UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

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		(I.R.S. Employer Identification
or organization)		Number)
86 Morris Avenue, Summit, NJ		07901
(Address of principal executive offices)		(Zip Code)

(908) 673-9000

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ     No 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 (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

At October 23, 2009, 459,602,351 shares of Common Stock, par value $.01 per share, were outstanding.

 

 

CELGENE CORPORATION

FORM 10-Q TABLE OF CONTENTS

		Page No.
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements
Consolidated Statements of Operations - Three-Month and Nine-Month Periods Ended September 30, 2009 and 2008			1
Consolidated Balance Sheets - As of September 30, 2009 and December 31, 2008			2
Consolidated Statements of Cash Flows - Nine-Month Periods Ended September 30, 2009 and 2008			3
Notes to Unaudited Consolidated Financial Statements			5
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3 Quantitative and Qualitative Disclosures About Market Risk			46
Item 4 Controls and Procedures			48
PART II OTHER INFORMATION
Item 1 Legal Proceedings			49
Item 1A Risk Factors			49
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 3 Defaults Upon Senior Securities			50
Item 4 Submission of Matters to a Vote of Security Holders			50
Item 5 Other Information			50
Item 6 Exhibits			50
Signatures			51
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

CELGENE CORPORATION AND SUBSIDIARIES

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenue:
Net product sales		$	667,967			$	567,017			$	1,842,353			$	1,541,556
Collaborative agreements and other revenue			2,381				2,402				6,979				9,960
Royalty revenue			24,789				23,046				79,524				75,011
Total revenue			695,137				592,465				1,928,856				1,626,527
Expenses:
Cost of goods sold (excluding amortization of acquired intangible assets)			52,058				70,534				167,259				190,452
Research and development			193,362				160,911				593,109				462,650
Selling, general and administrative			192,512				168,607				542,264				485,345
Amortization of acquired intangible assets			21,111				32,833				67,403				77,842
Acquired in-process research and development			—				—				—				1,740,000
Total expenses			459,043				432,885				1,370,035				2,956,289
Operating income (loss)			236,094				159,580				558,821				(1,329,762	)
Other income and expense:
Interest and investment income, net			20,468				19,678				61,994				69,281
Equity in losses of affiliated companies			329				2,338				944				8,761
Interest expense			466				512				1,457				3,968
Other income, net			14,935				2,464				52,720				4,957
Income (loss) before income taxes			270,702				178,872				671,134				(1,268,253	)
Income tax provision			53,887				42,058				148,602				116,138
Net income (loss)		$	216,815			$	136,814			$	522,532			$	(1,384,391	)
Net income (loss) per common share:
Basic		$	0.47			$	0.30			$	1.14			$	(3.17	)
Diluted		$	0.46			$	0.29			$	1.12			$	(3.17	)
Weighted average shares (in thousands):
Basic			458,834				456,509				459,332				437,206
Diluted			467,057				468,891				467,469				437,206

See accompanying Notes to Unaudited Consolidated Financial Statements

CELGENE CORPORATION AND SUBSIDIARIES

		September 30,				December 31,
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	1,151,055			$	1,092,386
Marketable securities available for sale			1,613,393				1,129,705
Accounts receivable, net of allowances of $9,890 and $9,391 at September 30, 2009 and December 31, 2008, respectively			406,929				312,243
Inventory			85,088				100,176
Deferred income taxes			24,392				16,415
Other current assets			219,636				190,441
Total current assets			3,500,493				2,841,366
Property, plant and equipment, net			281,153				248,971
Investment in affiliated companies			21,246				18,392
Intangible assets, net			365,826				434,764
Goodwill			579,355				588,822
Other assets			334,213				312,955
Total assets		$	5,082,286			$	4,445,270
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	47,098			$	53,859
Accrued expenses			286,930				306,120
Income taxes payable			21,868				51,162
Current portion of deferred revenue			2,254				1,419
Other current liabilities			132,816				114,688
Total current liabilities			490,966				527,248
Deferred revenue, net of current portion			4,948				3,127
Non-current income taxes payable			404,671				358,578
Other non-current liabilities			72,602				64,989
Total liabilities			973,187				953,942
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock, $.01 par value per share, 5,000,000 shares authorized; none outstanding at September 30, 2009 and December 31, 2008, respectively			—				—
Common stock, $.01 par value per share, 575,000,000 shares authorized; issued 466,155,411 and 463,274,296 shares at September 30, 2009 and December 31, 2008, respectively			4,662				4,633
Common stock in treasury, at cost; 7,168,052 and 4,144,667 shares at September 30, 2009 and December 31, 2008, respectively			(301,405	)			(157,165	)
Additional paid-in capital			5,421,411				5,180,397
Accumulated deficit			(886,461	)			(1,408,993	)
Accumulated other comprehensive loss			(129,108	)			(127,544	)
Total stockholders’ equity			4,109,099				3,491,328
Total liabilities and stockholders’ equity		$	5,082,286			$	4,445,270

