SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee Required)
For the fiscal year ended December 31, 2004
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No Fee Required)
For the transition period from ___________ to ___________
Commission File No. 0-16132
Delaware 22-2711928
---------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
86 Morris Avenue
Summit, New Jersey 07901
---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
(732) 271-1001
----------------------------------------------------
(Registrant's telephone number, including area code)
|
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
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. [X]
The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2004, the last business day of the registrant's most recently completed second quarter, was $4,694,329,287 based on the last reported sale price of the registrant's Common Stock on the NASDAQ National Market on that date. There were 165,269,970 shares of Common Stock outstanding as of March 1, 2005.
Indicate by check mark whether the registrant is an accelerated filer (as defined in 12b-2 of the Act).
Yes |X| No |_|
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, 2004. The proxy statement is incorporated herein by reference into the following parts of the Form 10K:
Part III, Item 10, Directors and Executive Officers of the Registrant;
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;
Part III, Item 14, Principal Accountant Fees and Services.
CELGENE CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM NO. PAGE
------- ----
Part I
1. Business 1
2. Properties 27
3. Legal Proceedings 28
4. Submission of Matters to a Vote of Security Holders 28
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 29
6. Selected Consolidated Financial Data 30
7. Management's Discussion and Analysis
of Financial Condition and Results of Operations 32
7a. Quantitative and Qualitative Disclosures About Market Risk 49
8. Financial Statements and Supplementary Data 51
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 51
9a. Controls and Procedures 51
9b. Other 51
Part III
10. Directors and Executive Officers of the Registrant 52
11. Executive Compensation 52
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 52
13. Certain Relationships and Related Transactions 52
14. Principal Accountant Fees and Services 52
Part IV
15. Exhibits, Financial Statement Schedules 53
Signatures 58
|
PART I
ITEM 1. BUSINESS
We are a multi-national integrated biopharmaceutical company, incorporated in 1986 as a Delaware corporation. We are primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory-related diseases through the regulation of cells, genes and proteins associated with diseases. We had total revenue of $377.5 million in 2004 and net income of $52.8 million. We had an accumulated deficit of $234.4 million at December 31, 2004.
We continue to build a global discovery, development and commercialization platform for drug and cell-based therapies that allows us to both create and retain significant value within our therapeutic franchise areas of cancer and immune-inflammatory diseases. This target-to-therapeutic platform integrates both small molecule and cell-based therapies and spans the key functions required to generate a broad, deep and diverse pipeline of new drugs and cell therapy candidates, including: (i) cell biology, genomics, proteomics and informatics technologies for identifying and validating clinically important therapeutic targets; (ii) high throughput screening systems combined with diverse and focused compound libraries for discovering new drug leads; (iii) medicinal chemistry and structure-based drug design for optimizing drug candidates; (iv) IN VITRO and IN VIVO models of disease for preclinical evaluation of drug efficacy and safety; and (v) a clinical and regulatory organization highly experienced in the successful development of pharmaceutical agents. The ongoing development of immunomodulatory drugs (ImiDs), cell-signaling inhibitors, as well as cellular and tissue therapeutics may allow us to provide physicians and clinicians worldwide with a more comprehensive and integrated set of therapeutic solutions for managing complex human diseases such as cancer and immune-inflammatory-related diseases.
On August 31, 2000, we acquired Signal Pharmaceuticals, Inc., now Celgene Research & Development, a privately held San Diego-based biopharmaceutical company focused on the discovery and development of drugs that regulate genes and proteins associated with diseases. Celgene Research & Development now operates as a wholly owned subsidiary of Celgene Corporation.
On December 31, 2002, we acquired Anthrogenesis Corp., or Celgene Cellular Therapeutics, a privately held New Jersey-based biotherapeutics company and cord blood banking business, which is developing the technology for the recovery of stem cells from human placental tissues following the completion of full-term, successful pregnancies. Celgene Cellular Therapeutics, or CCT, now operates as a wholly owned subsidiary of Celgene Corporation.
On October 21, 2004, we acquired all of the outstanding shares of Penn T, the UK-based manufacturer of THALOMID(R), the current flagship product of our commercial franchise. This acquisition expanded our corporate capabilities and enabled the Company to control manufacturing for THALOMID(R) worldwide. Through manufacturing contracts acquired in this purchase, Celgene increased its participation in the potential growth of THALOMID(R) revenues in key international markets.
COMMERCIAL STAGE PROGRAMS: Our commercial programs include pharmaceutical sales of THALOMID(R) and ALKERAN(R), a licensing agreement with Novartis for FOCALIN(R) and the entire RITALIN(R) family of drugs and biotherapeutic products and services, including; LIFEBANK(TM), BIOVANCE(TM) and AMBIODRY(TM) through CCT.
THALOMID(R) (THALIDOMIDE): THALOMID(R), which had net product sales totaling $308.6 million in 2004, was approved by the U.S. Food and Drug Administration, or FDA, in July 1998 for the treatment of acute cutaneous manifestations of moderate to severe erythema nodosum leprosum, or ENL, and as maintenance therapy to prevent and suppress cutaneous manifestation recurrences. ENL, an inflammatory complication of leprosy, is a chronic bacterial disease associated with excess Tumor Necrosis Factor alpha, or TNF(alpha) production. Although leprosy is relatively rare in the United States, the disease afflicts millions worldwide. ENL occurs in about 30% of leprosy patients and is characterized by skin lesions, acute inflammation, fever and anorexia.
We distribute THALOMID(R) in the United States through our 197-person U.S. pharmaceutical commercial organization. Working with the FDA, we developed a proprietary strategic comprehensive education and distribution program with methods for the safe and appropriate use of THALOMID(R), the "System for Thalidomide Education and Prescribing Safety", or S.T.E.P.S.(R).
In October 2004, Celgene received an approvable letter from the FDA in response to our THALOMID(R) Supplemental New Drug Application, or sNDA, which we filed in December 2003, for the treatment of multiple myeloma. Multiple myeloma is the second most common blood cancer, affecting approximately 50,000 people in the United States. About 14,000 new cases of multiple myeloma are diagnosed each year and there are an estimated 11,000 deaths. We expect to complete the resubmission of the application in the second quarter of 2005 with final action from the FDA expected later in the year.
Additionally, THALOMID(R) is under development as a potential treatment for other cancers. There are more than 100 clinical studies worldwide examining the potential of this compound as a single agent or in combination therapy. As a result of these clinical studies and subsequent publications, and inclusion in the National Comprehensive Cancer Network, or NCCN, guidelines, physicians are prescribing THALOMID(R) for use in a number of cancers.
THALOMID(R) is the first drug approved under a special "Restricted Distribution for Safety" regulation. Our innovative S.T.E.P.S. system includes managed delivery programs for products or drugs that are either teratogens (causing birth defects) or have other adverse effects that make them contraindicated for certain patients. This patented program includes comprehensive physician, pharmacist and patient education. All patients are required to use contraception, and female patients of child-bearing potential are given pregnancy tests regularly. All patients are subject to other requirements, including informed consent. Physicians are also required to comply with the educational, contraception counseling, informed consent, pregnancy testing and other elements of the program. Under the S.T.E.P.S. program, automatic refills are not permitted and each prescription may not exceed four weeks' dosing. A new prescription is required each month.
Our S.T.E.P.S. intellectual property estate includes five U.S. patents expiring between the years 2018 and 2020 which cover methods of delivering drugs, including THALOMID(R), in a manner that significantly decreases the risks of adverse events. Two of these patents were issued in 2003 and expand the scope of coverage contained in the previously issued patents. S.T.E.P.S. is designed as a blueprint for pharmaceutical products that offer life-saving or other important therapeutic benefits but have potentially problematic side effects. Furthermore, we hold patents protecting methods of use for THALOMID(R) to treat symptoms associated with abnormal concentrations of TNFa and unrestricted blood vessel growth that expire after 2012.
In November 2004 Celgene granted a non-exclusive license to the four companies who manufacture and distribute (sell) isotrentinoin (Accutane(R)) for the rights to Celgene's patent portfolio directed to methods for safely delivering the product to potentially high-risk patient populations.
ALKERAN(R): In March 2003, we entered into a supply and distribution agreement with GlaxoSmithKline to distribute, promote and sell ALKERAN(R) (melphalan), a therapy approved by the FDA for the palliative treatment of multiple myeloma and for palliation of carcinoma of the ovary. Under the terms of the agreement, we purchase ALKERAN(R) tablets and ALKERAN(R) for injection from GlaxoSmithKline and distribute the products in the United States under the Celgene label. The agreement has an initial term of three years and is automatically extended by successive one-year periods, unless at least one year prior to the renewal date either party advises the other party that it elects not to extend the agreement. This agreement is strategically valuable to us because it provides us with an approved oncology product that complements our drug candidates, THALOMID(R) and REVLIMID(R), which are demonstrating potential in late-stage clinical trials for the treatment of multiple myeloma and myelodysplastic syndromes. At the 2004 American Society of Hematology, or ASH, meeting, clinical trial data was presented. In combination with other anti-cancer therapeutics, including THALOMID(R), ALKERAN(R) was a key component of several investigational multiple myeloma studies which reported positive results.
RITALIN(R) FAMILY OF DRUGS: We have a major collaboration with Novartis Pharma AG concerning the entire RITALIN(R) family of drugs. We developed FOCALIN(R) (d-MPH), the chirally pure version of RITALIN(R), which is approved for the treatment of attention deficit disorder and attention deficit hyperactivity disorder, or ADHD, in school-age children. The use of chirally pure compounds, such as FOCALIN(R), can result in significant clinical benefits. Many non-chirally pure pharmaceuticals contain two configurations, known as isomers, which are mirror images of each other. Generally these isomers interact differently with their biological targets, causing one isomer to have a beneficial effect for one target and the other isomer to have a beneficial effect on another target, or in some cases, one isomer may have either no effect or potentially an undesirable side effect with respect to a target. In April 2000, we granted Novartis an exclusive license (excluding Canada) for the development and marketing of FOCALIN(R) and long acting drug formulations in return for substantial milestone payments and royalties on FOCALIN(R) and the entire RITALIN(R) family of drugs. In 2002, Novartis launched FOCALIN(R) and RITALIN(R) LA, the long-acting version of RITALIN(R), in the United States, following regulatory approval.
Three separate studies presented at the 51st annual meeting of the American Academy of Child and Adolescent Psychiatry indicated that FOCALIN(R) XR, the long-acting version of FOCALIN(R), may help adults and children manage ADHD symptoms. Pediatric studies showed that FOCALIN(R) XR (dexmethylphenidate HCl) extended release capsules may help treat ADHD symptoms for 12 hours. ADHD is one of the most common psychiatric disorders of childhood and is estimated to affect five to seven percent of children and approximately four percent of the adult population in the U.S.
The Division of Neuropharmacological Drug Products at the FDA has accepted for review a New Drug Application, or NDA, submitted by Novartis, seeking approval to market FOCALIN(R) XR for the treatment of pediatric and adult ADHD. FDA action on the FOCALIN(R) XR NDA is expected in the first half of 2005.
We have retained the exclusive commercial rights to FOCALIN(R) and FOCALIN(R) XR for oncology-related disorders, such as chronic fatigue associated with chemotherapy. We have completed a double-blinded randomized placebo-controlled trial evaluating the use of FOCALIN(R) for the treatment of fatigue symptoms associated with chemotherapy. We are evaluating potential clinical and regulatory development strategies for this indication.
CELLULAR THERAPEUTICS: With the acquisition of Anthrogenesis Corporation in December 2002, we acquired a biotherapeutics company developing stem cell therapies and biomaterials derived from human placental tissue. CCT has organized its business into three main units: (1) private stem cell banking for transplantation, (2) stem cell therapies and (3) biomaterials for organ and tissue repair. CCT has developed proprietary methods for producing placental biomaterials for organ and tissue repair which includes the BIOVANCE(TM) and AMBIODRY(TM) products. Additionally, CCT has developed proprietary
technology for collecting, processing and storing placental stem cells with potentially broad therapeutic applications in cancer, autoimmune, cardiovascular, neurological and other diseases.
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 drug 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 the drug candidate.
IMMUNOMODULATORY DRUGS (IMIDS(R)): IMiDs are novel small molecule, orally available compounds that modulate the immune system through multiple mechanisms of action. We have advanced four IMiDs into development: REVLIMID(R) (CC-5013), ACTIMID(TM) (CC-4047) and CC-11006 are being evaluated in human clinical trials and CC-10015 is presently undergoing preclinical evaluation.
Our IMiD class of drug candidates is covered by an extensive and comprehensive intellectual property estate of U.S. and foreign issued patents and pending patent applications including composition-of-matter and use patents and patent applications.
REVLIMID(R) (LENALIDOMIDE): is a small molecule, orally-available immunomodulatory drug being investigated in clinical trials as a potential treatment for myelodysplastic syndromes (MDS) and multiple myeloma, malignant blood disorders that affect approximately 300,000 and 200,000 people worldwide, respectively. It is currently being studied in a number of clinical trials, the most advanced of which are Phase III trials - in the United States (MM-009) and in Europe (MM-010) - for previously treated multiple myeloma patients. On March 7, 2005, we announced that based on a review of the data by the Independent Data Monitoring Committee, the trials were being unblinded due to the meeting of pre-specified stopping rules for meeting efficacy targets.
Approximately 30 clinical trials are currently evaluating REVLIMID(R) in the treatment of a broad range of conditions, including multiple myeloma, the blood cell disorders known as myelodysplastic syndromes, or MDS, and solid tumor cancers. Preliminary clinical data from several of these trials have been announced with additional data to be presented at major medical meetings in 2005.
REVLIMID(R) has been granted fast track designation in both multiple myeloma and MDS by the FDA. It has also received orphan drug status both in the United States and Europe which provides potential regulatory and financial benefits to products receiving regulatory approval with this designation. On the basis of the Phase II study (MDS-003), we plan to file a New Drug Application with the FDA for the 5q deletion MDS indication in the first quarter of 2005.
In addition to our pivotal Phase III and accelerated Phase II REVLIMID(R) trials, the Southwest Oncology Group, the Eastern Cooperative Oncology Group, and the Cancer and Leukemia Group B, three of the largest adult cancer clinical trial organizations in the world, selected REVLIMID(R) for large clinical studies in randomized controlled Phase III trials designed to evaluate the safety and efficacy of REVLIMID(R) in multiple myeloma patients.
At the 2004 American Society of Hematology meeting, new data evaluating REVLIMID(R) as a potential therapeutic approach for the treatment of patients with multiple myeloma and MDS was presented. Encouraging preliminary reports were presented in various stages of multiple myeloma and MDS. Additional data is expected to be presented at medical meetings throughout 2005.
ACTIMID(TM): is one of the most potent Immunomodulatory drugs that we are developing. Currently, ACTIMID is in Phase II trials to determine its potential safety and efficacy as a treatment for multiple myeloma and prostate cancer. ACTIMID and REVLIMID(R) have different activity profiles which may lead to their evaluation in different diseases or stages of disease.
CC-11006: is a molecule we have identified as a potential treatment for chronic inflammatory diseases, many of which are not well served today. CC-11006 entered Phase I human clinical trials in 2004. Following the completion of Phase I trials, we will review our development options.
PDE4/TNF(ALPHA) INHIBITORS: Our Phosphodiesterase 4, or PDE4/TNF(alpha), inhibitors provide a potentially novel small molecule approach to treating chronic inflammatory diseases. Our lead PDE-4 compound is CC-10004. During 2004, CC-10004 entered Phase II clinical trials in exercise-induced asthma and psoriasis after successfully completing Phase I testing in healthy human volunteers. This compound is well tolerated with good bioavailability and pharmacokinetics in humans. Data from these Phase II trials is expected in late 2005.
BENZOPYRANS: CC-8490, our lead compound in this category, is in Phase I clinical trials for glioblastoma, a form of brain cancer, with investigators at the National Cancer Institute. In Phase I trials in healthy human volunteers, CC-8490 has been shown to be well-tolerated. Animal studies have demonstrated that the compound could have an important effect on solid tumors such as non-small cell lung cancer and colon cancer.
KINASE INHIBITORS: We have multiple target and drug discovery projects underway this year in the field of kinase inhibition. Our kinase inhibitor platform includes inhibitors of the c-Jun N-terminal kinase pathway, or JNK. This pathway has been associated with the regulation of a number of important disease indications. CC-401, our lead JNK inhibitor, successfully completed a Phase I trial in healthy volunteers. We plan to initiate a Phase II Acute Mylegeneous Leukemia, or AML, trial later this year.
TUBULIN INHIBITORS: Celgene scientists have discovered a new chemical class of anti-cancer compounds called tubulin inhibitors that stop cancer cells from proliferating by impeding cell division. In preclinical models, our proprietary tubulin inhibitors have demonstrated activity against drug-resistant cancer cells, inhibition of inflammatory cytokines and anti-angiogenic activity.
LIGASE INHIBITORS: We are conducting extensive discovery research in the field of ligases, intracellular mechanisms that control the degradation of selected proteins within cells. Celgene is identifying drug targets and compounds that regulate ligase pathways with the goal of controlling cellular proliferation and survival. Such compounds would have the potential to be an important new class of anti-cancer and anti-inflammatory therapeutics.
STEM CELLS: Stem cell based therapies offer the potential to provide disease-modifying outcomes for serious diseases which today lack adequate therapy. We are researching the potential of cells and tissues derived from the placenta and umbilical cord blood in a number of potential indications. In December 2004, Celgene filed an investigational new drug application (IND) with the FDA for our initial stem cell trial in sickle cell anemia. Celgene researchers are also exploring the potential of our small molecule compounds to lead to selective differentiation and expansion of pluripotent stem cells.
CELGENE PRODUCT OVERVIEW
Our products and our primary product candidates are targeted to address a variety of key medical needs. These products and product candidates and our development and/or marketing partners, if any, are described in the following table:
----------------------------------------------------------------------------------------------------------------------
PRODUCT/ DISEASE
PRODUCT CANDIDATES INDICATION COLLABORATOR STATUS
----------------------------------------------------------------------------------------------------------------------
THALOMID(R) ENL Marketed.
Multiple Myeloma Phase III trials ongoing.
MDS Phase III trial ended.
Prostate Cancer Phase II trials ongoing.
Inflammatory Diseases Phase II trials ongoing.
ALKERAN(R) Multiple Myeloma & Ovarian
Cancer GlaxoSmithKline Marketed.
RITALIN(R) FAMILY OF DRUGS:
FOCALIN(R) ADHD Novartis Marketed.
Cancer Fatigue Phase II trial completed.
FOCALIN(R) XR ADHD Novartis NDA filed.
RITALIN(R) LA ADHD Novartis Marketed.
IMIDS:
REVLIMID(R) Multiple Myeloma Phase II and Pivotal Phase III
SPA trials ongoing.
Multiple Myeloma Various Cooperative Major Phase III trials ongoing
Oncology Groups and initiating.
Myelodysplastic Syndromes Accelerated Phase II trials
ongoing. Phase III studies
initiating.
Myelodysplastic Syndromes Accelerated Phase II trials
with 5Q deletion ongoing. Phase III studies
initiating.
Solid Tumor Cancers and Phase I/II trials ongoing and
Additional Hematological expanded. Additional trials
Malignancies planned.
|
----------------------------------------------------------------------------------------------------------------------
PRODUCT/ DISEASE
PRODUCT CANDIDATES INDICATION COLLABORATOR STATUS
----------------------------------------------------------------------------------------------------------------------
ACTIMID Multiple Myeloma Phase I/II trial completed.
Prostate Cancer Phase II trial ongoing.
CC-11006 Inflammatory Phase I studies ongoing.
CC11050 Inflammatory Diseases Preclinical studies ongoing.
PDE4 AND TNF(ALPHA)
INHIBITORS:
CC-10004 Asthma Phase II trial ongoing.
Psoriasis Phase II trial ongoing.
CC-10015 Inflammatory Diseases Preclinical studies ongoing.
BENZOPYRANS:
CC-8490 Cancer National Cancer Institute Phase I/II trial ongoing.
("NCI")
CC-227113 Cancer Preclinical studies ongoing.
KINASE INHIBITORS:
CC-401 Cancer/Inflammatory Phase I trials completed.
Diseases Additional trials planned.
JNK CC0389359 Ischemia/Reperfusion Injury Preclinical studies ongoing.
TUBULIN INHIBITORS:
CC-5079 Cancer Preclinical studies ongoing.
LIGASES INHIBITORS: Cancer Preclinical studies ongoing.
STEM CELLS AND
TISSUE PRODUCTS:
LIFEBANK(TM) USA Private Stem Cell Banking Marketed.
BIOVANCE(TM) Wound Covering Marketed.
AMBIODRY(TM) Ophthalmology Okto Ophtho Inc. Marketed.
Cord Blood Cells Sickle Cell Anemia Phase I IND filed.
----------------------------------------------------------------------------------------------------------------------
|
Clinical trials are typically conducted in three sequential phases, although the phases may overlap.
PHASE I CLINICAL TRIALS
Phase I human clinical trials usually involve a small number of healthy volunteers or patients. The tests study a drug's safety profile, and may include the safe dosage range. The Phase I clinical studies also determine how a drug is absorbed, distributed, metabolized and excreted by the body, and the duration of its action.
PHASE II CLINICAL TRIALS
In Phase II clinical trials, controlled 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 is obtained.
PHASE III CLINICAL TRIALS
This phase typically includes multi-center trials and involves a larger patient population. During the Phase III clinical trials, physicians monitor patients to determine efficacy and to gather further information on safety.
Successful results in preclinical studies or Phase I or II studies may not be an accurate predictor of the ultimate safety or effectiveness of the drug.
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 more than 128 U.S. patents and have over 157 additional U.S. patent applications pending. Our U.S. patents include patents for a method of delivering a teratogenic drug to a patient while preventing fetal exposure as well as patents for delivering drugs to patients while restricting access to the drug to those for whom the drug is contra-indicated. We also have patent applications pending which are directed to these inventions, and are seeking worldwide protection. While we have a policy to seek worldwide patent protection for our inventions, we have foreign patent rights corresponding to most but not all of our U.S. patents. Although THALOMID(R) is approved for use associated with ENL, we do not have patent protection relating to the use of THALOMID(R) to treat ENL.
Our research at Celgene Research and Development in San Diego has 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. As of December 2004, and included in those inventions described above, our San Diego subsidiary owned, in whole or in part, over 32 issued U.S. patents and had approximately 47 U.S. patent applications pending. An increasing percentage of our San Diego subsidiary's recent patent applications have been related to potential product candidates or compounds. They also hold licenses to U.S. patents and pending U.S. patent 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 and uses of mammalian placental tissue and placental stem cells, and biomaterials recovered from the placenta. As of December 2004, CCT owned, in whole or in part, more than 16 pending U.S. patent applications, and holds licenses to certain U.S. patents and pending applications, including those related to cord blood collection and storage.
In August 2001, we entered into an agreement, termed the New Thalidomide Agreement, with EntreMed, Inc., Children's Medical Center Corporation 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, royalty-bearing license under the relevant patents and patent applications relating to thalidomide. Several U.S. patents have already issued to CMCC in this patent family and certain of these patents expire in 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 with CMCC and EntreMed in December 2002, pursuant to which we have been granted an exclusive worldwide, royalty-bearing license to certain CMCC patents and patent applications relating to thalidomide analogs, or the New Analog Agreement. The New Analog Agreement was executed in connection with the settlement of certain pending litigation between and among us, EntreMed and the U.S. Patent and Trademark Office 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 Celgene these patents and patent applications, which relate to analogs, metabolites, precursors and hydrolysis products of thalidomide, and stereoisomers thereof.
The New Analog Agreement grants us control over the prosecution and maintenance of the licensed thalidomide analog patent rights. The New Analog Agreement also grants 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.
Under an agreement with The Rockefeller University, pursuant to which we have made a lump sum payment and issued stock options to The Rockefeller University and the inventors, we have obtained certain exclusive rights and licenses to manufacture, have manufactured, use, offer for sale and sell products that are based on compounds which were identified in research carried out by The Rockefeller University and us that have activity associated with TNF(alpha). In particular, The Rockefeller University identified a method of using thalidomide and certain thalidomide-like compounds to treat certain symptoms associated with abnormal concentrations of TNF(alpha), including those manifested in septic shock, cachexia and HIV infection. In 1995, The Rockefeller University was issued a U.S. patent which claims such methods. This U.S. patent expires in 2012 and is included in the patent rights exclusively licensed to us under the agreement with The Rockefeller University. The Rockefeller University did not seek corresponding patents in any other country.
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 necessary and conduct our business without infringing 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. Consequently, we do not know whether any of our owned or licensed pending patent applications 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 or infringed upon by others.
There can be no assurance that additional patents will issue to us from any of our pending applications or that, if patents issue, such patents will provide us with significant proprietary protection or commercial advantage. Moreover, there can be no assurance that any of our existing patents will not be dominated by third-party patent rights or provide us with proprietary protection or commercial advantage. Nor can we guarantee that these patents will not be either infringed, invalidated or circumvented by others. Finally, we cannot guarantee that our patents or pending applications will not be involved in, or be defeated as a result of any interference proceedings before the U.S. Patent and Trademark Office.
With respect to patents and patent applications we have licensed-in, there can be no assurance that additional patents will issue 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 issue, such patents will not be dominated by third-party patent rights 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 Celgene by CMCC could have a material adverse effect on our business, financial condition and results of operations.
Since patent applications filed in the United States on or before November 28, 2000 are maintained in secrecy until patents issue, and since 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 U.S. Patent and Trademark Office 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 NF-k(Beta) pathway, which could overlap with technology claimed in some of our owned or licensed NF-k(Beta) patents or patent applications. We believe that one or more interference proceedings may be initiated by the U.S. Patent and Trademark Office 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 NF-k(Beta) 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 PDE 4 inhibitors to treat inflammation.
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 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 will 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, require the expenditure of substantial resources. Regulatory approval, when and if 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 pharmaceutical 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.
Typically, clinical trials involve a three-phase process. In Phase I, clinical trials are generally conducted with a small number of individuals, usually healthy human volunteers, to determine the early safety and tolerability profile and the pattern of drug distribution and metabolism within the body. If the Phase I trials are satisfactory, Phase II clinical trials are conducted with groups of patients in order to determine preliminary efficacy, dosing regimes and expanded evidence of safety. In Phase III, large-scale, multi-center, adequately powered and typically placebo-controlled comparative clinical trials are conducted with patients in an effort to provide enough data for the statistical proof of efficacy and safety required by the FDA and others for marketing approval. In some limited circumstances, Phase III clinical trials may be modified to allow the evaluation of safety and efficacy based upon (i) comparisons with approved drugs, (ii) comparison with the historical progression of the disease in untreated patients, or (iii) the use of surrogate markers, together with a commitment for post-approval studies. In some cases, as a condition for New Drug Application, or NDA, approval, further studies (Phase IV) are required to provide additional information concerning the drug. The FDA requires monitoring of all aspects of clinical trials, and reports of all adverse events must be made to the agency, both before and after drug approval. Additionally, we may have limited control over studies conducted with our proprietary compounds if such studies are performed by others, (e.g., cooperative groups and the like).
The results of the preclinical testing and clinical trials are submitted to the FDA as part of an NDA for evaluation to determine if the product is sufficiently safe and effective for approval to commence commercial sales. In responding to an NDA, 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 is approved, the developer and marketer of the drug must employ a system for obtaining reports of experience and side effects that are associated with the drug and make appropriate submissions to the FDA.
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." 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 drug is not expected to be recovered from sales of the drug in the United States. Upon the approval of the first NDA for a drug designated as an orphan drug for a specified indication, the sponsor of that NDA is entitled to exclusive marketing rights in the United States for such drug for that indication for seven years unless the sponsor cannot assure the availability of sufficient quantities of the drug to meet the needs of persons with the disease. This period of exclusivity is concurrent with any patent exclusivity that relates to the drug. 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, 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.
Among the conditions for NDA 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 (cGMP are regulations established by the FDA that govern the manufacture, processing, packing, storage and testing of drugs 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.
Failure to comply with applicable FDA regulatory requirements can result in informal administrative 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.
Steps 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 pricing is required in most countries other than the United States. There can be no assurance that the resulting pricing of our drugs 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, many 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 and biotechnology companies have extensive anti-cancer and anti-inflammatory drug discovery, development and commercial resources. Bristol-Myers Squibb Co., Amgen Inc., Genentech, Inc., Sanofi-Aventis SA., Novartis AG, AstraZeneca PLC., Eli Lilly and Company, F. Hoffmann-LaRoche Ltd, Pharmion Corp., Millennium Pharmaceuticals, Inc., SuperGen, Inc., Cell Therapeutics, Inc., Vertex Pharmaceuticals Inc., Biogen Idec Inc., Merck and Co., Inc. and Pfizer Inc. are among some of the companies researching and developing new compounds in the oncology and immunology fields.
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 approval processes 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 collaborative research and/or license agreements with other pharmaceutical and biotechnology companies by which, in exchange for the rights to certain compounds, the partnering company will provide funding in the form of upfront payments, milestone payments or direct research funding, and may also purchase product and pay royalties on product sales. The following are our most significant collaborations.
NOVARTIS PHARMA AG: We entered into an agreement with Novartis in April 2000 in which we granted to Novartis an exclusive license (excluding Canada) for the development and marketing of FOCALIN(R) (d-
MPH). We received a $10.0 million upfront payment in July 2000, a $5.0 million milestone payment upon the acceptance of the NDA filing by the FDA in December 2000, a $12.5 million milestone payment upon approval by the FDA to market FOCALIN(R) in November 2001 and a $7.5 million milestone payment in 2004 for filing an NDA for FOCALIN(R) XR. We are currently selling FOCALIN(R) to Novartis as well as receiving royalties on all of Novartis' RITALIN(R) family of ADHD-related products. The research portion of the agreement ended in June 2003. We may receive an additional milestone payment in 2005 for U.S. regulatory approval of FOCALIN(R) XR.
PHARMION: In November 2001, we entered into an agreement with Pharmion Corporation and Pharmion GmbH ("Pharmion") pursuant to which we granted an exclusive license to Pharmion for the use of our intellectual property covering thalidomide. In addition, we entered into a second agreement with Pharmion, pursuant to which we granted to Pharmion an exclusive license to use S.T.E.P.S.(R) in all countries other than North America, Japan, China, Taiwan and Korea in exchange for licensing payments and, upon regulatory approvals, royalties based on commercial sales. The thalidomide license agreement terminates upon the tenth anniversary following regulatory approval in the United Kingdom. Pursuant to the S.T.E.P.S.(R) license agreement, we are entitled to receive $0.3 million on a quarterly basis beginning in January 2002, until initial regulatory approval in the United Kingdom is received. In April 2003, we entered into a collaborative clinical trials development agreement whereby Pharmion agreed to provide to us an aggregate of $8.0 million in funding for further clinical development of THALOMID(R) through December 2005. We received three installments totaling $3.0 million in 2003 and four installments totaling $3.0 million in 2004.
