 130,211 | 125,759 | |||||||||
Research and development |
931,218 | 400,456 | 259,956 | |||||||||
Selling, general and administrative |
685,547 | 440,962 | 329,749 | |||||||||
Amortization of acquired intangible assets |
103,967 | 9,070 | 8,718 | |||||||||
Acquired in-process research and development |
1,740,000 | — | — | |||||||||
Total expenses |
3,718,999 | 980,699 | 724,182 | |||||||||
Operating income (loss) |
(1,464,218 | ) | 425,121 | 174,691 | ||||||||
Other income and expense: |
||||||||||||
Interest and investment income, net |
84,835 | 109,813 | 40,352 | |||||||||
Equity in losses of affiliated companies |
9,727 | 4,488 | 8,233 | |||||||||
Interest expense |
4,437 | 11,127 | 9,417 | |||||||||
Other income (expense), net |
24,722 | (2,350 | ) | 5,502 | ||||||||
Income (loss) before income taxes |
(1,368,825 | ) | 516,969 | 202,895 | ||||||||
Income tax provision |
164,828 | 290,536 | 133,914 | |||||||||
Net income (loss) |
$ | (1,533,653 | ) | $ | 226,433 | $ | 68,981 | |||||
Net income (loss) per common share: |
||||||||||||
Basic |
$ | (3.46 | ) | $ | 0.59 | $ | 0.20 | |||||
Diluted |
$ | (3.46 | ) | $ | 0.54 | $ | 0.18 | |||||
Weighted
average shares (in thousands): |
||||||||||||
Basic |
442,620 | 383,225 | 352,217 | |||||||||
Diluted |
442,620 | 431,858 | 407,181 | |||||||||
See accompanying Notes to Consolidated Financial Statements
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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| Years Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | (1,533,653 | ) | $ | 226,433 | $ | 68,981 | |||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||||||
Depreciation of long-term assets |
44,536 | 22,057 | 16,679 | |||||||||
Amortization of intangible assets |
104,365 | 9,478 | 9,035 | |||||||||
Provision for accounts receivable allowances |
6,232 | 9,489 | 2,169 | |||||||||
Deferred income taxes |
(104,588 | ) | (10,077 | ) | (55,491 | ) | ||||||
Acquired in-process research and development |
1,740,000 | — | — | |||||||||
Share-based compensation expense |
106,578 | 58,825 | 76,748 | |||||||||
Equity in losses of affiliated companies |
8,884 | 3,578 | 7,401 | |||||||||
Share-based employee benefit plan expense |
8,314 | 5,365 | 6,517 | |||||||||
Other, net |
11,680 | 5,875 | 4,244 | |||||||||
Change in current assets and liabilities, excluding the effect of acquisition: |
||||||||||||
Accounts receivable |
(107,685 | ) | (47,367 | ) | (55,290 | ) | ||||||
Inventory |
(25,867 | ) | (23,967 | ) | (1,600 | ) | ||||||
Other operating assets |
(130,714 | ) | (19,933 | ) | (53,464 | ) | ||||||
Accounts payable and other operating liabilities |
(15,572 | ) | 83,729 | (32,989 | ) | |||||||
Income tax payable |
69,610 | 157,621 | 93,265 | |||||||||
Deferred revenue |
67 | (3,606 | ) | (2,644 | ) | |||||||
Net cash provided by operating activities |
182,187 | 477,500 | 83,561 | |||||||||
Cash flows from investing activities: |
||||||||||||
Proceeds from sales of marketable securities available for sale |
1,148,116 | 1,654,354 | 857,918 | |||||||||
Purchases of marketable securities available for sale |
(835,967 | ) | (2,547,686 | ) | (780,101 | ) | ||||||
Payments for acquisition of business, net of cash acquired |
(746,779 | ) | — | — | ||||||||
Capital expenditures |
(77,379 | ) | (64,359 | ) | (58,582 | ) | ||||||
Investment in affiliated companies |
(12,855 | ) | (1,621 | ) | (7,400 | ) | ||||||
Purchases of investment securities |
(9,436 | ) | (23,356 | ) | (5,051 | ) | ||||||
Other |
12,054 | (7,518 | ) | — | ||||||||
Net cash provided by (used in) investing activities |
(522,246 | ) | (990,186 | ) | 6,784 | |||||||
Cash flows from financing activities: |
||||||||||||
Net proceeds from exercise of common stock options and warrants |
128,583 | 144,703 | 113,072 | |||||||||
Excess tax benefit from share-based compensation arrangements |
153,046 | 142,992 | 101,992 | |||||||||
Issuance of common stock |
— | — | 1,006,182 | |||||||||
Net cash provided by financing activities |
281,629 | 287,695 | 1,221,246 | |||||||||
Effect of currency rate changes on cash and cash equivalents |
(67,457 | ) | 3,849 | 4,508 | ||||||||
Net increase (decrease) in cash and cash equivalents |
(125,887 | ) | (221,142 | ) | 1,316,099 | |||||||
Cash and cash equivalents at beginning of year |
1,218,273 | 1,439,415 | 123,316 | |||||||||
Cash and cash equivalents at end of year |
$ | 1,092,386 | $ | 1,218,273 | $ | 1,439,415 | ||||||
See accompanying Notes to Consolidated Financial Statements
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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Dollars in thousands)
| Years Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Supplemental schedule of non-cash investing and financing activity: |
||||||||||||
Change in net unrealized loss (gain) on marketable
securities available for sale |
$ | 87,349 | $ | (81,325 | ) | $ | (16,576 | ) | ||||
Matured shares tendered in connection with stock option exercises |
$ | (7,646 | ) | $ | (6,457 | ) | $ | (104,183 | ) | |||
Conversion of convertible notes |
$ | 196,543 | $ | 203,334 | $ | 95 | ||||||
Note payable for purchase of manufacturing facility |
$ | — | $ | — | $ | 26,086 | ||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Interest paid |
$ | 1,640 | $ | 6,700 | $ | 6,999 | ||||||
Income taxes paid |
$ | 29,319 | $ | — | $ | 25,677 | ||||||
See accompanying Notes to Consolidated Financial Statements
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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Additional | Retained | Comprehensive | ||||||||||||||||||||||
| Common | Treasury | Paid-in | Earnings | Income | ||||||||||||||||||||
| Years Ended December 31, 2008, 2007 and 2006 | Stock | Stock | Capital | (Deficit) | (Loss) | Total | ||||||||||||||||||
Balances at December 31, 2005 |
$ | 3,441 | $ | (50,601 | ) | $ | 853,601 | $ | (170,754 | ) | $ | 8 8 | $ | 635,775 | ||||||||||
Net income |
68,981 | 68,981 | ||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Increase in unrealized gain on available for sale securities, net of tax of $6,013 |
6,499 | 6,499 | ||||||||||||||||||||||
Reclassification adjustment for losses included in net income, net of tax of $4,062 |
4,390 | 4,390 | ||||||||||||||||||||||
Currency translation adjustments |
1,380 | 1,380 | ||||||||||||||||||||||
Comprehensive income |
$ | 81,250 | ||||||||||||||||||||||
Treasury stock -mature shares tendered related to option exercise |
(104,183 | ) | (104,183 | ) | ||||||||||||||||||||
Issuance of common stock related to the 2:1 February 17, 2006 stock split |
15 | (15 | ) | — | ||||||||||||||||||||
Conversion of long-term convertible notes |
— | 95 | 95 | |||||||||||||||||||||
Issuance of common stock related to the secondary stock offering |
200 | 1,005,982 | 1,006,182 | |||||||||||||||||||||
Exercise of stock options and warrants |
144 | 1,476 | 158,221 | 159,841 | ||||||||||||||||||||
Issuance of common stock for employee benefit plans |
5,211 | 1,306 | 6,517 | |||||||||||||||||||||
Issuance of restricted stock |
1 | (1 | ) | — | ||||||||||||||||||||
Expense related to stock-based compensation and restricted stock granted to employees |
76,748 | 76,748 | ||||||||||||||||||||||
Income tax benefit upon exercise of stock options |
113,952 | 113,952 | ||||||||||||||||||||||
Balances at December 31, 2006 |
3,801 | (148,097 | ) | 2,209,889 | (101,773 | ) | 12,357 | 1,976,177 | ||||||||||||||||
Net income |
226,433 | 226,433 | ||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Increase in unrealized gain on available for sale securities, net of tax of $29,631 |
47,834 | 47,834 | ||||||||||||||||||||||
Reclassification adjustment for losses included in net income, net of tax of $3,860 |
6,232 | 6,232 | ||||||||||||||||||||||
Pension liability adjustment |
(31 | ) | (31 | ) | ||||||||||||||||||||
Currency translation adjustments |
17,490 | 17,490 | ||||||||||||||||||||||
Comprehensive income |
$ | 297,958 | ||||||||||||||||||||||
Treasury stock -mature shares tendered related to option exercise |
(6,457 | ) | (6,457 | ) | ||||||||||||||||||||
Costs related to 2006 secondary stock offering |
(3 | ) | (3 | ) | ||||||||||||||||||||
Conversion of long-term convertible notes |
168 | 203,166 | 203,334 | |||||||||||||||||||||
Exercise of stock options and warrants |
103 | 146,763 | 146,866 | |||||||||||||||||||||
Issuance of common stock for employee benefit plans |
5,035 | 2,901 | 7,936 | |||||||||||||||||||||
Expense related to stock-based compensation |
58,825 | 58,825 | ||||||||||||||||||||||
Income tax benefit upon exercise of stock options |
159,308 | 159,308 | ||||||||||||||||||||||
Balances at December 31, 2007 |
4,072 | (149,519 | ) | 2,780,849 | 124,660 | 83,882 | 2,843,944 | |||||||||||||||||
Net loss |
(1,533,653 | ) | (1,533,653 | ) | ||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Increase in unrealized gain on available for sale securities, net of tax of $5,211 |
8,413 | 8,413 | ||||||||||||||||||||||
Reversal of unrealized gains on Pharmion investment, net of tax of $38,904 |
(62,806 | ) | (62,806 | ) | ||||||||||||||||||||
Reclassification adjustment for losses included in net loss, net of tax of $736 |
1,188 | 1,188 | ||||||||||||||||||||||
Unrealized losses on cash flow hedges |
(50,117 | ) | (50,117 | ) | ||||||||||||||||||||
Pension liability adjustment |
(3,290 | ) | (3,290 | ) | ||||||||||||||||||||
Net asset transfer of common control foreign subsidiaries |
4,337 | (4,337 | ) | — | ||||||||||||||||||||
Currency translation adjustments |
(100,477 | ) | (100,477 | ) | ||||||||||||||||||||
Comprehensive (loss) |
$ | (1,740,742 | ) | |||||||||||||||||||||
Treasury stock -mature shares tendered related to option exercise |
(7,646 | ) | 3,861 | (3,785 | ) | |||||||||||||||||||
Acquisition of Pharmion Corp. |
308 | 1,793,838 | 1,794,146 | |||||||||||||||||||||
Conversion of long-term convertible notes |
162 | 196,381 | 196,543 | |||||||||||||||||||||
Exercise of stock options and warrants |
90 | 128,439 | 128,529 | |||||||||||||||||||||
Issuance of common stock for employee benefit plans |
1 | 5,178 | 5,179 | |||||||||||||||||||||
Expense related to stock-based compensation |
106,951 | 106,951 | ||||||||||||||||||||||
Income tax benefit upon exercise of stock options |
160,563 | 160,563 | ||||||||||||||||||||||
Balances at December 31, 2008 |
$ | 4,633 | $ | (157,165 | ) | $ | 5,180,397 | $ | (1,408,993 | ) | $ | (127,544 | ) | $ | 3,491,328 | |||||||||
See accompanying Notes to Consolidated Financial Statements
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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except per share amounts, unless otherwise indicated)
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business and Basis of Presentation: Celgene Corporation and its subsidiaries
(collectively “Celgene” or the “Company”) is a global biopharmaceutical company primarily engaged
in the discovery, development and commercialization of innovative therapies designed to treat
cancer and immune-inflammatory diseases. On March 7, 2008, the Company acquired Pharmion
Corporation, or Pharmion, which prior to the acquisition was a global biopharmaceutical company
that acquired, developed and commercialized innovative products for the treatment of hematology and
oncology patients, for $2.67 billion in a combination of cash and Celgene common stock.
The Company’s commercial stage products include REVLIMID®, THALOMID®
(inclusive of Thalidomide PharmionTM subsequent to the acquisition of Pharmion, on March
7, 2008), VIDAZA®, ALKERAN® and FOCALIN®. ALKERAN® is
licensed from GlaxoSmithKline, or GSK, and sold under the Celgene label. The agreement with GSK
expires in March 2009 and will not be renewed. FOCALIN® is sold exclusively to Novartis
Pharma AG, or Novartis. The Company also derives revenues from a licensing agreement with
Novartis, which entitles it to royalties on FOCALIN XR® and the entire
RITALIN® family of drugs, and sales of bio-therapeutic products and services through the
Company’s Cellular Therapeutics subsidiary.
The consolidated financial statements include the accounts of Celgene Corporation and its
subsidiaries. Investments in limited partnerships and interests where the Company has an equity
interest of 50% or less and does not otherwise have a controlling financial interest are accounted
for by either the equity or cost method. Certain prior year amounts have been reclassified to
conform to the current year’s presentation.
The preparation of the consolidated financial statements requires management to make estimates and
assumptions that affect reported amounts and disclosures. Actual results could differ from those
estimates. The Company is subject to certain risks and uncertainties related to product
development, regulatory approval, market acceptance, scope of patent and proprietary rights,
intense competition, rapid technological change and product liability.
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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial Instruments: Certain financial instruments reflected in the Consolidated Balance Sheets,
(e.g., cash, cash equivalents, accounts receivable, certain other assets, accounts payable and
certain other liabilities) are recorded at cost, which approximates fair value due to their
short-term nature. The fair values of financial instruments other than marketable securities are
determined through a combination of management estimates and information obtained from third
parties using the latest market data. The fair value of available-for-sale marketable securities is
determined utilizing the valuation techniques appropriate to the type of security (See Note 5).
Derivative Instruments and Hedges: Financial Accounting Standards Board, or FASB, Statement of
Financial Accounting Standards, or SFAS, No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” or SFAS 133, as amended, requires that all derivative instruments be
recognized on the balance sheet at their fair value. Changes in the fair value of derivative
instruments are recorded each period in current earnings or other comprehensive income (loss),
depending on whether a derivative instrument is designated as part of a hedging transaction and, if
it is, the type of hedging transaction. For a derivative to qualify as a hedge at inception and
throughout the hedged period, the Company formally documents the nature and relationships between
the hedging instruments and hedged item. The Company assesses, both at inception and on an
on-going basis, whether the derivative instruments that are used in cash flow hedging transactions
are highly effective in offsetting the changes in cash flows of hedged items. The Company assesses
hedge ineffectiveness on a quarterly basis and record the gain or loss related to the ineffective
portion of derivative instruments, if any, to current earnings. If the Company determines that a
forecasted transaction is no longer probable of occurring, it discontinues hedge accounting and any
related unrealized gain or loss on the derivative instrument is recognized in current earnings.
The Company uses derivative instruments, including those not designated as part of a hedging
transaction, to manage its exposure to movements in foreign exchange rates. The use of these
derivative instruments modifies the exposure of these risks with the intent to reduce the Company’s
risk or cost. The Company does not use derivative instruments for speculative trading purposes and
is not a party to leveraged derivatives.
Cash, Cash Equivalents and Marketable Securities Available for Sale: The Company invests its
excess cash in money market funds and in highly liquid debt instruments, including U.S. Treasury
fixed rate securities, U.S. government-sponsored agency fixed rate securities, U.S.
government-sponsored agency mortgage-backed fixed rate securities, Federal Deposit Insurance
Corporation, or FDIC, guaranteed fixed rate corporate debt, private cash fund shares and equity
securities. Investments with maturities of three months or less from the date of purchase are
classified as cash equivalents and investments with maturities of greater than three months from
date of purchase are classified as marketable securities available for sale. Marketable securities
available for sale are carried at fair value, held for an indefinite period of time and intended
for use in meeting the Company’s ongoing liquidity needs. Unrealized gains and losses on
available-for-sale securities, which are deemed to be temporary, are reported as a separate
component of stockholders’ equity, net of tax. The cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. The amortization and accretion,
along with realized gains and losses, are included in interest and investment income, net.
A decline in the market value of any available-for-sale security below its carrying value that is
determined to be other-than-temporary would result in a charge to earnings and decrease in the
security’s carrying value to its newly established fair value. Factors evaluated to determine if
an investment is other-than-temporarily impaired include significant deterioration in earnings
performance, credit rating, asset quality or business prospects of the issuer; adverse changes in
the general market condition in which the issuer operates; the intent and ability to retain the
investment for a sufficient period of time to allow for recovery in the market value of the
investment; and issues that raise concerns about the issuer’s ability to continue as a going
concern.
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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Concentration of Credit Risk: Cash, cash equivalents and marketable securities are financial
instruments that potentially subject the Company to concentration of credit risk. The Company
invests its excess cash primarily in U.S. Treasury fixed rate securities, U.S. government-sponsored
agency fixed rate securities, U.S. government-sponsored agency mortgage-backed fixed rate
obligations and FDIC guaranteed fixed rate corporate debt with high credit ratings (See Note 6).
The Company may also invest in unrated or below investment grade securities, such as equity in
private companies. The Company has established guidelines relative to diversification and
maturities to maintain safety and liquidity. These guidelines are reviewed periodically and may be
modified to take advantage of trends in yields and interest rates.
The Company sells its products in the United States primarily through wholesale distributors and
contracted pharmacies. Therefore, wholesale distributors and large
pharmacy chains account for a large portion of the
Company’s trade receivables and net product revenues (See Note 20). International sales are
primarily made directly to hospitals and clinics. In light of this concentration, the Company
continuously monitors the creditworthiness of its customers and has internal policies regarding
customer credit limits. The Company estimates an allowance for doubtful accounts based on the
credit worthiness of its customers, aging of receivable balances and general economic conditions.
Inventory: Inventories are recorded at the lower of cost or market, with cost determined on a
first-in, first-out basis. The Company periodically reviews the composition of inventory in order
to identify obsolete, slow-moving or otherwise non-saleable items. If non-saleable items are
observed and there are no alternate uses for the inventory, the Company will record a write-down to
net realizable value in the period that the decline in value is first recognized. Included in
inventory are raw materials used in the production of preclinical and clinical products, which are
charged to research and development expense when consumed.
Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation of plant and equipment is recorded using the straight-line method.