See accompanying Notes to Unaudited Consolidated Financial Statements

CELGENE CORPORATION AND SUBSIDIARIES

		Nine-Month Periods Ended
		September 30,
		2009				2008
Cash flows from operating activities:
Net income (loss)		$	522,532			$	(1,384,391	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of long-term assets			29,671				25,470
Amortization of intangible assets			68,104				78,138
Allocation of pre-paid royalties			26,109				—
Provision for accounts receivable allowances			3,840				5,854
Deferred income taxes			(34,971	)			(9,770	)
Acquired in-process research and development			—				1,740,000
Share-based compensation expense			105,927				75,650
Equity in losses of affiliated companies			748				8,362
Share-based employee benefit plan expense			8,976				7,358
Unrealized change in value of foreign currency forward contracts			(28,076	)			10,318
Realized (gain) loss on marketable securities available for sale			(27,051	)			1,293
Other, net			2,884				823
Change in current assets and liabilities, excluding the effect of the 2008 acquisition:
Accounts receivable			(88,471	)			(69,952	)
Inventory			17,610				(5,799	)
Other operating assets			(23,062	)			(12,359	)
Accounts payable and other operating liabilities			(18,990	)			(20,708	)
Income tax payable			20,888				26,088
Deferred revenue			2,626				(31	)
Net cash provided by operating activities			589,294				476,344
Cash flows from investing activities:
Proceeds from sales of marketable securities available for sale			1,552,721				981,502
Purchases of marketable securities available for sale			(2,011,969	)			(471,699	)
Payments for acquisition of business, net of cash acquired			—				(746,779	)
Capital expenditures			(60,069	)			(53,635	)
Investment in affiliated companies			(3,603	)			(12,185	)
Purchases of investment securities			(10,981	)			(8,236	)
Other			3,333				11,528
Net cash used in investing activities			(530,568	)			(299,504	)
Cash flows from financing activities:
Payment for treasury shares			(149,362	)			—
Net proceeds from exercise of common stock options and warrants			34,384				106,932
Excess tax benefit from share-based compensation arrangements			99,950				59,459
Net cash provided by (used in) financing activities			(15,028	)			166,391
Effect of currency rate changes on cash and cash equivalents			14,971				(44,384	)
Net increase in cash and cash equivalents			58,669				298,847
Cash and cash equivalents at beginning of period			1,092,386				1,218,273
Cash and cash equivalents at end of period		$	1,151,055			$	1,517,120

See accompanying Notes to Unaudited Consolidated Financial Statements

CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Unaudited)
(Dollars in thousands)

		Nine-Month Periods Ended
		September 30,
		2009				2008
Supplemental schedule of non-cash investing and financing activity:
Change in net unrealized (gain) loss on marketable securities available for sale		$	(9,659	)		$	107,313
Matured shares tendered in connection with stock option exercises		$	(997	)		$	(4,250	)
Conversion of convertible notes		$	—			$	196,543
Supplemental disclosure of cash flow information:
Interest paid		$	—			$	1,640
Income taxes paid		$	60,992			$	28,084

See accompanying Notes to Unaudited Consolidated Financial Statements

CELGENE CORPORATION AND SUBSIDIARIES

(In all accompanying tables, amounts of dollars expressed in thousands,
except per share amounts, unless otherwise indicated)

1. 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. The Company’s primary commercial stage products include REVLIMID^®, THALOMID^® (inclusive of Thalidomide Celgene^TM and Thalidomide Pharmion^TM, subsequent to the acquisition of Pharmion Corporation, or Pharmion), VIDAZA^® and FOCALIN^®. ALKERAN^® was licensed from GlaxoSmithKline, or GSK, and sold under the Celgene label through March 31, 2009, the conclusion date of the ALKERAN^® license with GSK. For the ensuing two years, the Company will continue to earn residual payments based upon GSK’s ALKERAN^® revenues. 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 accompanying unaudited consolidated financial statements have been prepared from the books and records of the Company pursuant to U.S. generally accepted accounting principles for interim information and the rules and regulations of the Securities and Exchange Commission for interim reporting. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in complete annual financial statements have been condensed or omitted. The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated. Investments in limited partnerships and interests in which 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 immaterial reclassifications have been made to the prior period consolidated financial statements in order to conform to the current period presentation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, or the 2008 Annual Report on Form 10-K.

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, competition, technological change and product liability.

Interim results may not be indicative of the results that may be expected for the full year. In the opinion of management, these financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim consolidated financial statements.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 of the Notes to the Consolidated Financial Statements included in the 2008 Annual Report on Form 10-K.

New Accounting Pronouncements: In June 2009, the Financial Accounting Standards Board, or FASB, established the FASB Accounting Standards Codification^TM, or ASC, as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with generally accepted accounting principles in the United States. All other accounting literature not included in the ASC is now nonauthoritative. The ASC was effective for financial statements issued for interim and annual periods ending after September 15, 2009 and its adoption did not have any impact on the Company’s consolidated financial statements. The ASC is updated through the FASB’s issuance of Accounting Standard Updates, or ASUs. Summarized below are recently issued accounting pronouncements as described under the new ASC structure.

In September 2006, the FASB issued ASC No. 825, “Fair Value Measurements,” or ASC 825, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. The FASB partially deferred the effective date of ASC 825 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 Company’s adoption of ASC 825 related to non-financial assets beginning January 1, 2009 did not have any impact on the Company’s consolidated financial statements.

In December 2007, the FASB ratified ASC No. 808, “Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property,” which provides guidance for ASC No. 730, or ASC 730, related to 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. The guidance for ASC 730 was effective for the Company beginning January 1, 2009 on a retrospective basis and did not have any impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued ASC No. 805, “Business Combinations,” or ASC 805, which 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. Previously, post-acquisition adjustments to a business combination related to deferred tax asset valuation allowances and liabilities related to uncertain tax positions were required to be recorded as an increase or decrease to goodwill. ASC 805 does not permit this accounting and generally requires any such changes to be recorded in current period income tax expense. After the adoption of ASC 805, all changes to valuation allowances and liabilities related to uncertain tax positions from an acquisition must be recognized in current period income tax expense. ASC 805 was effective for the Company beginning January 1, 2009 and the Company will account for future business combinations in accordance with its provisions.