In April 2003, we entered into a Securities Purchase Agreement with Pharmion to acquire, for a total purchase price of $12 million (i) $12.0 million principal amount of 6.0% Senior Convertible Promissory Note due 2008 (the "Note") and (ii) a five-year warrant to purchase up to 363,636 shares of common stock of Pharmion, each convertible into shares of common stock of Pharmion at a purchase price of $11.00 per share, which was subsequently adjusted for Pharmion's one-for-four reverse stock split. The Note was automatically convertible into common stock under certain conditions. In March 2004, we converted the Note (with accrued interest of approximately $0.7 million) into 1,150,511 shares of Pharmion common stock. In addition, in September 2004, we exercised certain warrants that we had received in connection with both the November 2001 thalidomide license and the Securities Purchase Agreement for an aggregate of 789,089 shares of common stock of Pharmion. At December 31, 2004 we held 1,939,600 shares of Pharmion common stock.
In December 2004, following our acquisition of Penn T Limited, we expanded our THALOMID(R) development and commercialization collaboration with Pharmion. Pursuant to an amended thalidomide supply agreement with Pharmion, we received a one-time payment of $77.0 million in exchange for a substantial reduction in Pharmion's purchase price of thalidomide. In addition, Pharmion has agreed to fund us an aggregate of $10.0 million (including amounts remaining under the initial 2003 clinical trials agreement) from January 2005 to December 2007 to extend the two companies' April 2003 thalidomide development collaboration. We also received a one-time payment of $3.0 million in return for granting license rights to Pharmion to develop and market thalidomide in three additional Asian territories (Hong Kong, Korea and Taiwan) and eliminating certain of our license termination rights.
MANUFACTURING
The bulk active pharmaceutical ingredient, or API, for THALOMID(R) is manufactured by ChemSyn Laboratories, a Division of Eagle-Picher Technologies, L.L.C., which operates a FDA cGMP-approved facility. (cGMP, or current Good Manufacturing Practices, are regulations established by the FDA that govern the manufacturing, processing, packaging, storing and testing of drugs intended for human use). The bulk drug substance is shipped to Celgene UK Manufacturing II Ltd., which contracts with Penn
Pharmaceuticals Services Limited of Great Britain to formulate and encapsulate THALOMID(R) for us in an FDA cGMP-approved facility. In October 2003, we signed an agreement with Institute of Drug Technology Australia Limited, or IDT, for the second-source manufacture of finished dosage form of THALOMID(R) capsules. The agreement is scheduled to commence with the FDA's approval of IDT's facility. The agreement provides us with additional capacity and reduces our dependency on one manufacturer for the formulation and encapsulation of THALOMID(R). In certain instances, we may be required to make substantial capital expenditures to access additional manufacturing capacity.
The bulk API for REVLIMID(R) is manufactured by Evotec OAI, Ltd. under a supply agreement entered into in August 2004. We contracted with Penn Pharmaceuticals Services Ltd. in September 2004 for the formulation and encapsulation of REVLIMID(R) in different dosage forms. We also entered into a contract manufacturing agreement with OSG Norwich Pharmaceuticals, Inc. in April 2004 as a second source for the formulation, encapsulation and packaging of REVLIMID(R) in different dosage forms. We plan to construct and operate our own manufacturing facility to produce and supply REVLIMID(R) for commercial sale in the United States, Europe and potentially in other geographic markets.
The bulk API for FOCALIN(R) and FOCALIN(R) XR is manufactured and supplied by Johnson Matthey Inc. A Supply Agreement was executed in March 2003 with a second supplier, Siegfried USA Inc. The product is manufactured into finished dosage forms of different strengths and packaged as FOCALIN(R) tablets by Mikart, Inc. for distribution.
INTERNATIONAL EXPANSION
In November 2001, we signed agreements with Pharmion Corporation and Penn Pharmaceuticals Services Limited to expand the THALOMID(R) franchise in all countries outside North America, Japan, China, Taiwan and Korea. The strategic partnership combined Penn's FDA-compliant manufacturing capability, Pharmion's global development and marketing expertise and our intellectual property. The alliance was designed to accelerate the establishment of THALOMID(R) as an important therapy in the international markets. To date, Pharmion has received regulatory approval in Australia, New Zealand, Turkey and Israel to market and distribute Thalidomide for the treatment of multiple myeloma after the failure of standard therapies, as well as for the treatment of complications of leprosy. In October 2004, we acquired Penn T Limited, a worldwide supplier of THALOMID(R). Through manufacturing contracts purchased in this acquisition, we are able to control manufacturing for THALOMID(R) worldwide and we also increased our participation in the potential sales growth of THALOMID(R) in key international markets. In December 2004, we amended several agreements with Pharmion including a collaborative R&D agreement and a manufacturing supply agreement, as well as the License agreement signed in November 2001, which added to the territories licensed in that agreement. In December 2003, we established a legal entity in Switzerland where we are developing a facility to perform formulation, encapsulation, packaging, warehousing and distribution of future products.
SALES AND COMMERCIALIZATION
We have a 197-person U.S. pharmaceutical commercial organization. These individuals have considerable experience in the pharmaceutical industry, and many have experience with oncological and immunological products. We expect 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 drugs 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 March 1, 2005, we had 766 full-time employees, 432 of who were engaged primarily in research and development activities, 204 (including CCT) who were engaged in sales and commercialization activities and the remainder of who were engaged in executive and general and administrative activities. We also maintain consulting arrangements with a number of researchers at various universities and other research institutions in Europe and the United States.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this annual report are forward-looking statements concerning our business, financial condition, results of operations, economic performance and financial condition. 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:
o our strategy;
o new product discovery, development or product introduction;
o product manufacturing
o product sales, royalties and contract revenues;
o expenses and net income;
o our credit risk management;
o our liquidity;
o our asset/liability risk management; and
o our operational and legal risks.
These statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied in those statements. Factors that could cause such differences include, but are not
limited to, those discussed under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
RISK FACTORS
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT.
Until 2003, we had sustained losses in each year since our incorporation in 1986. For the years ended December 31, 2004 and December 31, 2003, we posted net income of $52.8 million and $25.7 million, respectively. In addition, we had an accumulated deficit of $234.4 million at December 31, 2004. We expect to make substantial expenditures to further develop and commercialize our products. We also expect that our rate of spending will accelerate as the result of increased clinical trial costs and expenses associated with regulatory approval and commercialization of products now in development.
IF WE ARE UNSUCCESSFUL IN DEVELOPING AND COMMERCIALIZING OUR PRODUCTS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED WHICH COULD IMPACT NEGATIVELY ON THE VALUE OF OUR COMMON STOCK.
Many of our products and processes are in the early or mid-stages of research and development and will require the commitment of substantial resources, extensive research, development, preclinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. With the exception of FOCALIN(R), ALKERAN(R), THALOMID(R), AMBIODRY(TM) and BIOVANCE(TM), all of our other products will require further development, clinical testing and regulatory approvals before initial commercial marketing in the United States and internationally. If it becomes too expensive to sustain our present commitment of resources on a long-term basis, we will be unable to continue our 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 approval for our products. If any of our products, even if developed and approved, cannot be successfully commercialized, our business, financial condition and results of operations could be materially adversely affected which could impact negatively on the value of our common stock.
DURING THE NEXT SEVERAL YEARS, WE WILL BE VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF THALOMID(R), ALKERAN(R), FOCALIN(R), AND THE ENTIRE RITALIN(R) PRODUCT LINE.
At our present level of operations, we may not be able to maintain profitability if physicians prescribe THALOMID(R) only for patients who are diagnosed with ENL. ENL, a complication of leprosy, is a chronic bacterial disease. Under current FDA regulations, we are precluded from promoting THALOMID(R) outside this approved use. The market for the use of THALOMID(R) in patients suffering from ENL is relatively small. We have conducted clinical studies designed to show that THALOMID(R) is active when used to treat disorders other than ENL, such as multiple myeloma, but we do not know whether we will succeed in receiving regulatory approval to market THALOMID(R) for such indications. FDA regulations place restrictions on our ability to communicate the results of additional clinical studies to patients and physicians without first obtaining approval from the FDA to expand the authorized uses for this product. In addition, if adverse experiences are reported in connection with the use of THALOMID(R) by patients, this could undermine physician and patient comfort with the product, could limit the commercial success of the product and could even impact the acceptance of THALOMID(R) in the ENL market. We are dependent upon royalties from Novartis Pharma AG's entire RITALIN(R) product line, including FOCALIN(R), although we cannot directly impact their ability to successfully commercialize these products. We have annual minimum purchase requirements relating to ALKERAN(R)
through March 31, 2006, which we license from GlaxoSmithKline. Additionally, our revenues would be negatively impacted if generic versions of any of these products were to be approved and launched.
WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN SUFFICIENT INSURANCE ON COMMERCIALLY REASONABLE TERMS OR WITH ADEQUATE COVERAGE.
We may be subject to a variety of types of product liability or other claims based on allegations that the use of our technology or products has resulted in adverse effects, whether by participants in our clinical trials, by patients using our products or by other persons exposed to our products. Thalidomide, when used by pregnant women, has resulted in serious birth defects. Therefore, necessary and strict precautions must be taken by physicians prescribing the drug to women with childbearing potential. These precautions may not be observed in all cases or, if observed, may not be effective. Use of thalidomide has also been associated, in a limited number of cases, with other side effects, including nerve damage. Although we have product liability insurance that we believe is appropriate, we may be unable to maintain existing coverage or obtain additional coverage on commercially reasonable terms if required, or our coverage may be inadequate to protect us in the event of a multitude of claims being asserted against us. Our obligation to defend against or pay any product liability or other claim may be expensive and divert the efforts of our management and technical personnel.
IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, DEMAND FOR OUR PRODUCTS WILL DETERIORATE OR NOT MATERIALIZE AT ALL.
It is necessary that our, and our distribution partner's products, including THALOMID(R), ALKERAN(R) and FOCALIN(R), achieve market acceptance. A number of factors can render the degree of market acceptance of our products uncertain, 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(R). In addition, the products that we are attempting to develop through our Celgene Cellular Therapeutics subsidiary may represent substantial departures from established treatment methods and will compete with a number of traditional drugs 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.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.
We have historically experienced, and expect to continue for the foreseeable future 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:
o demand for our products;
o regulatory approvals for our products;
o reimbursement from third party payors for our products;
o the timing of the introduction and market acceptance of new products by us or competing companies;
o the timing and recognition of certain research and development milestones and license fees; and
o our ability to control our costs.
WE HAVE NO U.S. COMMERCIAL MANUFACTURING FACILITIES AND WE ARE DEPENDENT ON ONE SUPPLIER FOR THE RAW MATERIAL OF THALOMID(R) AND ARE DEPENDENT ON TWO SUPPLIERS FOR THE RAW MATERIAL AND ONE MANUFACTURER FOR THE TABLETING AND PACKAGING OF FOCALIN(R).
We currently have no U.S. facilities for manufacturing any products on a commercial scale. The bulk drug material for THALOMID(R) is manufactured by ChemSyn Laboratories, a Division of Eagle-Picher Technologies, L.L.C. We currently obtain all of our bulk active pharmaceutical ingredient for FOCALIN(R) from two suppliers, Johnson Matthey Inc. and Seigfried USA, Inc., and we rely on a single manufacturer, Mikart, Inc., for the packaging and tableting of FOCALIN(R).
On October 21, 2004, we acquired all of the outstanding shares of Penn T Limited, the UK-based manufacturer of THALOMID(R), which subsequently became known as Celgene UK Manufacturing II, Limited (or CUK II). In connection with the acquisition, we and CUK II entered into a Technical Services Agreement with Penn Pharmaceuticals Services Limited (PPSL), pursuant to which PPSL provides the services and facilities necessary for the manufacture of our requirements of THALOMID(R) and other thalidomide formulations. In addition, we have signed an agreement with the Institute of Drug Technology Australia Limited ( IDT) for the manufacture of finished dosage form of THALOMID capsules. The agreement is scheduled to commence with the FDA's approval of IDT's facility, which we anticipate to occur in the second half of 2005.
Presently, we are actively seeking alternative sources to each of Mikart and PPSL, including our arrangements with IDT. 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. If the operations of either Mikart or PPSL were to become unavailable for any reason (and/or if the FDA's approval of IDT's facility was either delayed or denied for any reason), any required FDA review and approval of the operations of an alternative could cause a delay in the manufacture of THALOMID(R) or FOCALIN(R). In addition, although we have now acquired the THALOMID(R) manufacturing operations of CUK II, we intend to continue to utilize outside manufacturers if and when needed to produce certain of our other products on a commercial scale. 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, to the extent we depend on these outside manufacturers.
WE HAVE LIMITED MARKETING AND DISTRIBUTION CAPABILITIES.
Although we have a 197-person U.S. pharmaceutical commercial organization to support our products, we may be required to seek one or more corporate partners to provide marketing services with respect to our other products. Any delay in developing these resources could substantially delay or curtail the marketing of these products. We have contracted with Ivers Lee Corporation, d/b/a Sharp, a specialty distributor, to distribute THALOMID(R). If Sharp does not perform its obligations, our ability to distribute THALOMID(R) may be severely restricted.
WE ARE DEPENDENT ON COLLABORATIONS AND LICENSES WITH THIRD PARTIES.
Our ability to fully commercialize our products, if developed, may depend to some extent upon our entering into joint ventures or other arrangements with established pharmaceutical and biopharmaceutical
companies with the requisite experience and financial and other resources to obtain regulatory approvals and to manufacture and market such products. Our collaborations and licenses include an exclusive license (excluding Canada) to Novartis for the development and commercialization of FOCALIN(R) ("d-MPH"); an agreement with Biovail Corporation International, wherein we granted to Biovail exclusive Canadian marketing rights for d-MPH; and an agreement with Pharmion Corporation to expand the THALOMID(R) franchise internationally; and an agreement with GlaxoSmithKline to distribute, promote and sell ALKERAN(R). Our present and future arrangements may be jeopardized if any or all of the following occur:
o we are not able to enter into additional joint ventures or other arrangements on acceptable terms, if at all;
o our joint ventures or other arrangements do not result in a compatible working relationship;
o our joint ventures or other arrangements do not lead to the successful development and commercialization of any products;
o we are unable to obtain or maintain proprietary rights or licenses to technology or products developed in connection with our joint ventures or other arrangements; or
o we are unable to preserve the confidentiality of any proprietary rights or information developed in connection with our joint ventures or other arrangements.
THE HAZARDOUS MATERIALS WE USE IN OUR RESEARCH AND DEVELOPMENT COULD RESULT IN SIGNIFICANT LIABILITIES THAT COULD EXCEED OUR INSURANCE COVERAGE AND FINANCIAL RESOURCES.
We use some hazardous materials in our research and development 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.
THE PHARMACEUTICAL INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, WHICH PRESENTS NUMEROUS RISKS TO US.
The preclinical development, clinical trials, manufacturing, marketing and labeling of pharmaceuticals are all subject to extensive regulation by numerous governmental authorities and agencies in the United States and other countries. 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 U.S. Environmental Protection Agency or governmental authorities outside of the United States that perform roles similar to those of the FDA and EPA. Certain of our pharmaceutical products, such as FOCALIN(R), 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. The regulatory approval process presents several risks to us:
o 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;
o 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;
o Requirements for approval may become more stringent due to changes in regulatory agency policy, or the adoption of new regulations or legislation;
o The scope of any regulatory approval, when obtained, may significantly limit the indicated uses for which a product may be marketed and may impose significant limitations in the nature of warnings, precautions and contraindications that could materially affect the sales and profitability of the drug;
o Approved drugs, 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;
o Regulatory authorities and agencies may promulgate additional regulations restricting the sale of our existing and proposed products;
o Once a product receives marketing approval, the FDA may not permit us to market that product for broader or different applications, or 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;
o Our labeling and promotional activities relating to our products are regulated by the FDA and state regulatory agencies and, in some circumstances, by the DEA, and are subject to associated risks. If we fail to comply with FDA regulations prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained, the FDA, or the Office of the Inspector General of the Department of Health and Human Services or the state Attorneys General could bring an enforcement action against us that could inhibit our marketing capabilities as well as result in significant penalties.
FDA's Center for Biologics Evaluation and Research currently regulates under 21 CFR Parts 1270 and 1271 human tissue intended for transplantation that is recovered, processed, stored or distributed by methods that do not change tissue function or characteristics and that is not currently regulated as a human drug, biological product or medical device. Certain stem cell activities fall within this category. Part 1270 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 maintain records. It also provides for inspection by FDA of tissue establishments. Part 1271 requires human cells, tissue and cellular and tissue-based product establishments (HCT/Ps) to register with the agency and list their HCT/Ps.
Currently, we are required to be, and are, licensed to operate in New York and New Jersey, two 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 which would impact negatively on our revenues.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.
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, when necessary, and 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.
Under the current U.S. patent laws, patent applications in the United States are maintained in secrecy from six to eighteen months, and publications 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 the inventions covered by the patents and patent applications in which we have rights, or that such patents and patent applications were not the first to be filed on such inventions. 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 U.S. Patent and Trademark Office to determine priority of invention. Such an interference could result in the loss of an issued U.S. patent or loss of any opportunity to secure U.S. patent protection for that invention. Even if the eventual outcome is favorable to us, such interference proceedings could result in substantial cost to us.
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 a pending application 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.
Furthermore, even if our patents, or those we have licensed-in, are issued, our competitors may still challenge the scope, validity or enforceability of our 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 intellectual property rights or defending the validity or enforceability of our issued patents.
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 licensor, 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.
On January 15, 2004, an opposition proceeding was brought by Celltech R&D Ltd. against granted European Patent 0728143 which we have licensed from the University of California relating to JNK 1 and JNK 2 polypeptides. This proceeding is directed to only the claims for JNK 2 and not JNK 1. We intend to respond to this proceeding. A decision on the merits is not expected until sometime in 2005 at the earliest.
It is also possible that third-party patent applications and patents could issue with claims that cover certain aspects of our business or of the subject matter claimed in the patents 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.
We rely upon trademarks and service marks to protect our rights to the intellectual property used in our business. On October 29, 2003, we 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, we believe, is likely to cause confusion with our IMiDs mark for compounds being developed by us to treat cancer and inflammatory diseases. If we are not successful in this suit, it may be necessary for us to adopt a different trademark for that class of compounds and thereby lose the value we believe we have built in the IMiDs mark.
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., in response to notices of Paragraph IV certifications made by Teva in connection with the filing of an ANDA (Abbreviated New Drug Application) for d-methylphenidate immediate release (FOCALIN(R)). The notification letters contend that United States Patent Nos. 5,908,850, or 850 patent, and 6,355,656, or 656 patent, were invalid. The 656 patent is currently the subject of reexamination proceedings in the United States Patent and Trademark Office. 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(R) NDA. The 530 patent is currently not part of the Celgene v. Teva case. This case does not relate to RITALIN(R) LA or any other long acting formulation. Discovery is at the earliest stage. If successful, Teva will be permitted to sell a generic version of FOCALIN(R) immediate release.
Further, 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.
In addition, our right to practice the inventions claimed in some patents that relate to THALOMID(R) arises under licenses granted to us by others, including The Rockefeller University and Children's Medical Center Corporation, or 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. The December 2002 agreement also grants 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.
Further, while we believe these confidentiality 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.
The orphan drug exclusivity for thalidomide expires on July 16, 2005. Generic drug companies can file an abbreviated new drug application, or ANDA to seek approval to market thalidomide in the United States. However, such an ANDA filer will need to challenge the validity or enforceability of our United States patents relating to our S.T.E.P.S.(R) program or to demonstrate that they do not use an infringing risk management program. We cannot predict whether an ANDA challenge to our patents will be made, nor can we predict whether our S.T.E.P.S.(R) patents can be circumscribed or invalidated or otherwise rendered unenforceable.
THE PHARMACEUTICAL INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE.
The pharmaceutical 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, such as:
o Bristol Myers Squibb Co., which potentially competes in clinical trials with our IMiDs and PDE4 inhibitors;
o Genentech Inc., which potentially competes in clinical trials with our IMiDs and PDE4 inhibitors;
o AstraZeneca p.l.c., which potentially competes in clinical trials with our IMiDs and PDE4 inhibitors;
o ICOS Corporation which potentially competes in clinical trials with our PDE4 inhibitors;
o Millennium Pharmaceuticals, which potentially competes in clinical trials with our IMiDs and PDE4 inhibitors as well as with THALOMID(R);
o Cell Therapeutics Inc., which potentially competes in clinical trials with our IMiDs and THALOMID(R);
o Vertex Pharmaceuticals Inc. and Pfizer which potentially competes in clinical trials with our kinase inhibitors; and
o Biogen IDEC Inc. and Genzyme Corporation both of which are generally developing drugs that address the oncology and immunology markets, although we are not aware of specific competing products.
Many of these companies have considerably greater financial, technical and marketing resources than we. 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 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.
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. If these organizations and third-party payors do not consider our products to be cost-effective or competitive with 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.
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.
There has been significant volatility in the market prices for publicly traded shares of biopharmaceutical companies, including ours. We expect that the market price of our common stock will continue to fluctuate. After adjusting prices to reflect our two-for-one stock split effected on October 22, 2004, the intra-day price of our common stock fluctuated from a high of $32.58 to a low of $18.74 in 2004. On March 11, 2005 our common stock closed at a price of $32.80. The price of our common stock may not remain at or exceed current levels. The following key factors may have an adverse impact on the market price of our common stock:
o results of our clinical trials;
o announcements of technical or product developments by our competitors;
o market conditions for pharmaceutical and biotechnology stocks;
o market conditions generally;
o governmental regulation;
o health care legislation;
o public announcements regarding medical advances in the treatment of the disease states that we are targeting;
o patent or proprietary rights developments;
o changes in third-party reimbursement policies for our products; or
o fluctuations in our operating results.
In addition, the stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the market price of our common stock.
THE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE WOULD DILUTE THE OWNERSHIP INTEREST OF EXISTING STOCKHOLDERS AND COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
Future sales of substantial amounts of our common stock could adversely affect the market price of our common stock. As of March 1, 2005, there were outstanding stock options and warrants for 25,186,118 shares of common stock, of which 24,567,768 were currently exercisable at an exercise price range between $0.07 and $35.00, with a weighted average exercise price of $15.00. These amounts include outstanding options and warrants of Anthrogenesis (which is now our Celgene Cellular Therapeutics
subsidiary) that we assumed as part of our acquisition of Anthrogenesis on December 31, 2002 and that were converted into outstanding options and warrants of our common stock pursuant to an exchange ratio. In addition, in June 2003, we issued $400.0 million of unsecured convertible notes that are convertible into 16,511,840 shares of our common stock at a conversion price of approximately $24.225 per share. The conversion of some or all of these notes, if it occurs, will dilute the ownership interest of existing stockholders.
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.
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 the Securities and Exchange Commission, or 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 twelve 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 450 Fifth Street, NW, Washington, D.C.
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 2. PROPERTIES
We currently lease an aggregate of 92,100-square feet of laboratory and office space in Warren, New Jersey, under various leases with unaffiliated parties, which have lease terms ending between June 2005 and July 2010 with renewal options ranging from either one or two additional five-year terms. Annual rent for these facilities is approximately $1.0 million. We also are required to reimburse the lessors for real estate taxes, insurance, utilities, maintenance and other operating costs. We also lease an 18,000-square foot laboratory and office facility in North Brunswick, New Jersey under a lease with an
unaffiliated party that has a term ending in March 2009 with two five-year renewal options. Annual rent for this facility is approximately $0.5 million.
In November 2004, we purchased approximately 45 acres of land and several buildings located in Summit, New Jersey at a cost of $25.0 million. The purchase of this site enables us to consolidate four New Jersey locations into one corporate headquarters and provide the space needed to accommodate the Company's expected growth. As a result, the Company is currently exploring available options to reduce or eliminate the financial impact of existing lease commitments on redundant facilities.
In December 2001, we entered into a lease to consolidate our San Diego, California operations into one building. The 78,202-square foot laboratory and office facility in San Diego, California was leased from an unaffiliated party and has a term ending in August 2012 with one five-year renewal option. Annual rent for this facility is approximately $1.9 million and is subject to specified annual rental increases. Under the lease, we also are required to reimburse the lessor for real estate taxes, insurance, utilities, maintenance and other operating costs.
Upon completion of the acquisition of Anthrogenesis Corp. on December 31, 2002, we assumed two separate leases in the same facility for office and laboratory space in Cedar Knolls, New Jersey and have subsequently entered into one additional lease for additional space in the same facility. The leases are for an aggregate 20,000-square feet with annual rent of approximately $0.2 million. We also are required to reimburse the lessor for real estate taxes, insurance, utilities, maintenance and other operating costs. The leases have terms ending between September 2007 and April 2009 with renewal options ranging from either one or two additional five-year terms. In November of 2002, Anthrogenesis entered into a lease for an additional 11,000 square feet of laboratory space in Baton Rouge, Louisiana. The lease has a five-year term with a three-year renewal option. Annual rent for this facility is approximately $0.1 million.
ITEM 3. LEGAL PROCEEDINGS
We are not engaged in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the NASDAQ National Market under the symbol "CELG." The following table sets forth, for the periods indicated, the intra-day high and low bid prices per share of common stock on the NASDAQ National Market (as adjusted for the two-for-one stock split affected on October 22, 2004):
--------------------------------------------------------------------------------
HIGH LOW
---------------------
2004
Fourth Quarter $32.58 $25.75
Third Quarter 30.09 23.33
Second Quarter 30.30 22.50
First Quarter 24.46 18.74
2003
Fourth Quarter $24.08 $18.26
Third Quarter 24.44 14.26
Second Quarter 18.57 12.36
First Quarter 13.98 10.08
--------------------------------------------------------------------------------
|
The last reported sales price per share of common stock on the NASDAQ National Market on March 11, 2005 was $32.80. As of February 24, 2005, there were approximately 40,518 holders of record of our common stock.
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.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes the equity compensation plans under which our common stock may be issued as of December 31, 2004:
--------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS,
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A)
PLAN CATEGORY (A) (B) (C)
--------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders 23,936,754 $15.51 1,823,735
Equity compensation plans not approved
by security holders 1,539,256 $ 8.15 97,664
-----------------------------------------------------------------
Total 25,476,010 $15.07 1,921,399
====================================================================================================================
|
The Anthrogenesis Corporation Qualified Employee Incentive Stock Option Plan has not been approved by our stockholders. As a result of the acquisition of Anthrogenesis on December 31, 2002, we acquired the Anthrogenesis Qualified Employee Incentive Stock Option Plan, or the Qualified Plan, and the Non-Qualified Recruiting and Retention Stock Option Plan, or the Non-Qualified Plan. No future awards will be granted under the Non-Qualified Plan. The Qualified Plan authorizes the award of incentive stock options, which are stock options that qualify for special federal income tax treatment. The exercise price of any stock option granted under the Qualified Plan may not be less than the fair market value of the common stock on the date of grant. In general, options granted under the Anthrogenesis Qualified Plan vest evenly over a four-year period and expire ten years from the date of grant, subject to earlier expiration in case of termination of employment. The vesting period is subject to certain acceleration provisions if a change in control occurs. No award will be granted under the Qualified Plan on or after December 31, 2008.
ITEM 6. SELECTED CONSOLIDATED 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 Statement of Operations for the year ended December 31, 2004 and the Consolidated Balance Sheet data as of December 31, 2004 are derived from our Consolidated Financial Statements which have been audited by KPMG LLP, independent registered public accounting firm, and 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, 2003 and 2002 and the Consolidated Balance Sheets data as of December 31, 2003 and 2002 have been restated to reflect adjustments to the original filings that are discussed further in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2 of the Notes to the 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, 2001 and 2000 and the Consolidated Balance Sheets data as of December 31, 2001 and 2000 are derived from our Consolidated Financial Statements, which have been audited by KPMG LLP and which are not included elsewhere in this Annual Report. Our historical results are not necessarily indicative of future results of operations.
---------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
IN THOUSANDS, EXCEPT PER SHARE DATA 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------
As restated As restated
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenue $ 377,502 $ 271,475 $ 135,746 $ 114,243 $ 84,908
Costs and operating expenses 334,774 274,124 250,367 139,186 119,217
Other income (expense), net 20,443 23,310 23,031 20,807 15,496
Income tax provision (benefit) 10,415 718 (98) (1,232) (1,810)
-------------------------------------------------------------------
Income (loss) from continuing Operations 52,756 24,943 (91,492) (2,904) (17,003)
Discontinued operations:
Gain on sale of chiral assets -- 750 1,000 992 719
-------------------------------------------------------------------
Net income (loss) applicable to common
stockholders $ 52,756 $ 25,693 $ (90,492) $ (1,912) $ (16,284)
===================================================================
Income (loss) from continuing operations
per common share(1):
Basic $ 0.32 $ 0.15 $ (0.60) $ (0.02) $ (0.13)
Diluted $ 0.31 $ 0.14 $ (0.60) $ (0.02) $ (0.13)
Discontinued operations per common share(1):
Basic $ -- $ 0.01 $ 0.01 $ 0.01 $ 0.01
Diluted $ -- $ 0.01 $ 0.01 $ 0.01 $ 0.01
Net income (loss) applicable to common
stockholders(1):
Basic $ 0.32 $ 0.16 $ (0.59) $ (0.01) $ (0.12)
Diluted $ 0.31 $ 0.15 $ (0.59) $ (0.01) $ (0.12)
Weighted average number of shares of common
stock outstanding (1):
Basic 163,869 161,774 154,674 150,216 133,196
Diluted 172,855 170,796 154,674 150,216 133,196
---------------------------------------------------------------------------------------------------------------------
|
(1) Amounts have been adjusted for the two-for-one stock split affected in October 2004 and the three-for-one stock split affected in April 2000.
----------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
IN THOUSANDS 2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------------------------
As restated As restated
CONSOLIDATED BALANCE SHEETS DATA
Cash and cash equivalents, and marketable
Securities $ 748,537 $ 666,967 $ 261,182 $ 310,041 $ 306,162
Total assets 1,107,293 813,026 336,795 353,982 346,726
Long-term obligations under capital leases
and equipment notes payable 4 16 40 46 633
Convertible notes 400,000 400,000 -- 11,714 11,714
Accumulated deficit (234,410) (287,166) (312,859) (222,367) (220,455)
Stockholders' equity 477,444 331,744 281,814 310,425 295,533
----------------------------------------------------------------------------------------------------------------------
|
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
We are a multi-national integrated biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. Our lead product THALOMID(R) (thalidomide) is currently marketed for the treatment of erythema nodosum leprosum, or ENL. This product is more widely used off-label for treating multiple myeloma and other cancers. Over the past several years, THALOMID(R) net sales have grown rapidly. The sales growth of THALOMID(R) has enabled us to make substantial investments in research and development, which has resulted in a broad portfolio of drug candidates in our product pipeline. These include a pipeline of THALOMID(R) analogs known as IMiDsTM. REVLIMID(R), one of our clinical-stage IMiDs, is now being tested in multiple cancer trials, including ongoing pivotal Phase III Special Protocol Assessment, or SPA, trials in multiple myeloma, or MM, and Phase II trials in myelodysplastic syndromes, or MDS, MDS with 5q deletion chromosomal abnormalities and MM that have the potential to result in FDA approval in late 2005 or early 2006. Given REVLIMID(R)'s safety and efficacy profile, its large sales potential and the cost efficiencies we can achieve from marketing REVLIMID(R) through our established sales force, we anticipate the approval and launch of REVLIMID(R), if it occurs, would result in increased revenue and earnings. We believe that the sales growth of THALOMID(R), the growth potential for REVLIMID(R), the depth of our product pipeline, and our strong balance sheet position, make us competitive within the biopharmaceuticals sector.