Leasehold improvements are depreciated over the lesser of the economic useful life of the asset or
the remaining term of the lease, including anticipated renewal options. The estimated useful lives
of plant and equipment are as follows:
Buildings |
40 years | |||
Building and operating equipment |
15 years | |||
Manufacturing machinery and equipment |
10 years | |||
Other machinery and equipment |
5 years | |||
Furniture and fixtures |
5 years | |||
Computer equipment and software |
3-7 years | |||
Maintenance and repairs are charged to operations as incurred, while expenditures for improvements
which extend the life of an asset are capitalized.
Investment in Affiliated Companies: The Company applies the equity method of accounting to its
investments in common stock of affiliated companies and certain investment funds which primarily invest in
companies conducting business in life sciences such as biotechnology, pharmaceuticals, medical
technology, devices, diagnostics and health and wellness.
Equity investments are reviewed on a regular basis for possible impairment. If an investment’s fair
value is determined to be less than its net carrying value and the decline is determined to be
other-than-temporary, the investment is written down to its fair value. Such an evaluation is
judgmental and dependent on specific facts and circumstances. Factors considered in determining
whether an other-than-temporary decline in value has occurred include: market value or exit price of the investment
based on either market-quoted prices or future rounds of financing by the investee; length of time
that the market value was below its cost basis; financial condition and business prospects of the
investee; the Company’s intent and ability to retain the investment for a sufficient period of time
to allow for recovery in market value of the investment; issues that raise concerns about the
investee’s ability to continue as a going concern; any other information that the Company may be
aware of related to the investment.
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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill and Other Intangible Assets: Goodwill represents the excess of purchase price over fair
value of net assets acquired in an acquisition accounted for by the purchase method of accounting
and is not amortized, but subject to impairment testing at least annually or when a triggering
event occurs that could indicate a potential impairment. The Company tests its goodwill annually
for impairment each November 30. Intangible assets with definite useful lives are amortized to
their estimated residual values over their estimated useful lives and reviewed for impairment if
certain events occur as described below. The Company has no intangible assets with indefinite
useful lives.
Impairment of Long-Lived Assets: Long-lived assets, such as property, plant and equipment and
purchased intangibles subject to amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset or asset group to the estimated undiscounted future cash flows expected to be generated by
the asset or asset group. If the carrying amount of the assets exceed their estimated future
undiscounted net cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed of would be
separately presented in the consolidated balance sheet and reported at the lower of their carrying
amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities
of a disposal group classified as held for sale would be presented separately in the appropriate
asset and liability sections of the consolidated balance sheet.
Foreign Currency Translation: Operations in non-U.S. entities are recorded in the functional
currency of each entity. For financial reporting purposes, the functional currency of an entity is
determined by a review of the source of an entity’s most predominant cash flows. The results of
operations for non-U.S. dollar functional currency entities are translated from functional
currencies into U. S. dollars using the average currency rate during each period, which
approximates the results that would be obtained using actual currency rates on the dates of
individual transactions. Assets and liabilities are translated using currency rates at the end of
the period. Adjustments resulting from translating the financial statements of the Company’s
foreign entities into the U.S. dollar are excluded from the determination of net income and are
recorded as a component of other comprehensive income (loss). Transaction gains and losses are
recorded in other income (expense), net in the Consolidated Statements of Operations.
Research and Development Costs: Research and development costs are expensed as incurred. These
include all internal costs, external costs related to services contracted by the Company and
research services conducted for others. Upfront and milestone payments made to third parties in
connection with research and development collaborations are expensed as incurred up to the point of
regulatory approval. Milestone payments made to third parties subsequent to regulatory approval
are capitalized and amortized over the remaining useful life of the related product.
Income Taxes: The Company utilizes the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and liabilities using
enacted tax rates in effect for years in which the temporary differences are expected to reverse.
A valuation allowance is provided when it is more likely than not that some portion or all of a
deferred tax asset will not be realized. The Company recognizes the benefit of an uncertain tax
position that it has taken or expects to take on income tax returns it files if such tax position
is more likely than not to be sustained.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue Recognition: Revenue from the sale of products is recognized when title and risk of loss
of the product is transferred to the customer. Provisions for discounts, early payments, rebates,
sales returns and distributor chargebacks under terms customary in the industry are provided for in
the same period the related sales are recorded.
The Company bases its sales returns allowance on estimated on-hand retail/hospital inventories,
measured end-customer demand as reported by third-party sources, actual returns history and other
factors, such as the trend experience for lots where product is still being returned or inventory
centralization and rationalization initiatives conducted by major pharmacy chains, as applicable.
If the historical data the Company uses to calculate these estimates does not properly reflect
future returns, then a change in the allowance would be made in the period in which such a
determination is made and revenues in that period could be materially affected. Under this
methodology, the Company tracks actual returns by individual production lots. The Company analyzes
historic returns experience on closed lots and historical return trend rates on open lots. Any
changes from the historical trend rates are considered in determining the current sales return
allowance. THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a
result, wholesalers do not stock the product, although the prescribing pharmacy/hospital may stock
THALOMID®. REVLIMID® is distributed primarily through contracted specialty
pharmacies lending itself to tighter controls of inventory quantities within the supply channel
and, thus, resulting in lower returns activity to date. VIDAZA® and ALKERAN®
are sold in the United States to pharmaceutical wholesalers, who in turn distribute product to
physicians, retail pharmacies, hospitals and other institutional customers.
Revenue under research contracts is recorded as earned under the contracts, as services are
provided. In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,”
SAB 104, the Company identifies separate units of accounting based on the consensus reached in
Emerging Issues Task Force, or EITF, Issue No. 00-21, “Revenue Arrangements With Multiple
Deliverables”, or EITF 00-21. EITF 00-21 provides guidance on how to determine when an arrangement
that involves multiple revenue-generating activities or deliverables should be divided into
separate units of accounting for revenue recognition purposes, and if this division is required,
how the arrangement consideration should be allocated among the separate units of accounting. If
the deliverables in a revenue arrangement constitute separate units of accounting according to the
EITF’s separation criteria, the revenue recognition policy must be determined for each identified
unit. If the arrangement is a single unit of accounting, the revenue recognition policy must be
determined for the entire arrangement. Under arrangements where the license fees and research and
development activities can be accounted for as a separate unit of accounting, non-refundable
upfront license fees are deferred and recognized as revenue on a straight-line basis over the
expected term of the Company’s continued involvement in the research and development process.
Revenues from the achievement of research and development milestones, if deemed substantive, are
recognized as revenue when the milestones are achieved, and the milestone payments are due and
collectible. Milestones are considered substantive if all of the following conditions are met: (1)
the milestone is non-refundable; (2) achievement of the milestone was not reasonably assured at the
inception of the arrangement; (3) substantive effort is involved to achieve the milestone; and (4)
the amount of the milestone appears reasonable in relation to the effort expended, the other
milestones in the arrangement and the related risk associated with achievement of the milestone.
If any of these conditions are not met, the Company would recognize a proportionate amount of the
milestone payment upon receipt as revenue that correlates to work already performed and the
remaining portion of the milestone payment would be deferred and recognized as revenue as the
Company completes its performance obligations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share-Based Compensation: Share-based compensation is recognized in accordance with SFAS No. 123R,
“Share-Based Payment,” or SFAS 123R. SFAS 123R requires that compensation cost relating to
share-based payment transactions be recognized in financial statements based on the fair value for
all awards granted after the date of adoption as well as for existing awards for which the
requisite service had not been rendered as of the date of adoption.
The Company adopted SFAS 123R effective January 1, 2006 and selected the Black-Scholes method of
valuation to determine the fair value of share-based payments. The Company applied the modified
prospective application method under which the provisions of SFAS 123R apply to new awards and to
awards modified, repurchased or cancelled after the adoption date. Additionally, compensation cost
for the portion of the awards for which the requisite service had not been rendered that are
outstanding as of the adoption date is recognized in the Consolidated Statements of Operations over
the remaining service period after the adoption date based on the original estimate of the fair
value of the award. SFAS 123R required that compensation costs be recognized based on the
estimated number of awards expected to vest. Changes in the estimated forfeiture rates are
reflected prospectively.
Earnings Per Share: Basic earnings per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding during the period. Diluted earnings per share
is computed by dividing net income adjusted to add back the after-tax amount of interest recognized
in the period associated with any convertible debt issuance that may be dilutive by the
weighted-average number of common shares outstanding during the period increased to include all
additional common shares that would have been outstanding as if the outstanding convertible debt
was converted into shares of common stock and assuming potentially dilutive common shares,
resulting from option exercises, had been issued and any proceeds thereof used to repurchase common
stock at the average market price during the period. The assumed proceeds used to repurchase
common stock are the sum of the amount to be paid to the Company upon exercise of options, the
amount of compensation cost attributed to future services and not yet recognized and, if
applicable, the amount of excess income tax benefit that would be credited to additional paid-in
capital upon exercise. In periods in which there is a net loss, potentially dilutive common shares
are excluded from the computation of diluted earnings per share as their effect would be
anti-dilutive.
Comprehensive Income: The components of comprehensive income (loss) consist of net income (loss),
changes in pension liability, the after-tax effects of changes in net unrealized gains (losses) on
marketable securities classified as available for sale, net unrealized gains (losses) related to
cash flow hedges and changes in foreign currency translation adjustments.
A summary of accumulated other comprehensive income, net of tax, is summarized as follows:
| Net Unrealized | Foreign | Accumulated | ||||||||||||||||||
| Gains (Losses) From | Net Unrealized | Currency | Other | |||||||||||||||||
| Pension | Marketable | Gains (Losses) | Translation | Comprehensive | ||||||||||||||||
| Liability | Securities | From Hedges | Adjustment | Income (Loss) | ||||||||||||||||
Balance December 31, 2006 |
$ | — | $ | 15,722 | $ | — | $ | (3,365 | ) | $ | 12,357 | |||||||||
Period Change |
(31 | ) | 54,066 | — | 17,490 | 71,525 | ||||||||||||||
Balance December 31, 2007 |
(31 | ) | 69,788 | — | 14,125 | 83,882 | ||||||||||||||
Period Change |
(3,290 | ) | (53,205 | ) | (50,117 | ) | (104,814 | ) | (211,426 | ) | ||||||||||
Balance December 31, 2008 |
$ | (3,321 | ) | $ | 16,583 | $ | (50,117 | ) | $ | (90,689 | ) | $ | (127,544 | ) | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capitalized Software Costs: The Company capitalizes software costs incurred in connection with
developing or obtaining software. Capitalized software costs are included in property, plant and
equipment, net and are amortized over their estimated useful life of three to seven years from the
date the systems are ready for their intended use.
New Accounting Principles: In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements,” or SFAS 157, which establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The FASB partially deferred the effective date of SFAS
157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008.
The effective date for financial assets and liabilities that are recognized on a recurring basis
was January 1, 2008. The Company has determined that its adoption of SFAS 157 on January 1, 2008
for financial assets and liabilities did not have a material impact on its consolidated financial
statements. See Note 5 for expanded disclosures required by SFAS 157. The Company currently does
not expect that the adoption of SFAS 157 related to non-financial assets will have a material
impact on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities,” or SFAS 159, which provides companies with an option to report selected
financial assets and liabilities at fair value. SFAS 159 establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities and highlights the effect of a company’s
choice to use fair value on its earnings. It also requires a company to display the fair value of
those assets and liabilities for which it has chosen to use fair value on the face of the balance
sheet. SFAS 159 was effective for the Company beginning January 1, 2008 and did not have an impact
on its consolidated financial statements as the Company did not choose to use the fair value
option.
In June 2007, the FASB ratified EITF Issue No. 07-3, “Accounting for Non-Refundable Advance
Payments for Goods or Services to be Used in Future Research and Development Activities,” or EITF
07-3, which provides that non-refundable advance payments for future research and development
activities should be deferred and capitalized until the related goods are delivered or the related
services are performed. EITF 07-3 was effective for the Company on a prospective basis beginning
January 1, 2008 and did not have a material impact on its consolidated financial statements.
In December 2007, the FASB ratified EITF Issue No. 07-1, “Accounting for Collaborative Arrangements
Related to the Development and Commercialization of Intellectual Property,” or EITF 07-1, which
provides guidance on how the parties to a collaborative agreement should account for costs incurred
and revenue generated on sales to third parties, how sharing payments pursuant to a collaboration
agreement should be presented in the income statement and certain related disclosure requirements.
EITF 07-1 will be effective for the Company beginning January 1, 2009 on a retrospective basis.
The Company currently does not expect that the adoption of EITF 07-1 will have a material impact on
its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” or SFAS 141R, which
replaces FASB Statement No. 141, “Business Combinations,” and requires an acquirer to recognize the
assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited exceptions specified
in the Statement. SFAS 141R amended SFAS No. 109, “Accounting for Income Taxes,” or SFAS 109, and
FASB Interpretation No., or FIN, 48, “Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement No. 109,” or FIN 48. Previously, SFAS 109 and FIN 48,
respectively, generally required post-acquisition adjustments to a business combination related
deferred tax asset valuation allowance and liabilities related to uncertain tax positions to be
recorded as an increase or decrease to goodwill.
SFAS 141R does not permit this accounting and
generally will require any such changes to be recorded in current period income tax expense. Thus,
after SFAS 141R is adopted, all changes to valuation
allowances and liabilities related to uncertain tax positions from an acquisition (whether the combination was accounted for under SFAS 141 or SFAS 141R) must be recognized in
current period income tax expense. It is effective prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. SFAS 141R is effective for the Company beginning January
1, 2009 and the Company will account for future business combinations in accordance with its
provisions, in addition to adopting its provisions related to post-acquisition adjustments to
taxes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB No. 51,” or SFAS 160, which changes the accounting for and
reporting of noncontrolling interests (formerly known as minority interests) in consolidated
financial statements. It is effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008, with early adoption prohibited. Upon implementation,
prior periods will be recast for the changes required by SFAS 160. The Company currently does not
expect that the adoption of SFAS 160 will have a material impact on its consolidated financial
statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities,” or SFAS 161, which is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial performance and cash flows.
It is effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early adoption encouraged. SFAS 161 is effective for the Company
during the interim period beginning January 1, 2009 and the Company will adopt the disclosure
provisions in its financial statements as of March 31, 2009.
In April 2008, the FASB issued FASB Staff Position, or FSP, No. FAS 142-3, “Determination of the
Useful Life of Intangible Assets,” or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP
FAS142-3 is effective for fiscal years beginning after December 15, 2008, with early adoption
prohibited. The Company currently does not expect that the adoption of FSP FAS 142-3 will have a
material impact on its consolidated financial statements.
In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” or FSP APB 14-1, which
requires separate accounting for the debt and equity components of convertible debt issuances that
have a cash settlement feature permitting settlement partially or fully in cash upon conversion. A
component of such debt issuances representative of the approximate fair value of the conversion
feature at inception should be bifurcated and recorded to equity, with the resulting debt discount
amortized to interest expense in a manner that reflects the issuer’s nonconvertible, unsecured debt
borrowing rate. The requirements for separate accounting must be applied retrospectively to
previously issued convertible debt issuances as well as prospectively to newly issued convertible
debt issuances, negatively affecting both net income and earnings per share, in financial
statements issued for fiscal years beginning after December 15, 2008. Since the Company’s past
convertible debt issuance did not include a cash settlement feature, the adoption of FSP APB 14-1
will not have any impact on its consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities,” or FSP EITF 03-6-1. The FSP
addresses whether instruments granted in share-based payment transactions are participating
securities prior to vesting and therefore need to be included in the earnings allocation in
calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per
Share.” The FSP requires companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in
calculating earnings per share. The FSP is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. Since the
Company’s past share-based payment awards did not include non-forfeitable rights to dividends or
dividend equivalents, the adoption of FSP EITF 03-6-1 will not have any impact on its consolidated
financial statements.
In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active,” or FSP FAS 157-3. The FSP clarifies the
application of FASB Statement No. 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset when the market
for that financial asset is not active. The FSP was effective upon issuance, including prior
periods for which financial statements have not been issued and did not have a material impact on
the Company’s financial statements.
In November 2008, the FASB ratified EITF Issue No. 08-6, “Equity Method Investment Accounting
Considerations,” or EITF 08-6, which clarifies the accounting for certain transactions and
impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal
years beginning after December 15, 2008, with early adoption prohibited. The Company currently
does not expect that the adoption of EITF 08-6 will have a material impact on its consolidated
financial statements.
In November 2008, the FASB ratified EITF Issue No. 08-7, “Accounting for Defensive Intangible
Assets,” or EITF 08-7, which clarifies the accounting for certain separately identifiable
intangible assets which an acquirer does not intend to actively use but intends to hold to prevent
its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business
combination to account for a defensive intangible asset as a separate unit of accounting which
should be amortized to expense over the period the asset diminishes in value. EITF 08-7 is
effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. It
is effective prospectively for intangible assets acquired on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. EITF 08-7 is effective for the
Company beginning January 1, 2009 and the Company will account for defensive intangible assets
acquired in future business combinations in accordance with its provisions.
(2) Acquisition of Pharmion Corporation
On March 7, 2008, Celgene acquired all of the outstanding common stock and stock options of
Pharmion in a transaction accounted for under the purchase method of accounting for business
combinations. Under the purchase method of accounting, the assets acquired and liabilities assumed
of Pharmion were recorded as of the acquisition date, at their respective fair values, and
consolidated with those of Celgene. The reported consolidated financial condition and results of
operations of Celgene after completion of the acquisition reflect these fair values. The operating
results of Pharmion are included in the Company’s consolidated financial statements from the date
of acquisition.
Celgene paid a total purchase price of $2.761 billion to acquire all of the outstanding Pharmion
common shares and stock options. Each Pharmion share of common stock (other than shares owned by
Celgene or its wholly owned subsidiaries, held in Pharmion’s treasury or to which appraisal rights
were perfected) was converted into the right to receive (i) 0.8367 shares of common stock of
Celgene and (ii) $25.00 in cash. The combination of cash and Celgene stock paid to Pharmion
stockholders consisted of $920.8 million in cash and approximately 30.8 million shares of Celgene
common stock valued at $1.749 billion. The purchase price included acquisition-related costs of
$26.2 million, the fair value of vested Celgene stock options issued of $44.9 million and the cost
of Celgene’s prior investment in Pharmion common shares held prior to the acquisition date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Prior to the acquisition, Pharmion was a global biopharmaceutical company that acquired, developed
and commercialized innovative products for the treatment of hematology and oncology patients.