In December 2007, the FASB issued an amendment to ASC No. 810, entitled “Noncontrolling Interests in Consolidated Financial Statements,” which changes the accounting for and reporting of noncontrolling interests (formerly known as minority interests) in consolidated financial statements. The amendment was effective for the Company beginning January 1, 2009 and did not have any impact on the Company’s consolidated financial statements.

In March 2008, the FASB issued an amendment to ASC No. 815, entitled “Disclosures about Derivative Instruments and Hedging Activities,” or ASC 815, 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. The amendment was effective for the Company beginning January 1, 2009 and the expanded disclosures are included in Note 8.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In April 2008, the FASB issued an amendment to ASC No. 350 entitled “Determination of the Useful Life of Intangible Assets,” which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The amendment was effective for the Company beginning January 1, 2009 and did not have any impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued an amendment to ASC No. 470 entitled “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” 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 that is 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 amendment did not have any impact on its consolidated financial statements.

In June 2008, the FASB issued ASC No. 260, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” or ASC 260. The ASC 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 and 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. ASC 260 was effective for the Company beginning January 1, 2009. Since the Company’s past share-based payment awards did not include non-forfeitable rights to dividends or dividend equivalents, the adoption of ASC 260 did not have any impact on its consolidated financial statements.

In November 2008, the FASB ratified ASC No. 323, “Equity Method Investment Accounting Considerations,” or ASC 323, which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. ASC 323 was effective for the Company beginning January 1, 2009 and did not have any impact on the Company’s consolidated financial statements.

In November 2008, the FASB ratified an amendment to ASC No. 350, entitled “Accounting for Defensive Intangible Assets,” 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. The amendment 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. The amendment was 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.

In April 2009, the FASB issued an amendment to ASC No. 820, entitled “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” or ASC 820. This amendment provides additional guidance for estimating fair value in accordance with ASC 820 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This amendment shall be applied prospectively with retrospective application not permitted. This amendment was effective for interim and annual periods ending after June 15, 2009. The adoption did not have any impact on the Company’s consolidated financial statements.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In April 2009, the FASB issued an amendment to ASC 320, entitled “Recognition and Presentation of Other-Than-Temporary Impairments.” This amendment was issued to make the other-than-temporary impairments guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. This amendment replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This amendment provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses and an aging of securities with unrealized losses. Although this amendment does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. This amendment was effective for interim and annual periods ending after June 15, 2009. The adoption of this amendment did not have any impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued an amendment to ASC 825, entitled “Interim Disclosures About Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this amendment, fair values for these assets and liabilities were only disclosed annually. This amendment applies to all financial instruments within the scope of ASC 825 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This amendment was effective for interim periods ending after June 15, 2009. This amendment does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this amendment requires comparative disclosures only for periods ending after initial adoption. The adoption did not have any impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued an amendment to ASC No. 805, entitled “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This amendment clarifies application issues associated with initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This amendment was effective for the Company beginning January 1, 2009 and the Company will account for assets or liabilities arising from contingencies acquired in future business combinations in accordance with its provisions.

In May 2009, the FASB issued ASC No. 855, “Subsequent Events,” or ASC 855, which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. It sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 was effective for financial statements issued for interim and annual periods ending after June 15, 2009 and did not have any impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued an amendment to ASC No. 860, entitled “Accounting for Transfers of Financial Assets,” which eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures. This amendment clarifies the determination whether a transferor and all of the entities included in the transferor’s financial statements being presented have surrendered control over transferred financial assets. It also enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and a company’s continuing involvement in transferred financial assets. This amendment will be effective at the start of a company’s first fiscal year beginning after November 15, 2009. The Company is currently evaluating the impact, if any, that the adoption of this amendment will have on its consolidated financial statements.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In June 2009, the FASB issued an amendment to ASC 810, entitled “Consolidation of Variable Interest Entities,” which changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This amendment requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and will require a company to provide additional disclosures about its involvement with variable interest entities, any significant changes in risk exposure due to that involvement and how its involvement with a variable interest entity affects the company’s financial statements. This amendment will be effective at the start of a company’s first fiscal year beginning after November 15, 2009. The Company is currently evaluating the impact, if any, that the adoption of this amendment will have on its consolidated financial statements.

In August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value,” or ASU 2009-05, which amends ASC 820 to provide clarification of a circumstances in which a quoted price in an active market for an identical liability is not available. A reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities (or similar liabilities when traded as assets) and/or 2) a valuation technique that is consistent with the principles of ASC 820. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

In September 2009, the FASB issued ASU No. 2009-12, “Fair Value Measurements and Disclosure,” or ASU 2009-12, which provides additional guidance on using the net asset value per share, provided by an investee, when estimating the fair value of an alternate investment that does not have a readily determinable fair value and enhances the disclosures concerning these investments. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. The Company is currently evaluating the impact, if any, that the adoption of this amendment will have on its consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements,” or ASU 2009-13, which amends existing revenue recognition accounting pronouncements that are currently within the scope of ASC 605. This guidance eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact, if any, that the adoption of this amendment will have on its consolidated financial statements.

3. 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. Celgene paid a combination of $920.8 million in cash and approximately 30.8 million shares of Celgene common stock valued at $1.749 billion to Pharmion shareholders. The operating results of Pharmion are included in the Company’s consolidated financial statements from the date of acquisition.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides unaudited pro forma financial information for the nine-month period ended September 30, 2008 as if the acquisition of Pharmion had occurred as of the beginning of the period presented. For the nine-month period presented, the unaudited pro forma results include the nonrecurring charge for in-process research and development, or 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 the period presented, nor are they intended to represent or be indicative of future results of operations.