RESTATEMENT
Following a review in December 2004 of our accounting treatment for the convertible preferred shares and warrants we received in connection with the December 31, 2002 litigation settlement and related agreements with EntreMed, Inc. and the Children's Medical Center Corporation, or CMCC, where in return for approximately $26.8 million in cash we acquired all related EntreMed thalidomide analog patents, terminated the litigation and received preferred shares convertible into 16,750,000 shares of EntreMed common stock and warrants to purchase 7,000,000 shares of EntreMed common stock, it was determined that an adjustment to our consolidated financial statements was required for the years ended December 31, 2003 and 2002. For more information about the litigation settlement with EntreMed Inc. and related agreements see Note 5 to our consolidated financial statements.
At December 31, 2002, based on what we believed was the appropriate accounting treatment under generally accepted accounting principles, we wrote off the entire $26.8 million relating to the convertible
preferred shares, the warrants and the litigation settlement and did not recognize any gains or losses on the warrants during 2003. This accounting treatment was based on multiple reasons including: (1) EntreMed's financial condition and its continuing losses; (2) the fact that we included the warrants along with the convertible preferred shares investment in applying the equity method of accounting, under which we wrote off the entire investment in December 2002; and (3) our inability to place a reliable fair value on the warrants given the significant number of shares underlying the warrants and, in our opinion, the inability to convert the underlying shares into cash (even if the warrants were to be net share settled) without significantly affecting EntreMed's stock price.
Upon further review of the warrant terms, as well as the accounting treatment prescribed under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", or SFAS 133, and related Derivative Implementation Group, or DIG, interpretations, we have concluded that the warrants should be accounted for as a derivative instrument and carried on the balance sheet at fair value, with changes in fair value recorded through earnings.
In addition we reviewed the impairment of the investment in the EntreMed preferred shares. We have concluded that the investment should not have been written-down as of the date of the transaction. Accordingly we have restored the investment of $4.4 million as of December 31, 2002 and reduced the net loss by a like amount. Under the equity method of accounting, we have recorded our share of the EntreMed losses in 2003 until the investment is written down to zero in the third quarter of 2003.
We have now restated our consolidated financial statements for the years ended December 31, 2003 and 2002. The cumulative effect of the restatement through December 31, 2003 is an increase in other assets of $21.7 million and a decrease in accumulated deficit of $21.7 million. Equity losses in associated companies of $4.4 million were recorded for the year ended December 31, 2003. Interest and other income increased by $16.6 million for the year ended December 31, 2003 and litigation settlement and related agreements expense decreased by $9.5 million for the year ended December 31, 2002. Previously reported diluted net earnings per share increased by $0.07 and $0.06 for the years ended December 31, 2003 and 2002, respectively. The restatement did not have any impact on previously reported total revenues, reported net cash flows or the 2003 operating loss.
The following is a summary of the impact of the restatement on (i) our Consolidated Balance Sheet at December 31, 2003 and (ii) our Consolidated Statements of Operations for the years ended December 31, 2003 and 2002. We have not presented a summary of the impact of the restatement on our Consolidated Statements of Cash Flows for any of the above-referenced years because there is no net impact for any such year.
----------------------------------------------------------------------------------------------------------
PREVIOUSLY
IN THOUSANDS, EXCEPT PER SHARE DATA REPORTED ADJUSTMENTS AS RESTATED
----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2003:
Consolidated Statement of Operations:
Interest and other income $ 21,795 $ 16,574 $ 38,369
Equity losses in associated companies -- 4,392 4,392
Income before income taxes 13,479 12,182 25,661
Income from continuing operations 12,761 12,182 24,943
Net income 13,511 12,182 25,693
Per share:
Income from continuing operations per - Basic 0.08 0.07 0.15
Income from continuing operations per - Diluted 0.07 0.07 0.14
Net income - Basic 0.08 0.08 0.16
Net income - Diluted 0.08 0.07 0.15
Consolidated Balance Sheet:
Other assets $ 32,506 $ 21,690 $ 54,196
Total assets 791,336 21,690 813,026
Accumulated deficit (308,856) 21,690 (287,166)
Total stockholders' equity 310,054 21,690 331,744
----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002:
Consolidated Statement of Operations:
Litigation settlement and related agreements $ 32,212 $ 9,508 $ 22,704
Total expenses 259,875 (9,508) 250,367
Operating loss 124,129 (9,508) 114,621
Loss before income taxes (101,098) 9,508 (91,590)
Loss from continuing operations (101,000) 9,508 (91,492)
Net loss (100,000) 9,508 (90,492)
Per share:
Loss from continuing operations - Basic (0.65) 0.05 (0.60)
Loss from continuing operations - Diluted (0.65) 0.05 (0.60)
Net loss - Basic (0.65) 0.06 (0.59)
Net loss - Diluted (0.65) 0.06 (0.59)
----------------------------------------------------------------------------------------------------------
|
Refer to Note 20 to our consolidated financial statements (unaudited) of the Notes to the Consolidated Financial Statements for the impact of the restatement on the 2004 and 2003 quarterly information. In addition, certain prior year amounts in Notes 1, 3, 4, 5, 9, 17, 19 and 20 to our consolidated financial statements have been restated to reflect the restatement adjustments described above.
FACTORS AFFECTING FUTURE RESULTS
Future operating results will depend on many factors, including demand for our products, regulatory approvals of our products, 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. The most salient factors are, in the near term, competition with
THALOMID(R), including generic competition, and delays in the introduction of REVLIMID(R) and, in the longer term, failure to commercialize our early-stage drug candidates.
NEAR-TERM COMPETITION WITH THALOMID(R): While we believe that THALOMID(R) will continue to be used as a treatment in multiple myeloma and that competing products will not eliminate its use, it is possible that competition could reduce THALOMID(R) sales in multiple myeloma. In addition, generic competition could reduce THALOMID(R) sales. However, we own intellectual property which includes, for example, numerous U.S. patents covering restrictive drug distribution systems for more safely delivering drugs, including our "System for Thalidomide Education and Prescribing Safety", or S.T.E.P.S.(R), distribution program, which all patients receiving thalidomide in the United States must follow and which are listed in the FDA Approved Drug Products with Therapeutic Equivalence Evaluation, or Orange Book. These patents do not expire until the years 2018-2020. We also have exclusive rights to several issued patents covering the use of THALOMID(R) in oncology. Even if generic competition were able to enter the market, it is unlikely such products could do so before 2007 based on a number of factors, including the time needed to commercialize such a product and the fact that challenges to THALOMID(R) will require a generic competitor to make a patent certification of non-infringement and/or invalidity of our patents listed in the Orange Book pursuant to the Federal Food, Drug and Cosmetic Act, which would then, in turn, entitle us up to a 30-month stay of market approval of that generic equivalent. By that time, we plan to have at least partially replaced THALOMID(R) sales with REVLIMID(R) sales. On October 22, 2004, we received an approvable letter from the FDA relating to our THALOMID(R) multiple myeloma supplemental new drug application, or sNDA. The FDA letter stated that sufficient support for an accelerated approval could be provided by the results of the completed Eastern Cooperative Oncology Group, or ECOG, study comparing thalidomide plus dexamethasone to dexamethasone alone in previously untreated multiple myeloma patients. The submission of this additional data and completion of required responses and its review by the FDA may result in an accelerated approval of THALOMID(R) as a treatment for multiple myeloma in the second half of 2005.
DELAY IN THE INTRODUCTION OF REVLIMID(R): While we have made progress toward regulatory approval of REVLIMID(R) based on ongoing pivotal Phase III Special Protocol Assessment, or SPA, trials for REVLIMID(R) in multiple myeloma, a delay in the introduction of REVLIMID(R) or its failure to demonstrate efficacy or an acceptable safety profile could adversely affect our business, consolidated financial condition and results of operations. Moreover, other factors such as the availability of FDA-approved competing products for the treatment of MDS could impact the market's acceptance of REVLIMID(R). In addition, our ongoing open label Phase II trials in MDS and multiple myeloma have completed their targeted enrollment. While the submission of an NDA based on data from these trials could result in an earlier regulatory approval if the data were to be sufficiently compelling, it should be noted that the FDA does not often grant approvals based on Phase II open label data alone.
FAILURE TO COMMERCIALIZE EARLY-STAGE DRUG CANDIDATES: Our long-term success and sustainability depends on our ability to advance our earlier-stage drug candidates through development and to realize the commercial potential of our broad product pipeline.
COMPANY BACKGROUND
In 1986, we were spun off from Celanese Corporation and in July 1987 we completed an initial public offering of our common stock. Initially, our operations involved research and development of chemical and biotreatment processes for the chemical and pharmaceutical industries. In 1994, we discontinued the biotreatment operations to focus on our programs for developing small molecule compounds for cancer and immunology indications, and on our biocatalytic chiral chemistry program.
Between 1990 and 1998, our revenues were derived primarily from the development and supply of chirally pure intermediates to pharmaceutical companies for use in new drug development. By 1998, sales of chirally pure intermediates became a less integral part of our strategic focus and, in January 1998 we sold the chiral intermediates business to Cambrex Corporation. Revenue from license agreements and milestone payments related to our cancer and immunology programs began to increase at this time.
In July 1998, we received approval from the FDA to market THALOMID(R) for use in ENL, a complication of the treatment of leprosy, and, in September 1998 we commenced sales of THALOMID(R) in the United States. Sales of THALOMID(R) have grown significantly each year, and THALOMID(R) has become our lead product. In 2002, 2003 and 2004 we recorded net THALOMID(R) sales of $119.1 million, $223.7 million and $308.6 million, respectively.
In February 2000, we completed a follow-on public offering in which we raised proceeds, net of offering expenses, of approximately $278.0 million. In April 2000, we signed a licensing and development agreement with Novartis Pharma AG in which we granted to Novartis a license for FOCALIN(R), our chirally pure version of RITALIN(R). The agreement provided for significant upfront and milestone payments to us based on the achievement of various stages in the regulatory approval process. It also provided for Celgene to receive royalties on the entire family of RITALIN(R) products. Pursuant to the agreement we retained the rights to FOCALIN(R) in oncology indications.
In August 2000, we acquired Signal Pharmaceuticals, Inc., 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., a privately held biotherapeutics company developing processes for the recovery of stem cells from human placental tissue following the completion of a successful full-term pregnancy for use in stem cell transplantation, regenerative medicine and biomaterials for organ and wound repair.
In March 2003, we entered into a three-year supply and distribution agreement with GlaxoSmithKline, or GSK, to distribute, promote and sell ALKERAN(R), ormelphalan, a therapy approved by the FDA for the palliative treatment of multiple myeloma and carcinoma of the ovary. The agreement, which provides us with an FDA approved oncology product, requires that we purchase ALKERAN(R) from GSK and distribute the products in the United States under the Celgene label. In June 2003, we raised an additional $387.8 million, net of expenses, through the issuance of $400.0 million of five-year unsecured convertible notes.
In October 2004, through an indirect wholly-owned subsidiary, we acquired all of the outstanding shares of Penn T Limited, or Penn T, a worldwide supplier of THALOMID(R), from a consortium of private investors for a US dollar equivalency of approximately $117.4 million in cash, net of cash acquired and including working capital adjustments and total estimated transaction costs. Through manufacturing contracts purchased in this acquisition, we are now able to control manufacturing for THALOMID(R) worldwide and we also increased our participation in the potential sales growth of THALOMID(R) in key international markets. Following this acquisition, in December 2004 we revised the Pharmion product supply agreement acquired in the Penn T acquisition. Under the modified agreement, Pharmion paid us a one-time payment of $77.0 million in return for a reduction in their total product supply purchase price from 28.0 percent of Pharmion's thalidomide net sales, including cost of goods to 15.5 percent of net sales. The collaboration also entails Pharmion paying us an additional $8.0 million over the next three years to extend the two companies' existing thalidomide research and development efforts and a one-time payment of $3.0 million for granting Pharmion license rights to develop and market thalidomide in three additional Asian territories (Hong Kong, Korea and Taiwan), as well as for eliminating termination rights held by Celgene tied to the regulatory approval of thalidomide in Europe in November 2006. In late
2004, we entered into an agreement providing manufacturers of isotretinoin (Acutane(R)) a non-exclusive license to our System for Thalidomide Education and Prescribing Safety, or S.T.E.P.S., patent portfolio. The manufacturers of isotretinoin have licensed these patents with the intention of implementing a new pregnancy risk management system to safely deliver isotretinoin in potentially high-risk patient populations.
Until 2003, we had sustained losses in each year since our incorporation in 1986. For the years ended December 31, 2003 and 2004, we posted net income of $25.7 million and $52.8 million, respectively, and at December 31, 2004 we had an accumulated deficit of $234.4 million. Since our inception, we have financed our working capital requirements primarily through product sales; public and private sales of our equity securities and debt; income earned from investment of the proceeds of such securities sales; and revenues from research contracts and license payments. We expect to make substantial additional expenditures to further develop and commercialize our products. We expect that our rate of spending will accelerate as a result of increases in clinical trial costs, expenses associated with regulatory approval and expenses related to commercialization of products currently in development. However, we anticipate these expenditures to be more than offset by increased product sales, royalties, revenues from various research collaborations and license agreements with other pharmaceutical and biopharmaceutical companies, and investment income.
RESULTS OF OPERATIONS -
FISCAL YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
TOTAL REVENUE: Total revenue and related percentages for the years ended December 31, 2004, 2003 and 2002, were as follows:
------------------------------------------------------------------------------------------
% CHANGE
-----------------
2003 2002
TO TO
(IN THOUSANDS $) 2004 2003 2002 2004 2003
------------------------------------------------------------------------------------------
Net product sales:
THALOMID(R) $308,577 $223,686 $119,060 38.0% 87.9%
FOCALIN(R) 4,177 2,383 3,861 75.3% (38.3%)
ALKERAN(R) 16,956 17,827 -- (4.9%) N/A
Other 861 557 -- 54.6% N/A
------------------------------------
Total net product sales $330,571 $244,453 $122,921 35.2% 98.9%
Collaborative agreements
and other revenue 20,012 15,174 8,115 31.9% 87.0%
Royalty revenue 26,919 11,848 4,710 127.2% 151.5%
------------------------------------
Total revenue $377,502 $271,475 $135,746 39.1% 100.0%
==========================================================================================
|
NET PRODUCT SALES:
2004 COMPARED TO 2003: THALOMID(R) net sales were higher in 2004, as compared to 2003, primarily due to price increases implemented in the second half of 2003 and in the first nine months of 2004. The total number of prescriptions, which increased approximately 9.4% from the prior year period, was offset by lower average daily doses. FOCALIN(R) net sales were higher in 2004, as compared to 2003, due to the timing of shipments to Novartis for their commercial distribution. ALKERAN(R) net sales were lower in 2004, as compared to 2003, due to supply disruptions earlier in the year, which lead to inconsistent supplies of ALKERAN(R) IV and consequently inconsistent end-market buying patterns. Other
net product sales consist of sales of dehydrated human amniotic membrane for use in ophthalmic applications, which are generated through our Stem Cell Therapies segment following the December 2002 acquisition of Anthrogenesis Corp.
2003 COMPARED TO 2002: THALOMID(R) net sales were higher in 2003, as compared to 2002, due to the combination of price increases and oncologists' expanded use of the product as a treatment for various types of cancers, especially first-line use in multiple myeloma. THALOMID(R) net sales in 2003 also benefited from the market introduction, during the first half of the year, of two new higher-strength formulations, which had higher per unit sales prices. FOCALIN(R) net sales were lower in 2003, as compared to 2002, due to the timing of shipments to Novartis for their commercial distribution. The ALKERAN(R) supply and distribution agreement with GSK was executed in March 2003. Accordingly, sales for this product are reflected only in the 2003 period. Other net product sales consist of sales of dehydrated human amniotic membrane for use in ophthalmic applications, which are generated through our Stem Cell Therapies segment.
COLLABORATIVE AGREEMENTS AND OTHER REVENUE: Revenues from collaborative agreements and other sources in 2004 included a $7.5 million payment received from Novartis related to their FOCALIN(R) XR NDA submission; approximately $7.5 million related to the Pharmion collaboration agreements, primarily thalidomide research and development funding and S.T.E.P.S. licensing fees; approximately $3.7 million of umbilical cord blood enrollment, collection and storage fees generated through our Stem Cell Therapies segment; $0.5 million from S.T.E.P.S. use licensing fees; and approximately $0.8 million from other miscellaneous research and development and licensing agreements. The 2003 period included approximately $6.0 million related to the agreement to terminate the GelclairTM co-promotion agreement between OSI Pharmaceuticals Inc. and Celgene; approximately $4.3 million of thalidomide research and development funding and S.T.E.P.S. licensing fees received in connection with the Pharmion collaboration agreements; approximately $1.3 million of reimbursements from Novartis for shipments of bulk raw material used in the formulation of FOCALIN(R) XR and utilized in clinical studies conducted by Novartis; approximately $2.9 million of umbilical cord blood enrollment, collection and storage fees generated through our Stem Cell Therapies segment; and $0.7 million from other miscellaneous research and development and licensing agreements. The 2002 period included approximately $4.9 million for amortization of an up-front payment and a $1.0 million milestone payment received from Novartis Pharma AG in connection with the SERM license agreement; $1.2 million of licensing fees from Pharmion; and $1.0 million of other milestone and other miscellaneous payments.
ROYALTY REVENUE: Royalty revenue reflects royalties received from Novartis on sales of their entire family of RITALIN(R) drugs. The increases in royalty revenue were due to increases in the royalty rate on both RITALIN(R) and RITALIN(R) LA as well as increases in RITALIN(R) LA sales by Novartis.
COST OF GOODS SOLD: Cost of goods sold and related percentages for the years ended December 31, 2004, 2003 and 2002 were as follows:
------------------------------------------------------------------------------- (IN THOUSANDS $) 2004 2003 2002 ------------------------------------------------------------------------------- Cost of goods sold $ 59,726 $ 52,950 $ 20,867 Increase from prior year $ 6,776 $ 32,083 $ 1,885 Percentage increase from prior year 12.8% 153.7% 9.9% Percentage of net product sales 18.1% 21.7% 17.0% =============================================================================== |
2004 COMPARED TO 2003: Cost of goods sold increased in 2004 from 2003, primarily as a result of higher royalties on THALOMID(R), partially offset by lower ALKERAN(R) costs. As a percentage of net product sales, however, cost of goods sold decreased primarily due to lower ALKERAN(R) costs. Profit margins on THALOMID(R) remained flat, as the increase in cost of goods sold (resulting from higher royalties) were offset by higher net sales (which were due to price increases implemented in the second half of 2003 and in the first nine months of 2004).
2003 COMPARED TO 2002: Cost of goods sold increased in 2003 from 2002, primarily due to significant growth in THALOMID(R) sales volumes, higher royalties on THALOMID(R) product sales and the introduction of ALKERAN(R). Cost of goods sold also increased as a percentage of net product sales primarily because of the introduction of ALKERAN(R), which has a significantly higher cost structure than THALOMID(R). The increase in the percentage, however, was partially offset by higher gross profits on THALOMID(R) (due to price increases initiated during the year) and by lower sales of FOCALIN(R) (which also has a higher reported cost structure than THALOMID(R)).
RESEARCH AND DEVELOPMENT: Research and development expenses consist primarily of salaries and benefits, contractor fees (paid principally to contract research organizations to assist in our clinical development programs), costs of drug supplies for our clinical and preclinical programs, costs of other consumable research supplies, regulatory and quality expenditures and allocated facilities charges such as building rent and utilities.
Research and development expenses and related percentages for the years ended December 31, 2004, 2003 and 2002 were as follows:
------------------------------------------------------------------------------- (IN THOUSANDS $) 2004 2003 2002 ------------------------------------------------------------------------------- Research and development expenses $ 160,852 $ 122,700 $ 84,924 Increase from prior year $ 38,152 $ 37,776 $ 17,271 Percentage increase from prior year 31.1% 44.5% 25.5% Percentage of total revenue 42.6% 45.2% 62.6% =============================================================================== |
2004 COMPARED TO 2003: Research and development expenses increased by $38.2 million in 2004 from 2003, primarily due to increased spending in various late-stage regulatory programs. These included Phase II regulatory programs for REVLIMID(R) in MDS and MM, as well as ongoing REVLIMID(R) Phase III SPA trials in MM.
2003 COMPARED TO 2002: Research and development expenses increased in 2003 from 2002, primarily due to the initiation of several large studies related to our THALOMID(R) and REVLIMID(R) clinical programs in the second half of 2002.
Research and development expenses in 2004 consisted of approximately $78.3 million spent on human pharmaceutical clinical programs; $33.4 million spent on other human pharmaceutical programs, including toxicology, analytical research and development, drug discovery, quality and regulatory affairs; $40.6 million spent on biopharmaceutical discovery and development programs; and $8.6 million spent on placental stem cell and biomaterials programs. These expenditures support multiple core programs, including THALOMID(R), REVLIMID(R), ACTIMID(TM), CC-11006, PDE4/TNF-alpha inhibitors, other investigational compounds, such as kinase inhibitors, benzopyrans, ligase inhibitors and tubulin inhibitors, and placental and cord blood derived stem cell programs. In 2003, approximately $52.8 million was spent on human pharmaceutical clinical programs; $29.2 million was spent on other human
pharmaceutical programs, including toxicology, analytical research and development, drug discovery, quality and regulatory affairs; $33.7 million was spent on biopharmaceutical discovery and development programs; and $7.0 million was spent on placental stem cell and biomaterials programs. In 2002, approximately $27.4 million was spent on human pharmaceutical clinical programs; $22.2 million was spent on other human pharmaceutical programs, including toxicology, analytical research and development, drug discovery, quality and regulatory affairs; $32.3 million was spent on biopharmaceutical discovery and development programs; and $3.0 million was spent on agro-chemical programs.
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 of this annual report.
In general, the estimated times to completion within the various stages of clinical development are as follows:
--------------------------------------------------------------------------------
ESTIMATED COMPLETION
CLINICAL PHASE TIME
--------------------------------------------------------------------------------
Phase I 1-2 years
Phase II 2-3 years
Phase III 2-3 years
--------------------------------------------------------------------------------
|
Due to the significant risks and uncertainties inherent in preclinical testing and clinical trials associated with each of our research and development projects, the cost to complete such projects is not reasonably estimable. The data obtained from these tests and trials may be susceptible to varying interpretation that could delay, limit or prevent a project's advancement through the various stages of clinical development, which would significantly impact the costs incurred in completing a project.
SELLING, GENERAL AND ADMINISTRATIVE: Selling expenses consist primarily of salaries and benefits for sales and marketing and customer service personnel and other commercial expenses to support our sales force. General and administrative expenses consist primarily of salaries and benefits, outside services for legal, audit, tax and investor activities and allocations of facilities costs, principally for rent, utilities and property taxes.
Selling, general and administrative expenses and related percentages for the years ended December 31, 2004, 2003 and 2002 were as follows:
------------------------------------------------------------------------------- (IN THOUSANDS $) 2004 2003 2002 ------------------------------------------------------------------------------- Selling, general and administrative expenses $ 114,196 $ 98,474 $ 66,172 Increase from prior year $ 15,722 $ 32,302 $ 13,621 Percentage increase from prior year 16.0% 48.8% 25.9% Percentage of total revenue 30.3% 36.3% 48.7% =============================================================================== |
2004 COMPARED TO 2003: Selling, general and administrative expenses increased by $15.7 million in 2004 from 2003, as a result of an increase of approximately $12.0 million in general administrative and medical affairs expenses primarily due to higher headcount-related expenses and an increase of approximately $3.6 million in sales force expenses primarily due to the creation of a sales operations group. The sales operations group,
among other things, manages pricing and reimbursement, corporate accounts, customer service and government affairs, as well as sales fleet expenses.
2003 COMPARED TO 2002: Selling, general and administrative expenses increased in 2003 from 2002, primarily due to first-time expenses of approximately $10.1 million related to our Stem Cell Therapies segment following the December 2002 acquisition of Anthrogenesis Corp.; an increase of approximately $12.0 million in commercial expenses related to the expansion of the sales and marketing organization and an increase in customer service staff; and an increase of approximately $10.0 million in general administrative and medical affairs expenses.
LITIGATION SETTLEMENT AND RELATED AGREEMENTS: In December 2002, we entered into a series of agreements with EntreMed, Inc. and Children's Medical Center Corporation, or CMCC, terminating ongoing litigation relating to patents for thalidomide analogs and directly granting to us an exclusive license issued by CMCC for the rights to those patents. Under the terms of an asset purchase agreement with EntreMed, we paid EntreMed $10.0 million for all thalidomide analog patents and associated clinical data and records, and the termination of any litigation surrounding those patents. Under the terms of a securities purchase agreement with EntreMed, we acquired from EntreMed 3,350,000 shares of Series A Convertible Preferred Stock and warrants to purchase an additional 7,000,000 common shares for an aggregate cash consideration of approximately $16.8 million. The Series A Convertible Preferred Stock is convertible, at our option into an aggregate of 16,750,000 shares of common stock at an initial conversion price of $1.00 per share provided, however, that the conversion price in effect from time to time shall be subject to certain adjustments. Dividends are payable prior and in preference to the declaration or payment of any dividend or distribution to the holders of common stock. We have the right to one vote for each share of Common Stock into which such share of Series A Convertible Preferred Stock could then be converted and with respect to such vote we have full voting rights and powers equal to the voting rights and powers of the holders of shares of Common Stock. We completed an assessment of the estimated realizable value of the investment. After assessing the level of our ownership interest in EntreMed, its history of operating losses and the fact that EntreMed is a clinical-stage biopharmaceutical company engaged primarily in research and development activities with proposed products and research programs in the early stage of clinical development, the entire amount of such Preferred Stock was written down. As restated, we ascribed a value of $11.6 million to the convertible preferred stock.
We signed an exclusive license agreement with CMCC that terminated any existing thalidomide analog agreements between CMCC and EntreMed and directly granted to Celgene an exclusive worldwide license for the analog patents. We paid CMCC $2.5 million in December 2002 and $0.5 million in January 2004 under the agreement. Another $2.0 million is payable between 2005 and 2006. The present value of these payments totaled $4.7 million and was expensed in 2002. Additionally, we entered into a five year sponsored research agreement with CMCC whereby we have committed $0.3 million per year in funding. Additional payments are possible under the agreement depending on the successful development and commercialization of thalidomide analogs.
Prior to the restatement, we recorded a charge to earnings for the cost of these agreements and related expenses of $32.2 million in 2002 including the write-down of the EntreMed Convertible Preferred Stock and certain legal expenses incurred in connection with the settlement.
The warrants have an exercise price of $1.50 per share, vest after six months from the date of grant and expire after seven years from the date of grant. The warrants also include a net settlement feature and as discussed in Note 2, it was subsequently determined that they should be accounted for as a derivative. We ascribed a value of $5.1 million to the warrants as of December 31, 2002, which represents their fair value at such date.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT: On December 31, 2002, we completed the acquisition of Anthrogenesis Corp., which now operates as Celgene Cellular Therapeutics, for an aggregate purchase price of $60.0 million. The acquisition was accounted for using the purchase method of accounting for business combinations, under which approximately $55.7 million was allocated to IPR&D and charged to expense at the acquisition date. For more information on the Anthrogenesis acquisition, refer to Notes 3 and 19 of the Notes to our Consolidated Financial Statements.
INTEREST AND OTHER INCOME: Interest and other income decreased approximately 21.8% to $30.0 million in 2004 from $38.4 million in 2003. The decrease was primarily due to changes in the fair value of the EntreMed warrants. In 2004, we recorded unrealized losses of $1.9 million related to these warrants whereas, in 2003 we recorded unrealized gains of $16.6 million. This reduction was partially offset by higher returns on our cash and marketable securities portfolio (which was largely due to higher average balances of cash and marketable securities as a result of the issuance of $400 million of convertible notes, on June 3, 2003, as well as cash generated through operations) and foreign exchange gains. Interest and other income increased approximately 66.4% to $38.4 million in 2003 from $23.1 million in 2002. The increase was primarily due to unrealized gains of $16.6 in the fair value of the EntreMed warrants partially offset by lower interest income as a result of lower interest rates in 2003.
EQUITY IN LOSSES OF ASSOCIATED COMPANIES: As restated (see further discussions contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and Footnote 2 of our consolidated financial statements), during 2003 under the equity method of accounting we recorded $4.4 million for our share of the EntreMed losses.
INTEREST EXPENSE: Interest expense in 2004 was approximately $9.6 million and includes twelve months of interest expense and amortization of debt issuance costs on the $400 million of convertible notes issued on June 3, 2003. Interest expense in 2003 was approximately $5.7 million and only includes seven months of interest expense and amortization of debt issuance costs on the $400 million of convertible notes issued on June 3, 2003. Interest expense in 2002 was immaterial.
INCOME TAX BENEFIT (PROVISION): In 2004, we recorded an income tax provision of approximately $10.4 million, which reflects an effective underlying tax rate of 16.5%. Our rate rose in 2004 from 2003 primarily due to federal tax expense and decreases in the valuation allowance available to offset income tax expense. In 2003, our income tax provision was approximately $0.7 million and included income tax expense of $1.1 million for federal and state purposes, offset by a tax benefit of $0.4 million from the sale of certain state net operating loss carryforwards. In 2002, we recorded a net income tax benefit of approximately $0.1 million, which reflected income tax expense of $0.6 million for state purposes offset by a tax benefit of $0.7 million from the sale of certain state net operating loss carryforwards.
INCOME (LOSS) FROM CONTINUING OPERATIONS: Income (loss) from continuing operations and per common share amounts for the years ended December 31, 2004, 2003 and 2002 were as follows:
--------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2004 2003 2002
--------------------------------------------------------------------------------------
As restated As restated
Income (loss) from continuing
Operations $ 52,756 $ 24,943 $ (91,492)
Per common share amounts:
Basic $ 0.32 $ 0.15 $ (0.60)
Diluted $ 0.31 $ 0.14 $ (0.60)
Weighted average number of shares of
common stock utilized to calculate per
common share amounts:
Basic 163,869 161,774 154,674
Diluted 172,855 170,796 154,674
======================================================================================
|
2004 COMPARED TO 2003: Income from continuing operations increased in 2004 from 2003 due to an increase in total revenue of approximately $106.0 million (attributable primarily to an increase in THALOMID(R) net sales) partly offset by higher operating expenses of approximately $60.7 million and a decrease in interest and other income, net of approximately $7.9 million (attributable to a $1.9 million decrease in fair value of EntreMed warrants versus a prior year increase of $16.6 million partly offset by an increase in interest income and foreign exchange gains and the inclusion in 2003 of equity losses of associated companies of $4.4 million).