Celgene acquired Pharmion to enhance its portfolio of therapies for patients with life-threatening
illnesses worldwide with the addition of Pharmion’s marketed products, and several products in
development for the treatment of hematological and solid tumor cancers. By combining this new
product portfolio with Celgene’s existing operational and financial capabilities, Celgene expects to enlarge its global
market share through increased product offerings and expanded clinical, regulatory and commercial
capabilities.
| Purchase Price Summary: | ||||
Stock issued at fair value |
$ | 1,749,222 | ||
Cash paid |
920,805 | |||
Acquisition-related costs |
26,187 | |||
Fully vested stock options issued |
44,924 | |||
Pharmion shares previously owned |
20,212 | |||
Total purchase price paid |
$ | 2,761,350 | ||
The acquisition was accounted for using the purchase method of accounting for business combinations
and the purchase price allocation has been finalized except for certain restructuring activities
related to contract terminations, with the following amounts being allocated to the assets acquired
and liabilities assumed based upon their respective fair values:
| March 7, 2008 | ||||
Current assets |
$ | 337,334 | ||
Property, plant and equipment |
8,404 | |||
Developed product rights |
509,732 | |||
In-process research and development |
1,740,000 | |||
Other noncurrent assets |
304 | |||
Assets acquired |
2,595,774 | |||
Restructuring |
(58,634 | ) | ||
Net income taxes payable |
(108,837 | ) | ||
Net deferred taxes |
(91,312 | ) | ||
Other liabilities assumed |
(142,055 | ) | ||
Net assets acquired |
2,194,936 | |||
Goodwill |
566,414 | |||
Acquisition cost |
$ | 2,761,350 | ||
The table above reflects revisions made to the purchase price allocation initially reported
primarily due to the adjustment of deferred taxes and tax accruals and restructuring reserves
established as part of the acquisition (see Note 3 below). During the fourth quarter of 2008, the
Company recorded additional goodwill of $73.5 million to adjust estimates of deferred taxes and tax
accruals made at the acquisition date. The tax accrual of
$108.8 million primarily relates to the recognition of
liabilities associated with Pharmion tax uncertainties in accordance with FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.”
During the fourth quarter of 2008, the Company reduced goodwill by $7.4 million to adjust other
purchase price allocation estimates, including a reduction of $10.4 million related to the
adjustment of restructuring reserve estimates.
The fair value of the acquired identifiable intangible assets consists primarily of developed
product rights for the following marketed products at date of acquisition: VIDAZA® IV
in the U.S. market, THALOMID® in certain foreign markets and other minor commercialized
products. The weighted average amortization period for these assets, in total, is 6.5 years. The
weighted average amortization period for compassionate use rights is 1.2 years, while the weighted
average amortization period for the developed product rights is 7.1 years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In-process research and development, or IPR&D, represents compounds under development by Pharmion
at the date of acquisition that had not yet achieved regulatory approval for marketing in certain
markets or had not yet been completed and have no alternative future use. The $1.74 billion
estimated fair value of these intangibles was derived using the multi-period excess-earnings
method, a form of the income approach. The IPR&D primarily related to development and approval
initiatives for VIDAZA® IV in the E.U. market, the oral form of azacitidine in the U.S.
and E.U. markets and THALOMID® in the E.U. market. The projected cash flows for
valuation purposes were based on key assumptions such as estimates of revenues and operating
profits related to the programs considering their stages of development; the time and resources
needed to complete the regulatory approval process for the products; and the life of the potential
commercialized products and associated risks, including the inherent difficulties and uncertainties
in obtaining regulatory approvals.
For VIDAZA® IV in the E.U. market, the related future net cash flows were estimated
using a risk-adjusted discount rate of 10.0% and an anticipated regulatory approval date in late
2008 with market exclusivity rights expected to continue through 2019. For the oral form of
azacitidine in the United States and European Union, the future net cash flows were estimated using
a risk-adjusted discount rate of 11.0% for each market. The anticipated regulatory approval in the
European Union was assumed for 2013 with exclusivity continuing through 2023, and the anticipated
regulatory approval in the United States was assumed for 2013 with exclusivity continuing through
2018. For THALOMID® in the E.U. market, the future net cash flows were estimated using
a risk-adjusted discount rate of 9.5% and an anticipated regulatory approval date in 2008 with
exclusivity continuing through 2018.
In accordance with FIN 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted
for by the Purchase Method,” the purchase price allocated to IPR&D intangible assets has been
expensed to income immediately subsequent to the acquisition because the compounds do not have any
alternative future use. This charge is not deductible for tax purposes.
The excess of purchase price over the fair value amounts assigned to the assets acquired and
liabilities assumed represents the goodwill amount resulting from the acquisition, which is not
deductible for tax purposes. The goodwill attributable to the Company’s acquisition of Pharmion
has been recorded as a noncurrent asset in the Company’s Consolidated Balance Sheet and will not be
amortized, but is subject to review for impairment in accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets.”
Prior to the acquisition, Celgene had licensed exclusive rights relating to the development and
commercial use of THALOMID® and its distribution system to Pharmion, and also maintained
a THALOMID® supply agreement with Pharmion. The Company accounted for these
arrangements in accordance with EITF Issue No. 04-1, “Accounting for Preexisting Relationships
between the Parties to a Business Combination.” In addition, the Company has valued the reacquired
THALOMID®-related rights in the valuation of developed product rights described above.
Any assets and liabilities that existed between Celgene and Pharmion as of the acquisition date
have been eliminated in the accompanying December 31, 2008 consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides unaudited pro forma financial information for the years ended December
31, 2008 and 2007 as if the acquisition had occurred as of the beginning of each year presented.
For each year presented, the unaudited pro forma results include the nonrecurring charge for IPR&D,
amortization of acquired intangible assets, elimination of expense and income related to
pre-acquisition agreements with Pharmion, reduced interest and investment income attributable to
cash paid for the acquisition and the amortization of the inventory step-up to fair value of
acquired Pharmion product inventories. The unaudited pro forma results do not reflect any
operating efficiencies or potential cost savings that may result from the combined operations of
Celgene and Pharmion. Accordingly, these unaudited pro forma results are presented for
illustrative purposes and are not intended to represent or be indicative of the actual results of
operations of the combined company that would have been achieved had the acquisition occurred at
the beginning of each period presented, nor are they intended to represent or be indicative of
future results of operations.
| (Unaudited) | ||||||||
| (Amounts in thousands, except per share) | 2008 | 2007 | ||||||
Total revenue |
$ | 2,307,135 | $ | 1,650,049 | ||||
Net loss |
$ | (1,578,940 | ) | $ | (1,715,773 | ) | ||
Net loss per common share: |
||||||||
Basic |
$ | (3.57 | ) | $ | (4.16 | ) | ||
Diluted |
$ | (3.57 | ) | $ | (4.16 | ) | ||
(3) Restructuring
The acquisition cost of Pharmion includes liabilities related primarily to the planned exit of
certain business activities, involuntary terminations and the relocation of certain Pharmion
employees. The Company expects that all contract termination assessments will be completed within
one year of the date of the acquisition.
The following table summarizes the changes to the restructuring reserves established as part of the
Pharmion acquisition on March 7, 2008 for the year ended December 31, 2008.
| Balance | Balance | |||||||||||
| March 7, 2008 | Payments | December 31, 2008 | ||||||||||
Severance costs |
$ | 17,438 | $ | (15,784 | ) | $ | 1,654 | |||||
Contract termination fees |
31,151 | (8,666 | ) | 22,485 | ||||||||
Facility closing costs |
5,595 | (2,931 | ) | 2,664 | ||||||||
Other |
4,450 | (3,616 | ) | 834 | ||||||||
Total restructuring costs |
$ | 58,634 | $ | (30,997 | ) | $ | 27,637 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(4) Earnings per Share (EPS)
| (Amounts in thousands, except per share) | 2008 | 2007 | 2006 | |||||||||
Net income (loss) |
$ | (1,533,653 | ) | $ | 226,433 | $ | 68,981 | |||||
Interest expense on convertible debt, net
of tax |
— | 5,394 | 5,571 | |||||||||
Net income (loss) for diluted computation |
$ | (1,533,653 | ) | $ | 231,827 | $ | 74,552 | |||||
Weighted average shares: |
||||||||||||
Basic |
442,620 | 383,225 | 352,217 | |||||||||
Effect of dilutive securities: |
||||||||||||
Options, warrants and other incentives |
— | 16,710 | 21,949 | |||||||||
Convertible debt |
— | 31,923 | 33,015 | |||||||||
Diluted |
442,620 | 431,858 | 407,181 | |||||||||
Net Income (Loss) Per Share: |
||||||||||||
Basic |
$ | (3.46 | ) | $ | 0.59 | $ | 0.20 | |||||
Diluted |
$ | (3.46 | ) | $ | 0.54 | $ | 0.18 | |||||
The total number of potential common shares excluded from the diluted earnings per share
computation because the exercise price of the stock options exceeded the average price of the
Company’s common stock was 14,563,880, 7,018,350 and 3,647,015 shares in 2008, 2007 and 2006,
respectively.
For the year ended December 31, 2008, an additional 19,762,916 of potential common shares were
excluded from the diluted loss per share calculation because their
effect was anti-dilutive as a result of the Company’s 2008 net
loss.
(5) Financial Instruments and Fair Value Measurement
The table below presents information about assets and liabilities that are measured at fair value
on a recurring basis as of December 31, 2008 and the valuation techniques the Company utilized to
determine such fair value. In general, fair values determined based on Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical assets or liabilities. The Company’s
Level 1 assets consist of marketable equity securities. Fair values determined based on Level 2
inputs utilize observable quoted prices for similar assets and liabilities in active markets and
observable quoted prices from identical or similar assets in markets that are not very active. The
Company’s Level 2 assets consist of U.S. Treasury fixed rate securities, U.S. government-sponsored
agency fixed rate securities, U.S. government-sponsored agency mortgage-backed fixed rate
obligations, FDIC guaranteed fixed rate corporate debt, forward currency contracts and warrants for
the purchase of equity securities. Fair values determined based on Level 3 inputs utilize
unobservable inputs and include valuations of assets or liabilities for which there is little, if
any, market activity. The Company’s Level 3 assets consist of a private cash fund with a carrying
value calculated pursuant to the amortized cost method, which values each investment at its
acquisition cost as adjusted for amortization of premium or accumulation of discount over the
investment’s remaining life, net of impairment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| Quoted Price in | Significant | Significant | ||||||||||||||
| Active Markets for | Other Observable | Unobservable | ||||||||||||||
| Balance at | Identical Assets | Inputs | Inputs | |||||||||||||
| December 31, 2008 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Available-for-sale securities |
$ | 1,129,705 | $ | 407 | $ | 1,118,244 | $ | 11,054 | ||||||||
Forward currency contracts |
(57,486 | ) | — | (57,486 | ) | — | ||||||||||
| $ | 1,072,219 | $ | 407 | $ | 1,060,758 | $ | 11,054 | |||||||||
The following table is a roll-forward of the fair value of the private cash fund, determined by
Level 3 inputs:
| Fair Value | ||||
| Measurements | ||||
| Using Significant | ||||
| Unobservable Inputs | ||||
Balance at December 31, 2007 |
$ | 37,038 | ||
Total gains or losses (realized and unrealized) |
— | |||
Settlements |
(25,984 | ) | ||
Transfers in and/or out of Level 3 |
— | |||
Balance at December 31, 2008 |
$ | 11,054 | ||
Foreign Currency Forward Contracts: The Company uses foreign currency forward contracts to hedge
specific forecasted transactions denominated in foreign currencies and to reduce exposures to
foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
The Company enters into foreign currency forward contracts to protect against changes in foreign
currency cash flows resulting from changes in foreign currency exchange rates, primarily associated
with U.S. dollar denominated expenses incurred by subsidiaries in Europe. The Company also enters
into foreign currency forward contracts to protect against changes in anticipated foreign currency
cash flows resulting from changes in foreign currency exchange rates, primarily associated with
product sales in Europe. These foreign currency forward contracts are designated as cash flow
hedges and accordingly, to the extent effective, any unrealized gains or losses on them are
reported in other comprehensive income (loss) and reclassified to earnings in the same periods
during which the underlying hedged transactions affect earnings. Any ineffectiveness on these
foreign currency forward contracts is reported in other income (expense), net.
The foreign currency forward hedging contracts outstanding at December 31, 2008 had an aggregate
notional amount of approximately $704.2 million and had settlement dates within 24 months. The
fair value of these contracts was a net liability of $48.4 million at December 31, 2008 and is
reflected in other current assets of $1.6 million and other current liabilities of $50.0 million.
This included losses, net of tax, of $50.1 million for the year ended December 31, 2008 included in
other comprehensive income (loss).
Hedge ineffectiveness for the year ended December 31, 2008 was insignificant. Changes in time
value which the Company excluded from the hedge effectiveness assessment for the year ended
December 31, 2008 was also insignificant and was included in other income (expense), net.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company also enters into foreign currency forward contracts to reduce exposures to foreign
currency fluctuations of certain recognized assets and liabilities denominated in foreign
currencies. These foreign currency forward contracts have not been designated as hedges and,
accordingly, any changes in their fair
value are recognized in other income (expense), net in the current period. The aggregate notional
amount of the foreign currency forward non-designated hedging contracts outstanding at December 31,
2008 and 2007 were approximately $56.6 million and $43.1 million, respectively. The fair value of
these contracts was a net liability of $9.1 million and is included in other current liabilities at
December 31, 2008 and was a net asset of $0.1 million and is included in other current assets at
December 31, 2007.
Other: The carrying value of the note payable to Siegfried was $26.0 million at December 31, 2008
and approximated its fair value (See Note 10).
(6) Cash, Cash Equivalents and Marketable Securities Available-for-Sale
Money market funds of $691 million and $1.006 billion at December 31, 2008 and 2007, respectively,
were recorded at cost, which approximates fair value and are included in cash and cash equivalents.
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated
fair value of available-for-sale securities by major security type and class of security at
December 31, 2008 and 2007 were as follows:
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| December 31, 2008 | Cost | Gain | Loss | Value | ||||||||||||
U.S. Treasury securities |
$ | 263,541 | $ | 8,394 | $ | — | $ | 271,935 | ||||||||
U.S. government-sponsored agency securities |
571,072 | 16,985 | (212 | ) | 587,845 | |||||||||||
U.S. government-sponsored agency MBS |
229,847 | 3,241 | (429 | ) | 232,659 | |||||||||||
FDIC guaranteed corporate debt |
25,546 | 265 | (6 | ) | 25,805 | |||||||||||
Private cash fund shares |
11,054 | — | — | 11,054 | ||||||||||||
Marketable equity securities |
407 | — | — | 407 | ||||||||||||
Total available-for-sale marketable securities |
$ | 1,101,467 | $ | 28,885 | $ | (647 | ) | $ | 1,129,705 | |||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| December 31, 2007 | Cost | Gain | Loss | Value | ||||||||||||
U.S. Treasury securities |
150,175 | 1,410 | (28 | ) | 151,557 | |||||||||||
U.S. government-sponsored agency securities |
969,312 | 10,690 | (131 | ) | 979,871 | |||||||||||
U.S. government-sponsored agency MBS |
216,255 | 2,253 | (108 | ) | 218,400 | |||||||||||
Corporate debt securities |
13,448 | 19 | (1,611 | ) | 11,856 | |||||||||||
Private cash fund shares |
37,038 | — | — | 37,038 | ||||||||||||
Marketable equity securities |
20,212 | 101,711 | — | 121,923 | ||||||||||||
Total available-for-sale marketable securities |
$ | 1,406,440 | $ | 116,083 | $ | (1,878 | ) | $ | 1,520,645 | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. government-sponsored agency securities include general unsecured obligations of the issuing
agency. U.S. government-sponsored mortgage-backed securities, or MBS, include fixed rate
asset-backed securities issued by the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation and the Government National Mortgage Association. FDIC guaranteed corporate
debt include obligations of bank holding companies that meet certain criteria set forth under the
Temporary Liquidity Guaranty Program, or TLGP, and are unconditionally guaranteed by the FDIC.
Private cash fund shares are investments in enhanced cash commingled funds. Marketable equity
securities at December 31, 2007 consisted of the Company’s investment in the common shares of
Pharmion, which were subsequently eliminated with the acquisition of Pharmion in March 2008. Net
unrealized gains in mortgage-backed fixed rate obligations, U.S. Treasury fixed rate securities and
U.S. government-sponsored agency fixed rate securities primarily reflect the impact of decreased
interest rates at December 31, 2008 and December 31, 2007. Unrealized losses related to corporate
debt securities at December 31, 2007 were primarily due to widening credit spreads.
The fair value of available-for-sale securities with unrealized losses at December 31, 2008 was as
follows:
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
| Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| December 31, 2008 | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
U.S. government-sponsored agency securities |
$ | 35,341 | $ | (212 | ) | $ | 35,341 | $ | (212 | ) | ||||||||||||||
U.S. government-sponsored MBS |
12,582 | (316 | ) | 7,551 | (113 | ) | 20,133 | (429 | ) | |||||||||||||||
FDIC guaranteed corporate debt |
3,999 | (6 | ) | 3,999 | (6 | ) | ||||||||||||||||||
Total |
$ | 51,922 | $ | (534 | ) | $ | 7,551 | $ | (113 | ) | $ | 59,473 | $ | (647 | ) | |||||||||
During the years ended December 31, 2008 and 2007, the Company determined that certain securities
had sustained an other-than-temporary impairment partly due to a reduction in future estimated cash
flows and an adverse change in an investee’s business operations. The Company recognized
impairment losses of $6.5 million and $5.5 million, respectively, which were recorded in interest
and investment income, net.
Duration periods of available-for-sale debt securities were as follows at December 31, 2008:
| Amortized | Fair | |||||||
| Cost | Value | |||||||
Duration of one year or less |
$ | 402,819 | $ | 408,274 | ||||
Duration of one through three years |
600,915 | 617,802 | ||||||
Duration of three through five years |
76,190 | 80,138 | ||||||
Duration of over five years |
21,136 | 23,084 | ||||||
Total |
$ | 1,101,060 | $ | 1,129,298 | ||||
(7) Inventory
A summary of inventories by major category follows:
| 2008 | 2007 | |||||||
Raw materials |
$ | 16,910 | $ | 8,899 | ||||
Work in process |
33,170 | 21,214 | ||||||
Finished goods |
50,096 | 18,963 | ||||||
Total |
$ | 100,176 | $ | 49,076 | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventory in 2008 totaled $100.2 million and increased by $51.1 million compared to 2007 primarily
as a result of the addition of VIDAZA® inventory and a higher level of
THALOMID® inventory in anticipation of launches in European markets.