		Nine-Month Period
		Ended
		September 30, 2008
Total revenue		$	1,678,880
Net loss		$	(1,393,846	)
Net loss per common share: basic and diluted		$	(3.19	)

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 effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were deemed to be at market rates due to several factors including, but not limited to, the continued absence of European marketing authorization for THALOMID^® since the agreements were executed by unrelated entities in December 2004, the review of similar recent agreements entered into by pharmaceutical and biotechnology companies containing similar economic terms and the lack of a termination penalty for either party to the agreements. In addition, the Company has valued the reacquired THALOMID^®-related rights when valuing the developed product rights acquired. Any assets and liabilities that existed between Celgene and Pharmion as of the acquisition date have been eliminated in the accompanying consolidated financial statements.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Restructuring

The March 7, 2008 acquisition cost of Pharmion included $58.6 million in restructuring liabilities primarily related to the planned exit of certain business activities, involuntary terminations and the relocation of certain Pharmion employees. The remaining balance of these restructuring liabilities totaled $27.6 million and $2.8 million as of December 31, 2008 and September 30, 2009, respectively. The following table summarizes changes to the restructuring liabilities during the nine-month period ended September 30, 2009:

		Balance												Balance				Cumulative
		December 31, 2008				Payments				Adjustments				September 30, 2009				Payments
Severance costs		$	1,654			$	(1,635	)		$	—			$	19			$	(17,419	)
Contract termination fees			22,485				(12,345	)			(9,600	)(1)			540				(21,011	)
Facility closing costs			2,664				(750	)			—				1,914				(3,681	)
Other			834				(539	)			—				295				(4,155	)
Total restructuring costs		$	27,637			$	(15,269	)		$	(9,600	)		$	2,768			$	(46,266	)

5. Earnings Per Share

Basic earnings per share is computed by dividing net income 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, restricted stock units, warrants and other incentives 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 paid-in capital upon exercise. As of their maturity date, June 1, 2008, substantially all of the Company’s convertible notes were converted into shares of common stock.

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2009				2008				2009				2008
Net income (loss)		$	216,815			$	136,814			$	522,532			$	(1,384,391	)
Weighted-average shares (in thousands):
Basic			458,834				456,509				459,332				437,206
Effect of dilutive securities:
Options, restricted stock units, warrants and other incentives			8,223				12,382				8,137				—
Diluted			467,057				468,891				467,469				437,206
Net income (loss) per share:
Basic		$	0.47			$	0.30			$	1.14			$	(3.17	)
Diluted		$	0.46			$	0.29			$	1.12			$	(3.17	)

The total number of potential common shares excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 20,547,394 and 9,392,013 shares for the three-month periods ended September 30, 2009 and 2008, respectively. The total number of potential common shares excluded for the nine-month periods ended September 30, 2009 and 2008 was 21,515,514 and 33,014,354, respectively. All of the potentially dilutive securities for the nine-month period ended September 30, 2008 were determined to be anti-dilutive as a result of the net loss for the period. Substantially all of the Company’s convertible debt had been converted into shares of common stock as of the end of June 2008.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On May 26, 2009, the Company entered into an agreement to purchase shares of its common stock from Morgan Stanley & Co. Inc., for an aggregate purchase price of $100.0 million under an Accelerated Share Repurchase, or ASR, program. The Company entered into this agreement as part of a $500.0 million share repurchase program approved by its Board of Directors in April 2009.

On May 27, 2009, the Company received an initial delivery of 1.2 million shares, representing approximately 50% of the shares that could have been purchased, based on the closing price of its common stock on May 27, 2009. An additional 1.0 million shares were delivered on May 29, 2009, in accordance with the terms of the agreement. When all ASR program purchases were completed by Morgan Stanley & Co. Inc. on August 26, 2009 no additional shares were delivered to the Company. The total number of shares repurchased was determined based on the volume weighted-average-price of the Company’s stock during the term of the agreement.

In addition to share repurchases under the ASR program, the Company purchased approximately 1.0 million shares of its common stock on the open market at a cost of $49.4 million during the third quarter of 2009.

As of September 30, 2009, shares repurchased under the $500.0 million share repurchase program totaled $149.4 million.

6. Comprehensive Income (Loss)

The components of comprehensive income (loss) consist of net income (loss), changes in pension liability, 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.

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2009				2008				2009				2008
Net income (loss)		$	216,815			$	136,814			$	522,532			$	(1,384,391	)
Other comprehensive income (loss):
Marketable securities:
Net unrealized gains (losses) on marketable securities available for sale, net of tax			9,413				(4,052	)			16,345				(3,947	)
Reversal of unrealized gains on Pharmion investment, net of tax			—				—				—				(62,806	)
Reclassification adjustment for (gains) losses included in net income (loss)			(9,880	)			3,515				(27,051	)			1,275
Total other comprehensive losses related to marketable securities available for sale, net of tax			(467	)			(537	)			(10,706	)			(65,478	)
Net unrealized gains (losses) related to cash flow hedges, net of tax			(14,981	)			6,786				11,862				6,786
Currency translation adjustments			12,980				(91,299	)			(2,720	)			(63,120	)
Total other comprehensive income (loss) items			(2,468	)			(85,050	)			(1,564	)			(121,812	)
Comprehensive income (loss)		$	214,347			$	51,764			$	520,968			$	(1,506,203	)

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. 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 September 30, 2009 and the valuation techniques the Company utilized to determine such fair value. 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 for identical or similar assets in markets that are not very active. The Company’s Level 2 assets consist primarily 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, Federal Deposit Insurance Corporation, or FDIC, guaranteed fixed rate corporate debt, non-U.S. government issued fixed rate securities, non-U.S. government guaranteed fixed rate securities, 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 securities at September 30, 2009 consist of warrants for the purchase of equity securities in a non-publicly traded company in which the Company has invested and which is party to a collaboration and option agreement with the Company.