2003 COMPARED TO 2002: In 2003, we recorded income from continuing operations for the first time since our inception in 1986. Income from continuing operations increased in 2003 from 2002 due to an increase in total revenues of approximately $135.8 million (attributable primarily to an increase in THALOMID(R) net sales and first-time ALKERAN(R) sales that resulted from executing the ALKERAN(R) supply and distribution agreement with GSK in March of 2003) and a $9.7 million increase in interest and other income, net primarily due to a $16.6 million increase in the fair value of EntreMed warrants. Partially offsetting these increases were higher operating expenses of approximately $23.8 million and the inclusion in 2003 of equity losses of associated companies of $4.4 million. Impacting the 2003 to 2002 operating expenses comparison were aggregate one-time costs of approximately $78.4 million incurred in the 2002 period ($55.7 million from the write-off of acquired in-process research and development related to the Anthrogenesis acquisition and $22.7 million associated with the litigation settlement and related agreements with EntreMed, Inc. and CMCC).
GAIN ON SALE OF CHIRAL ASSETS: In January 1998, we completed the sale of our chiral intermediate business to Cambrex Corporation. Pursuant to the minimum royalty provisions of the agreement, we received approximately $0.8 million and $1.0 million in 2003 and 2002, respectively. For more information on the disposition of the chiral intermediates business, refer to Note 3 of our Notes to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to approximately $155.9 million in 2004 compared to $18.7 million in 2003. The increase was primarily due to higher earnings, the receipt of $80.0 million in connection with the December 2004 THALOMID(R) development and commercialization collaboration with Pharmion and a decrease in net working capital levels. Net cash provided by operating activities in 2003 increased approximately $47.0 million from 2002. The increase in 2003 compared to 2002 was primarily due to higher earnings and the inclusion of $22.7 million of spending in the 2002 period related to the litigation settlement and related agreements with EntreMed, Inc. and CMCC, partially offset by an increase in net working capital levels.
Net cash used in investing activities was $92.6 million in 2004 compared to $443.6 million in 2003. Included in the 2004 activities were cash outflows of $109.9 million for the October 2004 acquisition of Penn T, $7.0 million for an investment made in Royalty Pharma Strategic Partners, LP, which is classified in other assets on the consolidated balance sheet, and $36.0 million for capital expenditures. Partially offsetting these outflows were cash inflows of approximately $60.3 million from net marketable securities sales. Included in the 2003 activities were cash outflows of $421.2 million for net marketable securities purchases, $12.0 million for the purchase of a Pharmion Corporation senior convertible note and $11.2 million for capital expenditures. In 2002, approximately $63.3 million of net cash was provided by investing activities, which was due to cash inflows of approximately $93.1 million from net marketable securities sales, offset by cash outflows of $11.1 million for capital expenditures, $10.3 million related to the December 2002 acquisition of Anthrogenesis and $9.5 million for the value ascribed to the EntreMed convertible preferred shares and warrants received in connection with the December 31, 2002 litigation settlement and related agreements with EntreMed.
The Company previously followed the common practice of classifying its investments in auction rate notes as cash and cash equivalents on the consolidated balance sheet. It was determined that these instruments are not cash equivalents and therefore, the Company has made a reclassification to its
Consolidated Balance Sheet as of December 31, 2003 in order to conform to the current year's presentation. The reclassification resulted in a decrease in cash and cash equivalents and a corresponding increase in marketable securities available for sale as of December 31, 2003 of approximately $207.1 million. The reclassification resulted in a net decrease of $207.1 million in net cash provided by investing activities in 2003, which was comprised of the following components; an increase in the proceeds from the sale of marketable securities of $229.2 million and an increase in the purchase of marketable securities of approximately $436.3 million. The Company did not hold such securities in 2002.
Net cash provided by financing activities was approximately $16.0 million, $399.7 million and $3.4 million in 2004, 2003 and 2002, respectively, and included cash inflows from the exercise of common stock options and warrants of approximately $16.3 million, $12.0 million and $4.0 million in 2004, 2003 and 2002, respectively. Included in 2003 were cash inflows of $387.9 million from net proceeds of the issuance of our convertible notes on June 3, 2003.
Currency rate changes negatively impacted our cash and cash equivalents balances by $4.4 million in 2004. At December 31, 2004, cash, cash equivalents and marketable securities were $748.5 million, an increase of $81.6 million from December 31, 2003 levels and reflects the inclusion of 1,939,600 shares of Pharmion Corporation common stock, of which 1,150,511 shares were obtained in connection with the March 2004, conversion of the Pharmion Convertible Note and 789,089 shares were obtained in connection with the September 2004, exercise of Pharmion warrants. At December 31, 2004, the Pharmion common stock investment classified in marketable securities had an estimated fair value of $81.9 million.
We expect increased research and product development costs, clinical trial costs, expenses associated with the regulatory approval process and commercialization of products and capital investments. However, existing cash, cash equivalents and marketable securities available for sale, combined with expected net product sales and revenues from various research, collaboration and royalties agreements are expected to 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, 2004:
------------------------------------------------------------------------------------------------------------
PAYMENT DUE BY PERIOD
---------------------
LESS THAN MORE THAN
(IN MILLIONS $) 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS TOTAL
------------------------------------------------------------------------------------------------------------
Convertible Note Obligations $ -- $ -- $400.0 $ -- $400.0
Operating leases 3.6 6.7 5.6 6.3 22.2
ALKERAN(R) supply and distribution agreement 20.0 5.0 -- -- 25.0
Employment agreements 2.6 0.7 -- -- 3.3
Other contract commitments 5.8 7.5 4.4 -- 17.7
---------------------------------------------------------
$ 32.0 $ 19.9 $410.0 $ 6.3 $468.2
============================================================================================================
|
CONVERTIBLE NOTE OBLIGATIONS: In June 2003, we issued an aggregate principal amount of $400 million of unsecured convertible notes to qualified institutional investors. The convertible notes have a five-year term and a coupon rate of 1.75% payable semi-annually commencing December 1, 2003. The convertible notes have a stock split adjusted conversion rate of $24.225 per share, which represented a 50% premium to our closing stock price of $16.15, after adjusting prices for the two-for-one stock split effected on October 22, 2004, on May 28, 2003. The debt issuance costs related to these convertible
notes, which totaled approximately $12.2 million, are classified under "Other Assets" on the Consolidated Balance Sheet and are being amortized over five years, assuming no conversion. Under the terms of the purchase agreement, the noteholders can convert the notes at any time into 16,511,840 shares of common stock at the conversion price. In addition, the noteholders have the right to require us to redeem the notes in cash at a price equal to 100% of the principal amount to be redeemed, plus accrued interest, prior to maturity in the event of a change of control and certain other transactions defined as a "fundamental change" within the agreement. We have registered the notes and common stock issuable upon conversion with the Securities and Exchange Commission, and we are required to use reasonable best efforts to keep the related registration statement effective for the defined period. Pursuant to the indenture governing the notes, we may not merge or transfer substantially all assets, as defined, unless certain conditions are met.
OPERATING (FACILITIES) LEASES: We lease an aggregate of 92,100-square feet of laboratory and office space in Warren, New Jersey, under various leases with unaffiliated parties, which have lease terms ending between June 2005 and July 2010 with renewal options ranging from either one or two additional five-year terms. Annual rent for these facilities is approximately $1.0 million. We also are required to reimburse the lessors for real estate taxes, insurance, utilities, maintenance and other operating costs. We also lease an 18,000-square foot laboratory and office facility in North Brunswick, New Jersey, under a lease with an unaffiliated party that has a term ending in March 2009 with two five-year renewal options. Annual rent for this facility is approximately $0.5 million.
In November 2004, we purchased land and several buildings in Summit, New Jersey, which will enable us to consolidate four New Jersey locations into one corporate headquarters and provide the room to accommodate our anticipated growth. As a result, we are currently exploring available to reduce or eliminate the financial impact of existing lease commitments on redundant facilities.
In connection with our acquisition of Anthrogenesis in December 2002, we assumed two separate leases in the same facility for office and laboratory space in Cedar Knolls, New Jersey and have subsequently entered into one additional lease for additional space in the same facility. The leases are for an aggregate 20,000-square feet with annual rent of approximately $0.2 million. We also are required to reimburse the lessors for real estate taxes, insurance, utilities, maintenance and other operating costs. The leases have terms ending between September 2007 and April 2009 with renewal options ranging from either one or two additional five-year terms. In November of 2002, Anthrogenesis entered into a lease for an additional 11,000 square feet of laboratory space in Baton Rouge, Louisiana. The lease has a five-year term with a three-year renewal option. Annual rent for this facility is approximately $0.1 million.
We lease a 78,202-square foot laboratory and office facility in San Diego, California from an unaffiliated party, which has a term ending in August 2012 with one five-year renewal option. Annual rent for this facility is approximately $1.9 million and is subject to specified annual rental increases. Under the lease, we also are required to reimburse the lessor for real estate taxes, insurance, utilities, maintenance and other operating costs.
For a schedule of payments related to operating leases, refer to Note 18 of the Notes to the Consolidated Financial Statements.
ALKERAN(R) PURCHASE COMMITMENTS: In March 2003, we entered into a three-year supply and distribution agreement with GSK to distribute, promote and sell ALKERAN(R) (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 infusion from GSK and distribute the products in the United States under the Celgene label. The agreement requires that we purchase certain
minimum quantities each year for an initial three-year term under a take-or-pay arrangement aggregating $56.6 million over such period and is automatically extended by successive one-year periods, unless at least one-year prior to the renewal date, either party advises the other party that it elects not to extend the agreement. At December 31, 2004, the remaining minimum purchase requirements under the agreement totaled $25.0 million.
EMPLOYMENT AGREEMENTS: We have employment agreements with certain officers and employees. Employment contracts provide for base compensation and an annual target bonus based upon achievement of our performance measures and annual increases in base compensation reflecting annual reviews and related salary adjustment. The outstanding commitment for base compensation related to employment contracts as of December 31, 2004 was approximately $2.6 million for 2005 and $0.7 million for 2006 (excluding any change in control provisions).
OTHER CONTRACT COMMITMENTS: We signed an exclusive license agreement with CMCC, terminating any existing thalidomide analog agreements between CMCC and EntreMed and directly granting to us an exclusive worldwide license by CMCC for the analog patents. Under the agreement, we are required to pay CMCC $2.0 million between 2005 and 2006, the present value of which was expensed in 2002. Additional payments are possible under the agreement depending on the successful development and commercialization of thalidomide analogs.
On October 21, 2004, the Company, through an indirect wholly-owned subsidiary, acquired all of the outstanding shares of Penn T Limited, or Penn T, a worldwide supplier of THALOMID(R), from a consortium of private investors. Penn T was subsequently renamed Celgene UK Manufacturing II, Limited, or CUK II. In connection with the acquisition, we and CUK II entered into a technical services agreement with Penn Pharmaceutical Services Limited, or PPSL, and Penn Pharmaceutical Holding Limited pursuant to which PPSL provides the services and facilities necessary for the manufacture of THALOMID(R) and other thalidomide formulations. The total cost over the five-year minimum agreement period is approximately $11.0 million.
In October 2003, we signed an agreement with Institute of Drug Technology Australia Limited, or IDT, for the manufacture of finished dosage form of THALOMID(R) capsules. The agreement requires minimum payments for THALOMID(R) capsules of $4.7 million for the three-year term commencing with the FDA's approval of IDT as an alternate supplier. The agreement provides us with additional capacity and reduces our dependency on one manufacturer for the production of THALOMID(R). As of December 31, 2004, the FDA has not approved such alternate supplier.
2005 FINANCIAL OUTLOOK
In our January 27, 2005 earnings release, we set forth our initial earnings estimate for the full year 2005. Although we believe that the January 27, 2005 estimate continues to reflect our current thinking, there can be no assurance that revenues or earnings will develop in the manner projected or if the analysis, on which the projection were based, were to be redone on the date hereof that there would be no change in the guidance.
REVENUES: Our initial 2005 financial guidance anticipates total revenue in the range of $525 million, with THALOMID(R) revenues targeted in the range of $400 million. Our 2005 revenue forecast for the RITALIN(R) family of drugs remains at approximately $60 million, which includes a payment for the approval of FOCALIN(R) XR. Our initial financial guidance does not include REVLIMID(R) product sales, nor does it include expenses associated with the potential commercial launch of REVLIMID(R). As regulatory timelines become more certain we will update this guidance.
R&D EXPENSES: Research and development expenses are expected to increase to the $190 million range in 2005. Important components of the increased spending include (1) expansion of both United States and European regulatory programs directed toward hematological and malignant blood disorders, (2) spending for the investigation of agents in solid tumor clinical trials, and (3) the potential advancement of compounds in our discovery programs, including PDE4/TNF-alpha inhibitors, kinase inhibitors, ligase inhibitors, benzopyrans and placental-derived stem cells into our pre-clinical and clinical development pipeline.
SG&A EXPENSES: Selling, general and administrative expenses are expected to increase to the $140 million range in 2005, which includes increased spending for the commercial support of THALOMID(R) and ALKERAN(R) and expand our commercial and manufacturing capabilities in the United Kingdom and Switzerland. This guidance excludes the potential costs of employee's stock options.
NEW ACCOUNTING PRINCIPLES
In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 123R, "Share-Based Payment", or SFAS 123R, that addresses the accounting for share-based payment transactions in which employee services are received in exchange for either equity instruments of the company, liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R addresses all forms of share-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued to Employees", that was provided in Statement 123 as originally issued. Instead, under SFAS No. 123R companies are required to record compensation expense for all share-based payment award transactions measured at fair value. This statement is effective for quarters ending after June 15, 2005. We are currently evaluating the impact of adopting this statement.
Emerging Issues Task Force, or EITF, Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," or EITF 03-01, was issued in February 2004. EITF 03-01 stipulates disclosure requirements for investments with unrealized losses that have not been recognized as other-than-temporary impairments. The provisions of EITF 03-01 are effective for fiscal years ending after December 15, 2003. We have complied with the disclosure provisions of EITF 03-01. In September 2004, the FASB staff issued two proposed FASB Staff Positions, or FSP: Proposed FSP EITF Issue 03-1-a, which provides guidance for the application of paragraph 16 of EITF Issue 03-1 to debt securities that are impaired because of interest rate and/or sector spread increases, and Proposed FSP EITF Issue 03-1-b, which delays the effective date of Issue 03-1 for debt securities that are impaired because of interests rate and/or sector spread increases. We are currently monitoring these developments to assess the potential impact on our financial position and results of operations.
EITF Issue No. 03-6, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." In April 2004, the EITF issued Statement No. 03-6, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." EITF 03-6 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than common stock that contractually entitle the holder to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying the definition of a participating security and how to apply the two-class method. EITF 03-6 was effective for fiscal periods beginning after March 31, 2004 and was required to be retroactively applied. We evaluated the terms of our convertible notes and
debentures and determined that none of these instruments qualified as participating securities under the provisions of EITF 03-6. As a result, the adoption of EITF 03-6 had no impact on the Company.
EITF Issue No. 02-14, "Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock," or EITF 02-14, is effective in the fourth quarter of 2004. EITF 02-14 states that an investor should only apply the equity method of accounting when it has investments in either common stock or in-substance common stock. EITF 02-14 also provides characteristics to be evaluated in determining whether an investment in other than common stock is in-substance substantially similar to an investments in that entity's common stock and thus, accounted for under the equity method. For investments that are not common stock or in-substance common stock, but were accounted for under the equity method, EITF 02-14 requires discontinued use of the equity method of accounting prospectively for reporting periods beginning after September 15, 2004. Previously recognized equity method earnings and losses should not be reserved.
Based on the above guidance, the Company concluded that is EntreMed preferred stock investments, which had previously been written-down to zero under the equity method of accounting, was not in-substance common stock as defined in EITF 02-14 and therefore, discontinued use of the equity method of accounting beginning on October 1, 2004. Prospectively, the Company will account for such investment under the cost method since the preferred stock is not publicly traded. This change does not impact the carrying value of the EntreMed preferred stock investment and accordingly, did not have an impact on the Conpany's consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
A critical accounting policy is one which is both important to the portrayal of the Company's 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 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 are for both early- and late-stage compounds and are focused on specific disease areas. For the early-stage compounds, the agreements are relatively short-term agreements that are renewable depending on the success of the compounds as they move through preclinical development. The agreements call for nonrefundable upfront payments, milestone payments on achieving significant milestone events, and in some cases ongoing research funding. The agreements also contemplate royalty payments on sales if and when the compound receives FDA marketing approval.
In accordance with Staff Accounting Bulletin No. 104, or SAB 104, "REVENUE RECOGNITION IN FINANCIAL STATEMENTS," upfront payments are recorded as deferred revenue and recognized over the estimated service period. If the estimated service period is subsequently modified, the period over which the upfront fee is recognized is modified accordingly on a prospective basis. Continuation of certain contracts is dependent upon our achieving specific contractual milestones; however, none of the payments received to date are refundable regardless of the outcome of the project. Revenue under research contracts is recorded as earned under the contracts, as services are provided.
SAB No. 104 updates the guidance in SAB No. 101 and requires companies to identify separate units of accounting based on the consensus reached on 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. EITF 00-21 is effective for revenue arrangements entered into in quarters beginning after June 15, 2003. 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. Prior to the adoption of EITF 00-21, revenues from the achievement of research and development milestones, which represent the achievement of a significant step in the research and development process, were recognized when and if the milestones were achieved.
GROSS TO NET SALES ACCRUALS FOR SALES RETURNS, MEDICAID REBATES AND CHARGEBACKS:
We record an allowance for sales returns based on the actual returns history for
consumed lots and the trend experience for lots where product is still being
returned. We record Medicaid rebate accruals based on historical payment data
and estimates of Medicaid beneficiary utilization. We record chargeback accruals
based on actual sales to customers who are covered under federally qualified
programs.
DEFERRED TAX ASSET VALUATION ALLOWANCE: 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.
ACCOUNTING FOR LONG-TERM INCENTIVE PLANS: The recorded liability for long-term incentive plans was $3.9 million as of December 31, 2004. Plan payouts may be in the range of 0% to 200% of the participant's salary for the 2005 Plan and 0% to 150% of the participant's salary for the 2006 Plan and the maximum potential payouts are $6.1 million and $4.9 million for the 2005 and 2006 Plans, respectively. 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.
BUSINESS COMBINATIONS: The Penn T and Anthrogenesis acquisitions completed in October 2004 and December 2002, respectively, have been accounted for under the provisions of SFAS No. 141, "Business Combinations," which requires the use of the purchase method. Under SFAS 141, the purchase price is allocated to the assets received and liabilities assumed based upon their respective fair values. The initial purchase price allocations may be adjusted within one year of the purchase date for changes in the estimated fair value of assets acquired and liabilities assumed. The resulting goodwill, which represents the excess of costs of an acquired entity over the fair value of identifiable assets acquired and liabilities assumed, and intangible assets are accounted for under SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill and intangible assets determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually. Intangible assets with estimable useful lives are amortized to their estimated residual values over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets."
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, 2004, our market risk sensitive instruments consisted of marketable securities available for sale, warrants to purchase up to 7,000,000 shares of EntreMed common stock and unsecured convertible notes issued by the Company.
MARKETABLE SECURITIES AVAILABLE FOR SALE: At December 31, 2004, our marketable securities available for sale consisted of U.S. government agency mortgage obligations, U.S. government agency bonds, corporate debt securities and 1,939,600 shares of Pharmion common stock. Marketable securities available for sale are carried at fair value, are held for an indefinite period of time and are intended to be used to meet 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 all debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses, is included in interest and other income.
As of December 31, 2004, the principal amounts, fair values and related weighted average interest rates of the Company's investments in debt securities classified as marketable securities available-for-sale were as follows:
--------------------------------------------------------------------------------------------------------
DURATION
----------------------------------------------------------------
FIXED RATE SECURITIES VARIABLE
0 TO 1 1 TO 3 3 TO 5 5 TO 7 RATE
(IN THOUSANDS $) YEAR YEARS YEARS YEARS SECURITIES TOTAL
--------------------------------------------------------------------------------------------------------
Principal amount $287,443 $108,996 $ 30,264 $ 83,425 $ 20,513 $530,641
Fair value $288,542 $112,424 $ 31,895 $ 80,862 $ 17,717 $531,440
Average interest rate 2.98% 4.33% 4.92% 5.81% 5.88% 3.93%
|
PHARMION COMMON STOCK: In March 2004, we converted our $12.0 million Pharmion Senior Convertible Note investment, which had accrued interest of approximately $0.7 million, into 1,150,511 shares of Pharmion common stock. Additionally, in September 2004, we exercised a total of 789,089 warrants to purchase shares of Pharmion common stock, which we had received in connection with previous transactions with Pharmion Corporation, (i.e., the November 2001 license agreement and the April 2003 securities purchase agreement). As a result of these transactions, at December 31, 2004, we held a total of 1,939,600 shares of Pharmion Corporation common stock, which had an estimated fair value of approximately $81.9 million (based on the closing price reported by the National Association of Securities Dealers Automated Quotations, or NASDAQ system, and, which exceeded the cost by approximately $61.7 million. The amount by which the fair value exceeded the cost (i.e., the unrealized gain) was included in Accumulated Other Comprehensive Income in the Stockholders' Equity section of the Consolidated Balance Sheet. The fair value of the Pharmion common stock investment is subject to market price volatility and any increase or decrease in Pharmion's common stock quoted market price will have a similar percentage increase or decrease in the fair value of our investment.
ENTREMED WARRANTS: In connection with the December 31, 2002, litigation settlement and related agreements with EntreMed Corporation and CMCC, we received warrants to purchase 7,000,000 shares of EntreMed common stock. The warrants have an exercise price of $1.50 per share and expire seven years from the date of grant. Based on EntreMed's closing stock price on December 31, 2004, of $3.24, the intrinsic value of the warrants is approximately $12.2 million and the fair value using a Black-Scholes options pricing model is estimated to be approximately $19.8 million. Since the warrants give us the right, but not an obligation, to purchase the shares of EntreMed common stock, the warrants can never result in a cumulative negative charge to earnings.
CONVERTIBLE DEBT: In June 2003, we issued an aggregate principal amount of $400.0 million of unsecured convertible notes. The convertible notes have a five-year term and a coupon rate of 1.75% payable semi-annually. The convertible notes can be converted at any time into 16,511,840 shares of common stock at a stock split adjusted conversion price of $24.225 per share (for more information see Note 10 of the Notes to the Consolidated Financial Statements). At December 31, 2004, the fair value of the convertible notes exceeded the carrying value of $400.0 million by approximately $117.0 million, which we believe reflects the increase in the market price of the Company's common stock to $26.52 per share as of December 31, 2004. Assuming other factors are held constant, an increase in interest rates generally results in a decrease in the fair value of fixed-rate convertible debt, but does not impact the carrying value, and an increase in the Company's stock price generally results in an increase in the fair value of convertible debt, but does not impact the carrying value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 15 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) 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 the Company's 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)). Based upon 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 the Company in the reports that it files or submits 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.
Management's report on the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), and the related report of our independent public accounting firm, are included in our 2004 Financial Report under the headings MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING and REPORT OF INDEPENDENT ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING, respectively, and are incorporated by reference.
(b) Changes in Internal Control Over Financial Reporting. In connection with our quarterly review of accounting procedures and issues during the fourth quarter of 2004 the Company reviewed their accounting for warrants received during the EnterMed transaction of December 31, 2002. Based on this review the Company determined that the warrants, which had previously been considered as part of our equity investment under APB 18, should have been accounted for as derivatives under SFAS 133. (See Footnote 2). Accordingly, the Company has restated the 2003 and 2002 financial statements to reflect this accounting. Prior to the the fourth quarter of 2004, our technical review of the accounting for warrants, specifically the consideration of the application of SFAS 133 was viewed as a material weakness in internal controls. The weakness was remediated before year-end by expanding our knowledge of SFAS 133 and engaging outside experts to assist in reviewing technical matters. Our expanded knowledge in this area in conjunction with our quarterly review of accounting procedures and issues led to our identification of this matter. There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that occurred during our latest fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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, 2004 in connection with our 2005 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
See Item 10.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
See Item 10.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1),(a)(2) See Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule immediately following Signatures and Power of Attorney.
(b) Exhibits
The following exhibits are filed with this report or incorporated by reference:
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- --------------------------------------------------------------------
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).
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, dated July 24, 1987).
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).
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)).
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).
10.4 1995 Non-Employee Directors' Incentive Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement, dated May
24, 1999).
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 Employment Agreement dated as of May 1, 2003 between the Company and
John W. Jackson (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2003).
10.7 Employment Agreement dated as of May 1, 2003 between the Company and
Sol J. Barer (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2003).
10.8 Employment Agreement dated as of May 1, 2003 between the Company and
Robert J. Hugin (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2003).
10.9 Celgene Corporation Replacement Stock Option Plan (incorporated by
reference to Exhibit 99.1 to the Company's Registration Statement on
Form S-3 dated May 18, 1998 (No. 333-52963)).
10.10 Form of Stock Option Agreement to be issued in connection with the
Celgene Corporation Replacement Stock Option Plan (incorporated by
reference to Exhibit 99.2 to the Company's Registration Statement on
Form S-3 dated May 18, 1998 (No. 333-52963)).
10.11 1998 Stock Incentive Plan, Amended and Restated as of April 23, 2003
(incorporated by reference to Exhibit A to the Company's Proxy
Statement, filed April 30, 2003).
|
10.12 Stock Purchase Agreement dated June 23, 1998 between the Company and
Biovail Laboratories Incorporated (incorporated by reference to
Exhibit 10 to the Company's Current Report on Form 8-K filed on July
17, 1998).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 Amendment No. 1 to the 1992 Long-Term Incentive Plan, 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).
10.20 Amendment No. 1 to the 1995 Non-Employee Directors' Incentive Plan,
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).
10.21 Amendment No. 2 to the 1995 Non-Employee Directors' Incentive Plan,
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).
10.22* Celgene Corporation 2005 Deferred Compensation Plan, effective as of
January 1, 2005.
10.23 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).
10.24 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).
10.25 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).
10.26 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).
10.27 Supply Agreement between the Company and Seigfried (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).
10.28 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).
10.29 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).
10.30 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).
10.31 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 dated August 14, 2003
(No. 333-107977)).
10.32 Form of 1 3/4% Convertible Note Due 2008 (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement of Form S-3
dated August 14, 2003).
10.33* 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.
10.34 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 31,
2003).
|
10.35* Letter Agreement among the Company, Pharmion Corporation and
Pharmion GmbH dated December 3, 2004.
10.36* Letter Agreement among the Company, Pharmion Corporation and
Pharmion GmbH dated December 3, 2004.
10.37* Letter Agreement among the Company, Pharmion Corporation and
Pharmion GmbH dated December 3, 2004.
10.38* 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.
10.39* Sublease between Gateway, Inc. ("Sublandlord') and Celgene
Corporation (Subtenant), entered into as of December 10, 2001, with
respect to the San Diego property.
10.40 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).
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 dated March
18, 2005.
31.2* Certification by the Company's Chief Financial Officer dated March
18, 2005.
32.1* Certification by the Company's Chief Executive Officer pursuant to
18 U.S.C. Section 1350 dated March 18, 2005.
32.2* Certification by the Company's Chief Financial Officer pursuant to
18 U.S.C. Section 1350 dated March 18, 2005.
|
* Filed herewith.
(c) See Financial Statements immediately following Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule.
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person or entity whose signature appears below constitutes and appoints John W. Jackson, 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/ John W. Jackson
---------------------------
John W. Jackson
Chairman of the Board and
Chief Executive Officer
Date: March 16, 2005
|
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/ John W. Jackson Chairman of the Board and Chief March 18, 2005 ------------------------------ Executive Officer John W. Jackson /s/ Sol J. Barer Director, Chief Operating Officer March 18, 2005 ------------------------------ Sol J. Barer /s/ Robert J. Hugin Director, Chief Financial Officer March 18, 2005 ------------------------------ Robert J. Hugin /s/ Jack L. Bowman Director March 18, 2005 ------------------------------ Jack L. Bowman |
SIGNATURE TITLE DATE --------- ----- ---- /s/ Frank T. Cary Director March 18, 2005 ------------------------------ Frank T. Cary /s/ Michael D. Casey Director March 18, 2005 ------------------------------ Michael D. Casey /s/ Arthur Hull Hayes, Jr. Director March 18, 2005 ------------------------------ Arthur Hull Hayes, Jr. /s/ Gilla Kaplan Director March 18, 2005 ------------------------------ Gilla Kaplan /s/ Richard C. E. Morgan Director March 18, 2005 ------------------------------ Richard C. E. Morgan /s/ Walter L. Robb Director March 18, 2005 ------------------------------ Walter L. Robb /s/ James R. Swenson Controller (Chief Accounting Officer) March 18, 2005 ------------------------------ James R. Swenson |
The foregoing constitutes a majority of the directors.
CELGENE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements
Management's Report on Internal Control over Financial Reporting F-2
Reports, Independent Registered Public Accounting Firm F-3
Consolidated Balance Sheets as of December 31, 2004 and 2003 F-6
Consolidated Statements of Operations - Years Ended December 31, 2004, 2003, and 2002 F-7
Consolidated Statements of Cash Flows - Years Ended December 31, 2004, 2003, and 2002 F-8
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 2004, 2003, and 2002 F-10
Notes to Consolidated Financial Statements F-11
Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-44
|
MANAGEMENT'S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Celgene Corporation, or the Company, 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 the Company's principal executive and principal financial officers and effected by the Company's 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.
The Company's internal control over financial reporting is supported by written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company's transactions and dispositions of the Company's 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 receipts and expenditures of the Company are being made only in accordance with authorizations of the Company's management and directors; 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 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 the Company's annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, 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 the Company's internal control over financial reporting and testing of the operational effectiveness of those controls.
Based on this evaluation, management has concluded that the Company's internal controls over financial reporting were effective as of December 31, 2004.
Management has not evaluated the effectiveness of internal control over financial reporting at Penn T Limited, or Penn T, which was acquired on October 21, 2004 and, as such, does not extend its conclusion regarding the effectiveness of internal control over financial reporting to the controls of that entity. Penn T represents approximately $9.6 million of consolidated total assets and $2.3 million of consolidated net revenue in the consolidated financial statements as of and for the year ended December 31, 2004. See Note 3 of the notes to consolidated financial statements for additional information on the Penn T acquisition. Accordingly, management's assessment as of December 31, 2004 does not include the internal control over financial reporting of Penn T.