(8) Property, Plant and Equipment
Property,
plant and equipment at December 31, 2008 and 2007 consisted of the following:
| 2008 | 2007 | |||||||
Land |
$ | 20,233 | $ | 19,250 | ||||
Buildings |
64,691 | 37,850 | ||||||
Building and operating equipment |
5,268 | 4,286 | ||||||
Leasehold improvements |
23,286 | 14,499 | ||||||
Machinery and equipment |
90,751 | 72,925 | ||||||
Furniture and fixtures |
16,772 | 12,310 | ||||||
Computer equipment and software |
63,093 | 45,676 | ||||||
Construction in progress |
62,263 | 55,304 | ||||||
Subtotal |
346,357 | 262,100 | ||||||
Less accumulated depreciation and amortization |
97,386 | 64,672 | ||||||
Total |
$ | 248,971 | $ | 197,428 | ||||
(9) Investment in Affiliated Companies
At December 31, 2008, the Company held 10,364,864 shares of EntreMed, Inc. common stock,
representing an ownership interest of approximately 11.8% in EntreMed. The Company also holds
3,350,000 shares of EntreMed voting preferred shares that are convertible into 16,750,000 shares of
common stock and determined that it has the ability to exercise significant influence over EntreMed
and therefore applies the equity method of accounting to its common stock investment. The Company
also owns an interest in two limited partnership investment funds to which it applies the equity
method of accounting.
A summary of the Company’s equity investment in affiliated companies follows:
| Investment in Affiliated Companies | 2008 | 2007 | ||||||
Investment in affiliated companies (1) |
$ | 14,862 | $ | 2,191 | ||||
Excess of investment over share of equity
(2) |
3,530 | 12,231 | ||||||
Investment in affiliated companies |
$ | 18,392 | $ | 14,422 | ||||
| Equity in Losses of Affiliated Companies | 2008 | 2007 | 2006 | |||||||||
Affiliated companies losses (1) |
$ | 9,727 | $ | 4,187 | $ | 7,931 | ||||||
Amortization of intangibles |
— | 301 | 302 | |||||||||
Equity in losses of affiliated companies |
$ | 9,727 | $ | 4,488 | $ | 8,233 | ||||||
| (1) | The Company records its interest and share of losses based on its ownership percentage. The amount in 2008 includes other-than-temporary impairment losses totaling $6.0 million. | |
| (2) | Consists of goodwill. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The investment in affiliated companies for 2008 includes additional equity investments totaling
$12.9 million and other-than-temporary impairment losses totaling $6.0 million. These impairment
losses were based on an evaluation of several factors, including a decrease in fair value of the
equity investments below their cost.
(10) Other Financial Information
Accrued expenses at December 31, 2008 and 2007 consisted of the following:
| 2008 | 2007 | |||||||
Compensation |
$ | 79,743 | $ | 45,280 | ||||
Interest, royalties, license fees and milestones |
17,690 | 15,749 | ||||||
Sales returns |
17,799 | 16,734 | ||||||
Rebates, distributor chargebacks and distributor
services |
34,196 | 18,041 | ||||||
Clinical trial costs and grants |
73,286 | 37,885 | ||||||
Restructuring reserves |
27,637 | — | ||||||
Other |
55,769 | 25,531 | ||||||
Total |
$ | 306,120 | $ | 159,220 | ||||
Other current liabilities at December 31, 2008 and 2007 consisted of the following:
| 2008 | 2007 | |||||||
Foreign currency forward contracts |
$ | 59,068 | $ | — | ||||
Other |
55,620 | 26,625 | ||||||
Total |
$ | 114,688 | $ | 26,625 | ||||
Other non-current liabilities at December 31, 2008 and 2007 consisted of the following:
| 2008 | 2007 | |||||||
Deferred compensation and long-term incentives |
$ | 33,566 | $ | 26,549 | ||||
Notes
payable - Siegfried, net of current portion |
22,203 | 22,636 | ||||||
Deferred income taxes |
— | 10,604 | ||||||
Other |
9,220 | 3,010 | ||||||
Total |
$ | 64,989 | $ | 62,799 | ||||
Notes Payable: In December 2006, the Company purchased an active pharmaceutical ingredient, or
API, manufacturing facility and certain other assets and liabilities from Siegfried Ltd. and
Siegfried Dienste AG (referred to here together as “Siegfried”) located in Zofingen, Switzerland.
The transaction included a technical service agreement which will allow the Company to retain the
necessary support to operate the plant. The assets were purchased for 55.5 million Swiss Francs
(approximately $46.0 million), consisting of payment of approximately 15.0 million Swiss Francs at
the closing, 4.1 million Swiss Francs payable in each of the first five following years and 4.0
million Swiss Francs in each of the subsequent five years. The present value of the note payable
was approximately $26.0 million at December 31, 2008, of which $3.8 million, representing the
amount due within one-year, was included in other current liabilities with the remainder included
in other non-current liabilities. The Company imputed interest on the note payable using the
effective yield method with a discount rate of 7.68%. At December 31, 2008, payments totaling
approximately $18.7 million due over years 6 to 10 are forgiven if, pursuant to its right, the
Company elects to sell the facility back to Siegfried.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(11) Convertible Debt
In June 2003, the Company issued an aggregate principal amount of $400.0 million of unsecured
convertible notes due June 2008, referred to herein as the convertible notes. The convertible
notes had a five-year term and a coupon rate of 1.75% payable semi-annually on June 1 and December
1. Each $1,000 principal amount of convertible notes was convertible into 82.5592 shares of common
stock as adjusted, or a conversion price of $12.1125 per share, which represented a 50% premium to
the closing price on May 28, 2003 of the Company’s common stock of $8.075 per share, after
adjusting prices for the two-for-one stock splits effected on February 17, 2006 and October 22,
2004. As of their maturity date, June 1, 2008, pursuant to the terms of the indenture, as amended,
governing the convertible notes, substantially all of the convertible notes were converted into an
aggregate 33,022,740 shares of common stock at the conversion price, with the balance paid in cash.
(12) Intangible Assets and Goodwill
Intangible Assets: The Company’s intangible assets consist of developed product rights from the
Pharmion acquisition, contract-based licenses, technology and an acquired workforce. Remaining
amortization periods related to these categories range from 3 to 12 years. A summary of intangible
assets by category follows:
| Gross | Intangible | Weighted | ||||||||||||||
| Carrying | Accumulated | Assets, | Average | |||||||||||||
| December 31, 2008 | Value | Amortization | Net | Life (Years) | ||||||||||||
Acquired developed product rights |
$ | 533,339 | $ | (102,331 | ) | $ | 431,008 | 6.5 | ||||||||
License |
4,250 | (922 | ) | 3,328 | 13.8 | |||||||||||
Technology |
290 | (59 | ) | 231 | 12.6 | |||||||||||
Acquired workforce |
337 | (140 | ) | 197 | 5.0 | |||||||||||
Total |
$ | 538,216 | $ | (103,452 | ) | $ | 434,764 | 6.5 | ||||||||
| Gross | Intangible | Weighted | ||||||||||||||
| Carrying | Accumulated | Assets, | Average | |||||||||||||
| December 31, 2007 | Value | Amortization | Net | Life (Years) | ||||||||||||
Penn T supply agreements |
$ | 109,982 | $ | (21,470 | ) | $ | 88,512 | 12.9 | ||||||||
License |
4,250 | (614 | ) | 3,636 | 13.8 | |||||||||||
Technology |
297 | (36 | ) | 261 | 12.0 | |||||||||||
Acquired workforce |
318 | (69 | ) | 249 | 5.0 | |||||||||||
Total |
$ | 114,847 | $ | (22,189 | ) | $ | 92,658 | 12.9 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The gross carrying value of intangibles increased by $423.4 million from December 31, 2007 to
December 31, 2008, primarily due to the developed product rights obtained as part of the Pharmion
acquisition in March 2008, which was partly offset by the elimination of the Penn T supply
agreements. An immaterial amount of increase in gross carrying value of intangibles was due to
changes in foreign exchange rates.
Amortization of intangible assets was $104.4 million, $9.5 million and $9.0 million for the years
ended December 31, 2008, 2007 and 2006, respectively. The increase in amortization expense was due
to amortization of the intangible assets resulting from the Pharmion acquisition. Assuming no
changes in the gross carrying amount of intangible assets, the amortization of intangible assets
for the next five years is estimated to be approximately $83.8 million for the year ending December
31, 2009 and approximately $64.4 million for each of the years ending December 31, 2010 through
2013.
Goodwill: At December 31, 2008, the Company’s goodwill related to the March 7, 2008 acquisition of
Pharmion and the October 21, 2004 acquisition of Penn T Limited. The goodwill related to the
Pharmion acquisition reflects the final allocation of the Pharmion purchase price, except for
certain restructuring activities related to contract terminations.
The change in carrying value of goodwill is summarized as follows:
Balance, December 31, 2006 |
$ | 38,494 | ||
Foreign currency translation |
539 | |||
Balance, December 31, 2007 |
$ | 39,033 | ||
Acquisition of Pharmion |
566,414 | |||
Tax benefit on the exercise of Pharmion converted stock
options |
(12,054 | ) | ||
Foreign currency translation |
(4,571 | ) | ||
Balance, December 31, 2008 |
$ | 588,822 | ||
(13) Related Party Transactions
Under a license agreement between EntreMed and Royalty Pharma Finance Trust, EntreMed is entitled
to share in the THALOMID® royalty payments that the Company pays to Royalty Pharma on
annual THALOMID® sales in the United States above a certain threshold. The Company’s
share of EntreMed’s royalties, based on its ownership percentage in EntreMed, is eliminated from
cost of goods sold and reflected in equity in losses of affiliated companies (see Note 9).
(14) Stockholders’ Equity
Preferred Stock: The Board of Directors is authorized to issue, at any time, without further
stockholder approval, up to 5,000,000 shares of preferred stock, and to determine the price,
rights, privileges, and preferences of such shares.
Common Stock: At December 31, 2008, the Company was authorized to issue up to 575,000,000 shares
of common stock of which shares of common stock issued totaled 463,274,296.
Treasury Stock: During 2008, 2007 and 2006, certain employees exercised stock options containing a
reload feature and, pursuant to the Company’s stock option plan, tendered 118,551, 106,517 and
2,348,010 mature shares, respectively, related to stock option exercises. Such tendered shares are
reflected as treasury stock. At December 31, 2008, treasury shares totaled 4,144,667.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of changes in common stock issued and treasury stock is presented below after adjustments
of the two-for-one stock split in February 2006:
| Common Stock | ||||||||
| Common Stock | in Treasury | |||||||
December 31, 2005 |
344,125,158 | (1,953,282 | ) | |||||
Exercise of stock options and warrants |
15,839,310 | 42,575 | ||||||
Issuance of common stock for employee benefit plans |
— | 201,164 | ||||||
Treasury stock — mature shares tendered related to option exercises |
— | (2,348,010 | ) | |||||
Conversion of long-term convertible notes |
7,841 | — | ||||||
Issuance of restricted stock |
120,000 | — | ||||||
Issuance of common stock in connection with public offering |
20,000,000 | — | ||||||
December 31, 2006 |
380,092,309 | (4,057,553 | ) | |||||
Exercise of stock options and warrants |
10,271,307 | — | ||||||
Issuance of common stock for employee benefit plans |
— | 137,954 | ||||||
Treasury stock — mature shares tendered related to option exercises |
— | (106,517 | ) | |||||
Conversion of long-term convertible notes |
16,787,078 | — | ||||||
December 31, 2007 |
407,150,694 | (4,026,116 | ) | |||||
Issuance of common stock for the Pharmion acquisition |
30,817,855 | — | ||||||
Exercise of stock options and warrants |
8,965,026 | — | ||||||
Issuance of common stock for employee benefit plans |
114,220 | — | ||||||
Treasury stock — mature shares tendered related to option exercises |
— | (118,551 | ) | |||||
Conversion of long-term convertible notes |
16,226,501 | — | ||||||
December 31, 2008 |
463,274,296 | (4,144,667 | ) | |||||
Rights Plan: During 1996, the Company adopted a shareholder rights plan, or the Rights Plan. The
Rights Plan involves the distribution of one right as a dividend on each outstanding share of the
Company’s common stock to each holder of record on September 26, 1996. Each right entitles the
holder to purchase one-tenth of a share of common stock. The Rights trade in tandem with the
common stock until, and are exercisable upon, certain triggering events, and the exercise price is
based on the estimated long-term value of the Company’s common stock. In certain circumstances,
the Rights Plan permits the holders to purchase shares of the Company’s common stock at a
discounted rate. The Company’s Board of Directors retains the right at all times prior to
acquisition of 15% of the Company’s voting common stock by an acquirer, to discontinue the Rights
Plan through the redemption of all rights or to amend the Rights Plan in any respect. The Rights
Plan, as amended on February 17, 2000, increased the exercise price per Right from $100.00 to
$700.00 and extended the final expiration date of the Rights Plan to February 17, 2010. On August
13, 2003, the Rights Plan was further amended to permit a qualified institutional investor to
beneficially own up to 17% of the Company’s common stock outstanding without being deemed an
“acquiring person,” if such institutional investor meets certain requirements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(15) Share-Based Compensation
The Company has a stockholder approved stock incentive plan that provides for the granting of
options, restricted stock awards, stock appreciation rights, performance awards and other
share-based awards to employees and officers of the Company. The Management Compensation and
Development Committee of the Board of Directors, or the Compensation Committee, may determine the
type, amount and terms, including vesting, of any awards made under the plan. The aggregate number
of shares of common stock subject to awards under the plan was
94,155,135 shares as of December 31,
2008, subject to adjustment under certain circumstances. On June 18, 2008, the stockholders of the
Company approved an amendment and restatement of the plan, which included the following key
modifications: adoption of an aggregate share reserve of 52,372,191 shares of Common Stock (which
number reflects 11,844,865 shares of Common Stock expiring under the plan and 10,155,135 new shares
of Common Stock, plus 30,372,191 shares underlying outstanding awards previously granted under the
plan as of March 19, 2008); extension of the term of the plan through April 16, 2018; addition of
the authority to grant other stock-based awards, including restricted stock units, under the plan;
and renaming the plan from the 1998 Incentive Plan to the 2008 Stock Incentive Plan.
With respect to options granted under the 2008 Stock Incentive Plan, the exercise price may not be
less than the market closing price of the common stock on the date of grant. In general, options
granted under the 2008 Stock Incentive Plan vest over periods ranging from immediate vesting to
four-year vesting and expire ten years from the date of grant, subject to earlier expiration in
case of termination of employment unless the participant meets the retirement provision under which
the option would have a maximum of three additional years to vest. The vesting period for options
granted under the 2008 Stock Incentive Plan is subject to certain acceleration provisions if a
change in control, as defined in the 2008 Stock Incentive Plan, occurs. Plan participants may
elect to exercise options at any time during the option term. However, any shares so purchased
which have not vested as of the date of exercise shall be subject to forfeiture, which will lapse
in accordance with the established vesting time period.
In June 1995, the stockholders of the Company approved the 1995 Non-Employee Directors’ Incentive
Plan, or the 1995 Incentive Plan, which, as amended, provides for the granting of non-qualified
stock options to purchase an aggregate of not more than 7,700,000 shares of common stock (subject
to adjustment under certain circumstances) to directors of the Company who are not officers or
employees of the Company, or Non-Employee Directors. Each new Non-Employee Director, upon the date
of election or appointment, receives an option to purchase 25,000 shares of common stock, which
vest in four equal annual installments commencing on the first anniversary of the date of grant.
Continuing Non-Employee Directors receive quarterly grants of 4,625 options aggregating 18,500
options annually, which vest in full one year from the date of grant. The 1995 Incentive Plan also
provides for a discretionary grant upon the date of each annual meeting of an additional option to
purchase up to 5,000 shares to a Non-Employee Director who serves as a member (but not a chairman)
of a committee of the Board of Directors and an option to purchase up to 10,000 shares to a
Non-Employee Director who serves as the chairman of a committee of the Board of Directors. All
options are granted at an exercise price that equals the closing market price of the Company’s
common stock at the grant date and expire ten years after the date of grant. The 1995 Incentive
Plan will terminate on June 30, 2015.
As a result of the acquisition of Anthrogenesis in December 2002, the Company acquired the
Anthrogenesis Qualified Employee Incentive Stock Option Plan and the Non-Qualified Recruiting and
Retention Stock Option Plan. Neither plan has been approved by the Company’s stockholders. No
future awards will be granted under either plan. Stock options issued and outstanding under both
plans are fully vested at December 31, 2008.
Shares of
common stock available for future share-based grants under all plans
were 16,938,083 at
December 31, 2008.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the components of share-based compensation cost charged to the
consolidated statements of operations for years ended December 31, 2008, 2007 and 2006:
| 2008 | 2007 | 2006 | ||||||||||
Cost of goods sold (excluding amortization expense) |
$ | 2,535 | $ | 2,061 | $ | 1,637 | ||||||
Research and development |
44,007 | 16,685 | 12,740 | |||||||||
Selling, general and administrative |
60,036 | 35,963 | 62,266 | |||||||||
Other income and expense, net |
— | 4,116 | — | |||||||||
Total share-based compensation expense |
$ | 106,578 | $ | 58,825 | $ | 76,643 | ||||||
Tax benefit related to share-based compensation expense |
21,527 | 10,220 | 23,447 | |||||||||
Reduction in net income |
$ | 85,051 | $ | 48,605 | $ | 53,196 | ||||||
Reduction in earnings per share: |
||||||||||||
Basic |
$ | 0.19 | $ | 0.13 | $ | 0.15 | ||||||
Diluted |
$ | 0.19 | $ | 0.11 | $ | 0.13 | ||||||
Included in share-based compensation expense for the years ended December 31, 2008, 2007 and 2006
was compensation expense related to non-qualified stock options of $77.5 million, $34.0 million and
$57.2 million, respectively.
Share-based compensation cost included in inventory was $0.8 million and $0.4 million at December
31, 2008 and 2007, respectively. As of December 31, 2008, there was $291.5 million of total
unrecognized compensation cost related to stock options granted under the plans. That cost will be
recognized over an expected remaining weighted-average period of 2.6 years.
SFAS 123R, which replaced SFAS 123, and superseded APB 25, requires that compensation cost relating
to share-based payment transactions be recognized in financial statements based on the fair value
for all awards granted after the date of adoption as well as for awards existing at the date of
adoption for which the requisite service has not been rendered as of the date of adoption.
The Company adopted SFAS 123R effective January 1, 2006 and selected the Black-Scholes method of
valuation to determine the fair value of share-based payments. The Company applied the modified
prospective application method under which the provisions of SFAS 123R apply to new awards and to
awards modified, repurchased or cancelled after the adoption date. Additionally, compensation cost
for the portion of the awards for which the requisite service has not been rendered that are
outstanding as of the adoption date is recognized in the Consolidated Statement of Operations over
the remaining service period after the adoption date based on the award’s original estimate of fair
value of the award. The modified prospective transition method as prescribed by SFAS 123R does not
require restatement of prior periods to reflect the impact of adopting SFAS 123R. SFAS 123R
required compensation costs to be recognized based on the estimated number of awards expected to
vest. Changes in the estimated forfeiture rates are reflected prospectively.