						Quoted Price in				Significant				Significant
						Active Markets for				Other Observable				Unobservable
		Balance at				Identical Assets				Inputs				Inputs
		September 30, 2009				(Level 1)				(Level 2)				(Level 3)
Available-for-sale securities		$	1,613,393			$	667			$	1,612,726			$	—
Warrants			845				—				—				845
Cash equivalents			38,046				—				38,046				—
Forward currency contracts			(17,939	)			—				(17,939	)			—
		$	1,634,345			$	667			$	1,632,833			$	845

						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

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table is a roll-forward of the fair value of Level 3 securities (significant unobservable inputs):

		Nine-Month Periods Ended September 30,
		2009				2008
Balance at beginning of period		$	11,054			$	37,038
Net gains (realized and unrealized)			2,451				—
Net purchases, issuances and settlements			(12,660	)			(22,437	)
Transfers in and/or out of Level 3			—				—
Balance at end of period		$	845			$	14,601

8. Derivative Instruments and Hedging Activities

Foreign Currency Forward Contracts: Effective January 1, 2009, the Company adopted the enhanced disclosure requirement required under ASC 815 for derivative instruments and hedging activities by providing additional information about its objectives for using derivative instruments, the level of derivative activity the Company engages in, as well as how derivative instruments and related hedged items affect its financial position and performance. Since the enhanced disclosure requirements under ASC 815 require only additional disclosures concerning derivatives and hedging activities, the adoption did not affect the presentation of the Company’s financial position or results of operations.

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 anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with non-functional currency denominated revenues and expenses of foreign subsidiaries. The foreign currency forward hedging contracts outstanding at September 30, 2009 and December 31, 2008 had settlement dates within 27 months. These foreign currency forward contracts are designated as cash flow hedges under ASC 815 and, accordingly, to the extent effective, any unrealized gains or losses on them are reported in other comprehensive income (loss), or OCI, and reclassified to operations in the same periods during which the underlying hedged transactions affect operations. Any ineffectiveness on these foreign currency forward contracts is reported in other income, net. Foreign currency forward contracts entered into to hedge forecasted revenue and expenses were as follows:

		Notional Amount
Foreign Currency		September 30, 2009				December 31, 2008
Euro		$	1,013,797			$	704,198
Yen			7,456				—
Total		$	1,021,253			$	704,198

The notional settlement amounts of the foreign currency forward contracts outstanding as of September 30, 2009 and December 31, 2008 were $1.021 billion and $704.2 million, respectively. The Company considers the impact of its own and the counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its obligations under the contract. As of September 30, 2009 and December 31, 2008, credit risk did not materially change the fair value of the Company’s foreign currency forward contracts.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognized reductions in net product sales for the settlement of certain effective cash flow hedge instruments of $11.9 million and $18.5 million for the three- and nine-month periods ended September 30, 2009, respectively, and no reductions for each of the three- and nine-month periods ended September 30, 2008. These settlements were recorded in the same period as the related forecasted sales occurred. The Company recognized an increase in research and development expenses for the settlement of certain effective cash flow hedge instruments of $0.5 million for the three-month period ended September 30, 2009 and a decrease in research and development expenses for the settlement of certain effective cash flow hedge instruments of $1.1 million for the nine-month period ended September 30, 2009. The Company recognized a decrease in research and development expenses for the settlement of certain effective cash flow hedge instruments of $1.1 million for each of the three- and nine-month periods ended September 30, 2008. These settlements were recorded in the same period as the related forecasted research and development expenses occurred. The Company recognized an increase in other income, net for the settlement of certain effective cash flow hedge instruments of $3.0 million for each of the three- and nine-month periods ended September 30, 2008. These settlements were recorded in the same period as the related forecasted expenses occurred. Changes in time value, which the Company excluded from the hedge effectiveness assessment for the three- and nine-month periods ended September 30, 2009, were included in other income, net.

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 under ASC 815 and, accordingly, any changes in their fair value are recognized in other income, net in the current period. The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding at September 30, 2009 and December 31, 2008 were $674.1 million and $56.6 million, respectively.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the fair value and presentation in the consolidated balance sheets for derivative instruments as of September 30, 2009 and December 31, 2008:

		September 30, 2009
		Asset Derivatives						Liability Derivatives
		Balance Sheet						Balance Sheet
Instrument		Location		Fair Value				Location		Fair Value
Foreign currency forward contracts designated as hedging instruments under ASC 815		Other current assets		$	413			Other current liabilities		$	40,862
Foreign currency forward contracts not designated as hedging instruments under ASC 815		Other current assets		$	22,533			Other current liabilities		$	23
Total				$	22,946					$	40,885

		December 31, 2008
		Asset Derivatives						Liability Derivatives
		Balance Sheet						Balance Sheet
Instrument		Location		Fair Value				Location		Fair Value
Foreign currency forward contracts designated as hedging instruments under ASC 815		Other current assets		$	1,552			Other current liabilities		$	50,000
Foreign currency forward contracts not designated as hedging instruments under ASC 815		Other current assets		$	30			Other current liabilities		$	9,068
Total				$	1,582					$	59,068