KPMG LLP, the independent registered public accounting firm that audited the Company's consolidated financial statements included in this report, has issued their report on management 's assessment of internal control over financial reporting, a copy of which appears on the page F-4 of this annual report.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Celgene Corporation:
We have audited the consolidated financial statements of Celgene Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule as listed on the accompanying index. 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, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, 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.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Celgene Corporation and subsidiaries' internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, and our report dated March 18, 2005 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting.
As further discussed in Note 2 of the consolidated financial statements, the consolidated financial statements for 2003 and 2002 have been restated.
/s/ KPMG LLP Short Hills, New Jersey March 18, 2005 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Celgene Corporation:
We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Celgene Corporation and subsidiaries maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Celgene Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's 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, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and 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, management's assessment that Celgene Corporation and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2004, is fairly stated, in all material respects, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Also,
in our opinion, Celgene Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, or
COSO.
Celgene Corporation acquired Penn T Limited during 2004, and management excluded from its assessment of the effectiveness of Celgene Corporation's internal control over financial reporting as of December 31, 2004, Penn T Limited's internal control over financial reporting associated with total assets of $9.6 million and total revenue of $2.3 million included in the consolidated financial statements of
Celgene Corporation and subsidiaries as of and for the year ended December 31, 2004. Our audit of internal control over financial reporting of Celgene Corporation also excluded an evaluation of the internal control over financial reporting of Penn T Limited.
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, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2004, and the related financial statement schedule, and our report dated March 18, 2005 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP Short Hills, New Jersey March 18, 2005 |
CELGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------------------------
December 31, 2004 2003
--------------------------------------------------------------------------------------------------
(As Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 135,227 $ 60,328
Marketable securities available for sale 613,310 606,639
Accounts receivable, net of allowance of $2,208 and $1,530
at December 31, 2004 and December 31, 2003, respectively 46,074 35,495
Inventory 24,404 9,696
Deferred income taxes 4,082 --
Other current assets 26,783 17,941
--------------------------------------------------------------------------------------------------
Total current assets 849,880 730,099
--------------------------------------------------------------------------------------------------
Plant and equipment, net 47,319 22,546
Intangible assets, net 108,955 2,695
Goodwill 41,258 3,490
Deferred income taxes 14,613 --
Other assets 45,268 54,196
--------------------------------------------------------------------------------------------------
Total assets $ 1,107,293 $ 813,026
==================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,650 $ 15,340
Accrued expenses 68,534 55,276
Income taxes payable 41,188 281
Current portion of deferred revenue 6,926 589
Current portion of capital leases and note obligation 8 30
Deferred income taxes 5,447 --
Other current liabilities 662 278
--------------------------------------------------------------------------------------------------
Total current liabilities 141,415 71,794
--------------------------------------------------------------------------------------------------
Long term convertible notes 400,000 400,000
Deferred revenue, net of current portion 73,992 1,122
Capitalized leases and note obligation, net of current portion 4 16
Other non-current liabilities 14,438 8,350
--------------------------------------------------------------------------------------------------
Total liabilities 629,849 481,282
--------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share, 5,000,000 shares
authorized; none outstanding at December 31, 2004 and 2003 -- --
Common stock, $.01 par value per share, 275,000,000 shares
authorized; issued 165,079,198 and 81,411,055 shares
at December 31, 2004 and December 31, 2003, respectively 1,651 814
Common stock in treasury, at cost; 10,564 shares at
December 31, 2004 and none at December 31, 2003 (306) --
Additional paid-in capital 641,907 607,484
Accumulated deficit (234,410) (287,166)
Accumulated other comprehensive income 68,602 10,612
--------------------------------------------------------------------------------------------------
Total stockholders' equity 477,444 331,744
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,107,293 $ 813,026
==================================================================================================
|
See accompanying Notes to Consolidated Financial Statements
CELGENE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------------------------
Years ended December 31, 2004 2003 2002
------------------------------------------------------------------------------------------------
(As Restated) (As Restated)
Revenue:
Net product sales $ 330,571 $ 244,453 $ 122,921
Collaborative agreements and other revenue 20,012 15,174 8,115
Royalty revenue 26,919 11,848 4,710
------------------------------------------------------------------------------------------------
Total revenue 377,502 271,475 135,746
------------------------------------------------------------------------------------------------
Expenses:
Cost of goods sold 59,726 52,950 20,867
Research and development 160,852 122,700 84,924
Selling, general and administrative 114,196 98,474 66,172
Litigation settlement and related agreements -- -- 22,704
Acquired in-process research and development -- -- 55,700
------------------------------------------------------------------------------------------------
Total expenses 334,774 274,124 250,367
------------------------------------------------------------------------------------------------
Operating income (loss) 42,728 (2,649) (114,621)
Other income and expense:
Interest and other income 29,994 38,369 23,058
Equity in losses of associated company -- 4,392 --
Interest expense 9,551 5,667 27
------------------------------------------------------------------------------------------------
Income (loss) before income taxes 63,171 25,661 (91,590)
------------------------------------------------------------------------------------------------
Income tax provision (benefit) 10,415 718 (98)
------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 52,756 24,943 (91,492)
------------------------------------------------------------------------------------------------
Discontinued operations:
Gain on sale of chiral assets -- 750 1,000
------------------------------------------------------------------------------------------------
Net income (loss) $ 52,756 $ 25,693 $ (90,492)
================================================================================================
Income (loss) from continuing operations per
common share:
Basic $ 0.32 $ 0.15 $ (0.60)
Diluted $ 0.31 $ 0.14 $ (0.60)
Discontinued operations per common share:
Basic $ -- $ 0.01 $ 0.01
Diluted $ -- $ 0.01 $ 0.01
Net income (loss) per common share:
Basic $ 0.32 $ 0.16 $ (0.59)
Diluted $ 0.31 $ 0.15 $ (0.59)
Weighted average number of shares of common
stock utilized to calculate per share amounts:
Basic 163,869 161,774 154,674
========= ========= =========
Diluted 172,855 170,796 154,674
========= ========= =========
|
See accompanying Notes to Consolidated Financial Statements
CELGENE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2004 2003 2002
------------------------------------------------------------------------------------------------------------------
(As Restated) (As Restated)
Cash flows from operating activities:
Income (loss) from continuing operations $ 52,756 $ 24,943 $ (91,492)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating activities:
Depreciation and amortization of long-term assets 9,690 8,027 5,182
Provision for accounts receivable allowances 867 448 295
Realized gain on marketable securities available for sale (3,050) (7,355) (5,946)
Unrealized loss (gain) on value of EntreMed warrants 1,922 (16,574) --
Equity losses in associated companies -- 4,392 --
Non-cash write-off of acquired in-process research and
development -- -- 55,700
Non-cash stock-based compensation expense 449 704 467
Amortization of premium/discount on marketable
securities available for sale, net 2,085 1,238 367
Loss on sale of equipment -- 84 --
Amortization of debt issuance cost 2,443 1,422 --
Amortization of discount on note obligation 108 137 --
Shares issued for employee benefit plans 4,267 2,775 966
Change in current assets and liabilities, excluding the effect
of acquisition:
Increase in accounts receivable (5,603) (18,273) (4,166)
Increase in inventory (11,192) (4,891) (1,198)
Increase in other operating assets (19,869) (9,253) (2,917)
Increase in accounts payable, accrued expenses
and taxes payable 41,858 30,403 19,298
Increase (decrease) in deferred revenue 79,208 498 (4,866)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 155,939 18,725 (28,310)
------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (36,015) (11,227) (11,077)
Business acquisition, net of cash received (109,882) -- (10,299)
Proceeds from the sale of equipment -- 138 --
Proceeds from sales and maturities of marketable securities
available for sale 539,200 415,595 133,265
Purchases of marketable securities available for sale (478,939) (836,827) (40,116)
Investment in convertible notes -- (12,000) --
Purchase of investment securities (7,000) -- (9,508)
Proceeds from the sale of chiral intermediate assets -- 750 1,000
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (92,636) (443,571) 63,265
------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of common stock options
and warrants 16,342 11,970 3,968
Proceeds from convertible notes -- 400,000 --
Debt issuance cost -- (12,212) --
Proceeds from notes receivable from stockholders -- 42 --
Purchase of treasury stock (306) -- (2)
Repayment of capital lease and note obligations (34) (101) (587)
------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,002 399,699 3,379
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Effect of currency rate changes on cash and cash equivalents (4,406) -- --
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 74,899 (25,147) 38,334
Cash and cash equivalents at beginning of period 60,328 85,475 47,141
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 135,227 $ 60,328 $ 85,475
==================================================================================================================
|
See accompanying Notes to Consolidated Financial Statements
CELGENE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS - (CONTINUED)
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------------------------
Years Ended December 31, 2004 2003 2002
----------------------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and
financing activity:
Change in net unrealized gain (loss) on marketable
securities available for sale 53,312 (3,584) (377)
---------------------------------
Issuance of common stock upon the conversion of
convertible notes and accrued interest thereon, net -- -- 11,714
---------------------------------
Equipment acquisition on capital leases 110 --
---------------------------------
Deferred compensation relating to stock options -- -- (328)
---------------------------------
Issuance of common stock, options and warrants in
connection with acquisition of Anthrogenesis -- -- 47,441
---------------------------------
Supplemental disclosure of cash flow information:
Interest paid 7,000 3,584 27
---------------------------------
Cash paid for income taxes (received for tax benefit) 5,493 (653) --
---------------------------------
|
See accompanying Notes to Consolidated Financial Statements
CELGENE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Accu-
mulated
Notes Other
Receivable Compre-
Additional Accu- Deferred from hensive
Common Treasury Paid-in mulated Compen- Stock- Income
Years Ended December 31, 2004, 2003 and 2002 Stock Stock Capital Deficit sation holders (Loss) Total
-----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2001 $ 756 $ (3) $ 527,023 $ (222,367) $ (1,593) $ (42) $ 6,651 $ 310,425
-----------------------------------------------------------------------------------------------------------------------------------
Net loss (As Restated) (90,492) (90,492)
Other comprehensive income:
Net change in unrealized gain (loss) on
available for sale securities, net of tax 6,323 6,323
Less: reclassification adjustment for gain
included in net loss (5,946) (5,946)
---------
Comprehensive loss (As Restated) $ (90,115)
Exercise of stock options and warrants 12 3,956 3,968
Issuance of common stock for employee
benefit plans -- 5 961 966
Purchase of treasury stock (2) (2)
Conversion of long-term convertible notes 19 11,695 11,714
Shares issued pursuant to Anthrogenesis
acquisition 15 47,426 47,441
Reduction of deferred compensation
for terminations (328) 328 --
Amortization of deferred compensation 1,265 1,265
Expense related to non-employee stock options
and restricted stock granted to employees 467 467
Income tax benefit upon exercise of
stock options 77 77
-----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2002 (As Restated) $ 802 $ -- $ 591,277 $ (312,859) $ -- $ (42) $ 7,028 $ 286,206
-----------------------------------------------------------------------------------------------------------------------------------
Net income (As Restated) 25,693 25,693
Other comprehensive income:
Net change in unrealized gain (loss) on
available for sale securities, net of tax 10,939 10,939
Less: reclassification adjustment for gain
included in net income (7,355) (7,355)
---------
Comprehensive income (As Restated) $ 29,277
Exercise of stock options and warrants 11 11,959 11,970
Issuance of common stock for employee
benefit plans 1 2,774 2,775
Expense related to non-employee stock options
and restricted stock granted to employees 704 704
Income tax benefit upon exercise of
stock options 770 770
Collection of notes receivable from
stockholders 42 42
-----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2003 (As Restated) $ 814 $ -- $ 607,484 $ (287,166) $ -- $ -- $ 10,612 $ 331,744
-----------------------------------------------------------------------------------------------------------------------------------
Net income 52,756 52,756
Other comprehensive income:
Net change in unrealized gain (loss) on
available for sale securities, net of tax 56,362 56,362
Less: reclassification adjustment for gain
included in net income (3,050) (3,050)
Currency translation adjustments 4,678 4,678
---------
Comprehensive income $ 110,746
Purchase of treasury stock (306) (306)
Issuance of common stock related to the 2:1
stock split 823 (823) -
Exercise of stock options and warrants 13 16,329 16,342
Issuance of common stock for employee
benefit plans 1 4,266 4,267
Expense related to non-employee stock options
and restricted stock granted to employees 449 449
Income tax benefit upon exercise of
stock options 14,202 14,202
-----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2004 $ 1,651 $ (306) $ 641,907 $ (234,410) $ -- $ -- $ 68,602 $ 477,444
-----------------------------------------------------------------------------------------------------------------------------------
|
See accompanying Notes to Consolidated Financial Statements
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(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 an integrated biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory diseases through regulation of cellular, genomic and proteomic targets. The Company's commercial stage programs include pharmaceutical sales of THALOMID(R) and ALKERAN(R), a licensing agreement with Novartis for FOCALIN(R) and the entire RITALIN(R) family of drugs, as well as, biotherapeutic products through Celgene Cellular Therapeutics, or CCT, a wholly owned subsidiary. THALOMID(R) (thalidomide), the Company's lead product, was approved in July 1998 for the treatment of erythema nodosum leprosum, or ENL, by the U.S. Food and Drug Administration, or FDA. Net THALOMID(R) product sales accounted for approximately 82%, 82% and 88% of total revenues in 2004, 2003 and 2002, respectively. In October 2004, the Company acquired all of the outstanding shares of Penn T Limited, the UK based manufacturer of THALOMID(R). This acquisition expanded the Company's corporate capabilities and enabled the Company to control manufacturing for THALOMID(R) worldwide. In March 2003, the Company entered into a three-year supply and distribution agreement with GlaxoSmithKline, or GSK, to distribute, promote and sell ALKERAN(R) (melphalan) in all dosage forms in the United States under Celgene's label. In November 2001, the Company received FDA approval for FOCALIN(R), its refined version of RITALIN(R), for the treatment of attention deficit disorder/attention deficit hyperactivity disorder. FOCALIN(R) is marketed by Novartis Pharma AG. Under the agreement with Novartis, the Company receives royalty payments on the entire RITALIN(R) family line of products. In December 2002, the Company acquired Anthrogenesis Corp., or Celgene Cellular Therapeutics, a privately held New Jersey based biotherapeutics company and cord blood banking business, which is pioneering the recovery of stem cells from human placental tissues following the completion of full-term, successful pregnancies. The portfolio of products in the Company's preclinical and clinical-stage pipeline includes Immunomodulatory Drugs, or IMiDs(TM), and PDE4 Inhibitors. The Company hopes to use its extensive knowledge on THALOMID(R) as a blueprint to advance these next generation compounds. Through a "bottom up" approach (target screening, bioinformatics, assay development, libraries and cellular disease models) at its San Diego, California subsidiary, Signal Pharmaceuticals LLP, the Company has also produced such compounds as Benzopyrans and Selective Estrogen Receptor Modulators, or SERMs, Kinases Inhibitors, Tubulin Inhibitors, and Ligase Modulators.
During 2004, the Company initiated a two-for-one common stock split increasing the number of authorized shares to 275,000,000 with a par value of $.01 per share, of which 165,068,634 shares were outstanding at December 31, 2004.
The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. All inter-company transactions and balances have been eliminated. The equity method of accounting is used for the Company's investment in EntreMed convertible voting preferred shares. Certain reclassifications have been made to prior years' financial statements in order 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 such as uncertainty of product development, uncertainties regarding regulatory approval, no assurance of market acceptance of products, risk of product liability, uncertain scope of patent and proprietary rights, intense competition, and rapid technological change.
CASH EQUIVALENTS: At December 31, 2004 and 2003, cash equivalents consisted principally of highly liquid funds invested in commercial paper, money market funds, and U.S. government securities such as
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
treasury bills and notes. These instruments have maturities of three months or less when purchased and are stated at cost, which approximates market value because of the short maturity of these investments.
FINANCIAL INSTRUMENTS: Certain financial instruments reflected in the Consolidated Balance Sheets, (e.g., cash and cash equivalents, accounts receivable, certain other assets, accounts payable and certain other liabilities) are recorded at cost, which approximates fair value. The fair values of financial instruments other than marketable securities, which includes the EntreMed warrants that are classified in other non-current assets, are determined through a combination of management estimates and information obtained from third parties using the latest market data. The fair value of marketable securities available for sale is based on quoted market prices.
MARKETABLE SECURITIES: The Company's marketable securities are all classified as securities available for sale in current assets and are carried at fair value. Such securities are held for an indefinite period of time and are intended to be used to meet the ongoing liquidity needs of the Company. Unrealized gains and losses (which are deemed to be temporary), if any, are reported in a separate component of stockholders' equity. The cost of investments in debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses, is included in interest income. The cost of securities is based on the specific identification method.
A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment would be charged to earnings and a new cost basis for the security is established.
In September 2004, the Emerging Issues Task Force, or EITF, delayed the effective date for the recognition and measurement guidance previously discussed under EITF Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The proposed statement will clarify the meaning of other-than-temporary impairment and its application to investments in debt and equity securities, in particular investments within the scope of FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and investments accounted for under the cost method. The Company is currently evaluating the effect of this proposed statement on its consolidated financial position and results of operations.
Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective-interest method. Dividend and interest income are recognized when earned.
The Company previously followed the common practice of classifying its investments in auction rate notes as cash and cash equivalents on the Consolidated Balance Sheet. It was determined that these instruments are not cash equivalents and therefore, the Company has made a reclassification to its Consolidated Balance Sheet as of December 31, 2003 in order to conform to the current year's presentation. The reclassification resulted in a decrease in cash and cash equivalents and a corresponding increase in marketable securities available for sale as of December 31, 2003 of approximately $207.1 million. The reclassification resulted in a net decrease of $207.1 million in net cash provided by investing activities in 2003, which was comprised of the following components; an increase in the proceeds from the sale of marketable securities of $229.2 million and an increase in the purchase of marketable securities of approximately $436.3 million. The Company did not hold such securities in 2002.
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. government agency securities and mortgage obligations and marketable debt securities of financial institutions and corporations with strong credit ratings. In March 2004, the Company converted a
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
$12.0 million senior convertible note issued by Pharmion Corporation, plus accrued interest of $0.7 million into 1,150,511 shares of Pharmion common stock. Additionally, in September 2004, warrants to purchase 789,089 shares of Pharmion common stock were exercised, resulting in a total investment of 1,939,600 shares of Pharmion Corporation common stock. 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 has the ability to sell these investments before maturity and has therefore classified the investments as available for sale. The Company has not experienced any significant losses on its investments.
As is typical in the pharmaceutical industry, the Company sells its products primarily through wholesale distributors and therefore, wholesale distributors account for a large portion the Company's trade receivables and net product revenues. 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 creditworthiness of its customers as well as general economic conditions. An adverse change in those factors could affect the Company's estimate of its bad debts.
INVENTORY: Inventories are carried at the lower of cost or market using the first-in, first-out, or FIFO, method.
PLANT AND EQUIPMENT: Plant and equipment are stated at cost. Depreciation of plant and equipment is provided using the straight-line method. The estimated useful lives of fixed assets are as follows:
Buildings 40 years
Leasehold improvements 10 years
Laboratory equipment and machinery 5 years
Furniture and fixtures 5 years
Computer Equipment 3 years
Maintenance and repairs are charged to operations as incurred, while renewals
and improvements are capitalized.
|
GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of cost of an acquired entity over the fair value of identifiable assets acquired and liabilities assumed in a business combination. Under Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets", or SFAS 142, goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimable useful lives be amortized to their estimated residual values over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", or SFAS 144.
Intangible assets are categorized as either a) supply agreements, b) supplier relationships, c) customer lists and d) technology. Amortization periods related to these categories are 13 years, 5 years, 15 years and 10 years, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS: In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, software costs 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
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet.
BUSINESS COMBINATIONS: SFAS No. 141, "Business Combinations", or SFAS 141, requires that all business combinations consummated after June 30, 2001 be accounted for using the purchase method of accounting. Under SFAS 141, the pooling-of-interests method of accounting for business combinations is no longer permitted. The Company's acquisitions of Penn T Limited on October 21, 2004 and Anthrogenesis Corp. on December 31, 2002, were accounted for using the purchase method. The acquisition of Signal Pharmaceuticals, Inc., which was completed on August 31, 2000, was accounted for using the pooling-of-interests method.
FOREIGN CURRENCY TRANSLATION: Operations in non-U. S. subsidiaries are generally recorded in local currencies which are also the functional currencies for financial reporting purposes. The results of operations for non-U. S. subsidiaries are translated from local 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 with translation adjustments recorded in accumulated translation adjustments and recognized as a component of other comprehensive income. Transaction gains and losses are recorded as incurred in other income (expense), net in the Consolidated Statements of Income.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT ("IPR&D"): The value assigned to acquired in-process research and development is determined by identifying those acquired specific in-process research and development projects that would be continued and for which (a) technological feasibility has not been established at the acquisition date, (b) there is no alternative future use, and (c) the fair value is estimable with reasonable reliability. Amounts assigned to IPR&D are charged to expense at the acquisition date.
RESEARCH AND DEVELOPMENT COSTS: All 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. Research and development costs consist primarily of salaries and benefits, contractor fees, clinical drug supplies for preclinical and clinical development programs, consumable research supplies and allocated facility and administrative costs.
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 the deferred tax asset will not be realized. Research and development tax credits will be recognized as a reduction of the provision for income taxes when realized.
REVENUE RECOGNITION: Revenue from the sale of products is recognized upon product shipment. Provisions for discounts for early payments, rebates and sales returns under terms customary in the industry are provided for in the same period the related sales are recorded. Provisions recorded in 2004, 2003 and 2002 totaled approximately $54.5 million, $38.8 million and $16.1 million, respectively. 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 upfront nonrefundable fees associated with license and development agreements where the Company has continuing involvement in the agreement, are recorded as deferred
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
revenue and recognized over the estimated service period. If the estimated service period is subsequently modified, the period over which the up-front fee is recognized is modified accordingly on a prospective basis.
SAB No. 104 updates the guidance in SAB No. 101 and requires companies to identify separate units of accounting based on the consensus reached on 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. EITF 00-21 is effective for revenue arrangements entered into in quarters beginning after June 15, 2003. 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. Prior to the adoption of EITF 00-21, revenues from the achievement of research and development milestones, which represent the achievement of a significant step in the research and development process, were recognized when and if the milestones were achieved.
Continuation of certain contracts and grants are dependent upon the Company achieving specific contractual milestones; however, none of the payments received to date are refundable regardless of the outcome of the project. Grant revenue is recognized in accordance with the terms of the grant and as services are performed, and generally equals the related research and development expense.
STOCK-BASED COMPENSATION: The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, in accounting for its fixed stock option plans. As such, compensation expense for grants to employees or members of the Board of Directors would be recorded on the date of grant only if the current market price of the Company's stock exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation", or SFAS 123, as amended, establishes accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As permitted under SFAS 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123, as amended.
If the exercise price of employee or director stock options is less than the fair value of the underlying stock on the grant date, the Company amortizes such differences to expense over the vesting period of the options. Options or stock awards issued to non-employees and consultants are recorded at fair value as determined in accordance with SFAS 123 and EITF No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," and expensed over the related vesting period.
In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 123R, "Share-Based Payment", or SFAS 123R, that addresses the accounting for share-based payment transactions in which employee services are received in exchange for either equity instruments of the company, liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R addresses all forms of share-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued to Employees", that was provided in Statement 123 as originally issued. Instead, under SFAS No. 123R companies are required to record compensation expense for all share based payment award transactions
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
measured at fair value. This statement is effective for quarters ending after June 15, 2005. The Company is currently evaluating the impact of adopting this statement
The following table illustrates the effect on net income (loss) and net income
(loss) per share as if the fair value-based method under SFAS 123 had been
applied.
------------------------------------------------------------------------------------------------------------------
2004 2003 2002
------------------------------------------------------------------------------------------------------------------
As restated As restated
Net income (loss) $ 52,756 $ 25,693 $ (90,492)
Add stock-based employee compensation expense included in
reported net income (loss) 250 250 1,515
Deduct total stock-based employee compensation expense
determined under the fair value-based method for all
awards (26,027) (21,226) (19,616)
-----------------------------------------------
Pro forma $ 26,979 $ 4,717 $ (108,593)
===============================================
------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Basic $ 0.32 $ 0.16 $ (0.59)
Basic, pro forma 0.16 0.03 (0.70)
Diluted 0.31 0.15 (0.59)
Diluted, pro forma 0.16 0.03 (0.70)
------------------------------------------------------------------------------------------------------------------
|
The pro forma effects on net income (loss) and net income (loss) per common share for 2004, 2003 and 2002 may not be representative of the pro forma effects in future years.
The weighted-average fair value per share was $10.44, $7.27 and $4.07 for stock options granted in 2004, 2003 and 2002, respectively. The company estimated the fair values using the Black-Scholes option-pricing model based on the following assumptions:
--------------------------------------------------------------------------------
2004 2003 2002
--------------------------------------------------------------------------------
Risk-free interest rate 3.05% 2.39% 2.02%
Expected stock price volatility 47.4% 52.5% 58%
Expected term until exercise (years) 3.70 3.50 2.89
Expected dividend yield 0% 0% 0%
EARNINGS PER SHARE: Basic earnings (loss) per common share is computed by
|
dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period increased to include all additional common shares that would have been outstanding assuming potentially dilutive common shares had been issued and any proceeds thereof used to repurchase common stock at the average market price during the period. The proceeds used to repurchase common stock are assumed to be 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 income taxes that would be credited to or deducted from capital upon exercise.
COMPREHENSIVE INCOME (LOSS): Comprehensive income (loss), which represents the change in equity from non-owner sources, consists of net income (losses), changes in currency translation adjustments and the change in net unrealized gains (losses) on marketable securities classified as available for sale. Comprehensive income (loss) is presented in the Consolidated Statements of Stockholders' Equity.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
CAPITALIZED SOFTWARE COSTS: Capitalized software costs are capitalized in accordance with Statement of Position No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED AND OBTAINED FOR INTERNAL USE, are included in other assets and are amortized over their estimated useful life of three years from the date the systems are ready for their intended use.
ASSET RETIREMENT OBLIGATIONS: On January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations", or SFAS 143. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of an asset. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. The fair value of the liability is added to the carrying amount of the associated asset and is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is ultimately settled for an amount other than the carrying amount of the liability, a gain or loss is recognized on settlement. In connection with its adoption of SFAS 143, the Company recorded an asset retirement liability of approximately $0.2 million relating to the Company's obligation to remove certain leasehold improvements at its Warren, New Jersey facility at the end of the lease-term. The Company did not recognize a cumulative effect adjustment for this accounting change because the amount was immaterial. At December 31, 2004 and 2003, the asset retirement liability was approximately $0.2 million. Accretion and depreciation expense for both the years ended December 31, 2004 and 2003 was immaterial.
NEW ACCOUNTING PRINCIPLES: Emerging Issues Task Force, or EITF, Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," or EITF 03-01, was issued in February 2004. EITF 03-01 stipulates disclosure requirements for investments with unrealized losses that have not been recognized as other-than-temporary impairments. The provisions of EITF 03-01 are effective for fiscal years ending after December 15, 2003. We have complied with the disclosure provisions of EITF 03-01. In September 2004, the FASB staff issued two proposed FASB Staff Positions, or FSP: Proposed FSP EITF Issue 03-1-a, which provides guidance for the application of paragraph 16 of EITF Issue 03-1 to debt securities that are impaired because of interest rate and/or sector spread increases, and Proposed FSP EITF Issue 03-1-b, which delays the effective date of Issue 03-1 for debt securities that are impaired because of interests rate and/or sector spread increases. We are currently monitoring these developments to assess the potential impact on our financial position and results of operations.
EITF Issue No. 03-6, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." In April 2004, the EITF issued Statement No. 03-6, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." EITF 03-6 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than common stock that contractually entitle the holder to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying the definition of a participating security and how to apply the two-class method. EITF 03-6 was effective for fiscal periods beginning after March 31, 2004 and was required to be retroactively applied. We evaluated the terms of our convertible notes and debentures and determined that none of these instruments qualified as participating securities under the provisions of EITF 03-6. As a result, the adoption of EITF 03-6 had no impact on the Company.
EITF Issue No. 02-14, "Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock," or EITF 02-14, is effective in the fourth quarter of 2004. EITF 02-14 states that an investor should only apply the equity method of accounting when it has investments in either common stock or in-substance common stock. EITF 02-14 also provides characteristics to be evaluated in determining whether an investment in other than common stock is in-substance substantially similar to an investment in that entity's common stock and thus, accounted for under the equity method. For investments that are not common stock or in-substance common stock, but were accounted for under the equity method, EITF 02-14 requires discontinued use of the equity method of accounting prospectively for reporting periods beginning after September 15, 2004. Previously recognized equity method earnings and losses should not be reversed.
Based on the above guidance, the Company concluded that its EntreMed preferred stock investment, which had previously been written-down to zero under the equity method of accounting, was not in-substance common stock as defined in EITF 02-14 and therefore, discontinued use of the equity method of accounting beginning on October 1, 2004. Prospectively, the Company will account for such investment under the cost method since the preferred stock is not publicly traded. This change does not impact the carrying value of the EntreMed preferred stock investment and accordingly, did not have an impact on the Company's consolidated financial statements.
(2) RESTATEMENT OF FINANCIAL STATEMENTS
Following a review in December 2004 of the Company's accounting treatment for the convertible preferred shares and warrants the Company received in connection with the December 31, 2002 litigation settlement and related agreements with EntreMed, Inc. and the Children's Medical Center Corporation, or CMCC, it was determined that an
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
adjustment to the Company's consolidated financial statements was required for the years ended December 31, 2003 and 2002. The Company paid approximately $26.8 million in cash and acquired all related EntreMed thalidomide analog patents, terminated the litigation and received preferred shares convertible into 16,750,000 shares of EntreMed common stock and warrants to purchase 7,000,000 shares of EntreMed common stock.
Based on what the Company believed was the appropriate accounting treatment under generally accepted accounting principles, it wrote off the entire $26.8 million at December 31, 2002 which related to the convertible preferred shares, the warrants and the litigation settlement, and did not recognize any gains or losses on the warrants during 2003 and 2004. This accounting treatment was based on multiple reasons including: (1) EntreMed's financial condition and its continuing losses; (2) the fact that the Company included the warrants along with the convertible preferred shares investment in applying the equity method of accounting, under which it wrote off the entire investment in December 2002; and (3) the Company's inability to place a reliable fair value on the warrants given the significant number of shares underlying the warrants and, in its opinion, the inability to convert the underlying shares into cash (even if the warrants were to be net share settled) without significantly affecting EntreMed's stock price.
Upon further review of the warrant terms, as well as the accounting treatment prescribed under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", or SFAS 133, and related Derivative Implementation Group, or DIG, interpretations, the Company has concluded that the warrants should be accounted for as a derivative instrument and carried on the balance sheet at fair value, with changes in fair value recorded through earnings.