In computing the initial APIC Pool of excess tax benefits, the Company applied the methodology
described in paragraph 81 of SFAS 123R. Paragraph 81 of SFAS 123R prohibits recognition of a
deferred tax asset for excess tax benefits that have not been realized. The Company has adopted
the tax law method as its accounting policy regarding the ordering of tax benefits to determine
whether an excess tax benefit has been realized.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash received from stock option exercises for the years ended December 31, 2008, 2007 and 2006 was
$128.6 million, $144.7 million and $113.1 million, respectively, and the excess tax benefit
recognized was $153.0 million, $143.0 million and $102.0 million, respectively.
The weighted-average grant-date fair value per share of the stock options granted during the years
ended December 31, 2008, 2007 and 2006 was $25.94, $24.54 and $17.54, respectively. The Company
estimated the fair value of options granted using a Black-Scholes option pricing model with the
following assumptions:
| 2008 | 2007 | 2006 | ||||
Risk-free interest rate |
1.46% – 4.02% | 3.45% – 5.00% | 4.50% – 5.24% | |||
Expected volatility |
39% – 55% | 37% – 43% | 40% – 52% | |||
Weighted average expected volatility |
44% | 38% | 47% | |||
Expected term (years) |
3.5 – 4.9 | 2.9 – 4.9 | 3.1 – 5.0 | |||
Expected dividend yield |
0% | 0% | 0% |
The fair value of stock options granted after January 1, 2006 is allocated to compensation cost on
a straight-line basis. The fair value of stock options granted before January 1, 2006 is
recognized over the attribution period using the graded vesting attribution approach. Compensation
cost is allocated over the requisite service periods of the awards, which are generally the vesting
periods.
The risk-free interest rate is based on the U.S. Treasury zero-coupon curve. Expected volatility
of stock option awards is estimated based on the implied volatility of the Company’s publicly
traded options with settlement dates of six months. The use of implied volatility was based upon
the availability of actively traded options on the Company’s common stock and the assessment that
implied volatility is more representative of future stock price trends than historical volatility.
Prior to the adoption of SFAS 123R, the Company calculated expected volatility using only
historical stock price volatility. The expected term of an employee share option is the period of
time for which the option is expected to be outstanding. The Company has made a determination of
expected term by analyzing employees’ historical exercise experience from its history of grants and
exercises in the Company’s option database and management estimates. Forfeiture rates are estimated
based on historical data.
In December 2005, the Board of Directors approved a resolution to grant the 2006 annual stock
option awards under the 1998 Incentive Stock Plan in 2005. All stock options awarded were granted
fully vested. Half of the options granted had an exercise price of $34.05 per option, which was at
a 5% premium to the closing price of the Company’s common stock of $32.43 per share on the grant
date of December 29, 2005; the remaining options granted had an exercise price of $35.67 per
option, which was at a 10% premium to the closing price of the Company’s common stock of $32.43 per
share on the grant date of December 29, 2005. The Board’s decision to grant these options was in
recognition of the REVLIMID® regulatory approval and in response to a review of the
Company’s long-term incentive compensation programs. As these options were granted prior to the
adoption of SFAS 123R, they were accounted for under APB 25, and resulted in the Company not being
required to recognize cumulative compensation expense of approximately $70.8 million for the
four-year period ending December 31, 2009.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock option transactions for the years ended December 31, 2008, 2007 and 2006 under all plans are
as follows:
| Weighted | ||||||||||||||||
| Weighted | Average Remaining | Aggregate | ||||||||||||||
| Average Exercise | Contractual | Intrinsic Value | ||||||||||||||
| Options | Price Per Option | Term (Years) | (In Thousands) | |||||||||||||
Outstanding at December 31, 2005 |
50,594,378 | $ | 13.70 | 6.9 | $ | 909,083 | ||||||||||
Changes during the Year: |
||||||||||||||||
Granted |
3,705,816 | 43.86 | — | |||||||||||||
Exercised |
(15,839,310 | ) | 10.08 | — | ||||||||||||
Forfeited |
(1,251,915 | ) | 14.94 | — | ||||||||||||
Expired |
(97,281 | ) | 11.71 | — | ||||||||||||
Outstanding at December 31, 2006 |
37,111,688 | $ | 18.18 | 6.0 | $ | 959,600 | ||||||||||
Changes during the Year: |
||||||||||||||||
Granted |
6,719,342 | 61.71 | — | |||||||||||||
Exercised |
(10,271,307 | ) | 14.30 | — | ||||||||||||
Forfeited |
(834,095 | ) | 30.22 | — | ||||||||||||
Expired |
(8,194 | ) | 45.88 | — | ||||||||||||
Outstanding at December 31, 2007 |
32,717,434 | $ | 28.03 | 6.1 | $ | 702,341 | ||||||||||
Changes during the Year: |
||||||||||||||||
Granted |
9,551,924 | 57.31 | — | |||||||||||||
Issued — Pharmion acquisition |
1,206,031 | 56.17 | — | |||||||||||||
Exercised |
(8,965,026 | ) | 14.76 | — | ||||||||||||
Forfeited |
(639,940 | ) | 52.15 | — | ||||||||||||
Expired |
(64,813 | ) | 59.60 | — | ||||||||||||
Outstanding at December 31, 2008 |
33,805,610 | $ | 40.39 | 6.5 | $ | 617,873 | ||||||||||
Vested at December 31, 2008
or expected to vest in the future |
33,322,341 | $ | 40.08 | 6.5 | $ | 617,192 | ||||||||||
Vested at December 31, 2008 |
18,636,610 | $ | 25.61 | 4.7 | $ | 564,564 | ||||||||||
The total intrinsic value of stock options exercised during the years ended December 31, 2008, 2007
and 2006 was $443.7 million, $470.5 million and $540.3 million, respectively. The Company
primarily utilizes newly issued shares to satisfy the exercise of stock options. The total fair
value of shares vested during the years ended December 31, 2008, 2007 and 2006 was $30.4 million,
$38.9 million and $36.8 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes information concerning options outstanding under the 2008 and 1995
Incentive Plans at December 31, 2008:
| Options Outstanding | Options Vested | |||||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||||
| Average | Weighted | Average | Weighted | |||||||||||||||||||||
| Exercise | Average | Exercise | Average | |||||||||||||||||||||
| Range of | Number | Price | Remaining | Number | Price | Remaining | ||||||||||||||||||
| Exercise Prices | Outstanding | Per Option | Term (Years) | Vested | Per Option | Term (Years) | ||||||||||||||||||
$0.04 – 10.00 |
4,116,293 | $ | 5.32 | 2.3 | 4,116,293 | $ | 5.32 | 2.3 | ||||||||||||||||
10.01 – 20.00 |
5,262,733 | 14.32 | 5.1 | 4,740,055 | 14.17 | 5.0 | ||||||||||||||||||
20.01 – 30.00 |
2,703,122 | 25.25 | 5.6 | 2,211,050 | 25.50 | 5.4 | ||||||||||||||||||
30.01 – 40.00 |
3,445,296 | 34.63 | 6.3 | 3,269,341 | 34.58 | 6.3 | ||||||||||||||||||
40.01 – 50.00 |
4,221,510 | 45.06 | 5.7 | 2,365,591 | 42.61 | 3.3 | ||||||||||||||||||
50.01 – 60.00 |
5,833,871 | 57.35 | 8.3 | 1,307,068 | 57.09 | 6.5 | ||||||||||||||||||
60.01 – 73.92 |
8,222,785 | 67.61 | 9.2 | 627,212 | 69.02 | 8.2 | ||||||||||||||||||
| 33,805,610 | $ | 40.39 | 6.5 | 18,636,610 | $ | 25.61 | 4.7 | |||||||||||||||||
Stock options granted to executives at the vice-president level and above under the 2008 Stock
Incentive Plan, formerly the 1998 Stock Incentive Plan, after September 18, 2000, contained a
reload feature which provided that if (1) the optionee exercises all or any portion of the stock
option (a) at least six months prior to the expiration of the stock option, (b) while employed by
the Company and (c) prior to the expiration date of the 2008 Stock Incentive Plan and (2) the
optionee pays the exercise price for the portion of the stock option exercised or the minimum
statutory applicable withholding taxes by using common stock owned by the optionee for at least six
months prior to the date of exercise, the optionee shall be granted a new stock option under the
2008 Stock Incentive Plan on the date all or any portion of the stock option is exercised to
purchase the number of shares of common stock equal to the number of shares of common stock
exchanged by the optionee. The reload stock option is exercisable on the same terms and conditions
as apply to the original stock option except that (x) the reload stock option will become
exercisable in full on the day which is six months after the date the original stock option is
exercised, (y) the exercise price shall be the fair value (as defined in the 2008 Stock Incentive
Plan) of the common stock on the date the reload stock option is granted and (z) the expiration of
the reload stock option will be the date of expiration of the original stock option. As of
December 31, 2008, 389,017 options that contain the reload features noted above are still
outstanding and are included in the tables above. The 2008 Stock Incentive Plan was amended to
eliminate the reload feature for all stock options granted on or after October 1, 2004.
Warrants: In connection with its acquisition of Anthrogenesis, the Company assumed the
Anthrogenesis warrants outstanding, which were convertible into warrants to purchase 867,356 shares
of the Company’s common stock. Anthrogenesis had issued warrants to investors at exercise prices
equivalent to the per share price of their investment. As of December 31, 2008, Celgene had
378,652 warrants outstanding to acquire an equivalent number of shares of Celgene common stock at a
weighted average exercise price of $2.94 per warrant. Warrants exercised totaled 26,044 in 2006.
No warrants were exercised in 2008 and 2007. These warrants expire on various dates from 2009 to
2012.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(16) Employee Benefit Plans
The Company sponsors an employee savings and retirement plan, which qualifies under Section 401(k)
of the Internal Revenue Code, as amended, for its U.S. employees. The Company’s contributions to
the U.S. savings plan are discretionary and have historically been made in the form of the
Company’s common stock (See Note 14). Such contributions are based on specified percentages of
employee contributions up to 6% of eligible compensation or a maximum permitted by law. Total
expense for contributions to the U.S. savings plans were $8.3 million, $5.4 million and $6.5
million in 2008, 2007 and 2006, respectively. The Company also sponsors defined contribution plans
in certain foreign locations. Participation in these plans is subject to the local laws that are
in effect for each country and may include statutorily imposed minimum contributions. The Company
also maintains defined benefit plans in certain foreign locations for which the obligations and the
net periodic pension costs were determined to be immaterial at December 31, 2008.
In 2000, the Company’s Board of Directors approved a deferred compensation plan effective September
1, 2000. In February 2005, the Company’s Board of Directors adopted the Celgene Corporation 2005
Deferred Compensation Plan, effective as of January 1, 2005, and amended the plan in February 2008.
This plan operates as the Company’s ongoing deferred compensation plan and is intended to comply
with the American Jobs Creation Act of 2004, which added new Section 409A to the Internal Revenue
Code, changing the income tax treatment, design and administration of certain plans that provide
for the deferral of compensation. The Company’s Board of Directors froze the 2000 deferred
compensation plan, effective as of December 31, 2004, and no additional contributions or deferrals
can be made to that plan. Accrued benefits under the frozen plan will continue to be governed by
the terms under the tax laws in effect prior to the enactment of Section 409A. Eligible
participants, which include certain top-level executives of the Company as specified by the plan,
can elect to defer up to an amended 90% of the participant’s base salary, 100% of cash bonuses and
equity compensation allowed under Section 409A. Company contributions to the deferred compensation
plan represent a match of the participant’s deferral up to a specified percentage (currently
ranging from 10% to 20%, depending on the employee’s position as specified in the plan, and ranging
from 10% to 25% through December 31, 2006) of the participant’s base salary. The Company recorded
expense of $0.5 million, $0.6 million and $0.5 million related to the deferred compensation plans
in 2008, 2007 and 2006, respectively. The Company’s recurring matches are fully vested, upon
contribution. All other Company contributions to the plan do not vest until the specified
requirements are met. At December 31, 2008 and 2007, the Company had a deferred compensation
liability included in other non-current liabilities in the consolidated balance sheets of
approximately $25.5 million and $21.4 million, respectively, which included the participant’s
elected deferral of salaries and bonuses, the Company’s matching contribution and earnings on
deferred amounts as of that date. The plan provides various alternatives for the measurement of
earnings on the amounts participants defer under the plan. The measuring alternatives are based on
returns of a variety of funds that offer plan participants the option to spread their risk across a
diverse group of investments.
The Company has established a Long-Term Incentive Plan, or LTIP, designed to provide key officers
and executives with performance-based incentive opportunities contingent upon achievement of
pre-established corporate performance objectives covering a three-year period. The Company
currently has two 3-year performance cycles running concurrently ending December 31, 2009 and 2010.
Performance measures for the Plans are based on the following components in the last year of the
3-year cycle: 25% on earnings per share, 25% on net income and 50% on
total revenue, as defined.
Payouts may be in the range of 0% to 200% of the participant’s salary for the Plans. The estimated
payout for the concluded 2008 Plan is $5.1 million, which is included in other current liabilities
at December 31, 2008, and the maximum potential payout, assuming maximum objectives are achieved
for the 2009 and 2010 Plans are $8.0 million and $10.0 million, respectively. Such awards are
payable in cash or, at its discretion, the Company can elect to pay the same value in its common
stock based upon
the Company’s stock price at the payout date. The Company accrues the long-term incentive
liability over each three-year cycle. Prior to the end of a three-year cycle, the accrual is based
on an estimate of the Company’s level of achievement during the cycle. Upon a change in control,
participants will be entitled to an immediate payment equal to their target award, or, if higher,
an award based on actual performance through the date of the change in control. For the years
ended December 31, 2008, 2007 and 2006, the Company recognized expense related to the LTIP of $6.3
million, $6.9 million and $4.6 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(17) Sponsored Research, License and Other Agreements
Pfizer: In March 2008, the Company acquired Pharmion. As part of the acquisition of Pharmion, the
Company assumed Pharmion’s June 7, 2001 5-azacytidine license agreement with Pharmacia & Upjohn,
now part of Pfizer, Inc., or Pfizer, in which Pharmion had obtained rights for VIDAZA®. This
agreement specified future royalty payments due to Pfizer based upon the sales revenue of various
forms of VIDAZA®. On October 3, 2008 the Company entered into an agreement with Pfizer to prepay
its royalty obligation under the June 7, 2001 5-azacytidine license in full for $425.0 million.
The portion of this payment related to approved forms of VIDAZA® is recorded as prepaid royalty and
the portion of this payment related to unapproved forms of VIDAZA® is recorded as a research and
development expense.
Cabrellis Pharmaceuticals Corp.: The Company will pay $12.5 million for each approval of amrubicin
by regulatory authorities in the United States and the European Union. Upon approval of amrubicin
for a second indication in the United States or European Union, the Company will pay an additional
payment of $10.0 million for each market. Under the terms of the license agreement for amrubicin,
the Company is required to make milestone payments of $7.0 million and $1.0 million to Dainippon
Sumitomo Pharma Co. Ltd. upon regulatory approval of amrubicin in the United States and the
European Union, respectively, and up to $17.5 million upon achieving certain annual sales levels in
the United States. In September 2008, amrubicin was granted fast track product designation by the
U.S. Food and Drug Administration, or FDA, for the treatment of small cell lung cancer after
first-line chemotherapy.
Acceleron Pharma: The Company has a worldwide strategic collaboration with Acceleron Pharma, or
Acceleron, for the joint development and commercialization of ACE-011, a first-in-class, novel
bone-forming compound. The collaboration combines both companies’ resources and commitment to
developing products for the treatment of cancer and cancer-related bone loss. The Company also
signed an option agreement for certain discovery stage programs. Under the terms of the agreement,
Celgene and Acceleron will jointly develop, manufacture and commercialize Acceleron’s products for
bone loss. Celgene made an upfront payment to Acceleron in February 2008 of $50.0 million, which
included a $5.0 million equity investment in Acceleron, with the remainder recorded as research and
development expense. In addition, in the event of an initial public offering of Acceleron, Celgene
will purchase a minimum of $7.0 million of Acceleron common stock.
Acceleron will retain responsibility for initial activities, including research and development,
through the end of Phase IIa clinical trials, as well as manufacturing the clinical supplies for
these studies. In turn, Celgene will conduct the Phase IIb and Phase III clinical studies and will
oversee the manufacture of Phase III and commercial supplies. Acceleron will pay a share of the
development expenses and is eligible to receive development, regulatory and commercial milestones
of up to $510.0 million for the ACE-011 program and up to an additional $437.0 million for each of
the three discovery stage programs. The companies will co-promote the products in North America.
Acceleron will receive tiered royalties on worldwide net sales.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Array BioPharma Inc.: The Company has a research collaboration agreement with Array BioPharma
Inc., or Array, focused on the discovery, development and commercialization of novel therapeutics
in
cancer and inflammation. As part of this agreement, the Company made an upfront payment in
September 2007 of $40.0 million, which was recorded as research and development expense, to Array
in return for an option to receive exclusive worldwide rights for certain mutually selected
discovery target drugs developed under the collaboration, except for Array’s limited U.S.
co-promotional rights. Array will be responsible for all discovery and clinical development
through Phase I or Phase IIa and be entitled to receive, for each drug, potential milestone
payments of approximately $200.0 million, if certain discovery, development and regulatory
milestones are achieved and $300.0 million if certain commercial milestones are achieved, as well
as royalties on net sales.
PTC Therapeutics, Inc.: In September 2007, the Company invested $20 million, of which $1.1 million
represented research and development expense, in Series 1 Convertible Preferred Stock of PTC
Therapeutics, Inc., or PTC, and also entered into a separate collaboration agreement whereby PTC
would perform discovery research activities. If both parties subsequently agree to advance research
on certain discovery targets, a separate research agreement would be negotiated.
GlaxoSmithKline: The Company entered into a
supply and distribution agreement with GSK to
distribute, promote and sell ALKERAN® (melphalan), a therapy approved by the FDA for the
palliative treatment of multiple myeloma and carcinoma of the ovary. Under the terms of the
agreement, the Company purchases ALKERAN® tablets
and ALKERAN® for injection
from GSK and distributes the products in the United States under the Celgene label. The agreement
expires on March 31, 2009 and will not be renewed. All minimum purchase requirements have been
satisfied.
Novartis Pharma AG: The Company entered into
an agreement with Novartis in which the Company
granted to Novartis an exclusive worldwide license (excluding Canada) to develop and market
FOCALIN®
(d-methylphenidate, or d - MPH) and
FOCALIN XR
®, the long-acting drug
formulation. The Company has retained the exclusive commercial rights to
FOCALIN® and
FOCALIN®
XR® for oncology-related disorders, such as chronic fatigue
associated with chemotherapy. The Company also granted Novartis rights to all of its related
intellectual property and patents, including new formulations of the currently marketed
RITALIN®. The Company also sells
FOCALIN® to Novartis and receives royalties
on sales of all of Novartis’ FOCALIN XR® and
RITALIN® family of ADHD-related
products.