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables summarize the effect of derivative instruments designated as hedging instruments under ASC 815 on the consolidated statements of operations for the three- and nine-month periods ended September 30, 2009 and 2008:

For the Three-Month Period Ended September 30, 2009

Location of

Amount of

Gain/(Loss)

Gain/(Loss)

Recognized in

Recognized in

Location of

Amount of

Income on

Income on

Amount of

Gain/(Loss)

Gain/(Loss)

Derivative

Derivative

Gain/(Loss)

Reclassified from

Reclassified from

(Ineffective Portion

(Ineffective Portion

Recognized in OCI

Accumulated OCI

Accumulated OCI

and Amount Excluded

and Amount Excluded

on Derivative

into Income

into Income

From Effectiveness

From Effectiveness

Instrument

(Effective Portion)

(Effective Portion)

(Effective Portion)

Testing)

Testing)

Foreign currency forward contracts

$

(25,465)

(1)

Net product sales

$

(11,895

)

Other income, net

$

2,657

(2)

Research and development

$

(493

)

For the Three-Month Period Ended September 30, 2008

Location of

Amount of

Gain/(Loss)

Gain/(Loss)

Location of

Amount of

Recognized in

Recognized in

Amount of

Gain/(Loss)

Gain/(Loss)

Income on

Income on

Gain/(Loss)

Reclassified from

Reclassified from

Derivative

Derivative

Recognized in OCI

Accumulated OCI

Accumulated OCI

(Amount Excluded

(Amount Excluded

on Derivative

into Income

into Income

From Effectiveness

From Effectiveness

Instrument

(Effective Portion)

(Effective Portion)

(Effective Portion)

Testing)

Testing)

Foreign currency forward contracts

$

10,914

Research and development

$

1,136

Other income, net

$

(916)

(1)

Other income

$

2,992

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the Nine-Month Period Ended September 30, 2009

Location of

Amount of

Gain/(Loss)

Gain/(Loss)

Recognized in

Recognized in

Location of

Amount of

Income on

Income on

Amount of

Gain/(Loss)

Gain/(Loss)

Derivative

Derivative

Gain/(Loss)

Reclassified from

Reclassified from

(Ineffective Portion

(Ineffective Portion

Recognized in OCI

Accumulated OCI

Accumulated OCI

and Amount Excluded

and Amount Excluded

on Derivative

into Income

into Income

From Effectiveness

From Effectiveness

Instrument

(Effective Portion)

(Effective Portion)

(Effective Portion)

Testing)

Testing)

Foreign currency forward contracts

$

(3,581)

(1)

Net product sales

$

(18,455

)

Other income, net

$

(1,579)

(2)

Research and development

$

1,109

For the Nine-Month Period Ended September 30, 2008

Location of

Amount of

Gain/(Loss)

Gain/(Loss)

Location of

Amount of

Recognized in

Recognized in

Amount of

Gain/(Loss)

Gain/(Loss)

Income on

Income on

Gain/(Loss)

Reclassified from

Reclassified from

Derivative

Derivative

Recognized in OCI

Accumulated OCI

Accumulated OCI

(Amount Excluded

(Amount Excluded

on Derivative

into Income

into Income

From Effectiveness

From Effectiveness

Instrument

(Effective Portion)

(Effective Portion)

(Effective Portion)

Testing)

Testing)

Foreign currency forward contracts

$

10,914

Research and development

$

1,136

Other income, net

$

(916)

(1)

Other income, net

$

2,992

The following table summarizes the effect of derivative instruments not designated as hedging instruments under ASC 815 on the consolidated statements of operations for the three- and nine-month periods ended September 30, 2009 and 2008:

		Location of
		Gain/(Loss)
		Recognized in		Amount of Gain/(Loss) Recognized in Income on Derivative
		Income on		Three-Month Periods Ended September 30,								Nine-Month Periods Ended September 30,
Instrument		Derivative		2009				2008				2009				2008
Foreign currency forward contracts		Other income, net		$	(11,504	)		$	(17,081	)		$	6,051			$	(17,175	)

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Cash, Cash Equivalents and Marketable Securities Available-for-Sale

Money market funds of $929.5 million and $691.0 million at September 30, 2009 and December 31, 2008, 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 September 30, 2009 and December 31, 2008 were as follows:

						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
September 30, 2009		Cost				Gain				Loss				Value
U.S. Treasury securities		$	364,727			$	1,308			$	(82	)		$	365,953
U.S. government-sponsored agency securities			299,751				2,298				(61	)			301,988
U.S. government-sponsored agency MBS			605,625				5,078				(801	)			609,902
FDIC guaranteed corporate debt			190,448				1,758				(37	)			192,169
Non-U.S. government issued securities			31,096				—				—				31,096
Non-U.S. government guaranteed securities			111,123				548				(53	)			111,618
Marketable equity securities			407				260				—				667
Total available-for-sale marketable securities		$	1,603,177			$	11,250			$	(1,034	)		$	1,613,393

						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

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 includes obligations of bank holding companies that meet certain criteria set forth under the Temporary Liquidity Guaranty Program and are unconditionally guaranteed by the FDIC. Non-U.S. government issued securities consist of direct obligations of highly-rated governments of nations other then the United States. Non-U.S. government guaranteed securities consist of obligations of agencies and other entities that are explicitly guaranteed by highly-rated governments of nations other then the United States. Net unrealized gains 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 corporate fixed rate debt primarily reflect the impact of decreased interest rates at September 30, 2009 and December 31, 2008.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Duration periods of available-for-sale debt securities were as follows at September 30, 2009:

		Amortized				Fair
		Cost				Value
Duration of one year or less		$	416,130			$	418,646
Duration of one through three years			1,094,932				1,102,091
Duration of three through five years			82,153				82,294
Duration of over five years			9,555				9,695
Total		$	1,602,770			$	1,612,726

10. Inventory

A summary of inventories by major category at September 30, 2009 and December 31, 2008 follows:

		September 30,				December 31,
		2009				2008
Raw materials		$	21,145			$	16,910
Work in process			34,174				33,170
Finished goods			29,769				50,096
Total		$	85,088			$	100,176

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Investment in Affiliated Companies

A summary of the Company’s equity investment in affiliated companies follows:

		September 30,				December 31,
Investment in Affiliated Companies		2009				2008
Investment in affiliated companies (1)		$	18,500			$	14,862
Excess of investment over share of equity (2)			2,746				3,530
Investment in affiliated companies		$	21,246			$	18,392

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
Equity in Losses of Affiliated Companies		2009				2008				2009				2008
Affiliated companies losses (1)		$	329			$	2,338			$	944			$	8,761

Additional equity method investments totaling $3.6 million were made during the nine-month period ended September 30, 2009. The three- and nine-month periods ended September 30, 2008 included other-than-temporary impairment losses of $1.6 million and $6.0 million, respectively. These impairment losses were based on an evaluation of several factors, including a decrease in fair value of the equity investment below its cost.

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 two to eleven years. A summary of intangible assets by category follows:

		Gross								Intangible				Weighted
		Carrying				Accumulated				Assets,				Average
September 30, 2009		Value				Amortization				Net				Life (Years)
Acquired developed product rights		$	530,000			$	(169,733	)		$	360,267				6.5
License			4,250				(1,152	)			3,098				13.8
Technology			2,753				(442	)			2,311				4.3
Acquired workforce			347				(197	)			150				5.0
Total		$	537,350			$	(171,524	)		$	365,826				6.5

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		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

The decrease in gross carrying value of intangibles at September 30, 2009 compared to December 31, 2008 was primarily due to the elimination of the $3.3 million intangible related to RIMIFON^®, which was obtained in the Pharmion acquisition and sold in March of 2009, partly offset by the addition of two intangibles totaling $2.5 million.

Amortization of intangible assets was $21.6 million and $32.9 million for the three-month periods ended September 30, 2009 and 2008, respectively. Amortization for the nine-month periods ended September 30, 2009 and 2008 was $68.1 million and $78.1 million, respectively. The decrease in amortization expense for the nine-month period ended September 30, 2009 compared to the nine-month period ended September 30, 2008 was primarily due to several acquired developed product rights becoming fully amortized over the last year. 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 $84.3 million for the year ending December 31, 2009, $65.3 million for the year ending December 31, 2010 and approximately $64.5 million for each of the years ending December 31, 2011 through 2013.

Goodwill: At September 30, 2009, 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 allocation of the Pharmion purchase price.

The change in carrying value of goodwill is summarized as follows:

Balance at December 31, 2008		$	588,822
Tax benefit on the exercise of Pharmion converted stock options			(1,015	)
Adjustments to Pharmion net assets acquired			(444	)
Adjustments to Pharmion restructuring liabilities			(9,600	)
Foreign currency translation			1,592
Balance at September 30, 2009		$	579,355

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Share-Based Compensation

The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three- and nine-month periods ended September 30, 2009 and 2008:

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2009				2008				2009				2008
Cost of good sold		$	1,331			$	668			$	3,304			$	1,829
Research and development			15,178				10,964				44,841				32,264
Selling, general and administrative			20,167				16,596				56,384				41,557
Total share-based compensation expense		$	36,676			$	28,228			$	104,529			$	75,650

Share-based compensation cost included in inventory was $1.7 million at September 30, 2009 and $0.8 million at December 31, 2008.

Stock Options: The weighted-average grant date fair value of the stock options issued during the three-month periods ended September 30, 2009 and 2008 was $18.35 per share and $27.89 per share, respectively. The weighted-average grant date fair value of the stock options issued during the nine-month periods ended September 30, 2009 and 2008 was $19.98 per share and $25.71 per share, respectively. There have been no significant changes to the assumptions used to estimate the fair value of options granted during the nine-month period ended September 30, 2009 compared to those disclosed for the year ended December 31, 2008 in Note 15 to the Consolidated Financial Statements included in the Company’s 2008 Annual Report on Form 10-K.

Stock option transactions for the nine-month period ended September 30, 2009 under all plans are as follows:

						Weighted				Weighted
						Average				Average
						Exercise				Remaining				Aggregate
						Price				Contractual				Intrinsic
		Options				Per Option				Term (Years)				Value
Outstanding at December 31, 2008			33,805,610			$	40.39				6.5			$	617,873
Changes during the period:
Granted			6,707,934				45.62
Exercised			(2,869,230	)			12.33
Forfeited			(835,731	)			58.13
Expired			(105,644	)			59.48
Outstanding at September 30, 2009			36,702,939			$	43.09				6.7			$	571,495
Vested at September 30, 2009 or expected to vest in the future			36,082,726			$	42.91				6.7			$	567,855
Vested at September 30, 2009			19,253,706			$	32.15				4.8			$	483,759

The total fair value of shares vested during the nine-month periods ended September 30, 2009 and 2008 were $21.9 million and $21.3 million, respectively. The total intrinsic value of stock options exercised during the nine-month periods ended September 30, 2009 and 2008 was $108.2 million and $390.3 million, respectively. The Company primarily utilized newly issued shares to satisfy the exercise of stock options.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of September 30, 2009, there was $309.6 million of unrecognized compensation expense related to the Company’s stock option plan. These costs will be recognized over an expected remaining weighted-average period of 2.5 years.