In addition the Company reviewed the impairment of the investment in the EntreMed preferred shares. The Company has concluded that the investment should not have been written down as of the date of the transaction. Accordingly the Company restored the investment of $4.4 million as of December 31, 2002 and reduced the net loss by a like amount. Under the equity method of accounting, the Company recorded its share of the EntreMed losses in 2003 until the investment was written down to zero in the third quarter of 2003.
The Company has now restated its financial statements. The cumulative effect of the restatement through December 31, 2003 is an increase in other assets of $21.7 million and a decrease in accumulated deficit, of $21.7 million. Equity losses in associated companies of $4.4 million were recorded for the year ended December 31, 2003. Interest and other income increased by $16.6 million for the year ended December 31, 2003 and litigation settlement and related agreements expense decreased by $9.5 million for the year ended December 31, 2002. Previously reported diluted earnings per share increased by $0.07 and $0.06 for the years ended December 31, 2003 and 2002, respectively. The restatement did not have any impact on previously reported total revenues, reported net cash flows or 2003 operating loss.
The following is a summary of the impact of the Restatement on (i) the Company's Consolidated Balance Sheet at December 31, 2003 and (ii) its Consolidated Statement of Operations for the years ended December 31, 2003 and 2002. The Company has not presented a summary of the restatement on the Consolidated Statement of Cash Flows for any of the above-referenced years because there is no net impact for any such year.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
------------------------------------------------------------------------------------------------------
PREVIOUSLY
IN THOUSANDS, EXCEPT PER SHARE DATA REPORTED ADJUSTMENTS AS RESTATED
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2003:
Consolidated Statement of Operations:
Interest and other income $ 21,795 $ 16,574 $ 38,369
Equity losses in associated companies -- 4,392 4,392
Income before income taxes 13,479 12,182 25,661
Income from continuing operations 12,761 12,182 24,943
Net income 13,511 12,182 25,693
Per share:
Income from continuing operations - Basic 0.08 0.07 0.15
Income from continuing operations - Diluted 0.07 0.07 0.14
Net income - Basic 0.08 0.08 0.16
Net income - Diluted 0.08 0.07 0.15
Consolidated Balance Sheet:
Other assets $ 32,506 $ 21,690 $ 54,196
Total assets 791,336 21,690 813,026
Accumulated deficit (308,856) 21,690 (287,166)
Total stockholders' equity 310,054 21,690 331,744
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002:
Consolidated Statement of Operations:
Litigation settlement and related agreements $ 32,212 $ (9,508) $ 22,704
Total expenses 259,875 (9,508) 250,367
Operating loss 124,129 (9,508) 114,621
Loss before income taxes (101,098) 9,508 (91,590)
Loss from continuing operations (101,000) 9,508 (91,492)
Net loss (100,000) 9,508 (90,492)
Per share:
Loss from continuing operations - Basic (0.65) 0.05 (0.60)
Loss from continuing operations - Diluted (0.65) 0.05 (0.60)
Net loss - Basic (0.65) 0.06 (0.59)
Net loss - Diluted (0.65) 0.06 (0.59)
------------------------------------------------------------------------------------------------------
|
Refer to Note 20 (unaudited) for the impact of the restatement on the 2004 and 2003 quarterly information. In addition, certain prior year amounts in Notes 1, 3, 4, 5, 9, 17, 19 and 20 have been restated to reflect the restatement adjustments described above.
(3) ACQUISITIONS AND DISPOSITIONS
PENN T LIMITED: On October 21, 2004, the Company, through an indirect wholly-owned subsidiary, acquired all of the outstanding shares of Penn T Limited, or Penn T, a worldwide supplier of THALOMID(R), from a consortium of private investors for a US dollar equivalency of approximately $117.4 million in cash, net of cash acquired and including working capital adjustments and total estimated transaction costs. The cash consideration was determined by the parties in arms-length negotiations. As of December 31, 2004 approximately $109.9 million of the total consideration had been paid utilizing existing cash and cash
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
equivalents. The remaining $7.5 million, which relates to the working capital adjustment payable to the former Penn T investors and additional transaction costs, is expected to be paid in early 2005. Penn T was subsequently renamed Celgene UK Manufacturing II, Limited, or CUK II. The results of CUK II after October 21, 2004 are included in the consolidated financial statements.
Prior to the acquisition, Celgene and Penn T were parties to a manufacturing agreement pursuant to which Penn T manufactured THALOMID(R) for Celgene. Through a manufacturing agreement entered into in connection with the acquisition, the Company is able to control manufacturing for THALOMID(R) worldwide and increases its participation in the potential growth of THALOMID(R) opportunities in key international markets. This acquisition was accounted for using the purchase method of accounting for business combinations. The purchase price allocation
resulted in the following amounts being allocated to the assets received and
liabilities assumed at the acquisition date based upon their respective fair
values.
(THOUSANDS) October 21, 2004
-----------------------------------------------------------------------
Current assets $ 16,855
Intangible assets 99,841
Goodwill 35,812
-----------------------------------------------------------------------
Assets Acquired 152,508
-----------------------------------------------------------------------
Current liabilities 1,983
Deferred taxes 33,144
-----------------------------------------------------------------------
Liabilities assumed 35,127
-----------------------------------------------------------------------
Net assets acquired $117,381
=======================================================================
The initial purchase price allocations may be adjusted within one year of the
|
purchase date for changes in the estimated fair value of assets acquired and liabilities assumed. The intangible assets consist of supply agreements that are being amortized over their useful lives, which are primarily 13 years. The resulting goodwill and intangible assets have been assigned to the Company's Human Pharmaceuticals operating segment. The intangible assets consists primarily of a product supply agreement that Penn T has with a third party.
The following unaudited pro forma information presents a summary of consolidated results of operations for the years ended December 31, 2004 and 2003 as if the acquisition of Penn T had occurred on January 1, 2004 and January 1, 2003, respectively. The unaudited pro forma results of operations is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated at the date indicated, nor is it necessarily indicative of future operating results of the combined companies and should not be construed as representative of these amounts for any future dates or periods.
----------------------------------------------------------------------- Pro forma (UNAUDITED) 2004 2003 ----------------------------------------------------------------------- Total revenues $ 394,097 $ 283,162 Net income 56,661 25,673 Net income per diluted share $ 0.33 $ 0.15 ----------------------------------------------------------------------- |
The unaudited pro forma information for both years excludes adjustments relating to the inventory step-up to fair value of $3.2 million and a receivable of $7.4 million attributable to the pre-acquisition period for inventory already shipped for which the Company will now receive an additional payment. The unaudited pro forma information for both years also includes adjustments to reflect the amortization of intangible assets resulting from the acquisition.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
ANTHROGENESIS ACQUISITION: On December 31, 2002, the Company completed its acquisition of Anthrogenesis Corp. for an aggregate purchase price of approximately $60.0 million. Anthrogenesis is a biotherapeutics company developing processes for the recovery of stem cells from human placental tissue following the completion of a successful full-term pregnancy that now operates as Celgene Cellular Therapeutics, or CCT. In the transaction, the Company issued 1,455,381 shares of common stock on a pre October 2004 stock split basis valued at $31.2 million and 1,247,203 stock options, also on a pre stock split basis and warrants valued at $16.7 million in exchange for all the outstanding shares, options and warrants of Anthrogenesis. The share conversion equated to an exchange ratio of 0.4545 of a share of Celgene common stock for each share of Anthrogenesis common stock outstanding. The Anthrogenesis stock options and warrants were converted at the same exchange ratio. Also included in the purchase price was an outstanding convertible loan of $8.5 million due to the Company from Anthrogenesis, bearing interest at prime plus 2%, and $3.6 million of acquisition related costs, which consisted of transaction fees for financial advisors, attorneys, accountants and other related charges
The acquisition of Anthrogenesis was structured as a tax-free reorganization under Section 368(a) of the Internal Revenue Code and was accounted for using the purchase method of accounting for business combinations. The Company's Consolidated Financial Statements as of December 31, 2002 include the net assets and liabilities of Anthrogenesis. In-process research and development activities totaling approximately $55.7, were charged to operations at the acquisition date.
The following unaudited pro forma information presents a summary of consolidated results of operations for the year ended December 31, 2002 as if the acquisition of Anthrogenesis had occurred on January 1, 2002. The unaudited pro forma net loss and net loss per share amounts include a charge for in-process research and development of approximately $55.7 million, which was expensed at the acquisition date and also includes an adjustment to reflect amortization of intangibles recorded in conjunction with the acquisition. The unaudited pro forma results of operations is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated at the date indicated, nor is it necessarily indicative of future operating results of the combined companies and should not be construed as representative of these amounts for any future dates or periods. Anthrogenesis' results of operations included in the following pro forma financial information are derived from their unaudited financial statements for the year ended December 31, 2002.
----------------------------------------------------------------
Pro forma (UNAUDITED) 2002
----------------------------------------------------------------
Total revenues $ 138,000
Net loss (108,505)
Net loss per share $ (0.70)
DISPOSITION OF CHIRAL INTERMEDIATES BUSINESS: In January 1998, the Company
|
completed the sale of its chiral intermediate business to Cambrex Corporation. The Company received $7.5 million upon the closing of the transaction and is entitled to future royalties, with a present value not exceeding $7.5 million and certain minimum royalty payments due in 2000 through 2003. Included in the transaction were the rights to Celgene's enzymatic technology for the production of chirally pure intermediates for the pharmaceutical industry, including the pipeline of third party products and the equipment and personnel associated with the business. Pursuant to the minimum royalty provision of the agreement, the Company received approximately $0.8 million and $1.0 million during 2003 and 2002, respectively.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(4) EARNINGS PER SHARE (EPS)
-------------------------------------------------------------------------------------------------------------
2004 2003 2002
-------------------------------------------------------------------------------------------------------------
As restated As restated
INCOME (NUMERATOR):
Income (loss) from continuing operations $ 52,756 $ 24,943 $ (91,492)
Discontinued Operations - gain on sale of chiral assets -- 750 1,000
-------------------------------------
Net income (loss) $ 52,756 $ 25,693 $ (90,492)
=====================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (DENOMINATOR):
Basic: 163,869 161,774 154,674
Effect of dilutive securities:
Options 8,531 8,740 --
Warrants 218 186 --
Restricted shares and other long-term incentives 237 96 --
-------------------------------------
Diluted: 172,855 170,796 154,674
=====================================
EARNINGS PER SHARE:
Income (loss) from continuing operations
Basic $ 0.32 $ 0.15 $ (0.60)
Diluted $ 0.31 $ 0.14 $ (0.60)
Discontinued Operations - gain on sale of chiral assets
Basic $ -- $ 0.01 $ 0.01
Diluted $ -- $ 0.01 $ 0.01
Net income (loss)
Basic $ 0.32 $ 0.16 $ (0.59)
Diluted $ 0.31 $ 0.15 $ (0.59)
-------------------------------------------------------------------------------------------------------------
|
The assumed conversion or exercise of all potentially dilutive common shares is not included in the diluted loss per share computation for 2002 since the Company recognized a net loss for that period and including potentially dilutive common shares in the diluted earnings per share computation when there is a net loss will result in an anti-dilutive per share amount. The potential common shares related to the convertible notes issued June 3, 2003 (see Note 10) were anti-dilutive and were excluded from the diluted earnings per share computation for the years 2004 and 2003. The total number of potential common shares excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 20,843,378, 21,128,720 and 22,092,542 in 2004, 2003 and 2002, respectively.
(5) LITIGATION SETTLEMENT AND RELATED AGREEMENTS
On December 31, 2002, the Company entered into a series of agreements with EntreMed, Inc. and Children's Medical Center Corporation, or CMCC, terminating ongoing litigation relating to patents for thalidomide analogs and directly granting to the Company, an exclusive license issued by CMCC for the rights to those patents. Under the terms of an asset purchase agreement with EntreMed, the Company paid EntreMed $10.0 million for all thalidomide analog patents and associated clinical data and records, and the termination of any litigation surrounding those patents. Under the terms of a securities purchase agreement with EntreMed, the Company acquired from EntreMed 3,350,000 shares of Series A Convertible Preferred Stock and warrants to purchase an additional 7,000,000 common shares for an aggregate cash consideration of approximately $16.8 million. The Series A
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
Convertible Preferred Stock is convertible, at the option of the Company, into an aggregate of 16,750,000 shares of common stock at an initial conversion price of $1.00 per share provided, however, that the conversion price in effect from time to time shall be subject to certain adjustments. Dividends are payable prior and in preference to the declaration or payment of any dividend or distribution to the holders of common stock. The Company shall have the right to one vote for each share of Common Stock into which such share of Series A Convertible Preferred Stock could then be converted and with respect to such vote the Company shall have full voting rights and powers equal to the voting rights and powers of the holders of shares of Common Stock. The Company completed an assessment of the estimated realizable value of the investment. After assessing the level of the Company's ownership interest in EntreMed, its history of operating losses and the fact that EntreMed is a clinical-stage biopharmaceutical company engaged primarily in research and development activities with proposed products and research programs in the early stage of clinical development, the entire amount of such Preferred Stock was written down. As restated, the Company ascribed a value of $11.6 million to the convertible preferred stock.
The Company signed an exclusive license agreement with CMCC that terminated any existing thalidomide analog agreements between CMCC and EntreMed and directly granted to Celgene an exclusive worldwide license for the analog patents. The Company paid CMCC $2.5 million in December 2002 and $0.5 million in January 2004 under the agreement. Another $2.0 million is payable between 2005 and 2006. The present value of these payments totaled $4.7 million and was expensed in 2002. Additionally, the Company entered into a five year sponsored research agreement with CMCC whereby the Company has committed $0.3 million per year in funding. Additional payments are possible under the agreement depending on the successful development and commercialization of thalidomide analogs.
Prior to the restatement, Celgene recorded a charge to earnings for the cost of these agreements and related expenses of $32.2 million in 2002 including the write-down of the EntreMed Convertible Preferred Stock and certain legal expenses incurred in connection with the settlement.
The warrants have an exercise price of $1.50 per share, vest after six months from the date of grant and expire after seven years from the date of grant. The warrants also include a net settlement feature and as discussed in Note 2, it was subsequently determined that they should be accounted for as a derivative. The Company has ascribed a value of $5.1 million to the warrants as of December 31, 2002, which represents their fair value at such date.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(6) MARKETABLE SECURITIES AVAILABLE FOR SALE
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, 2004 and 2003, was as follows:
----------------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 2004 COST GAIN LOSS VALUE
----------------------------------------------------------------------------------------------------------
Government agencies mortgage obligations $ 166,959 $ 1,107 $ (904) $ 167,162
Government agency bonds and notes 798 -- (7) 791
Corporate debt securities 147,864 2,723 (650) 149,937
Auction rate notes 213,550 -- -- 213,550
Marketable equity securities 20,212 61,658 -- 81,870
-----------------------------------------------------------
$ 549,383 $ 65,488 $ (1,561) $ 613,310
===========================================================
|
----------------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 2003 COST GAIN LOSS VALUE
----------------------------------------------------------------------------------------------------------
Government agencies mortgage obligations $ 188,319 $ 1,053 $ (186) $ 189,186
Government agency bonds and notes 650 1 (5) 646
Auction rate notes 207,125 -- -- 207,125
Corporate debt securities 199,933 9,977 (228) 209,682
-----------------------------------------------------------
$ 596,027 $ 11,031 $ (419) $ 606,639
===========================================================
|
The fair value of available-for-sale securities with unrealized losses at December 31, 2004 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, 2004 VALUE LOSS VALUE LOSS VALUE LOSS
----------------------------------------------------------------------------------------------------------------------
Government agencies mortgage
obligations $ 55,279 $ (648) $ 16,635 $ (256) $ 71,914 $ (904)
Government agency bonds
and notes 641 (7) 641 (7)
Corporate debt securities 26,595 (650) 26,595 (650)
-----------------------------------------------------------------------------------
$ 82,515 $ (1,305) $ 16,635 $ (256) $ 99,150 $ (1,561)
===================================================================================
|
Unrealized losses were due to changes in interest rates and are deemed to be temporary.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
Maturities of debt securities classified as available-for-sale were as follows
at December 31, 2004:
---------------------------------------------------------------------------
AMORTIZED FAIR
COST VALUE
---------------------------------------------------------------------------
Due within one year $ 288,320 $ 288,542
Due after one year through three years 111,063 112,424
Due after three years through five years 31,778 31,895
Due after five years through seven years 80,717 80,862
Due after seven years 17,293 17,717
---------------------------
$ 529,171 $ 531,440
===========================
|
(7) INVENTORY
Inventory at December 31, 2004 and 2003 consisted of the following:
---------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------
Raw materials $ 4,081 $ 3,009
Work in process 4,356 2,537
Finished goods 15,967 4,150
---------------------------
$ 24,404 $ 9,696
===========================
(8) PLANT AND EQUIPMENT
|
Plant and equipment at December 31, 2004 and 2003 consisted of the following:
----------------------------------------------------------------------------
2004 2003
----------------------------------------------------------------------------
Land $ 9,884 $ --
Buildings 15,474 --
Laboratory equipment and machinery 22,955 18,977
Leasehold improvements 13,659 11,688
Computer equipment 5,570 4,986
Furniture and fixtures 3,865 3,124
Leased equipment 696 696
Construction in progress 63 1,017
------------------------
72,166 40,488
Less: accumulated depreciation and
Amortization 24,847 17,942
------------------------
$47,319 $22,546
========================
|
In November 2004, the Company purchased 45 acres of land and several buildings located in Summit, New Jersey at a cost of approximately $25.0 million. The purchase of this site enables the Company to consolidate four New Jersey locations into one corporate headquarters and provide the room to accommodate the Company's expected growth.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(9) OTHER FINANCIAL INFORMATION
Accrued expenses at December 31, 2004 and 2003 consisted of the following:
---------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------
Professional and consulting fees $ 2,026 $ 2,451
Accrued compensation 15,783 18,383
Accrued interest, royalties and license fees 12,840 9,470
Accrued sales returns 9,600 8,368
Accrued rebates and chargebacks 9,255 5,089
Accrued acquisition related costs 8,010 --
Accrued clinical trial costs 7,440 9,182
Accrued insurance and taxes 1,882 1,227
Other 1,698 1,106
----------------------
$68,534 $55,276
======================
|
Other assets at December 31, 2004 and 2003 consisted of the following:
---------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------
As restated
EntreMed warrants $19,768 $21,690
Pharmion convertible note -- 12,000
Debt issuance costs 8,347 10,790
Long-term investments 7,000 --
Capitalized software costs, net 6,420 4,490
Long-term deposits 1,495 2,293
Patent rights and licensed technology, net 669 765
Other 1,569 2,168
----------------------
$45,268 $54,196
======================
|
Included in interest and other income are unrealized gains (losses) relating to the EntreMed warrants of $(1.9) million and $16.6 million for the years ended December 31, 2004 and 2003, respectively. Equity in losses of associated companies was $4.4 million in 2003, which represented the company's share of EntreMed losses. As of December 31, 2003, the EntreMed convertible preferred stock investment had a value of zero.
(10) CONVERTIBLE DEBT
In June 2003, the Company issued an aggregate principal amount of $400.0 million of unsecured convertible notes to qualified institutional investors. The notes have a five-year term and a coupon rate of 1.75% payable semi-annually commencing December 1, 2003. The convertible notes have a conversion rate of $24.225 per share, which represented a 50% premium to the closing price of the Company's common stock of $16.15, after adjusting prices for the two-for-one stock split effected on October 22, 2004, on May 28, 2003. The debt issuance costs related to these convertible notes, which totaled approximately $12.2 million, are classified under "Other Assets" on the Consolidated Balance Sheet and are being amortized over five years, assuming no conversion. Under the terms of the purchase agreement, the noteholders can convert the notes at any time into 16,511,840 shares of common stock at the conversion price. In addition, the noteholders have the right to require the Company to redeem the notes in cash at a price equal to 100% of the principal amount to be redeemed, plus accrued interest, prior to maturity in the event of a change of control and certain other transactions defined as a "fundamental change", within the agreement. The Company has registered the notes and common stock issuable upon conversion of the notes with the Securities and Exchange Commission, and is required to use reasonable best efforts to keep the related registration statement effective for the defined period. Pursuant to the
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
indenture governing the notes, the Company may not merge or transfer substantially all of its assets, as defined, unless certain conditions are met.
At December 31, 2004, the fair value of the Company's convertible notes exceeded the carrying value of $400.0 million by approximately $117.0 million.
During 2002, the remaining notes outstanding related to the Company's January 1999 and July 1999 convertible debt issuances, which had an aggregate carrying value of $11.7 million were converted into 3,729,098 shares of the Company's common stock.
(11) GOODWILL AND INTANGIBLE ASSETS
GOODWILL: At December 31, 2004, goodwill was approximately $41.3 million of which approximately $35.8 million related to the October 21, 2004 acquisition of Penn T Limited, $2.5 million resulted from foreign currency translation of the Penn T related goodwill amounts and $3.0 million related to the December 31, 2002 acquisition of Anthrogenesis Corp. At December 31, 2003, goodwill was approximately $3.5 million all of which related to the December 31, 2002 acquisition of Anthrogenesis Corp.
INTANGIBLE ASSETS: The Company's intangible assets by major asset class at December 31, 2004 and 2003 were as follows:
---------------------------------------------------------------------------------------------------------------------------
2004 2003
------------------------------------------------------------------------------ ----------------------------------------
Gross Cumulative Intangible Gross Intangible
carrying Accumulated translation assets, carrying Accumulated assets,
value amortization Adjustment net value amortization net
---------------------------------------------------------------------------------------------------------------------------
Penn T
ACQUISITION:
Supply
agreements $ 99,841 $ (75) $ 6,802 $106,568 $ -- $ -- $ --
Anthrogenesis
ACQUISITION:
Supplier
relationships 710 (284) -- 426 710 (142) 568
Customer
lists 1,700 (227) -- 1,473 1,700 (113) 1,587
Technology 609 (121) -- 488 600 (60) 540
--------------------------------------------------------------------------------------------------------------------------
Total $102,860 $ (707) $ 6,802 $108,955 $ 3,010 $ (315) $ 2,695
==========================================================================================================================
|
Amortization of intangible assets for the year ended December 31, 2004 was approximately $0.4 million. Assuming no changes in the gross carrying amount of intangible assets, the amortization of intangible assets for the next five fiscal years is estimated to be approximately $8.9 million for the years 2005 and 2006, $8.6 million for $2007 and $8.4 million for 2008 and 2009.
Goodwill and intangible assets from the Penn T and Anthrogenesis acquisitions have been allocated to the Company's Human Pharmaceuticals and Stem Cell Therapy segments, respectively.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(12) RELATED PARTY TRANSACTIONS
Prior to the Company's acquisition of Anthrogenesis on December 31, 2002, two senior executives of the Company served on the Board of Directors of Anthrogenesis. In December 2001, the Company entered into a development agreement with Anthrogenesis for a period of one year which required Anthrogenesis to perform certain development work on several of the Company's compounds. The Company recorded a development fee of $0.3 million, which was amortized over the term of the agreement.
(13) 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: During 2004, the Company initiated a two-for-one common stock split effected on October 22, 2004, which increased the number of authorized shares of common stock to 275,000,000 with a par value of $.01 per share, of which 165,068,634 shares were outstanding at December 31, 2004.
TREASURY STOCK: During 2004, the Company repurchased 10,564 shares of its common stock adjusted for the two-for-one stock split at a cost of $0.3 million.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
A summary of changes in common stock issued and treasury stock is presented below:
------------------------------------------------------------------------------------------------------------------
Common Stock
Balance December 31, Common Stock in Treasury
------------------------------------------------------------------------------------------------------------------
2001 75,574,785 (282)
------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 1,246,600
Issuance of common stock for employee
benefit plans 35,398 1,160
Purchase of treasury stock (878)
Conversion of long-term convertible notes 1,864,549
Shares issued pursuant to Anthrogenesis
Acquisition 1,455,381
------------------------------------------------------------------------------------------------------------------
2002 80,176,713 --
------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 1,105,074
Issuance of common stock for employee
benefit plans 129,268
------------------------------------------------------------------------------------------------------------------
2003 81,411,055 --
------------------------------------------------------------------------------------------------------------------
Exercise of stock options and warrants 1,300,297
Issuance of common stock for employee
benefit plans 98,215
Purchase of treasury stock (5,282)
Issuance of common stock related to 2:1 stock split 82,269,631 (5,282)
------------------------------------------------------------------------------------------------------------------
2004 165,079,198 (10,564)
==================================================================================================================
|
RIGHTS PLAN: During 1996, the Company adopted a shareholder rights plan, or 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 shall entitle 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 acquiror, to discontinue the Rights Plan through the redemption of all rights or to amend the Rights Plan in any respect. On February 17, 2000, the Company's Board of Directors approved an amendment to the Rights Plan changing the initial exercise price thereunder from $100.00 per Right (as defined in the original Rights Plan agreement) to $700.00 per Right and extending the final expiration date of the Rights Plan to February 17, 2010. On August 13, 2003, the Rights Plan was 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.
(14) STOCK-BASED COMPENSATION
STOCK OPTIONS AND RESTRICTED STOCK AWARDS: The Company has two equity incentive plans, or the Incentive Plans, that provide for the granting of options, restricted stock awards, stock appreciation rights, performance awards and other stock-based awards to employees and officers of the Company to purchase not more than an aggregate of 8,400,000 shares of common stock under the 1992 plan and 25,000,000 shares of
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
common stock under the 1998 plan, as amended, subject to adjustment under certain circumstances. The Management Compensation and Development Committee of the Board of Directors, or the Compensation Committee, determines the type, amount and terms, including vesting, of any awards made under the Incentive Plans. The 1992 Plan terminated in 2002 and the 1998 Plan will terminate in 2008.
With respect to options granted under the Incentive Plans, the exercise price may not be less than the market price of the common stock on the date of grant. In general, options granted under the Incentive Plans 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. The vesting period for options and restricted stock awards granted under the Plans is subject to certain acceleration provisions if a change in control, as defined in the Plans, occurs.
As a result of the Signal acquisition, the Company assumed the former Signal stock option plans. The options issued pursuant to the former Signal plans converted into Celgene options upon consummation of the transaction at a .1257-for-1 exchange ratio, on a pre-October 2004 stock split basis. No additional options will be granted from the former Signal plans.
As a result of the acquisition of Anthrogenesis, the Company assumed the former Anthrogenesis Qualified Employee Incentive Stock Option Plan and the Anthrogenesis Non-Qualified Recruiting and Retention Stock Option Plan. Options granted under the Anthrogenesis plans prior to Celgene's acquisition of Anthrogenesis generally vested immediately and expire ten years from the date of grant. The Anthrogenesis options converted into Celgene options at an exchange ratio of .4545 on a pre-October 2004 stock split basis. No future awards will be granted under the Non-Qualified Plan. The Qualified Plan authorizes the award of incentive stock options, which are stock options that qualify for special federal income tax treatment. The exercise price of any stock options granted under the Qualified Plan may not be less than the fair market value of the common stock on the date of grant. In general, options granted under the Qualified Plan vest evenly over a four-year period and expire ten years from the date of grant, subject to earlier expiration in case of termination of employment. The vesting period is subject to certain acceleration provisions if a change in control occurs. No award will be granted under the Qualified Plan on or after December 31, 2008.
Stock options granted to executives at the vice-president level and above, after September 18, 2000, contain a reload feature which provides 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 1998 Incentive Plan and (2) the optionee pays the exercise price for the portion of the stock option exercised or pays 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 1998 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 to exercise the stock option or to pay withholding taxes thereon. The reload stock option will be 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 market value (as defined in the 1998 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. An optionee may not reload the reload stock option unless otherwise permitted by the Company's Compensation Committee. As of December 31, 2004, the Company has issued 5,438,150 stock options to executives that contain the reload features noted above, of which 5,059,526 are still outstanding.
In June 1995, the stockholders of the Company approved the 1995 Non-Employee Directors' Incentive Plan, which, as amended, provides for the granting of non-qualified stock options to purchase an aggregate of not more than 1,800,000 shares of common stock (subject to adjustment under certain circumstances) to directors
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
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 20,000 shares of common stock, which vest in four equal annual installments commencing on the first anniversary of the date of grant. Additionally, upon the date of each annual meeting of stockholders, each continuing Non-Employee Director receives an option to purchase 10,000 shares of common stock (or a pro rata portion thereof for service less than one year), which vest in full on the date of the first annual meeting of stockholders held following the date of grant. As amended in 2003, continuing Non-Employee Directors receive quarterly grants of 2,500 options aggregating 10,000 options annually, instead of receiving one annual grant of 10,000 options and vesting occurs one year from the date of grant instead of on the date of the first annual meeting of stockholders held following the date of grant. The 1995 Non-Employee Directors' 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 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 fair market value of the Company's common stock at the grant date and expire ten years after the date of grant. This plan terminates in 2005.
The following table summarizes the stock option activity for the aforementioned Plans:
----------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING
--------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE EXERCISE
Balance December 31, FOR GRANT SHARES PRICE PER SHARE
----------------------------------------------------------------------------------------------------------------
2001 3,877,934 7,296,928 $22.80
----------------------------------------------------------------------------------------------------------------
Expired (73,706) --- ---
Granted (3,204,884) 3,204,884 21.13
Exercised --- (279,117) 5.58
Cancelled 423,627 (423,627) 30.19
Repurchases 721 --- ---
Assumed on acquisition 137,031 1,030,364 11.37
----------------------------------------------------------------------------------------------------------------
2002 1,160,723 10,829,432 $21.37
----------------------------------------------------------------------------------------------------------------
Authorized 4,000,000 --- ---
Expired (308,857) --- ---
Granted (2,424,027) 2,424,027 36.60
Exercised --- (1,041,618) 10.69
Cancelled 172,826 (200,092) 26.78
----------------------------------------------------------------------------------------------------------------
2003 2,600,665 12,011,749 $25.28
----------------------------------------------------------------------------------------------------------------
Stock Split Impact on 2003 2,600,665 11,324,297 ---
Granted (4,073,768) 4,073,768 27.36
Exercised --- (1,300,297) 7.99
Cancelled 793,837 (844,799) 19.27
----------------------------------------------------------------------------------------------------------------
2004 1,921,399 25,264,718 $15.15
================================================================================================================
|
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
The following table summarizes information concerning options outstanding under the Incentive Plans at December 31, 2004:
------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ --------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE REMAINING NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING PRICE TERM (YRS.) EXERCISABLE PRICE
------------------------------------------------------------------------------------------------------------------------
$ 0.07 - 1.75 953,542 $ 1.11 3.0 953,542 $ 1.11
1.76 - 3.00 3,664,840 2.60 3.5 3,664,840 2.60
3.01 - 12.00 4,752,642 8.72 7.2 4,633,542 8.66
12.01 - 15.00 5,401,240 12.99 6.2 5,139,878 13.01
15.01 - 24.75 5,117,064 19.62 8.4 5,007,339 19.60
24.76 - 35.00 5,375,390 29.78 8.0 5,000,240 29.80
----------------------------------------------------------------------------------------
25,264,718 $ 15.15 6.7 24,399,381 $ 14.95
========================================================================================
|
The Company recorded compensation expense of $1.3 million in 2002 related to options granted under the former Signal plans at exercise prices below the market price of the underlying stock at the date of grant.