(18) Income Taxes
The income tax provision is based on income (loss) before
income taxes as follows:
| 2008 | 2007 | 2006 | ||||||||||
U.S. |
$ | (1,364,947 | ) | $ | 617,714 | $ | 252,001 | |||||
Non-U.S. |
(3,878 | ) | (100,745 | ) | (49,106 | ) | ||||||
Income before income taxes |
$ | (1,368,825 | ) | $ | 516,969 | $ | 202,895 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The provision (benefit) for taxes on income is as follows:
| 2008 | 2007 | 2006 | ||||||||||
United States: |
||||||||||||
Taxes currently payable: |
||||||||||||
Federal |
$ | 213,576 | $ | 223,985 | $ | 160,553 | ||||||
State and local |
36,263 | 66,893 | 27,681 | |||||||||
Deferred income taxes |
(94,326 | ) | (7,601 | ) | (54,456 | ) | ||||||
Total U.S. tax provision |
155,513 | 283,277 | 133,778 | |||||||||
International: |
||||||||||||
Taxes currently payable |
19,577 | 9,735 | 1,171 | |||||||||
Deferred income taxes |
(10,262 | ) | (2,476 | ) | (1,035 | ) | ||||||
Total international tax provision |
9,315 | 7,259 | 136 | |||||||||
Total provision |
$ | 164,828 | $ | 290,536 | $ | 133,914 | ||||||
Amounts are reflected in the preceding tables based on the location of the taxing authorities. As
of December 31, 2008, the Company has not made a U.S. tax provision on $2.382 billion of unremitted
earnings of its international subsidiaries. These earnings are expected to be reinvested overseas
indefinitely. It is not practicable to compute the estimated deferred tax liability on these
earnings.
The Company operates under an incentive tax holiday in Switzerland that expires in 2015 and exempts
the Company from most Swiss income taxes.
Deferred taxes arise because of different treatment between financial statement accounting and tax
accounting, known as temporary differences. The Company records the tax effect on these temporary
differences as deferred tax assets (generally items that can be used as a tax deduction or credit
in future periods) or deferred tax liabilities (generally items for which the Company received a
tax deduction but that have not yet been recorded in the Consolidated Statements of Operations).
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and
reduces the carrying amount of these deferred tax assets by a valuation allowance to the extent it
believes a portion will not be realized. The Company considers many factors when assessing the
likelihood of future realization of deferred tax assets, including its recent cumulative earnings
experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods
available to it for tax reporting purposes, tax planning strategies and other relevant factors.
Significant judgment is required in making this assessment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 2008 and 2007 the tax effects of temporary differences that give rise to deferred
tax assets and liabilities were as follows:
| 2008 | 2007 | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
Federal, state and international NOL carryforwards |
$ | 62,954 | — | $ | 24,322 | — | ||||||||||
Prepaid/deferred items |
25,834 | — | 24,027 | — | ||||||||||||
Deferred revenue |
1,586 | — | 20,316 | — | ||||||||||||
Capitalized research expenses |
29,823 | — | 23,932 | — | ||||||||||||
Tax credit carryforwards |
65,171 | — | 38,821 | — | ||||||||||||
Non-qualified stock options |
39,972 | — | 22,646 | — | ||||||||||||
Plant and equipment, primarily differences in depreciation |
1,089 | — | 583 | — | ||||||||||||
Inventory |
2,408 | — | 2,950 | — | ||||||||||||
Other assets |
42,867 | (338 | ) | 29,311 | (268 | ) | ||||||||||
Intangibles |
38,937 | (143,610 | ) | 18,285 | (24,783 | ) | ||||||||||
Accrued and other expenses |
99,696 | — | 46,320 | — | ||||||||||||
Unrealized gains on securities |
— | (10,725 | ) | — | (43,682 | ) | ||||||||||
Subtotal |
410,337 | (154,673 | ) | 251,513 | (68,733 | ) | ||||||||||
Valuation allowance |
(61,269 | ) | — | (31,926 | ) | — | ||||||||||
Total deferred taxes |
$ | 349,068 | $ | (154,673 | ) | $ | 219,587 | $ | (68,733 | ) | ||||||
Net deferred tax asset |
$ | 194,395 | $ | 150,854 | ||||||||||||
At December 31, 2008 and 2007, deferred tax assets and liabilities were classified on the Company’s
balance sheet as follows:
| 2008 | 2007 | |||||||
Current assets |
$ | 16,415 | $ | 20,506 | ||||
Other assets (non-current) |
177,998 | 140,958 | ||||||
Current liabilities |
(18 | ) | (6 | ) | ||||
Other non-current liabilities |
— | (10,604 | ) | |||||
Net deferred tax asset |
$ | 194,395 | $ | 150,854 | ||||
Reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate for
continuing operations is as follows:
| Percentages | 2008 | 2007 | 2006 | |||||||||
U.S. statutory rate |
(35.0 | )% | 35.0 | % | 35.0 | % | ||||||
Foreign tax rate differences |
(7.3 | ) | 12.7 | 16.6 | ||||||||
State taxes, net of federal benefit |
0.4 | 6.5 | 9.7 | |||||||||
Other |
0.3 | 1.2 | 4.5 | |||||||||
Change in valuation allowance |
1.5 | 0.8 | 0.2 | |||||||||
In-Process R&D |
52.1 | — | — | |||||||||
Effective income tax rate |
12.0 | % | 56.2 | % | 66.0 | % | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 2008, the Company had federal net operating loss, or NOL, carryforwards of
approximately $243.1 million and combined state NOL carryforwards of approximately $377.0 million
that will expire in the years 2009 through 2028. The Company also has research and experimentation
credit carryforwards of approximately $85.2 million that will expire in the years 2009 through
2028. Under SFAS 123R, excess tax benefits related to stock option deductions incurred after
December 31, 2005 are recognized in the period in which the tax deduction is realized through a
reduction of income taxes payable. As a result, the Company has not recorded deferred tax assets
for certain stock option deductions included in its NOL carryforwards and research and
experimentation credit carryforwards. At December 31, 2008, deferred tax assets have not been
recorded on federal NOL carryforwards of approximately $99.4 million, on combined state NOL
carryforwards of approximately $196.4 million and for research and experimentation credits of
approximately $36.9 million. These stock option tax benefits will be recorded as an increase in
additional paid-in capital when realized.
At December 31, 2008 and 2007, it was more likely than not that the Company would realize its
deferred tax assets, net of valuation allowances.
The Company realized stock option deduction benefits in 2008, 2007 and 2006 for income tax purposes
and has increased additional paid-in capital in the amount of approximately $160.6 million, $159.3
million and $114.0 million respectively. The Company has recorded deferred income taxes as a
component of accumulated other comprehensive income resulting in deferred income tax liabilities at
December 31, 2008 and 2007 of $10.7 million and $43.7 million, respectively.
The Company’s tax returns have been audited by the Internal Revenue Service, or IRS, through the
fiscal year ended December 31, 2003. Tax returns for the fiscal years ended December 31, 2004 and
2005 are currently under examination by the IRS. The Company is also subject to audits by various
state and foreign taxing authorities, including but not limited to the major countries of Europe,
the Far East and most U.S. states.
The Company regularly reevaluates its tax positions and the associated interest and penalties, if
applicable, resulting from audits of federal, state and foreign income tax filings, as well as
changes in tax law that would reduce the technical merits of the position to below more likely than
not. The Company believes that its accruals for tax liabilities are adequate for all open years.
Many factors are considered in making these evaluations, including past history, recent
interpretations of tax law and the specifics of each matter. Because tax regulations are subject to
interpretation and tax litigation is inherently uncertain, these evaluations can involve a series
of complex judgments about future events and can rely heavily on estimates and assumptions. The
Company applies a variety of methodologies in making these estimates and assumptions which include
studies performed by independent economists, advice from industry and subject experts, evaluation
of public actions taken by the Internal Revenue Service and other taxing authorities, as well as
the Company’s industry experience. These evaluations are based on estimates and assumptions that
have been deemed reasonable by management. However, if management’s estimates are not
representative of actual outcomes, the Company’s results of operations could be materially
impacted.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unrecognized tax benefits, generally represented by liabilities on the balance sheet, arise when
the estimated benefit recorded in the financial statements differs from the amounts taken or
expected to be taken in a tax return because of the uncertainties described above. A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1, 2008 |
$ | 209,965 | ||
Increases related to prior year tax positions |
— | |||
Decreases related to prior year tax positions |
— | |||
Increases related to current year tax positions |
175,875 | |||
Settlements |
— | |||
Lapse of statute |
— | |||
Balance at December 31, 2008 |
$ | 385,840 | ||
The Company accounts for interest and penalties related to uncertain tax positions as part of its
provision for income taxes. Accrued interest at December 31, 2008 and 2007 is approximately $13.4
million and $5.9 million, respectively.
These unrecognized tax benefits relate primarily to issues common among multinational corporations.
If recognized, unrecognized tax benefits of approximately $354.9 million would have a net impact
on the effective tax rate. The Company’s tax returns are under routine examination in many taxing
jurisdictions. The Company anticipates that certain of these examinations may be settled in their
ordinary course and it is reasonably possible that the amounts of unrecognized tax benefits will
decrease by $26.6 million over the next 12 months as part of these settlements. Liabilities
for unrecognized tax benefits that the Company anticipates will be settled within one year are
classified as current liabilities. The liability for unrecognized tax benefits is expected to
increase in the next 12 months relating to operations occurring in that period.
(19) Commitments, Contingencies and Legal Proceedings
Leases: The Company leases offices and research facilities under various operating lease
agreements in the United States and international markets. At December 31, 2008, the
non-cancelable lease terms for the operating leases expire at various dates between 2009 and 2017
and include renewal options. In general, the Company is also required to reimburse the lessors for
real estate taxes, insurance, utilities, maintenance and other operating costs associated with the
leases.
Future minimum lease payments under noncancelable operating leases as of December 31, 2008 are:
| Operating | ||||
| Leases | ||||
2009 |
$ | 19,334 | ||
2010 |
18,246 | |||
2011 |
14,079 | |||
2012 |
9,023 | |||
2013 |
5,781 | |||
Thereafter |
13,767 | |||
Total minimum lease payments |
$ | 80,230 | ||
Total rental expense under operating leases was approximately $20.4 million in 2008, $11.7 million
in 2007 and $7.8 million in 2006.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Lines of Credit: The Company maintains lines of credit with several banks to support its hedging
programs and to facilitate the issuance of bank letters of credit and guarantees on behalf of its
subsidiaries. Lines of credit supporting the Company’s hedging programs as of December 31, 2008
allowed the Company to enter into derivative contracts with settlement dates through 2010. As of
December 31, 2008, the Company has entered into derivative contracts with net notional amounts
totaling $760.8 million. Lines of credit facilitating the issuance of bank letters of credit and
guarantees as of December 31, 2008 allowed the Company to have letters of credit and guarantees
issued on behalf of its subsidiaries totaling $12.2 million.
Other Commitments: The Company assumed contractual obligations related to product supply contracts
which totaled $31.2 million at December 31, 2008 resulting from the Pharmion acquisition. The
Company owns an interest in two limited partnership investment funds. The Company has committed to
invest an additional $14.1 million into one of the funds which is callable any time within a
ten-year period, which expires on February 28, 2016.
Collaboration Arrangements: The Company has entered into certain research and development
collaboration arrangements with third parties that include the funding of certain development,
manufacturing and commercialization efforts with the potential for future milestone and royalty
payments upon the achievement of pre-established developmental, regulatory and /or commercial
targets. The Company’s obligation to fund these efforts is contingent upon continued involvement
in the programs and/or the lack of any adverse events which could cause the discontinuance of the
programs. Due to the nature of these arrangements, the future potential payments are inherently
uncertain, and accordingly no amounts have been recorded in the
Company’s consolidated balance sheets at December 31, 2008
or 2007, respectively (See Note 17).
Contingencies: The Company believes it maintains insurance coverage adequate for its current
needs. The Company’s operations are subject to environmental laws and regulations, which impose
limitations on the discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. The Company reviews the effects of
such laws and regulations on its operations and modifies its operations as appropriate. The
Company believes it is in substantial compliance with all applicable environmental laws and
regulations.
Legal Proceedings:
THALOMID®
Barr Laboratories, Inc., (“Barr”) a generic drug manufacturer located in Pomona, New York, filed an
ANDA for the treatment of cutaneous manifestations of erythema nodosum leprosum, or ENL in the
manner described in the Company’s label and seeking permission from the FDA to market a generic
version of 50mg, 100mg and 200mg THALOMID®. Under the federal Hatch-Waxman Act of 1984, any
generic manufacturer may file an ANDA with a certification (a “Paragraph IV certification”)
challenging the validity or infringement of a patent listed in the FDA’s Orange Book four years
after the pioneer company obtains approval of its New Drug Application, or an NDA. On or after
December 5, 2006, Barr mailed notices of Paragraph IV certifications alleging that the following
patents listed for THALOMID® in the Orange Book are invalid, unenforceable, and/or not infringed:
U.S. Patent Nos. 6,045,501 (“the ‘501 patent”), 6,315,720 (“the ‘720 patent”), 6,561,976 (“the ‘976
patent”), 6,561,977 (“the ‘977 patent”), 6,755,784 (“the ‘784 patent”), 6,869,399 (“the ‘399
patent”), 6,908,432 (“the ‘432 patent”), and 7,141,018 (“the ‘018 patent”). The ‘501, ‘976, and
‘432 patents do not expire until August 28, 2018, while the remaining patents do not expire until
October 23, 2020. On January 18, 2007, the Company filed an infringement action in the United
States District Court of New Jersey against Barr. By bringing suit, the Company is entitled up to
a maximum 30-month stay, from the date of Celgene’s receipt of a Paragraph IV certification,
against the FDA’s approval of a generic applicant’s application to market a generic version of
THALOMID®. In June 2007, United States Patent No. 7,230,012, or ‘012 patent, was
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
issued to the Company claiming formulations of thalidomide and was then timely listed in the Orange
Book. Barr sent to the Company a supplemental Paragraph IV certification against the ‘012 patent
and alleged that the claims of the ‘012 patent, directed to formulations which encompass THALOMID®,
were invalid. On August 23, 2007, the Company filed an infringement action in the United States
District Court of New Jersey with respect to the ‘012 patent. On or after October 4, 2007, Barr
filed a second supplemental notice of Paragraph IV certifications relating to the 150mg dosage
strength of THALOMID® alleging that the ‘501 patent, ‘720 patent, ‘976 patent, ‘977 patent, ‘784
patent, ‘399 patent, ‘432 patent and the ‘018 patent are invalid, unenforceable, and/or not
infringed. On November 14, 2007, the Company filed an infringement action in the United States
District Court of New Jersey against Barr. All three actions have subsequently been consolidated.
The Company intends to enforce its patent rights. If the ANDA is approved by the FDA, and Barr is
successful in challenging the Company’s patents listed in the Orange Book for THALOMID®, Barr would
be permitted to sell a generic thalidomide product. If the Company is
unsuccessful in the suits and the FDA were to approve a comprehensive
education and risk-management distribution program for a generic
version of thalidomide, sales of
THALOMID®
could be significantly reduced in the United States by the entrance
of a generic thalidomide product, consequently reducing the
Company’s revenue. On July 3, 2008, the Company filed a motion to
amend the complaint in the case to assert Celgene’s 5,629,327 and 6,235, 756 patents (“the cancer
patents”) licensed from Children’s Hospital in Boston. That same day the Company also filed a new
and separate complaint against Barr asserting those same two patents.
FOCALIN® and FOCALIN XR®
On August 19, 2004, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court of New Jersey against Teva Pharmaceuticals
USA, Inc., in response to notices of Paragraph IV certifications made by Teva in connection with
the filing of an ANDA for FOCALIN®. The notification letters from Teva contend that United States
Patent Nos. 5,908,850, or ‘850 patent, and 6,355,656, or ‘656 patent, are invalid. After the suit
was filed, Novartis listed another patent, United States Patent No. 6,528,530, or ‘530 patent, in
the Orange Book in association with the FOCALIN® NDA. The original 2004 action asserted
infringement of the ‘850 patent. Teva amended its answer during discovery to contend that the ‘850
patent was not infringed by the filing of its ANDA, and that the ‘850 patent is not enforceable due
to an allegation of inequitable conduct. Fact discovery in the original 2004 action expired on
February 28, 2006. At about the time of the filing of the ‘850 patent infringement action,
reexamination proceedings for the ‘656 patent were initiated in the United States Patent and
Trademark Office, or U.S. PTO. On September 28, 2006, the U.S. PTO issued a Notice of Intent to
Issue Ex Parte Reexamination Certificate, and on March 27, 2007, the Reexamination Certificate for
the ‘656 patent issued. On December 21, 2006, Celgene and Novartis filed an action in the United
States District Court of New Jersey against Teva for infringement of the ‘656 patent. Teva filed
an amended answer and counterclaim on March 23, 2007. The amended counterclaim seeks a declaratory
judgment of patent invalidity, noninfringement, and unenforceability.
The statutory 30-month stay, to which Paragraph IV
certifications (including those below) are entitled to, expired on January 9, 2007, and Teva proceeded to market with a
generic version of FOCALIN®. Novartis’ sales of FOCALIN® have been significantly reduced in the
United States by the entrance of a generic FOCALIN® product, consequently reducing the Company’s
revenue from royalties associated with these sales. A claim has been made for damages resulting
from Teva’s sales and for a permanent injunction prohibiting future sales by Teva. The parties
currently are engaged in fact discovery with respect to the ‘656 patent and other issues related to
Teva’s product launch. No trial date has been set. The ‘530 patent is not part of this patent
infringement action against Teva.
On September 14, 2007, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court for the District of New Jersey against Teva
Pharmaceuticals USA, Inc. in response to a notice of a Paragraph IV certification made by Teva in
connection with the filing of an ANDA for FOCALIN XR®. The notification letter from Teva contends
that claims in United States Patent Nos. 5,908,850 and 6,528,530 are invalid, unenforceable, and
not infringed by the proposed Teva products, and it contends that United States Patent Nos.