Restricted Stock Units: The Company began issuing restricted stock units, or RSUs, under its equity program during the second quarter of 2009 in order to provide an effective incentive award with a strong retention component. Equity awards may, at the option of employee participants, be divided between stock options and RSUs based on a two-thirds and one-third mix, respectively, using a three-to-one ratio of stock options to RSUs in calculating the number of RSUs to be granted. The fair value of RSUs is determined based on the closing price of the Company’s common stock on the grant dates. Information regarding the Company’s RSUs during the nine-month period ended September 30, 2009 is as follows:

						Weighted
						Average
		Share				Grant Date
Nonvested RSUs		Equivalent				Fair Value
Nonvested at December 31, 2008			—			$	—
Changes during the period:
Granted			476,218				39.46
Vested			—				—
Forfeited			(6,003	)			39.01
Nonvested at September 30, 2009			470,215			$	39.46

There were no RSUs that vested during the nine-month period ended September 30, 2009.

As of September 30, 2009, there was $14.6 million of total unrecognized compensation cost related to non-vested awards of RSUs. That cost is expected to be recognized over a weighted-average period of 2.3 years. The Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award, as adjusted for expected forfeitures.

14. Income Taxes

The Company periodically evaluates the likelihood of the realization of its deferred tax assets and reduces the carrying amount of those 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 its deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods available to it for tax reporting purposes and other relevant factors. Significant judgment is required in making this assessment.

During the first quarter of 2009, the Company effectively settled an examination with the Internal Revenue Service, or IRS, for the years ended December 31, 2004 and 2005. The Company’s U.S. federal income tax returns have now been audited by the IRS through the year ended December 31, 2005. The Company is also subject to audits by various state and foreign taxing authorities, including, but not limited to, most U.S. states and major European and Asian countries where the Company has operations.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company regularly reevaluates its tax positions and the associated interest and potential penalties, if applicable, resulting from audits of federal, state and foreign income tax filings, as well as changes in tax law (including regulations, administrative pronouncements, judicial precedents, etc.) 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 matter experts, evaluation of public actions taken by the IRS 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.

Unrecognized tax benefits, generally represented by liabilities on the consolidated balance sheet and all subject to tax examinations, 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. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Virtually all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. The Company accounts for interest and potential penalties related to uncertain tax positions as part of its provision for income taxes. During the third quarter of 2009, the Company recorded a $5.4 million net tax benefit which was primarily the result of filing its 2008 income tax returns with certain items being more favorable than originally estimated, partially offset by an increase in unrecognized tax benefits related to ongoing income tax audits. During the first quarter of 2009, the Company effectively settled examinations with the IRS and with a foreign taxing jurisdiction. The foreign examination related to a subsidiary acquired in the Pharmion acquisition. These settlements resulted in a net tax benefit of $5.3 million, a decrease in the liability for unrecognized tax benefits related to tax positions taken in prior years of $35.1 million and an increase in tax assets of $7.3 million. The Company believes that it is reasonably possible that unrecognized tax benefits, as of September 30, 2009, could decrease by approximately $24.0 million over the next 12 months related to the settlement of routine examinations or through the expiration of the statute of limitations. Increases to the amount of unrecognized tax benefits from January 1, 2009 of approximately $70.9 million relate primarily to current year operations. The liability for unrecognized tax benefits is expected to increase in the next 12 months relating to operations occurring in that period.

During the nine-month period ended September 30, 2008, the Company’s effective tax rate was impacted by non-deductible IPR&D charges incurred in connection with the acquisition of Pharmion.

15. Collaboration Agreements

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 LA^®. 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.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED 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 to Array of $40.0 million, which was recorded as research and development expense, in return for an option to receive exclusive worldwide rights for compounds developed against two of the four research targets defined in the agreement, except for Array’s limited U.S. co-promotional rights. In June 2009, the Company made an additional upfront payment of $4.5 million to expand the research targets defined in the agreement, which was recorded as research and development expense. Array will be responsible for all discovery and clinical development through Phase I or Phase IIa and be entitled to receive, for each compound, 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.

The Company’s option will terminate upon the earlier of either a termination of the agreement, the date the Company has exercised its options for compounds developed against two of the four research targets defined in the agreement, or September 21, 2012, unless the term is extended. The Company may unilaterally extend the option term for two additional one-year terms until September 21, 2014 and the parties may mutually extend the term for two additional one-year terms until September 21, 2016. Upon exercise of a Company option, the agreement will continue until the Company has satisfied all royalty payment obligations to Array. Upon the expiration of the agreement, Array will grant the Company a fully paid-up, royalty-free license to use certain intellectual properties of Array to market and sell the compounds and products developed under the agreement. The agreement may expire on a product-by-product and country-by-country basis as the Company satisfies its royalty payment obligation with respect to each product in each country.

Prior to its expiration as described above, the agreement may be terminated by:

	(i)		the Company at its sole discretion, or
	(ii)		either party if the other party

	(x)		materially breaches any of its material obligations under the agreement, or
	(y)		files for bankruptcy.

If the agreement is terminated by the Company at its sole discretion or by Array for a material breach by the Company, then the Company’s rights to the compounds and products developed under the agreement will revert to Array. If the agreement is terminated by Array for a material breach by the Company, then the Company will also grant to Array a non-exclusive, royalty-free license to certain intellectual property controlled by the Company necessary to continue the development of such compounds and products. If the agreement is terminated by the Company for a material breach by Array, then, among other things, the Company’s payment obligations under the agreement could be either reduced by 50% or terminated entirely.

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)