During 2001, the Company issued to certain employees an aggregate of 105,000 restricted stock awards. Such restricted stock awards will vest on September 19, 2006, unless certain conditions that would trigger accelerated vesting are otherwise met prior to such date. The fair value of these restricted stock awards at the grant date was $1.4 million, which is being amortized as compensation expense over the contractual vesting period and classified in selling, general and administrative expenses. The Company recorded compensation expense relating to these restricted stock awards of $0.3 million during each of 2004, 2003 and 2002, which was classified as selling, general and administrative expenses.
Former non-employee directors of Signal, who entered into consulting agreements with Celgene effective August 31, 2000, held unvested stock options to purchase an aggregate of 72,914 shares of the Company's common stock. As a result, the Company recorded compensation expense based on the fair value of such options, which is being recognized over the remaining vesting period for such options. During 2004, 2003 and 2002 the Company recorded compensation expense relating to stock, stock options or warrants issued to consultants, advisors or financial institutions of $0.1 million, $0.5 million and $0.2 million, respectively.
WARRANTS: In connection with its acquisition of Anthrogenesis, the Company assumed the Anthrogenesis warrants outstanding, which were converted into warrants to purchase 433,678 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, 2004, Celgene had 212,042 warrants outstanding to acquire an equivalent number of shares of Celgene common stock at an average exercise price of $5.90 per warrant.
In connection with the placement of the Series B Convertible Preferred Stock in June 1997, the Company issued warrants to purchase 3,115,380 shares of common stock at an exercise price of $1.250 per share with a term of four years from the issuance date, which ended on June 1, 2002. In May 2002, the remaining 1,935,386 warrants were exercised and the equivalent number of common shares were issued. As of December 31, 2002, there were no warrants outstanding.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(15) EMPLOYEE BENEFIT PLANS
The Company sponsors an investment savings plan, which qualifies under Section 401(k) of the Internal Revenue Code, as amended. The Company's contributions to the savings plan are discretionary and have historically been made in the form of the Company's common stock. Such contributions are based on specified percentages of employee contributions and aggregated a total expense charged to operations of $3.5 million in 2004, $4.2 million in 2003 and $2.9 million in 2002.
During 2000, the Company's Board of Directors approved a deferred compensation plan effective September 1, 2000. Eligible participants, which include certain top-level executives of the Company as specified by the plan, can elect to defer up to 25% of the participant's base salary, 100% of cash bonuses and restricted stock and stock options gains (both subject to a minimum deferral of 50% of each award of restricted stock or stock option gain approved by the Committee for deferral). Company contributions to the deferred compensation plan represent a 100% match of the participant's deferral up to a specified percentage (ranging from 10% to 25%, depending on the employee's position as specified in the plan) of the participant's base salary. The Company recorded expense of $0.8 million, $0.6 million and $0.3 million associated with the matching of the deferral of compensation in 2004, 2003 and 2002, respectively. All amounts are 100% vested at all times, except with respect to restricted stock, which will not be vested until the date the applicable restrictions lapse. At December 31, 2004 and 2003, the Company had a deferred compensation liability included in other non-current liabilities in the consolidated balance sheets of approximately $8.8 million and $5.5 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 participants eight investment options for amounts they elect to defer. Such options include a combination of funds that offer the investor the option to spread their risk across a diverse group of investments. These investment choices include an equity and equity index fund, a bond fund, a fund that is balanced between equities and bonds, a fund that invests worldwide, a growth fund and a fund that invests in mid to large cap companies and seeks capital appreciation.
In 2003, the Company adopted 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, and payable only if employed at the end of the performance cycle. The 2003 performance cycle began on May 1, 2003 and ends on December 31, 2005, or the 2005 Plan. The 2004 performance cycle began on January 1, 2004 and will end on December 31, 2006, or the 2006 Plan. Performance measures for the 2005 Plan and the 2006 Plan are based on the following components: 25% on earnings per share, 25% on net income and 50% on revenue.
Payouts may be in the range of 0% to 200% of the participant's salary for the 2005 Plan and 0% to 150% of the participant's salary for the 2006 Plan. The maximum potential payout, assuming objectives are achieved at the 200% level for the 2005 Plan and 150% level for the 2006 Plan are $6.1 million and $4.9 million for the 2005 Plan and 2006 Plan, 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 common stock fair value at the payout date. 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, 2004 and 2003, the Company recognized expense related to the 2005 Plan and 2006 Plan of $3.4 million and $0.5 million, respectively.
In February 2005, the Company adopted the 2007 performance cycle, or the 2007 Plan, which begins on January 1, 2005 and will end on December 31, 2007. Payouts may be in the range of 0% to 200% of the participant's salary and the maximum potential payout, assuming objectives are achieved at the 200% level for the 2007 Plan is $7.1 million.
The American Jobs Creation Act of 2004, which added new Section 409A to the Internal Revenue Code, changed the income tax treatment and impacts the design and administration of certain plans that provide for the deferral of compensation, such as the Company's 2000 deferred compensation plan. In February, 2005, the Company's Board of Directors adopted the Celgene Corporation 2005 Deferred Compensation Plan, effective as of January 1, 2005, which will operate as the Company's ongoing deferred compensation plan and which is intended to comply with Section 409A. The terms of the 2005 deferred compensation plan are substantially similar to the terms of the 2000 deferred compensation plan, except that the timing of deferral elections and distribution events were modified to comply with the new rules. The Company's Board of Directors also froze the 2000 deferred compensation plan, effective as of December 31, 2004, so that 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 of the frozen plan under the tax laws in effect prior to the enactment of Section 409A.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(16) SPONSORED RESEARCH, LICENSE AND OTHER AGREEMENTS
GELCLAIRTM CO-PROMOTION AGREEMENT: In October 2002, the Company entered into an agreement with Cell Pathways, Inc. for the co-promotion of GELCLAIRTM, primarily in the U.S. oncology market. Subsequently, on June 12, 2003, the Company entered into an agreement with OSI Pharmaceuticals Inc., which acquired Cell Pathways, Inc. in June 2003, to terminate the aforementioned agreement. The effective date of the termination agreement is July 1, 2003 and, under that agreement, the Company received $3.0 million in July 2003, upon the transfer of promotional materials as specified in the agreement, and received an additional $3.0 million on July 1, 2004 based on the Company's successful completion of certain transitional services through December 31, 2003, as defined in the agreement. The aggregate revenue of $6.0 million was recognized as collaborative agreement revenue on a straight-line basis over the six-month service period ended December 31, 2003.
PHARMION: In November 2001, the Company entered into a license agreement with Pharmion Corporation and Pharmion GmbH, or Pharmion, in which the Company granted an exclusive royalty-bearing license for its intellectual property covering thalidomide and S.T.E.P.S.(R) in all countries outside of North America, Japan, China, Taiwan and Korea in exchange for licensing payments and upon regulatory approvals royalties based on commercial sales. The agreement terminates upon the tenth anniversary of the regulatory approval of thalidomide in the United Kingdom and pursuant to the agreement, the Company is entitled to receive $0.3 million on a quarterly basis beginning in December 2001, until the regulatory approval in the United Kingdom is received. In April 2003, the Company entered into an amendment to the aforementioned agreement whereby Pharmion has agreed to provide the Company an aggregate of $8.0 million in research funding for the further clinical development of THALOMID(R) during the period commencing on the date of the amendment and ending December 31, 2005. The research funding consists of three installments of $1.0 million each, payable upon execution of the agreement, September 30, 2003 and December 31, 2003, four quarterly installments of approximately $0.8 million each payable in 2004 and four quarterly installments of $0.5 million each payable in 2005. The Company received four installments totaling $3.0 million in 2004 and three installments totaling $3.0 million in 2003, which was recognized as collaborative agreement revenue.
In April 2003, the Company entered into a Securities Purchase Agreement with Pharmion whereby Celgene purchased for $12.0 million a Senior Convertible Promissory Note, or the Note, with a principal amount of $12.0 million, and a warrant with a five year term to purchase up to 363,636 shares of Pharmion's common stock at a purchase price of $11.00 per share, adjusted for Pharmion's four-for-one reverse stock split. The Note had a term of five years with an annual interest rate of 6% compounded semi-annually. The Note had a conversion price of $11.00 per share of Common Stock and was automatically convertible into common stock under certain conditions. The Note was classified under "Other Assets" in the Company's consolidated balance sheet at December 31, 2003. In March 2004, the Company converted the $12.0 million Pharmion Senior Convertible Promissory Note with accrued interest of approximately $0.7 million into 1,150,511 shares of Pharmion common stock. Additionally, in September 2004, the Company exercised an aggregate of 789,089 warrants that it had received in connection with the November 2001 license agreement with Pharmion Corporation and Pharmion GmbH and in connection with the April 2003 securities purchase agreement with Pharmion. As a result of these transactions, at December 31, 2004, the Company held 1,939,600 shares of Pharmion common stock which had a fair value of $81.9 million and was classified as Marketable Securities Available for Sale. The related unrealized gain of approximately $61.7 million was included in Accumulated Other Comprehensive Income in the Stockholders' Equity section of the Consolidated Balance Sheet.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
In December 2004, following the acquisition of Penn T, the Company revised the product supply agreement with Pharmion (which was acquired in the Penn T acquisition). Under the modified agreement, Pharmion paid us a one-time payment of $77.0 million in return for a reduction in their total product supply purchase price, from 28.0 percent of Pharmion's thalidomide net sales, including cost of goods to 15.5 percent of net sales. The collaboration also entails Pharmion paying us an additional $8.0 million over the next three years to support the two companies' existing thalidomide research and development efforts and a one-time payment of $3.0 million for granting Pharmion license rights to develop and market thalidomide in three additional Asian territories (Hong Kong, Korea and Taiwan), as well as eliminating termination rights held by Celgene tied to the regulatory approval of thalidomide in Europe in November 2006. The Company recorded deferred revenue of $80 million related to the payments received to date. Revenue will be recognized over the estimated supply agreement period of 13 years on a straight line basis.
NOVARTIS PHARMA AG: In April 2000, the Company granted Novartis Pharma AG an exclusive worldwide license to develop and market d-methylphenidate (d-MPH), a chirally pure version of RITALIN(R). The Company also granted Novartis rights to all its related intellectual property and patents, including new formulations of the currently marketed RITALIN(R). In November 2001, the Company received FDA approval to market d-MPH that entitled the Company to receive from Novartis royalties on the entire family of RITALIN(R) drugs.
In December 2000, the Company signed a collaborative research and license agreement with Novartis for joint research of selective estrogen receptor modulator compounds, or SERMs, for the treatment and prevention of osteoporosis. The Company received a nonrefundable, upfront payment of $10.0 million and may be entitled to receive additional milestone payments for specific preclinical, clinical and regulatory endpoints, as well as royalties upon commercialization of products receiving FDA marketing approval. The upfront payment was amortized over the two-year research period. The Company incurred costs of approximately $0.4 million and $1.8 million in 2003 and 2002, respectively, related to this agreement and extension.
SERONO: In late 2004, the Company assumed co-exclusive rights with Serono SA to discover and develop therapeutics that modulate the NFkB pathway utilizing technology and know-how previously licensed to Serono SA. Celgene made a one-time payment of $6 million to Serono SA, which was recorded as research and development expense since this relates to undeveloped technology, and will make milestone and royalty payments on the sales on any resulting products. Serono SA will have reciprocal milestone payment and royalty obligations to Celgene for any products Serono SA discovers, develops and commercializes utilizing the technology and know-how. Celgene's research group has significant expertise in NFkB biology as well as considerable intellectual property in this area.
S.T.E.P.S. LICENSE AGREEMENTS: In late 2004, the Company entered into an agreement providing manufacturers of isotretinoin (Acutane(R)) with a non-exclusive license to its patent portfolio directed to methods for safely delivering isotretinoin (Acutane(R)) in potentially high-risk patient populations in exchange for $0.5 million. The manufacturers of isotretinoin have licensed these patents with the intention of implementing a new pregnancy risk management system to safely deliver isotretinoin in potentially high-risk patient populations. The Company is entitled to future royalties under these agreements.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(17) INCOME TAXES
The provision/(benefit) for taxes on income from continuing operations is as follows:
-------------------------------------------------------------------------------------------------------------
2004 2003 2002
-------------------------------------------------------------------------------------------------------------
United States:
Taxes currently payable:
Federal $ 6,429
State and local $ 4,067 $ 718 $ (98)
-------------------------------------------------------------------------------------------------------------
Total U.S. tax provision $ 10,496 $ 718 $ (98)
-------------------------------------------------------------------------------------------------------------
International:
Taxes currently payable $ 23,486
Deferred income taxes $(23,567)
-------------------------------------------------------------------------------------------------------------
Total international tax provision $ (81) $ -- $ --
-------------------------------------------------------------------------------------------------------------
Total provision $ 10,415 $ 718 $ (98)
=============================================================================================================
|
At December 31, 2004, 2003 and 2002 the tax effects of temporary differences that give rise to deferred tax assets were as follows:
---------------------------------------------------------------------------------------------------------------------------------
2004 2003 2002
---------------------------------------------------------------------------------------------------------------------------------
AS RESTATED AS RESTATED
----------- -----------
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ ----------- ------ -----------
Federal and state net operating loss
carryforwards $ 53,477 $ -- $ 141,379 $ -- $ 143,720 $ --
Prepaid/deferred items 29,863 -- -- -- -- --
Deferred Revenue 24,174 -- -- -- -- --
Capitalized research expenses 8,971 -- 16,774 -- 7,012 --
Research and experimentation tax 17,431 -- 9,154 -- -- --
Deferred Revenue -- -- -- -- -- --
credit carryforwards -- -- -- -- 7,686 --
Plant and equipment, principally due 2,307 (295) 1,524 -- 1,880 --
to differences in depreciation
Inventory 1,362 (928) -- -- -- --
Other Assets -- (2,230) -- -- -- --
Intangibles 3,182 (29,761) 5,615 -- 5,615 --
Accrued and other expenses 14,590 6,686 -- 4,802 --
Unrealized losses/(gains) on securities -- (33,385) 4,188 (8,893) 6,686 (3,862)
---------------------------------------------------------------------------------------------------------------------------------
Subtotal 155,357 (66,599) 185,320 (8,893) 177,401 (3,862)
Valuation allowance (75,510) -- (176,427) -- (173,539) --
---------------------------------------------------------------------------------------------------------------------------------
Total Deferred Taxes $ 79,847 $ (66,599) $ 8,893 $ (8,893) $ 3,862 $ (3,862)
---------------------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Asset $ 13,248 $ -- $ -- $ -- $ -- $ --
=================================================================================================================================
|
The Company restated its results for 2003 and 2002. The effect of this restatement was to record a deferred tax liability of $ 8.9 million and $3.9 million, respectively. The restatement had no tax impact on the 2003 and 2002 results of operations.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
Recent legislation in certain states has placed a temporary suspension on the full usage of state net operating losses to offset state income.
Reconciliation of the U.S. statutory income tax rate to our effective tax rate for continuing operations is as follows:
------------------------------------------------------------------------------- PERCENTAGES 2004 2003 2002 ------------------------------------------------------------------------------- US statutory rate 35.0% 35.0% 35.0% Earnings taxed at other than US statutory rate 50.5 -- -- State taxes, net of federal benefit 4.3 3.3 0.6 Other 1.7 -- -- Change in valuation allowance (75.0) (35.5) (35.5) ------------------------------------------------------------------------------- Effective income tax rate 16.5% 2.8% 0.1% =============================================================================== |
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2004, the Company had federal net operating loss carryforwards of approximately $122.2 million and combined state net operating loss carryforwards of approximately $ 178.2 million that will expire in the years 2005 through 2023. The Company also has research and experimentation credit carryforwards of approximately $17.4 million that expire in the years 2005 through 2023. Ultimate utilization/availability of such net operating losses and credits may be curtailed if a significant change in ownership occurs. Signal and Anthrogenesis experienced an ownership change, as that term is defined in section 382 of the Internal Revenue Code, when acquired by Celgene, as such, there is an annual limitation on the use of these net operating losses in the amount of approximately $11.6 million and $3.4 million respectively. Approximately $8.1 million of deferred tax assets acquired in the Anthrogenesis acquisition at December 31, 2002 consisted primarily of net operating losses; as such there may be an annual limitation on the Company's ability to utilize the acquired net operating losses in the future. Upon realization of the Anthrogenesis acquired tax assets, the Company will credit the benefit to the related acquired goodwill and other intangibles.
The deferred tax asset related to the Federal and State net operating loss carryforwards relates to a tax deduction attributable to stock options. The Company will increase paid in capital if these benefits are realized for tax purposes. The Company realized stock option deduction benefits in 2004, 2003, and 2002 for income tax purposes and has increased paid in capital in the amount of approximately $14.2 million, $0.8 million, and $0.1 million respectively.
Included in other comprehensive income is an unrealized gain on marketable equity securities of $61.7 million with a corresponding deferred tax liability of $25.3 million offset by a deferred tax asset of $25.3 million.
(18) COMMITMENTS AND CONTINGENCIES
LEASES: The Company leases office and research facilities under several operating lease agreements. The minimum annual rents may be subject to specified annual rental increases. At December 31, 2004, the non-cancelable lease terms for the operating leases expire at various dates between 2005 and 2012 and each agreement includes renewal options ranging from one or two additional three or five-year terms. 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. In December 2001, the Company entered into a lease arrangement to consolidate the Signal San Diego, California operations into one building. Signal completed the occupation of the new facility during the fourth quarter of 2002. The lease obligation relating to the remaining term of the old lease arrangements, which expired on December 31, 2003, aggregating approximately $1.0 million, was recognized as an expense in 2002 and the net book value with respect to related leasehold improvements and other unamortized assets aggregating $1.1 million was written off during the same period.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
In November 2004, the Company purchased land and several buildings in Summit, New Jersey which will enable it to consolidate four New Jersey locations into one corporate headquarters and provide the room to accommodate the Company's expected growth. As a result, the Company is currently exploring available options to reduce or eliminate the financial impact of existing lease commitments on redundant facilities.
The Company leases certain laboratory equipment and machinery under capital lease arrangements. Assets held under capital leases are included in plant and equipment and the amortization of these assets is included in depreciation expense.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2004 are:
--------------------------------------------------------------------------------
OPERATING CAPITAL
LEASES LEASES
--------------------------------------------------------------------------------
2005 $ 3,574 $ 9
2006 3,462 2
2007 3,256 2
2008 2,979 --
2009 2,596 --
Thereafter 6,350 --
-----------------------------
Total minimum lease payments $ 22,217 $ 13
===========
Less amount representing interest 1
-------
Present value of net minimum
capital lease payments 12
Less current installments of obligations
under capital leases 8
-------
Obligations under capital leases,
excluding current installments $ 4
=======
|
Total facilities rental expense under operating leases was approximately $4.3 million in 2004, $3.9 million in 2003 and $3.0 million in 2002, excluding the write-off of the lease obligation for the old Signal facilities
EMPLOYMENT AGREEMENTS: The Company has employment agreements with certain officers and employees. Employment contracts provide for base compensation and an annual target bonus based upon achievement of Company performance measures and annual increases in base compensation reflecting annual reviews and related salary adjustments. Base compensation expense subject to employment agreements aggregated $2.6 million and $2.5 million in 2004 and 2003, respectively. The outstanding future commitment for base compensation related to employment contracts as of December 31, 2004 is approximately $3.3 million, including $2.6 million in 2005 and $0.7 million in 2006 (excluding any change in control provisions). Employees covered under employment contracts who are terminated upon the occurrence of a change in control may among other things be entitled to receive from the Company a lump sum equal to three times such officer's and employee's base salary and bonus, payment by the Company of such officer's and employee's benefit premiums for three years and full and immediate vesting of all stock options and equity awards held by such officer and employee.
CONTRACTS: On October 21, 2004, the Company, through an indirect wholly owned subsidiary, acquired all of the outstanding shares of Penn T Limited ("Penn T"), a worldwide supplier of THALOMID(R), from a consortium of private investors for a US dollar equivalency of approximately $117.4 million in cash, net of
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
cash acquired and including working capital adjustments and total estimated transaction costs. Penn T was subsequently renamed Celgene UK Manufacturing II, Limited, or CUK II. In connection with the acquisition, the Company and CUK II entered into a Technical Services Agreement with Penn Pharmaceutical Services Limited, or PPSL, and Penn Pharmaceutical Holding Limited pursuant to which PPSL provides the services and facilities necessary for the manufacture of THALOMID(R) and other thalidomide formulations. The total cost to be incurred over the five-year minimum agreement period is approximately $11.0 million.
On March 31, 2003, the Company entered into a three-year supply and distribution agreement with GlaxoSmithKline, or GSK, to distribute, promote and sell ALKERAN(R) (melphalan), a therapy approved by the FDA for the palliative treatment of multiple myeloma and for palliation of carcinoma of the ovary. Under the terms of the agreement, Celgene purchases ALKERAN(R) tablets and ALKERAN(R) for injection from GlaxoSmithKline and distributes the products in the United States under the Celgene label. The agreement requires the Company to purchase certain minimum quantities each year for an initial three-year term under a take-or-pay arrangement aggregating $56.6 million over such period. The remaining minimum purchase requirements at December 31, 2004 were $25.0 million.
As discussed in Note 5, the Company signed an exclusive license agreement with CMCC, which terminated any existing thalidomide analog agreements between CMCC and EntreMed and directly granted to Celgene an exclusive worldwide license for the analog patents. Under the agreement, the Company is required to pay CMCC $2.0 million between 2005 and 2006, the present value of which was expensed in 2002. Additional payments are possible under the agreement depending on the successful development and commercialization of thalidomide analogs.
In October 2003, the Company signed an agreement with Institute of Drug Technology Australia Limited, or IDT, for the manufacture of finished dosage form of THALOMID(R) capsules. The agreement requires minimum purchases of THALOMID(R) capsules of $4.7 million for the three-year term commencing with the FDA's approval of IDT as an alternate supplier. This agreement provides the Company with additional capacity and reduces its dependency on one manufacturer for the production of THALOMID(R).
The Company has entered into various service agreements with Contract Research Organizations, or CROs, to provide services in the management of certain pivotal clinical trials. Management services provided by CROs typically include but are not limited to; assistance with clinical monitoring activities, assistance with study enrollment and other management oversight activities. Pivotal clinical trials are currently being conducted with the following CROs; PharmaNet, Inc., Icon Clinical Research, PPD Development LLC, Research Pharmaceuticals Services Inc., Kendle International and Harrison Clinical Research. Service agreements with these CROs provide that either party may early terminate such agreement by written notice to the other party. Payments made related to services provided by the above CROs were $30.4 million, $22.5 million and $3.8 million in 2004, 2003 and 2002 respectively. and are included in research and development expenses.
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.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(19) SEGMENTS AND RELATED INFORMATION
The Company operates in two business segments - Human Pharmaceuticals and Stem Cell Therapies. The accounting policies of the segments are the same as described in the summary of significant accounting policies.
HUMAN PHARMACEUTICALS: The Human Pharmaceutical segment is engaged in the
discovery, development and commercialization of innovative therapies designed to
treat cancer and immuno-inflammatory diseases through regulation of cellular,
genomic and proteomic targets. This segment includes Signal Pharmaceuticals,
LLC. (Celgene Research & Development), a privately held San Diego-based
biopharmaceutical company focused on the discovery and development of drugs that
regulate genes and proteins associated with diseases.
CELLULAR THERAPEUTICS: With the acquisition of Anthrogenesis Corp. in December 2002, the Company acquired a biotherapeutics company pioneering the development of stem cell therapies and biomaterials derived from human placental tissue that now operates as Celgene Cellular Therapeutics, or CCT. CCT has organized its business into three main units: (1) stem cells banking for transplantation, (2) private stem cell banking and (3) the development of biomaterials for organ and tissue repair. CCT has developed proprietary methods for producing biomaterials for organ and tissue repair (i.e. BIOVANCE(TM), AMBIODRY(TM)). Additionally, CCT has developed proprietary technology for collecting, processing and storing placental stem cells with potentially broad therapeutic applications in cancer, as well as autoimmune, cardiovascular, neurological, and degenerative diseases
Summarized segment information is as follows:
-------------------------------------------------------------------------------------------
Human Stem Cell
Pharmaceuticals Therapies Unallocated(2) Total
-------------------------------------------------------------------------------------------
2004
Total assets $ 334,932 $ 23,824 $ 748,537 $1,107,293
Total revenues 372,957 4,545 377,502
Income before income taxes(1) 78,810 (15,639) 63,171
-------------------------------------------------------------------------------------------
2003
Total assets (as restated) $ 135,123 $ 10,936 $ 666,967 $ 813,026
Total revenues 267,980 3,495 271,475
Income (loss) before income taxes
(as restated)(1) 42,279 (16,618) 25,661
-------------------------------------------------------------------------------------------
2002
Total assets (as restated) $ 66,301 $ 9,312 $ 261,182 $ 336,795
-------------------------------------------------------------------------------------------
|
(1) Expenses incurred at the consolidated level are included in the results of
the Human Pharmaceuticals segment.
(2) Unallocated corporate assets consist of cash and cash equivalents and
marketable securities available for sale.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
OPERATIONS BY GEOGRAPHIC AREA: Prior to the Company's October 21, 2004 acquisition of Penn T, the Company marketed and sold its products exclusively in the United States and Canada. Furthermore, all of the Company's customers were also located in North America. Penn T sells THALOMID(R) in Europe to Pharmion, who in turn sells to customers located in countries outside of North America, Japan and China. Also, the Company receives royalties from Novartis on their international sales of RITALIN(R) and RITALIN(R) LA.
--------------------------------------------------------------------------------
GEOGRAPHIC REVENUES 2004 2003 2002
--------------------------------------------------------------------------------
North America $ 374,686 $ 271,475 $ 135,746
All Other 2,816
-----------------------------------------
Total Revenues $ 377,502 $ 271,475 $ 135,746
=========================================
----------------------------------------------------------------
LONG LIVED ASSETS 2004 2003
----------------------------------------------------------------
North America $ 52,712 $ 28,731
All Other 144,820
-------------------------
Total Long Lived Assets $ 197,532 $ 28,731
=========================
|
MAJOR CUSTOMERS: As is typical in the pharmaceutical industry, the Company sells its products primarily through wholesale distributors and therefore, wholesale distributors account for a large portion of the Company's net product revenues. In 2004, 2003 and 2002, there were three customers that each accounted for more than 10% of the Company's total revenue. Sales to each such customer in 2004, 2003 and 2002 were as follows: Cardinal Health 29.5%, 32.5% and 30.9%; McKesson Corp. 18.6%, 17.4% and 17.1%; and Amerisource Bergen Corp. 17.9%, 23.7% and 8.0%. In 2002, Bergen Brusnwig Drug Company accounted for 16.2% of consolidated total revenue. Sales to such customers were included in the results of the Human Pharmaceuticals segment.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
(20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------
1Q 2Q 3Q 4Q YEAR
AS RESTATED(5) AS RESTATED(5) AS RESTATED(5)
--------------------------------------------------------------------------------------------------------------------------
2004
Total revenue $ 82,873 $ 87,753 $ 101,468 $ 105,408 $ 377,502
Gross profit(2) 61,726 64,916 68,637 75,566 270,845
Income tax benefit (provision) (801) (1,156) (1,974) (6,484) (10,415)
Net income 8,914 2,595 19,008 22,239 52,756
Net earnings per common share -
basic(3) $ 0.05 $ 0.02 $ 0.12 $ 0.13 $ 0.32
diluted(3) $ 0.05 $ 0.02 $ 0.11 $ 0.13 $ 0.31
Weighted average number of shares of common
stock outstanding -
basic 162,950 163,674 164,091 164,749 163,869
diluted 174,526 176,854 177,064 173,669 172,855
--------------------------------------------------------------------------------------------------------------------------
AS ORIGINALLY REPORTED 1Q 2Q 3Q 4Q YEAR
--------------------------------------------------------------------------------------------------------------------------
2004
Total revenue $ 82,873 $ 87,753 $ 101,468 $ 105,408 $ 377,502
Gross profit(2) 61,726 64,916 68,637 75,566 270,845
Income tax benefit (provision) (801) (1,156) (1,974) (6,484) (10,415)
Net income 8,620 12,444 21,254 12,360 54,678
Net earnings per common share -
basic(3) $ 0.05 $ 0.08 $ 0.13 $ 0.08 $ 0.33
diluted(3) $ 0.05 $ 0.07 $ 0.12 $ 0.07 $ 0.32
Weighted average number of shares of common
stock outstanding -
basic 162,950 163,674 164,091 164,749 163,869
diluted 174,526 176,854 177,064 173,669 172,855
--------------------------------------------------------------------------------------------------------------------------
|
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)
--------------------------------------------------------------------------------------------------------------------------
AS RESTATED(5) 1Q 2Q 3Q 4Q YEAR
--------------------------------------------------------------------------------------------------------------------------
2003(1)
Total revenue $ 49,089 $ 67,286 $ 74,332 $ 80,768 $ 271,475
Gross profit(2) 39,251 48,623 49,513 54,116 191,503
Income tax benefit (provision) (135) (210) (378) 5 (718)
Net income 323 22,399 7,290 (4,319) 25,693
Net earnings per common share -
basic(3) -- $ 0.14 $ 0.05 $ (0.03) $ 0.16
diluted(3) -- $ 0.13 $ 0.04 $ (0.03) $ 0.15
Weighted average number of shares of common
stock outstanding -
basic(4) 160,768 161,678 162,094 162,524 161,774
diluted(4) 167,880 170,268 172,658 162,524 170,796
--------------------------------------------------------------------------------------------------------------------------
AS ORIGINALLY REPORTED 1Q 2Q 3Q 4Q YEAR
--------------------------------------------------------------------------------------------------------------------------
2003(1)
Total revenue $ 49,089 $ 67,286 $ 74,332 $ 80,768 $ 271,475
Gross profit(2) 39,251 48,623 49,513 54,116 191,503
Income tax benefit (provision) (135) (210) (378) (718)
5
Net income 952 2,894 4,293 5,372 13,511
Net earnings per common share -
basic(3) $ 0.01 $ 0.02 $ 0.03 $ 0.03 $ 0.08
diluted(3) $ 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.08
Weighted average number of shares of common
stock outstanding -
basic(4) 160,768 161,678 162,094 162,524 161,774
diluted(4) 167,880 170,268 172,658 174,244 170,796
--------------------------------------------------------------------------------------------------------------------------
|
(1) Certain reclassifications have been made to the quarterly and full year
periods for 2003 in order to conform to the presentation for the year
ended December 2004.
(2) Gross profit is computed by subtracting cost of goods sold from net
product sales.