5,837,284 and 6,635,284 are invalid and not
infringed by the proposed Teva products. Celgene and Novartis asserted each of these patents and
additionally asserted United States Patent No. 6,355,656 in their complaint against Teva. Teva
filed an answer and counterclaim on November 5, 2007. The counterclaim seeks a declaratory
judgment of patent invalidity, noninfringement, and unenforceability with respect to the
patents-in-suit. No trial date had been set. If the Company is unsuccessful in proving
infringement or defending its patents, Novartis’ sales of FOCALIN XR® could be significantly
reduced in the United States by the entrance of a generic FOCALIN XR® product, consequently
reducing the Company’s revenue from royalties associated with these sales.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On October 5, 2007, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court for the District of New Jersey against
IntelliPharmaCeutics Corp. (“IPC”) in response to a notice of a Paragraph IV certification made by
IPC in connection with the filing of an ANDA for FOCALIN XR®. The notification letter from IPC
contends that claims in United States Patent Nos. 5,908,850, 5,837,284, and 6,635,284 are not
infringed by the proposed IPC products. The notification letter also contends that claims in
United States Patent Nos. 5,908,850, 6,355,656, 6,528,530, 5,837,284, and 6,635,284 are invalid,
and that claims in United States Patent Nos. 5,908,850, 6,355,656, 6,528,530 are unenforceable. In
their complaint against IPC, Celgene and Novartis asserted United States Patent Nos. 5,908,850,
6,355,656, 6,528,530, 5,837,284, and 6,635,284. IPC filed an answer and counterclaim on November
20, 2007. The counterclaim seeks a declaratory judgment of patent invalidity, noninfringement, and
unenforceability with respect to Patent Nos. 5,908,850, 6,355,656, and 6,528,530, and it seeks a
declaratory judgment of patent invalidity and noninfringement with respect to Patent Nos. 5,837,284
and 6,635,284. No pretrial or trial dates have been set. If the Company is unsuccessful in
proving infringement or defending its patents, Novartis’ sales of FOCALIN XR® could be
significantly reduced in the United States by the entrance of a generic FOCALIN XR® product,
consequently reducing the Company’s revenue from royalties associated with these sales.
On November 8, 2007, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court for the District of New Jersey against
Actavis South Atlantic LLC and Abrika Pharmaceuticals, Inc. (collectively, “Abrika”) in response to
a notice of a Paragraph IV certification made by Abrika in connection with the filing of an ANDA
for FOCALIN XR®. The notification letter from Abrika contends that claims in United States Patent
Nos. 5,908,850, 6,355,656, 5,837,284, and 6,635,284 are not infringed by the proposed Abrika
products, and it contends that claims in United States Patent Nos. 5,908,850, 6,355,656, 6,528,530,
5,837,284 and 6,635,284 are invalid. In their complaint against Abrika, Celgene and Novartis
asserted United States Patent Nos. 5,908,850, 6,355,656, 6,528,530, 5,837,284, and 6,635,284. No
pretrial or trial dates have been set. If the Company is unsuccessful in proving infringement or
defending its patents, Novartis’ sales of FOCALIN XR® could be significantly reduced in the United
States by the entrance of a generic FOCALIN XR® product, consequently reducing the Company’s
revenue from royalties associated with these sales.
On November 16, 2007, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court for the District of New Jersey against Barr
and Barr Pharmaceuticals, Inc. in response to a notice of a Paragraph IV certification made by Barr
in connection with the filing of an ANDA for FOCALIN XR®. The notification letter from Barr
contends that claims in United States Patent Nos. 5,908,850, 6,355,656, 5,837,284, and 6,635,284
are not infringed by the proposed Barr products, and it contends that claims in United States
Patent Nos. 5,908,850, 6,355,656, 6,528,530, 5,837,284 and 6,635,284 are invalid. In their
complaint against Barr, Celgene and Novartis asserted United States Patent Nos. 5,908,850,
6,355,656, 6,528,530, 5,837,284, and 6,635,284. No pretrial or trial dates have been set. If
the Company is unsuccessful in proving infringement or defending its patents, Novartis’ sales of
FOCALIN XR® could be significantly reduced in the United States by the entrance of a generic
FOCALIN XR® product, consequently reducing the Company’s revenue from royalties associated with
these sales.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
RITALIN LA®
On December 4, 2006, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court for the District of New Jersey against
Abrika Pharmaceuticals, Inc. and Abrika Pharmaceuticals, LLP, (collectively, “Abrika
Pharmaceuticals”) in response to a notice of a Paragraph IV certification made by Abrika
Pharmaceuticals in connection with the filing of an ANDA for RITALIN LA® 20 mg, 30 mg, and 40 mg
generic products. The notification letter from Abrika Pharmaceuticals contends that claims in
United States Patent Nos. 5,837,284 and 6,635,284 are invalid and are not infringed by the proposed
Abrika Pharmaceuticals products. In their complaint against Abrika Pharmaceuticals, Celgene and
Novartis asserted United States Patent Nos. 5,837,284 and 6,635,284. Abrika Pharmaceuticals filed
an answer and counterclaim in the New Jersey court on June 1, 2007. The counterclaim seeks a
declaratory judgment of patent invalidity, noninfringement, and unenforceability with respect to
the patents-in-suit. On September 26, 2007, Abrika Pharmaceuticals sent a Paragraph IV
certification to Celgene and Novartis in connection with the filing of an ANDA supplement with
respect to Abrika Pharmaceuticals’ proposed generic 10 mg RITALIN LA® product. Celgene and
Novartis filed an amended complaint against Abrika Pharmaceuticals on November 5, 2007 that
includes infringement allegations directed to Abrika Pharmaceuticals’ proposed generic 10 mg
RITALIN LA® product. Abrika Pharmaceuticals filed an answer and counterclaim to the amended
complaint on December 5, 2007. The counterclaim seeks a declaratory judgment of patent invalidity,
noninfringement, and unenforceability with respect to the patents-in-suit. No trial date has been
set. If the Company is unsuccessful in proving infringement or defending its patents, Novartis’
sales of RITALIN LA® could be significantly reduced in the United States by the entrance of a
generic RITALIN LA® product, consequently reducing the Company’s revenue from royalties associated
with these sales.
On October 4, 2007, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court for the District of New Jersey against KV
Pharmaceutical Company (“KV”) in response to a notice of a Paragraph IV certification made by KV in
connection with the filing of an ANDA for RITALIN LA®. The notification letter from KV contends
that claims in United States Patent Nos. 5,837,284 and 6,635,284 are not infringed by the proposed
KV products. In their complaint against KV, Celgene and Novartis asserted United States Patent
Nos. 5,837,284 and 6,635,284. KV filed an answer and counterclaim on November 26, 2007. The
counterclaim seeks a declaratory judgment of patent invalidity, noninfringement, and
unenforceability with respect to the patents-in-suit. No pretrial or trial dates have been set.
If the Company is unsuccessful in proving infringement or defending our patents, Novartis’ sales of
RITALIN LA® could be significantly reduced in the United States by the entrance of a generic
RITALIN LA® product, consequently reducing the Company’s revenue from royalties associated with
these sales.
On October 31, 2007, the Company, together with its exclusive licensee Novartis, filed an
infringement action in the United States District Court for the District of New Jersey against Barr
and Barr Pharmaceuticals, Inc. in response to a notice of a Paragraph IV certification made by Barr
in connection with the filing of an ANDA for RITALIN LA®. The notification letter from Barr
contends that claims in United States Patent Nos. 5,837,284 and 6,635,284 are invalid and not
infringed by the proposed Barr products. In their complaint against Barr, Celgene and Novartis
asserted United States Patent Nos. 5,837,284 and 6,635,284. No pretrial or trial dates have been
set. If the Company is unsuccessful in proving infringement or defending our patents, Novartis’
sales of RITALIN LA® could be significantly reduced in the United States by the entrance of a
generic RITALIN LA® product, consequently reducing the Company’s revenue from royalties associated
with these sales.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
IMiDs®
On October 29, 2003, the Company filed a lawsuit against Centocor, Inc. to prevent Centocor’s use
of the term “I.M.I.D.s” in connection with Centocor’s products, which use, the Company believes, is
likely to cause confusion with its IMiDs® registered trademark for compounds (including REVLIMID®)
developed or being developed by the Company to treat cancer and inflammatory diseases. In 2007,
the Company settled the case and Centocor agreed to stop using the term “I.M.I.D.s.”
(20) Geographic and Product Information
Operations by Geographic Area: Revenues within the United States primarily consist of sales of
REVLIMID®, THALOMID®, VIDAZA® and ALKERAN
®. Revenues
are also derived from collaboration agreements and royalties. Outside of the United States,
revenues are primarily derived from sales of
REVLIMID®, THALOMID®,
VIDAZA®
and from royalties received from third parties for sales of THALOMID®
and RITALIN® LA.
| Revenues | 2008 | 2007 | 2006 | |||||||||
United States |
$ | 1,581,889 | $ | 1,202,067 | $ | 845,418 | ||||||
Europe |
657,929 | 194,173 | 42,970 | |||||||||
Other |
14,963 | 9,580 | 10,485 | |||||||||
Total revenues |
$ | 2,254,781 | $ | 1,405,820 | $ | 898,873 | ||||||
| Long Lived Assets (1) | 2008 | 2007 | ||||||
United States |
$ | 119,234 | $ | 85,164 | ||||
Europe |
126,466 | 111,115 | ||||||
All Other |
3,271 | 1,149 | ||||||
Total long lived assets |
$ | 248,971 | $ | 197,428 | ||||
| (1) | Long lived assets consist of net property, plant and equipment. |
Revenues by Product: Total revenue from external customers by product for the years ended December
31, 2008, 2007 and 2006, were as follows:
| 2008 | 2007 | 2006 | ||||||||||
REVLIMID® |
$ | 1,324,671 | $ | 773,877 | $ | 320,558 | ||||||
THALOMID® |
504,713 | 447,089 | 432,950 | |||||||||
VIDAZA® |
206,692 | — | — | |||||||||
ALKERAN® |
81,734 | 73,551 | 50,337 | |||||||||
Other |
19,868 | 5,924 | 7,760 | |||||||||
Total net product sales |
2,137,678 | 1,300,441 | 811,605 | |||||||||
Collaborative agreements and other revenue |
14,945 | 20,109 | 18,189 | |||||||||
Royalty revenue |
102,158 | 85,270 | 69,079 | |||||||||
Total revenue |
$ | 2,254,781 | $ | 1,405,820 | $ | 898,873 | ||||||
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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Major Customers: The Company sells its products primarily through wholesale distributors and
specialty pharmacies in the U.S. which account for a large portion of the Company’s total revenues.
International sales are primarily made directly to hospitals or clinics. In 2008, 2007 and 2006,
the following four customers accounted for more than 10% of the Company’s total revenue in at least
one of those years. The percentage of amounts due from these same customers compared to total net
accounts receivable is also depicted below as of December 31, 2008 and 2007.
| Percent of Total Revenue | Percent of Net Accounts Receivable | |||||||||||||||||||
| Customer | 2008 | 2007 | 2006 | 2008 | 2007 | |||||||||||||||
Amerisource Bergen Corp. |
11.0 | % | 9.5 | % | 11.9 | % | 8.8 | % | 7.3 | % | ||||||||||
CVS / Caremark |
10.7 | % | 10.4 | % | 8.6 | % | 5.4 | % | 10.0 | % | ||||||||||
McKesson Corp. |
9.3 | % | 14.0 | % | 16.0 | % | 8.3 | % | 18.0 | % | ||||||||||
Cardinal Health |
8.4 | % | 14.2 | % | 20.2 | % | 7.7 | % | 14.0 | % | ||||||||||
(21) Quarterly Results of Operations (Unaudited)
| 2008 | 1Q | 2Q | 3Q | 4Q | Year | |||||||||||||||
Total revenue |
$ | 462,597 | $ | 571,464 | $ | 592,465 | $ | 628,255 | $ | 2,254,781 | ||||||||||
Gross profit (1) |
386,650 | 467,971 | 496,483 | 528,308 | 1,879,411 | |||||||||||||||
Income tax (provision) |
(35,047 | ) | (39,033 | ) | (42,058 | ) | (48,690 | ) | (164,828 | ) | ||||||||||
Net income (loss) |
(1,641,088 | ) | 119,883 | 136,814 | (149,261 | ) | (1,533,653 | ) | ||||||||||||
Net income (loss) per
common share: (2) |
||||||||||||||||||||
Basic |
$ | (3.98 | ) | $ | 0.27 | $ | 0.30 | $ | (0.33 | ) | $ | (3.46 | ) | |||||||
Diluted |
$ | (3.98 | ) | $ | 0.26 | $ | 0.29 | $ | (0.33 | ) | $ | (3.46 | ) | |||||||
Weighted average shares |
||||||||||||||||||||
Basic |
412,263 | 442,640 | 456,509 | 458,742 | 442,620 | |||||||||||||||
Diluted |
412,263 | 466,687 | 468,891 | 458,742 | 442,620 | |||||||||||||||
| 2007 | 1Q | 2Q | 3Q | 4Q | Year | |||||||||||||||
Total revenue |
$ | 293,415 | $ | 347,907 | $ | 349,908 | $ | 414,590 | $ | 1,405,820 | ||||||||||
Gross profit (1) |
247,741 | 290,244 | 297,090 | 335,155 | 1,170,230 | |||||||||||||||
Income tax (provision) |
(48,689 | ) | (78,224 | ) | (74,451 | ) | (89,172 | ) | (290,536 | ) | ||||||||||
Net income |
57,409 | 54,870 | 38,833 | 75,322 | 226,433 | |||||||||||||||
Net income per common share: (2) |
||||||||||||||||||||
Basic |
$ | 0.15 | $ | 0.14 | $ | 0.10 | $ | 0.19 | $ | 0.59 | ||||||||||
Diluted |
$ | 0.14 | $ | 0.13 | $ | 0.09 | $ | 0.18 | $ | 0.54 | ||||||||||
Weighted average shares |
||||||||||||||||||||
Basic |
377,599 | 381,086 | 383,774 | 390,301 | 383,225 | |||||||||||||||
Diluted |
429,306 | 431,377 | 432,817 | 433,850 | 431,858 | |||||||||||||||
| (1) | Gross profit is computed by subtracting cost of goods sold (excluding
amortization expense) from net product sales. |
|
| (2) | The sum of the quarters may not equal the full year due to rounding.
In addition, quarterly and full year basic and diluted earnings per share
are calculated separately. |
106
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)), or the Exchange Act. Based on the foregoing evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and communicated to our
management (including our Chief Executive Officer and Chief Financial Officer) to allow timely
decisions regarding required disclosures.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In January 2009, we completed the process of implementing the Oracle Enterprise Business Suite
(“EBS”), including accounting modules used to perform substantially all of our accounting and
financial reporting functions and supply chain modules. In connection with the EBS implementation,
internal controls and procedures have been modified as necessary to reflect the new system
environment; however, we believe our overall financial reporting controls have not changed
significantly as a result of the implementation. As the EBS system was being implemented, we
reviewed each module and the design of the internal controls over financial reporting impacted by
the implementation. As we continue to utilize the EBS, there may be impacts to internal controls
over financial reporting.
With the exception of the matter discussed above, there have not been any other changes in our
internal control over financial reporting during the fiscal quarter ended December 31, 2008 that
have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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Table of Contents
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting and for the assessment of the effectiveness of internal control over financial
reporting. As defined by the Securities and Exchange Commission, internal control over financial
reporting is a process designed by, or under the supervision of our principal executive and
principal financial officers and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the consolidated financial statements in accordance with U.S. generally accepted
accounting principles.
Our internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the consolidated financial statements in accordance
with generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual consolidated financial statements, management has
undertaken an assessment of the effectiveness of our internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO
Framework. Management’s assessment included an evaluation of the design of our internal control
over financial reporting and testing of the operational effectiveness of those controls.
Based on this evaluation, management has concluded that our internal control over financial
reporting was effective as of December 31, 2008.
KPMG LLP, the independent registered public accounting firm that audited our consolidated financial
statements included in this report, has issued their report on the effectiveness of internal
control over financial reporting as of December 31, 2008, a copy of which is included herein.
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Celgene Corporation:
Celgene Corporation:
We have audited Celgene Corporation and subsidiaries’ internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Celgene
Corporation and subsidiaries’ management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report On Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the effectiveness of Celgene
Corporation and subsidiaries’ internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Celgene Corporation and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control — Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Celgene Corporation and subsidiaries as
of December 31, 2008 and 2007, and the related consolidated statements of operations, cash flows
and stockholders’ equity for each of the years in the three-year period ended December 31, 2008,
and our report dated February 17, 2009 expressed an unqualified opinion on those consolidated
financial statements.
/s/KPMG LLP
|
||
Short Hills, New Jersey |
||
February 17, 2009 |
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ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the information required by
Part III (Items 10, 11, 12, 13 and 14) is being incorporated by reference herein from our
definitive proxy statement (or an amendment to our Annual Report on Form 10-K) to be filed with the
Securities and Exchange Commission within 120 days of the end of the fiscal year ended December 31,
2008 in connection with our 2009 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
See Item 10.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
See Item 10.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
See Item 10.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
See Item 10.
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Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| Page | ||||
(a) 1. Consolidated Financial Statements |
||||
Report of Independent Registered Public Accounting Firm |
62 | |||
Consolidated Balance Sheets as of December 31, 2008 and 2007 |
63 | |||
Consolidated Statements of Operations — Years Ended December 31, 2008, 2007 and 2006 |
64 | |||
Consolidated Statements of Cash Flows — Years Ended December 31, 2008, 2007 and 2006 |
65 | |||
Consolidated Statements of Stockholders’ Equity — Years Ended December 31, 2008,
2007 and 2006 |
67 | |||
Notes to Consolidated Financial Statements |
68 | |||
(a) 2. Financial Statement Schedule |
||||
Schedule II — Valuation and Qualifying Accounts |
120 | |||
(a) 3. Exhibit Index |
||||
The following exhibits are filed with this report or incorporated by reference: |
||||
| EXHIBIT | ||||
| NO. | EXHIBIT DESCRIPTION | |||
| 1.1 | Underwriting Agreement, dated November 3, 2006, between the Company and Merrill Lynch Pierce,
Fenner and Smith Incorporated and J.P. Morgan Securities Inc. as representatives of the
several underwriters (incorporated by reference to Exhibit 1.1 to the Company’s Current Report
on Form 8-K filed on November 6, 2006). |
|||
| 2.1 | Purchase Option Agreement and Plan of Merger, dated April 26, 2002, among the Company,
Celgene Acquisition Corp. and Anthrogenesis Corp. (incorporated by reference to Exhibit 2.1 to
the Company’s Registration Statement on Form S-4 dated November 13, 2002 (No. 333-101196)). |
|||
| 2.2 | Amendment to the Purchase Option Agreement and Plan of Merger, dated September 6, 2002, among
the Company, Celgene Acquisition Corp. and Anthrogenesis Corp. (incorporated by reference to
Exhibit 2.2 to the Company’s Registration Statement on Form S-4 dated November 13, 2002 (No.
333-101196)). |
|||
| 2.3 | Asset Purchase Agreement by and between the Company and EntreMed, Inc., dated as of December
31, 2002 (incorporated by reference to Exhibit 99.6 to the Company’s Schedule 13D filed on
January 3, 2003). |
|||
| 2.4 | Securities Purchase Agreement by and between EntreMed, Inc. and the Company, dated as of
December 31, 2002 (incorporated by reference to Exhibit 99.2 to the Company’s Schedule 13D
filed on January 3, 2003). |
|||
| 2.5 | Share Acquisition Agreement for the Purchase of the Entire Issued Share Capital of Penn T
Limited among Craig Rennie and Others, Celgene UK Manufacturing Limited and the Company dated
October 21, 2004 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on
Form 8-K dated October 26, 2004). |
|||
| 2.6 | Agreement and Plan of Merger, dated as of November 18, 2007, by and among Pharmion
Corporation, Celgene Corporation and Cobalt Acquisition LLC (incorporated by reference to
Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 19, 2007. |
|||
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Table of Contents
| EXHIBIT | ||||
| NO. | EXHIBIT DESCRIPTION | |||
| 3.1 | Certificate of Incorporation of the Company, as amended through February 16, 2006
(incorporated by reference to Exhibit 3.1 to the Company’ Annual Report on Form 10-K for the
year ended December 31, 2005). |
|||
| 3.2 | Bylaws of the Company (incorporated by reference to Exhibit 2 to the Company’s Current Report
on Form 8-K, dated September 16, 1996), as amended effective May 1, 2006 (incorporated by
reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, for the quarter ended
March 31, 2006). |
|||
| 4.1 | Rights Agreement, dated as of September 16, 1996, between the Company and American Stock
Transfer & Trust Company (incorporated by reference to the Company’s Registration Statement on
Form 8A, filed on September 16, 1996), as amended on February 18, 2000 (incorporated by
reference to Exhibit 99 to the Company’s Current Report on Form 8-K filed on February 22,
2000), as amended on August 13, 2003 (incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on August 14, 2003). |
|||
| 4.2 | Indenture dated as of June 3, 2003 between the Company and The Bank of New York, Trustee
(incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3
dated August 14, 2003 (No. 333-107977)), as supplemented by the Supplemental Indenture
thereto, dated as of May 9, 2008 (incorporated by reference to Exhibit 10.6 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 12, 2008). |
|||
| 10.1 | Purchase and Sale Agreement between Ticona LLC, as Seller, and the Company, as Buyer,
relating to the purchase of the Company’s Summit, New Jersey, real property (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004). |
|||
| 10.2 | 1986 Stock Option Plan (incorporated by reference to Exhibit A to the Company’s Proxy
Statement dated April 13, 1990). |
|||
| 10.3 | 1992 Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company’s Proxy
Statement, dated May 30, 1997), as amended by Amendment No. 1 thereto, effective as of June
22, 1999 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2002). |
|||
| 10.4 | 1995 Non Employee Directors’ Incentive Plan (incorporated by reference to Exhibit A to the
Company’s Proxy Statement, dated May 24, 1999), as amended by Amendment No. 1 thereto,
effective as of June 22, 1999 (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002), as amended by
Amendment No. 2 thereto, effective as of April 18, 2000 (incorporated by reference to Exhibit
10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002),
as amended by Amendment No. 3 thereto, effective as of April 23, 2003 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005), as amended by Amendment No. 4 thereto, effective as of April 5, 2005
(incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8
(No. 333-126296), as amended by Amendment No. 5 thereto (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007), as
amended by Amendment No. 6 thereto (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2008). |
|||
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Table of Contents
| EXHIBIT | ||||
| NO. | EXHIBIT DESCRIPTION | |||
| 10.5 | Form of indemnification agreement between the Company and each officer and director of the
Company (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form
10-K for the year ended December 31, 1996). |
|||
| 10.6 | Services Agreement effective May 1, 2006 between the Company and John W. Jackson
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2006). |
|||
| 10.7 | Employment Agreement effective May 1, 2006 between the Company and Sol J. Barer (incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2006); amendment to Employment Agreement to comply with Section 409A of the
Internal Revenue Code.* |
|||
| 10.8 | Employment Agreement effective May 1, 2006 between the Company and Robert J. Hugin
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2006); amendment to Employment Agreement to comply with Section
409A of the Internal Revenue Code.* |
|||
| 10.9 | Celgene Corporation 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed on June 24, 2008); formerly known as the 1998
Stock Incentive Plan, amended and restated as of April 23, 2003 (and, prior to April 23, 2003,
formerly known as the 1998 Long-Term Incentive Plan) (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006), as
amended by Amendment No. 1 to the 1998 Stock Incentive Plan, effective as of April 14, 2005
(incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8
(No. 333-126296), as amended by Amendment No. 2 to the 1998 Stock Incentive Plan (incorporated
by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006), as amended by Amendment No. 3 to the 1998 Stock Incentive Plan,
effective August 22, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007). |
|||
| 10.10 | Stock Purchase Agreement dated June 23, 1998 between the Company and Biovail Laboratories
Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on July 17, 1998). |
|||
| 10.11 | Registration Rights Agreement dated as of July 6, 1999 between the Company and the
Purchasers in connection with the issuance of the Company’s 9.00% Senior Convertible Note Due
June 30, 2004 (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1999). |
|||
| 10.12 | Development and License Agreement between the Company and Novartis Pharma AG, dated April
19, 2000 (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form
10-K for the year ended December 31, 2000). |
|||
| 10.13 | Collaborative Research and License Agreement between the Company and Novartis Pharma AG,
dated December 20, 2000 (incorporated by reference to Exhibit 10.22 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2000). |
|||
| 10.14 | Custom Manufacturing Agreement between the Company and Johnson Matthey Inc., dated March 5,
2001 (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2001). |
|||
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Table of Contents
| EXHIBIT | ||||
| NO. | EXHIBIT DESCRIPTION | |||
| 10.15 | Manufacturing and Supply Agreement between the Company and Mikart, Inc., dated as of April
11, 2001 (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form
10-K for the year ended December 31, 2001). |
|||
| 10.16 | Distribution Services Agreement between the Company and Ivers Lee Corporation, d/b/a Sharp,
dated as of June 1, 2000 (incorporated by reference to Exhibit 10.26 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2001). |
|||
| 10.17 | Forms of Award Agreement for the 1998 Stock Incentive Plan (incorporated by reference to
Exhibit 99.1 to the Company’s Post-Effective Amendment to the Registration Statement on Form
S-3 (No. 333-75636) dated December 30, 2005). |
|||
| 10.18 | Celgene Corporation 2005 Deferred Compensation Plan, effective as of January 1, 2005
(incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2004), as amended and restated, effective January 1, 2008
(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2008, filed on May 12, 2008). |
|||
| 10.19 | Anthrogenesis Corporation Qualified Employee Incentive Stock Option Plan (incorporated by
reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2002). |
|||
| 10.20 | 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, which request has been granted) (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2002). |
|||
| 10.21 | Exclusive License Agreement among the Company, Children’s Medical Center Corporation and,
solely for purposes of certain sections thereof, EntreMed, Inc., effective December 31, 2002
(incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2002). |
|||
| 10.22 | Supply Agreement between the Company and Sifavitor s.p.a., dated as of September 28, 1999
(incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2002). |
|||
| 10.23 | Supply Agreement between the Company and Siegfried (USA), Inc., dated as of January 1, 2003
(incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2002). |
|||
| 10.24 | Distribution and Supply Agreement by and between SmithKline Beecham Corporation, d/b/a
GlaxoSmithKline and Celgene Corporation, entered into as of March 31, 2003 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003). |
|||
| 10.25 | Securities Purchase Agreement dated as of April 8, 2003 between the Company and Pharmion
Corporation in connection with the purchase by the Company of Pharmion’s Senior Convertible
Promissory Note in the principal amount of $12,000,000 (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003). |
|||
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| EXHIBIT | ||||
| NO. | EXHIBIT DESCRIPTION | |||
| 10.26 | Purchase Agreement dated May 28, 2003 between the Company and Morgan Stanley & Co.
Incorporated, as Initial Purchaser, in connection with the purchase of $400,000,000 principal
amount of the Company’s 1 3/4% Convertible Note Due 2008 (incorporated by reference to Exhibit
10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003). |
|||
| 10.27 | Registration Rights Agreement dated as of June 3, 2003 between the Company, as Issuer, and
Morgan Stanley & Co. Incorporated, as Initial Purchaser (incorporated by reference to Exhibit
4.2 to the Company’s Registration Statement on Form S-3 (No. 333-107977) dated August 14,
2003). |
|||
| 10.28 | Form of 13/4% Convertible Note Due 2008 (incorporated by reference to Exhibit 4.1 to the
Company’s Registration Statement of Form S-3 (No. 333-107977) dated August 14, 2003). |
|||
| 10.29 | Technical Services Agreement among the Company, Celgene UK Manufacturing II, Limited (f/k/a
Penn T Limited), Penn Pharmaceutical Services Limited and Penn Pharmaceutical Holding Limited
dated October 21, 2004 (incorporated by reference to Exhibit 10.33 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2004). |
|||
| 10.30 | Purchase and Sale Agreement between Ticona LLC and the Company dated August 6, 2004, with
respect to the Summit, New Jersey property (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). |
|||
| 10.31 | Letter Agreement among the Company, Pharmion Corporation and Pharmion GmbH dated December 3,
2004 (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2004). |
|||
| 10.32 | License Agreement among the Company, Pharmion Corporation and Pharmion GmbH, dated as of
November 16, 2001 (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 2005). |
|||
| 10.33 | Amendment No. 1, dated March 3, 2003, to License Agreement among the Company, Pharmion
Corporation and Pharmion GmbH, dated as of November 16, 2001 (incorporated by reference to
Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31,
2005). |
|||
| 10.34 | Letter Agreement, dated March 3, 2003, to License Agreement among the Company, Pharmion
Corporation and Pharmion GmbH, dated as of November 16, 2001 (incorporated by reference to
Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31,
2005). |
|||
| 10.35 | Amendment No. 2, dated April 8, 2003, to License Agreement among the Company, Pharmion
Corporation and Pharmion GmbH, dated as of November 16, 2001, as further amended (incorporated
by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2005). |
|||
| 10.36 | Letter Agreement, dated August 18, 2003, to License Agreement among the Company, Pharmion
Corporation and Pharmion GmbH, dated as of November 16, 2001, as further amended (incorporated
by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2005). |
|||
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| EXHIBIT | ||||
| NO. | EXHIBIT DESCRIPTION | |||
| 10.37 | Letter Agreement, dated December 3, 2004, to License Agreement among the Company, Pharmion
Corporation and Pharmion GmbH, dated as of November 16, 2001, as further amended (incorporated
by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004). |
|||
| 10.38 | Letter Agreement among the Company, Pharmion Corporation and Pharmion GmbH dated December 3,
2004 (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2004). |
|||
| 10.39 | Amendment No. 2 to the Amended and Restated Distribution and License Agreement dated as of
November 16, 2001, as amended March 4, 2003 and supplemented June 18, 2003, by and between
Pharmion GmbH and Celgene UK Manufacturing II, Limited, dated December 3, 2004 (incorporated
by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004). |
|||
| 10.40 | Sublease between Gateway, Inc. (“Sublandlord”) and Celgene Corporation (“Subtenant”),
entered into as of December 10, 2001, with respect to the San Diego property (incorporated by
reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004). |
|||
| 10.41 | Lease Agreement, dated January 16, 1987, between the Company and Powder Horn Associates,
with respect to the Warren, New Jersey property (incorporated by reference to Exhibit 10.17 to
the Company’s Registration Statement on Form S-1, dated July 24, 1987) (incorporated by
reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004). |
|||
| 10.42 | Supply Agreement between the Company and Evotec OAI Limited, dated August 1, 2004 (certain
portions of the agreement have been redacted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment) (incorporated by
reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2005). |
|||
| 10.43 | Commercial Contract Manufacturing Agreement between the Company and OSG Norwich
Pharmaceuticals, Inc., dated April 26, 2004 (certain portions of the agreement have been
redacted and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment) (incorporated by reference to Exhibit 10.51 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2005). |
|||
| 10.44 | Finished Goods Supply Agreement (Revlimid™) between the Company and Penn Pharmaceutical
Services Limited, dated September 8, 2004 (certain portions of the agreement have been
redacted and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment) (incorporated by reference to Exhibit 10.52 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2005). |
|||
| 10.45 | Distribution Services and Storage Agreement between the Company and Sharp Corporation, dated
January 1, 2005 (certain portions of the agreement have been redacted and filed separately
with the Securities and Exchange Commission pursuant to a request for confidential treatment)
(incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2005). |
|||
| 10.46 | Asset Purchase Agreement dated as of December 8, 2006 by and between Siegfried Ltd.,
Siegfried Dienste AG and Celgene Chemicals Sàrl (certain portions of the agreement have been
redacted and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment, which request is still pending) (incorporated by reference
to Exhibit 10.55 to the Company’s Annual Report on Form 10-K for the year ended December 31,
2006). |
|||
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Table of Contents
| EXHIBIT | ||||
| NO. | EXHIBIT DESCRIPTION | |||
| 10.47 | Celgene Corporation Management Incentive Plan (MIP) and Performance Plan (incorporated by
reference to Exhibit 10.56 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2006). |
|||
| 10.48 | Letter Agreement between the Company and David W. Gryska (incorporated by reference to
Exhibit 10.55 to the Company’s Annual Report on Form 10-K for the year ended December 31,
2006). |
|||
| 10.49 | Amendment to Letter Agreement between the Company and David W. Gryska (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2007), as amended (incorporated by reference to Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 12, 2008). |
|||
| 10.50 | Voting Agreement, dated as of November 18, 2007, by and among Celgene Corporation and the
stockholders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on November 19, 2007). |
|||
| 10.51 | Merger Agreement, dated as of November 18, 2007, between Pharmion Corporation and Celgene
Corporation (incorporated by reference to the Company’s Current Report on Form 8-K filed on
November 19, 2007). |
|||
| 10.52 | * | Employment Agreement of Aart Brouwer, dated October 7, 2008 |
||
| 10.53 | Employment Letter of Dr. Graham Burton, dated as of June 2, 2003 (incorporated by reference
to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2008, filed on May 12, 2008). |
|||
| 10.54 | Termination Agreement between the Company, Pharmion LLC and Pharmacia & Upjohn Company,
dated October 3, 2008 (incorporated by reference to Exhibit 99.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008, filed on May 12, 2008). |
|||
| 10.55 | * | Addendum to Employment Agreement of Aart Brouwer |
||
| 14.1 | Code of Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2004). |
|||
| 21.1 | * | List of Subsidiaries. |
||
| 23.1 | * | Consent of KPMG LLP. |
||
| 24.1 | * | Power of Attorney (included in Signature Page). |
||
| 31.1 | * | Certification by the Company’s Chief Executive Officer. |
||
| 31.2 | * | Certification by the Company’s Chief Financial Officer. |
||
| 32.1 | * | Certification by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
||
| 32.2 | * | Certification by the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
||
| * | Filed herewith. |
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Table of Contents
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person or entity whose signature appears below
constitutes and appoints Sol J. Barer and Robert J. Hugin, and each of them, its true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution, for it and in its
name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K
and to file the same, with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all contents and purposes as it might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of Section 13 or 15 (d) 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 |
||||
| By: | /s/ Sol J. Barer | |||
| Sol J. Barer | ||||
| Chairman of the Board and Chief Executive Officer |
||||
Date: February 17, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
| Signature | Title | Date | ||
/s/ Sol J. Barer
|
Chairman of the Board and Chief Executive Officer | February 17, 2009 | ||
/s/ Robert J. Hugin
|
Director, Chief Operating Officer | February 17, 2009 | ||
/s/ David W. Gryska
|
Chief Financial Officer | February 17, 2009 | ||
/s/ Michael D. Casey
|
Director | February 17, 2009 | ||
/s/ Rodman L. Drake
|
Director | February 17, 2009 |
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Table of Contents
| Signature | Title | Date | ||
/s/ Arthur Hull Hayes, Jr.
|
Director | February 17, 2009 | ||
/s/ Gilla Kaplan
|
Director | February 17, 2009 | ||
/s/ James Loughlin
|
Director | February 17, 2009 | ||
/s/ Ernest Mario
|
Director | February 17, 2009 | ||
/s/ Walter L. Robb
|
Director | February 17, 2009 | ||
/s/ Andre Van Hoek
|
Controller (Principal Accounting Officer) |
February 17, 2009 |
The foregoing constitutes a majority of the directors.
119
Table of Contents
Celgene Corporation and Subsidiaries
Schedule II — Valuation and Qualifying Accounts
| Balance at | Additions Charged | |||||||||||||||
| Beginning of | to Expense or | Balance at | ||||||||||||||
| Year ended December 31, | Year | Sales | Deductions | End of Year | ||||||||||||
| (In thousands $) | ||||||||||||||||
2008 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 1,764 | 6,232 | $ | 2,264 | (2) | $ | 5,732 | ||||||||
Allowance for customer discounts |
2,895 | 36,024 | (1) | 35,260 | (2) | 3,659 | ||||||||||
Subtotal |
4,659 | 42,256 | 37,524 | $ | 9,391 | |||||||||||
Allowance for sales returns |
16,734 | 20,624 | (1) | 19,559 | (2) | 17,799 | ||||||||||
Total |
$ | 21,393 | $ | 62,880 | $ | 57,083 | $ | 27,190 | ||||||||
2007 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 4,329 | 9,489 | $ | 12,054 | $ | 1,764 | |||||||||
Allowance for customer discounts |
2,296 | 27,999 | (1) | 27,400 | 2,895 | |||||||||||
Subtotal |
6,625 | 37,488 | 39,454 | $ | 4,659 | |||||||||||
Allowance for sales returns |
9,480 | 39,801 | (1) | 32,547 | 16,734 | |||||||||||
Total |
$ | 16,105 | $ | 77,289 | $ | 72,001 | $ | 21,393 | ||||||||
2006 |
||||||||||||||||
Allowance for doubtful accounts |
$ | 2,292 | $ | 2,169 | $ | 132 | $ | 4,329 | ||||||||
Allowance for customer discounts |
1,447 | 18,881 | (1) | 18,032 | 2,296 | |||||||||||
Subtotal |
3,739 | 21,050 | 18,164 | 6,625 | ||||||||||||
Allowance for sales returns |
5,017 | 54,551 | (1) | 50,088 | 9,480 | |||||||||||
Total |
$ | 8,756 | $ | 75,601 | $ | 68,252 | $ | 16,105 | ||||||||
| (1) | Amounts are a reduction from gross sales. | |
| (2) | Included in the deductions column are the following amounts, which were the balances recorded on March 7, 2008 as a result of the acquisition of Pharmion: Allowance for doubtful accounts of $818; Allowance for customer discounts of $283; and Allowance for sales returns of $926. |
120