(3) The sum of the quarters may not equal the full year basic and diluted
earnings per share since each period is calculated separately.
(4) The weighted average number of shares outstanding for 2003 has been
adjusted to reflect the two- for- one stock split.
(5) The Company restated its consolidated financial statements related to the
accounting treatment for a warrant received in connection with the
December 31, 2002 litigation settlement and related agreements with
EntreMed, Inc. and CMCC. See footnote 2 for further details.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CELGENE CORPORATION
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------------
Balance at Additions charged
beginning of to expense or Balance at
Year ended December 31, year sales Deductions end of year
---------------------------------------------------------------------------------------------------------------------
2004
Allowance for doubtful accounts $ 873 $ 867 $ 370 $ 1,370
Allowance for sales returns 8,368 1,805 (1) 578 9,595
Allowance for customer discounts 657 7,448 (1) 7,267 838
---------------------------------------------------------------
$ 9,898 $ 10,120 $ 8,215 $ 11,803
===============================================================
---------------------------------------------------------------------------------------------------------------------
2003
Allowance for doubtful accounts $ 729 $ 448 $ 304 $ 873
Allowance for sales returns 2,783 12,592 (1) 7,007 8,368
Allowance for customer discounts 291 5,503 (1) 5,137 657
---------------------------------------------------------------
$ 3,803 $ 18,543 $ 12,448 $ 9,898
===============================================================
---------------------------------------------------------------------------------------------------------------------
2002
Allowance for doubtful accounts $ 708 $ 295 $ 274 $ 729
Allowance for sales returns 857 4,777 (1) 2,851 2,783
Allowance for customer discounts 291 2,412 (1) 2,412 291
---------------------------------------------------------------
$ 1,856 $ 7,484 $ 5,537 $ 3,803
===============================================================
---------------------------------------------------------------------------------------------------------------------
|
(1) Amounts are a reduction from gross sales.
Exhibit 10.22
CELGENE CORPORATION
2005 DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 2005
ARTICLE I
PURPOSE
The purpose of the Plan is to provide a select group of management and highly compensated employees of the Employer with the opportunity to: (i) defer the receipt of a portion of Salary; (ii) defer the receipt of all or a portion of Bonus; (iii) defer the receipt of Restricted Stock; and (iv) defer delivery of Stock Option Gains in accordance with the terms and conditions set forth herein.
This Plan is intended to comply with the applicable requirements of
Section 409A of the Code and shall be limited, construed and interpreted in a
manner so as to comply therewith. Notwithstanding anything herein to the
contrary, any provision in this Plan or any election form that is inconsistent
with Section 409A of the Code shall be deemed to be amended to comply with
Section 409A of the Code and to the extent such provision cannot be amended to
comply therewith, such provision shall be null and void.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms shall have the following meanings:
2.1 "Affiliate" shall mean each of the following: (i) any Subsidiary;
(ii) any Parent; (iii) any corporation, trade or business (including, without
limitation, a partnership or limited liability company) which is directly or
indirectly controlled 50% or more (whether by ownership of stock, assets or an
equivalent ownership interest or voting interest) by the Company or one of its
Affiliates; and (iv) any other entity in which the Company or any of its
Affiliates has a material equity interest and which is designated as an
"Affiliate" by resolution of the Committee.
2.2 "Beneficiary" shall mean the individual designated by the Participant, on a form acceptable by the Committee, to receive benefits payable under the Plan in the event of the Participant's death. If no Beneficiary is designated or if the designated Beneficiary predeceases the Participant, the Participant's Beneficiary shall be his or her spouse, or if the Participant is not married, the Participant's estate. Upon the acceptance by the Committee of a new Beneficiary designation, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary designation filed by the Participant and accepted by the Committee prior to his or her death.
2.3 "Board" shall mean the Board of Directors of the Company.
2.4 "Bonus" shall mean a Participant's performance bonus or any other bonus (whether or not discretionary) paid by the Employer to the Participant in cash and that is designated by the Committee as eligible for deferral under the Plan.
2.5 A "Change in Control" shall mean the occurrence of any of the following:
(a) any person (as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof), excluding the Company, any subsidiary of the Company and any employee benefit plan sponsored or maintained by the Company or any subsidiary of the Company (including any trustee of any such plan acting in his capacity as trustee), becoming the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 50% or more of the total combined voting power of the Company's then outstanding securities;
(b) the merger, consolidation or other business combination of the Company (a "Transaction") that constitutes more than 50% of the total voting power of the stock of the Company, other than (A) a Transaction involving only the Company and one or more of its subsidiaries, or (B) a Transaction immediately following which the stockholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity and no person (other than those covered by the exceptions in (a) above) becomes the beneficial owner of securities of the resulting entity representing more than 50% of the total voting power in the resulting entity;
(c) during any period of 12 months beginning on or after the Effective Date, the persons who were members of the Board immediately before the beginning of such period (the "Incumbent Directors") ceasing (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that, any director who was not a director as of the Effective Date shall be deemed to be an Incumbent Director if such director was elected to the board of directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of the foregoing unless such election, recommendation or approval occurs as a result of an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any successor provision) or other actual or threatened solicitation of proxies or contests by or on behalf of a person other than a member of the Board; or
(d) the approval by the stockholders of the Company of an agreement for the sale of all or substantially all of the Company's assets that results in more than 40% of the total gross fair market value of all of the assets of the Company other than the sale of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, at least 50% or more of the combined voting power of the outstanding voting securities of the Company at the time of such sale.
Notwithstanding the foregoing, an event shall not be considered to be a "Change in Control" if, for purposes of Section 409A of the Code, such event would not be considered to be a "change in control event" under Section 409A of the Code.
2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision and any Treasury Regulation promulgated thereunder.
2.7 "Committee" shall mean the Management Compensation and Development Committee of the Board or such other committee of the Board which consists solely of at least two non-employee directors, each of whom is intended to be an "outside director," as defined under Section 162(m) of the Code and a "non-employee director," as defined under Section 16(b) of the Exchange Act. In the event that the Committee does not satisfy such requirements, it shall not affect the validity of any contributions or deferral elections hereunder.
2.8 "Common Stock" shall mean common stock, $.01 par value per share, of the Company.
2.9 "Company" shall mean Celgene Corporation or any successor corporation by merger, consolidation or transfer of assets substantially as a whole.
2.10 "Deemed Dividends" shall mean the amount of dividends (whether stock or cash), if any, which are declared on a share of Common Stock multiplied by the number of shares of Common Stock credited to the Deferred Stock Account.
2.11 "Deferred Bonus" shall mean the Bonus deferred by a Participant under Section 5.1(ii) hereof.
2.12 "Deferred Cash Account" shall mean the individual account to which a Participant's book-entry contributions of Deferred Salary and Deferred Bonus made pursuant to Article VII hereof shall be credited.
2.13 "Deferred Compensation Account" shall mean a Participant's Deferred Cash Account and Deferred Stock Account.
2.14 "Deferred Restricted Stock" shall mean the Restricted Stock deferred by a Participant under Section 5.1(iii) hereof.
2.15 "Deferred Salary" shall mean the Salary deferred by a Participant under Section 5.1(i) hereof.
2.16 "Deferred Stock Account" shall mean the individual account established pursuant to Article IX to which a Participant's Deferred Restricted Stock and Deferred Stock Option Gains are credited.
2.17 "Deferred Stock Option Gains" shall mean the Stock Option Gains deferred under Section 5.1(iv) hereof.
2.18 "Disability" shall mean: (i) a Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (ii) a Participant is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Employer.
2.19 "Effective Date" shall mean January 1, 2005.
2.20 "Eligible Employee" shall mean an Employee who is a member of a select group of management or highly compensated employees and who is designated by the Committee, in its sole discretion, as an Eligible Employee. The Committee may designate, in its sole discretion, any such Employee as an Eligible Employee solely with respect to the deferral of Salary, Bonus Restricted Stock or Stock Option Gains or any combination thereof. Any Eligible Employee shall continue to be eligible to participate in the Plan until he or she ceases to be an Eligible Employee, whether by reason of his or her Termination of Employment or by reason of the Committee's determination in its sole discretion that he or she should no longer be designated as an Eligible Employee.
2.21 "Eligible Stock Option" shall mean one or more nonqualified stock options granted under the LTIP (including incentive stock options disqualified as such and treated as nonqualified stock options) selected by the Committee in its sole discretion as eligible for deferral of Stock Option Gains hereunder.
2.22 "Employee" shall mean any person employed by the Employer excluding any "leased employee," as defined in Section 414(n) of the Code, any independent contractor or agent.
2.23 "Employer" shall mean the Company and any Affiliate.
2.24 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
2.25 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
2.26 "LTIP" shall mean the Company's 1998 Long-Term Incentive Plan, as amended from time to time and any other equity-based plan adopted by the Board and designated by the Committee as an LTIP hereunder.
2.27 "Matching Contribution" shall mean a matching contribution made by the Employer pursuant to Article VI.
2.28 "Parent" shall mean any parent corporation of the Company within the meaning of Section 424(e) of the Code.
2.29 "Participant" shall mean any Eligible Employee who: (i) elects to defer his or her Salary, Bonus, Restricted Stock or Stock Option Gains in accordance with the terms hereunder; and (ii) has a balance in his or her Deferred Stock Account or Deferred Cash Account under the Plan. A Participant shall cease to be permitted to defer his or her Salary, Bonus, Restricted Stock or Stock Option Gains with regard to a Plan Year if he or she is not, or ceases to be, an Eligible Employee with regard to the Plan or any aspect of the Plan (I.E., solely with regard to the deferral of Salary, Bonus, Restricted Stock or Stock Option Gains or any combination thereof).
2.30 "Plan" shall mean the Celgene Corporation 2005 Deferred Compensation Plan.
2.31 "Plan Year" shall mean the calendar year.
2.32 "Restricted Stock" shall mean an award of shares of Common Stock granted under the LTIP that is subject to restrictions under the LTIP and as specified in the applicable restricted stock agreements, provided that such award is selected by the Committee in its sole discretion as eligible for deferral hereunder.
2.33 "Retirement Age" shall mean a Participant's attainment of age 55.
2.34 "Salary" shall mean a Participant's base monthly cash compensation rate for services paid by the Employer to the Participant. Salary shall not include commissions, bonuses, overtime pay, incentive compensation, benefits paid under any qualified plan, any group medical, dental or other welfare plan, noncash compensation, fringe benefits (cash and noncash), reimbursements or other expense allowances or any other additional compensation and shall not include amounts reduced pursuant to a Participant's salary reduction agreement under Section 125 or Section 401(k) of the Code (if any) or a nonqualified elective deferred compensation arrangement or any other deductions for premium payments or offsets with regard to any health or welfare plan to the extent that in each such case the reduction is to base cash compensation.
2.35 "Stock-for-Stock Exercise" shall mean the payment of the exercise price of the Eligible Stock Option with Common Stock owned by the Participant for at least six months (and for which the Participant has good title free and clear of any liens and encumbrances and has represented that he has owned the shares of Common Stock for at least six months) based on the fair market value of the Common Stock on the exercise date. The Committee (or its delegate), in its sole discretion, shall determine whether payment of the exercise price of the Eligible Stock Option with Common Stock may be accomplished through attestation or by physical tender of the shares.
2.36 "Stock Option Gains" shall mean the number of shares of Common Stock equal in number to (i) the shares of Common Stock subject to an Eligible Stock Option less (ii) the number of shares of Common Stock delivered to satisfy the exercise price for the Eligible Stock Option pursuant to a Stock-for-Stock Exercise.
2.37 "Subsidiary" shall mean any corporation that is defined as a subsidiary corporation in Section 424(f) of the Code.
2.38 "Termination of Employment" shall mean termination of employment as an Employee of the Employer for any reason whatsoever, including but not limited to death, retirement, resignation, Disability, dismissal or, with respect to a Participant who is an Employee of an Affiliate, the cessation of such entity as an Affiliate. An Employee's transfer of employment from the Company to any Affiliate, from any Affiliate to the Company and among the Affiliates shall not be treated as Termination of Employment for purposes of the Plan. Notwithstanding the foregoing, a Participant shall not be considered to have experienced a Termination of Employment if, for purposes of Section 409A of the Code, the Participant would not be considered to have had a "separation from service."
ARTICLE III
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Committee.
3.2 DUTIES OF THE COMMITTEE. The Committee (or its delegate) shall have
the exclusive right, power and authority to administer, apply and interpret the
Plan and any other Plan documents and to decide any questions and settle all
controversies and disputes that may arise in connection with the operation or
administration of the Plan. Without limiting the generality of the foregoing,
the Committee shall have the sole and absolute discretionary authority: (i) to
take all actions and make all decisions with respect to the eligibility for, and
the amount of, benefits payable under the Plan; (ii) to formulate, interpret and
apply rules, regulations and policies necessary to administer the Plan in
accordance with its terms; (iii) to decide questions, including legal or factual
questions, relating to the calculation and payment of benefits under the Plan;
(iv) to resolve and/or clarify any ambiguities, inconsistencies and omissions
arising under the Plan or other Plan documents; and (v) to process and approve
or deny benefit claims and rule on any benefit exclusions. All determinations
made by the Committee (or any delegate) with respect to any matter arising under
the Plan and any other Plan documents including, without limitation, the
interpretation and administration of the Plan shall be final, binding and
conclusive on all parties.
3.3 ADVISORS. The Company, the Board or the Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and the Committee may rely upon any advice or opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred for the engagement of such counsel, consultant or agent shall be paid by the Company. The Committee may also rely on information, and consider recommendations, provided by the Board or the executive officers of the Company.
3.4 ACTION BY MAJORITY. Decisions of the Committee shall be made by a majority of its members attending a meeting at which a quorum is present (which meeting may be held telephonically), or by written action in accordance with applicable law.
3.5 LIABILITY OF COMMITTEE MEMBERS. No member of the Committee and no officer, director or employee of the Employer shall be liable for any action or inaction with respect to his or her functions under the Plan unless such action or inaction is adjudged to be due to fraud. Further, no such person shall be personally liable merely by virtue of any instrument executed by him or her or on his or her behalf in connection with the Plan.
3.6 INDEMNIFICATION OF COMMITTEE MEMBERS. Each Employer shall indemnify, to the full extent permitted by law and its Certificate of Incorporation and By-laws (but only to the extent not covered by insurance) its officers and directors (and any employee involved in carrying out the functions of the Employer under the Plan) and each member of the Committee against any expenses, including amounts paid in settlement of a liability, which are reasonably incurred in connection with any legal action to which such person is a party by reason of his or her duties or responsibilities with respect to the Plan (other than as a Participant).
3.7 SECURITIES LAW COMPLIANCE. The Committee shall impose such rules designed to facilitate compliance with Federal and state securities laws, including to the extent applicable, the limitations of Section 4(2) and Rule 701 under the Securities Act of 1933, as amended, and shall have the authority to suspend the Plan and take any action necessary, including revoking a Participant's deferral elections, prospectively and/or retroactively, to ensure that the Plan complies with Federal and state securities laws.
ARTICLE IV
SHARES; ADJUSTMENT UPON CERTAIN EVENTS
4.1 SHARES TO BE DELIVERED. Shares to be delivered under the Plan shall be shares of Common Stock held under the LTIP with respect to: (i) shares of Restricted Stock deferred as Deferred Restricted Stock upon the vesting of the Restricted Stock; and (ii) shares of Common Stock deferred as Deferred Stock Option Gains upon the exercise of an Eligible Stock Option.
4.2 ADJUSTMENTS UPON CERTAIN EVENTS.
(a) ADJUSTMENTS. The existence of the Plan and any Deferred Stock Account shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company or any sale or transfer of all or part of the assets or business of the Company, or any other corporate act or proceeding.
(b) CAPITAL STRUCTURE. In the event of (i) any such change in the capital structure or business of the Company by reason of any stock dividend or distribution, stock split or reverse stock split, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, distribution with respect to its outstanding Common Stock or capital stock other than Common Stock, sale or transfer of all or part of its assets or business, reclassification of its capital stock, or any similar change affecting the Company's capital structure or business and (ii) the Committee determines an adjustment is appropriate under the Plan, then the aggregate number and kind of shares of Common Stock held in the Deferred Stock Account shall be appropriately adjusted consistent with such change in such manner as the Committee may deem necessary to reflect the change, and any such adjustment determined by the Committee shall be binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns.
(c) FRACTIONAL SHARES. Fractional shares of Common Stock
resulting from any adjustment in shares of Common Stock pursuant to
Section 4.2(a) or (b) or any other provision hereunder shall be
aggregated until, and eliminated at, the time of exercise by
rounding-down for fractions less than one-half and rounding-up for
fractions equal to or greater than one-half. No cash settlements shall
be made with respect to fractional shares eliminated by rounding. Any
adjustment under Section 4.2 hereof (whether or not notice is given)
shall be effective and binding for all purposes of the Plan.
ARTICLE V
DEFERRAL ELECTIONS
5.1 ELECTION TO DEFER. An Eligible Employee may elect in writing on a form prescribed by the Employer to defer the receipt of all or a portion (in whole percentages) of his or her: (i) Salary, subject to a maximum deferral of 25% of his or her Salary; (ii) Bonus; (iii) Restricted Stock, subject to a minimum deferral of 50% of each award of Restricted Stock granted to the Eligible Employee; and (iv) Stock Option Gains, subject to a minimum deferral of 50% of each award of Eligible Stock Options granted to the Eligible Employee. To the extent that an Employee is designated as an Eligible Employee solely with respect to Salary, Bonus, Restricted Stock or Stock Option Gains (or any combination thereof), such Eligible Employee's elections hereunder shall apply solely to such aspect of the Plan. All deferral elections made pursuant to this Article V are subject to Article I.
5.2 TIMING AND MANNER OF SALARY AND BONUS DEFERRAL ELECTIONS.
(a) METHOD OF ELECTION. Any election to prospectively defer payment of a Participant's Salary or Bonus during a Plan Year may be made by the Participant in writing on a form prescribed by the Employer at any time on or before the last day of the Plan Year preceding the Plan Year in which the Salary or Bonus is earned; provided, however, that if any Bonus is performance-based compensation (within the meaning of Section 409A(a)(4)((B)(iii) of the Code) based on services performed over a period of at least 12 months, such election may be made no later than six months before the end of the period.
(b) MID-YEAR PARTICIPATION. If an Employee first becomes an Eligible Employee during a Plan Year, he or she may elect to defer payment of Salary or Bonus with respect to such Plan Year prior to the end of the 30 day period following the date on which he or she becomes an Eligible Employee or, if later, the end of the period permitted for such an election pursuant to Section 409A of the Code, in writing on a form prescribed by the Employer.
(c) IRREVOCABLE ELECTION. A Participant's election to defer a
Participant's Salary or Bonus under this Article V is irrevocable. An
election with respect to a Participant's Salary or Bonus is valid only
for the Plan Year with respect to which the election is made. If a new
election is not made with respect to any subsequent Plan Year under
Section 5.2(a), a Participant's Salary or Bonus earned in such Plan
Year shall not be deferred under the Plan.
5.3 TIMING AND MANNER OF RESTRICTED STOCK AND STOCK OPTION GAINS DEFERRAL ELECTIONS.
(a) METHOD OF ELECTION. Any election to prospectively defer payment of a Participant's Restricted Stock or Stock Option Gains may be made by the Participant in writing on a form prescribed by the Employer at any time on or before the last day of the Plan Year preceding the Plan Year in which the Restricted Stock or Eligible Stock Option is granted, if any (or such later time permitted by Section 409A of the Code, as determined by the Committee).
(b) MID-YEAR PARTICIPATION. If an Employee first becomes an Eligible Employee during a Plan Year, he or she may elect to defer payment of Restricted Stock or Stock Option Gains (if any) prior to the end of the 30 day period following the date on which he or she becomes an Eligible Employee or, if later, the end of the period permitted for such an election pursuant to Section 409A of the Code, in writing on a form prescribed by the Employer.
(c) IRREVOCABLE ELECTION. A Participant's election to defer
payment of a Participant's Restricted Stock or Stock Option Gains under
this Article V is irrevocable. An election with respect to a
Participant's Restricted Stock or Stock Option Gains is valid only with
respect to Restricted Stock and Eligible Stock Options granted during
the Plan Year with respect to which the election is made. If a new
election is not made with respect to any subsequent Plan Year under
Section 5.3(a), a Participant's Restricted Stock or Stock Option Gains
granted in such Plan Year shall not be deferred under the Plan.
5.4 CHANGE IN STATUS. An election made pursuant to Article V by a Participant who ceases to be an Eligible Employee but who does not incur a Termination of Employment shall remain in effect and such Participant shall not be entitled to receive a distribution of all or a portion of his or her Deferred Compensation Account from the Plan solely as a result of such change in status.
ARTICLE VI
MATCHING CONTRIBUTIONS
The Employer may, in its sole discretion, make a contribution to a Participant's Deferred Cash Account equal to a percentage of a Participant's Deferred Salary for any Plan Year as determined by the Committee in its sole discretion.
ARTICLE VII
ESTABLISHMENT OF DEFERRED CASH ACCOUNT
7.1 BOOK ENTRY OF DEFERRALS. Deferred Salary and Deferred Bonus shall be credited as a book entry to a Participant's Deferred Cash Account in the name of the Participant not later than the last day of the calendar month in which such amount would otherwise be payable to the Participant. Matching Contributions (if any) shall be credited as a book entry to a Participant's Deferred Cash Account in the name of the Participant not later than the last day of the calendar quarter with respect to which the Participant's Deferred Salary eligible for the Matching Contribution is credited to the Participant's Deferred Cash Account.
7.2 BOOK ENTRY EARNINGS AND LOSSES. Earnings and losses shall be credited to a Participant's Deferred Cash Account in accordance with the provisions of Article VIII.
7.3 VESTING. A Participant's Deferred Cash Account shall be fully vested at all times.
ARTICLE VIII
ADDITIONS TO DEFERRED CASH ACCOUNT
8.1 MEASURING ALTERNATIVE. The measuring alternative used for the measurement of earnings on the amounts in a Participant's Deferred Cash Account shall be selected by the Committee, unless the Committee decides in its sole discretion to allow each Participant to select in writing, on a form prescribed by the Committee, from among the various measuring alternatives offered by the Committee. In the event that various measuring alternatives are made available, each Participant may change the selection of his or her measuring alternative as of the beginning of any calendar quarter (or at such other times and in such manner as prescribed by the Committee, in its sole discretion), subject to such notice and other administrative procedures as may be established by the Committee. In addition, in the event that various measuring alternatives are made available to the Participants, one such alternative shall include the prime rate of interest as reported in the Money Rates section of The Wall Street Journal as of the first business day of each quarter within a Plan Year. If the Committee does not make various measuring alternatives available to the Participants, the measuring alternative selected by the Committee shall not be less than the prime rate of interest as reported in the Money Rates section of The Wall Street Journal as of the first business day of each quarter within a Plan Year.
8.2 CREDITING OF EARNINGS AND LOSSES. The Committee shall credit the earnings and losses computed under this Article VIII to the balance in each Participant's Deferred Cash Account as of the last business day of each calendar quarter, or such other dates as are selected by the Committee, in its sole discretion, at a rate equal to the performance of the measuring alternative selected by the Committee for the calendar quarter (or such other applicable period) or, if the Committee allows each Participant to select from among various measuring alternatives, at a rate equal to the performance of the measuring alternative selected by the Participant for the calendar quarter (or such other applicable period) to which such selection relates.
8.3 RULES AND PROCEDURES. The Committee may, in its sole discretion, establish rules and procedures for the crediting of earnings and losses to the Deferred Cash Account and, if applicable, the election of measuring alternatives pursuant to this Article VIII.
ARTICLE IX
ESTABLISHMENT OF DEFERRED STOCK ACCOUNT
9.1 BOOK ENTRY CREDITING OF DEFERRALS. Deferred Restricted Stock and Deferred Stock Option Gains shall be credited to the Participant's Deferred Stock Account not later than the date such amount would otherwise be payable to the Participant. Unless a "rabbi trust" is used as permitted under Article XV, actual shares of Common Stock shall not be placed in the Participant's Deferred Stock Account and instead, a Participant's Deferred Stock Account shall be credited on a book entry basis and shall be deemed to be credited with such shares of Common Stock. Notwithstanding the foregoing, with respect to Deferred Restricted Stock, the Company shall retain custody of the shares of Deferred Restricted Stock during the applicable restriction period and shall credit on a book entry basis such deemed shares to the Participant's Deferred Stock Account not later than the date immediately prior to the date the applicable restriction period expires. With respect to a Participant's election to defer Deferred Stock Option Gains, the Company shall credit on a book entry basis deemed shares equal to the Deferred Stock Option Gains to the Participant's Deferred Stock Account upon the Participant's exercise of an Eligible Stock Option.
9.2 VESTING. A Participant's Deferred Stock Account shall be fully vested at all times, except that with regard to Deferred Restricted Stock, such shares shall not be vested until the date the applicable restriction period expires.
9.3 OWNERSHIP. For as long as shares of Common Stock are held or deemed to be held by a Participant's Deferred Stock Account, the Participant shall not have any rights as a stockholder of the Company with respect to shares of Common Stock held or deemed to be held in a Participant's Deferred Stock Account, except with respect to the right to have Deemed Dividends, if any, credited to his or her Deferred Stock Account and adjustment of the shares of Common Stock under the Deferred Stock Account pursuant to Article IV.
ARTICLE X
ADDITIONS TO DEFERRED STOCK ACCOUNT
10.1 PLAN INVESTMENTS. Amounts deferred under the Plan to the Deferred Stock Account shall be held or deemed to be held solely in the form of Common Stock.
10.2 DIVIDENDS. At such time or times as any dividends on Common Stock shall be distributed to the Company's stockholders, the Company shall credit to the Deferred Stock Account the Deemed Dividends. Deemed Dividends so credited to the Deferred Stock Account which are cash dividends shall be reinvested (or deemed to be reinvested) in shares of Common Stock (based on the fair market value of such shares on the date the dividend is paid).
ARTICLE XI
PAYMENT OF DEFERRED CASH ACCOUNT
11.1 FORM OF PAYMENT.
(a) INITIAL ELECTIONS. Except as otherwise provided in this Article XI, a Participant's Deferred Compensation Account shall be paid to the Participant in five approximately equal annual installments commencing on the six month anniversary of the Participant's Termination of Employment and paid on each annual anniversary thereafter unless, at the time the Participant elects to make a deferral pursuant to Article V, the Participant elects to receive payment of his or her Deferred Compensation Account in installment payments as follows:
(i) in 10 approximately equal annual installments commencing on the six month anniversary of the Participant's Termination of Employment and paid on each annual anniversary thereafter; or
(ii) in 15 approximately equal annual installments commencing on the six month anniversary of the Participant's Termination of Employment and paid on each annual anniversary thereafter.
(b) TIMING OF ELECTIONS TO CHANGE FORM OF DISTRIBUTION. Except as otherwise required by Section 409A of the Code, a Participant may change the form of distribution elected pursuant to Section 11.1(a) prior to the date distributions commence in accordance with the following requirements:
(i) subject to subsections (ii) and (iii), a Participant's election does not take effect until at least 12 months after the date on which the election is made and filed with the Employer;
(ii) the first distribution with respect to which such election is made is deferred for a period of at least five years from the date such distribution would otherwise have been made (except in the case of a distribution upon an Unforeseeable Emergency or the Participant's death or Disability); and
(iii) such election is made at least 12 months prior to the distribution date.
The Participant's Deferred Compensation Account shall be paid out in accordance with such election and the terms of this Plan. Each installment shall be equal to the: (1) then amount in the Participant's Deferred Cash Account divided by the remaining payments to be made; and (2) the number of shares of Common Stock in the Participant's Deferred Stock Account divided by the remaining payments to be made. In no event may a Participant change his or her election once distributions commence. Amounts remaining in the Participant's Deferred Compensation Account during the payment of installments hereunder shall continue to be credited with earnings and losses in accordance with Articles VIII and X, as applicable, credited with Deemed Dividends in accordance with Article IX and adjusted to the extent required under Article IV until such amounts are paid.
All payments from the Deferred Stock Account shall be payable solely in shares of Common Stock. Any remaining fractional shares of Common Stock shall be treated in the manner described in Section 4.2(c) hereof. All payments from the Deferred Cash Account shall be payable solely in cash. A Participant shall not be entitled to, and the Employer shall not be obligated to pay to such Participant, the whole or any part of the amounts deferred under the Plan, except as provided in the Plan.
11.2 TIMING OF PAYMENT. (a) GENERAL RULE. Installment payments (as described in Section 11.1 above) from the Deferred Compensation Account shall commence being paid to the Participant following the Participant's Termination of Employment.
(b) DEATH. Notwithstanding the foregoing, if a Participant dies prior to the date distributions commence, the Deferred Compensation Account shall be distributed to the Participant's Beneficiary, to the extent no adverse tax consequences are triggered under Section 409A of the Code, in the form of a lump sum distribution as soon as administratively feasible thereafter; otherwise, the Deferred Compensation Account shall be distributed in accordance with the Participant's election under Section 11.1(a). If a Participant dies after the date distributions commence, the Deferred Compensation Account shall continue to be distributed to the Participant's Beneficiary in accordance with the Participant's election under Section 11.1(a).
(c) CHANGE IN CONTROL. Upon the occurrence of a Change in Control, the Deferred Compensation Account shall be distributed, to the extent no adverse tax consequences are triggered under Section 409A of the Code, in a lump sum payment; otherwise, the Deferred Compensation Account shall be distributed in accordance with the Participant's election under Section 11.1(a).
11.3 HARDSHIP DISTRIBUTIONS.
(a) DISTRIBUTION ON ACCOUNT OF HARDSHIP. Upon the request of a Participant, the Committee, in its sole discretion, may approve the payment of an immediate lump sum cash distribution to a Participant of all or a portion of such Participant's Deferred Cash Account due to the Participant's Hardship.
(b) HARDSHIP. For the purposes of this Section 11.3, a Participant shall experience a "Hardship" if, and only if, such Participant experiences an immediate and heavy financial need and the withdrawal is necessary to pay for expenses directly resulting from an "Unforeseeable Emergency." An Unforeseeable Emergency is a severe financial hardship to the Participant resulting from an illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances constituting an Unforeseeable Emergency shall depend upon the facts of each case, but, in any event, shall not be made to the extent that such Hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; or (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship.
(c) LIMIT ON AMOUNT OF HARDSHIP DISTRIBUTION. The amount of a distribution of a Participant's Deferred Cash Account shall not exceed the amount necessary to alleviate the Participant's Hardship plus an amount necessary to cover applicable taxes reasonably anticipated as a result of the distribution, subject to approval by the Committee.
(d) SUBSTANTIATION. A Participant must provide documentation to the Committee reasonably substantiating his or her Hardship.
11.4 DEMINIMIS DISTRIBUTIONS. Notwithstanding anything herein to the contrary, if a Participant's Deferred Compensation Account balance is $10,000 or less at the time of distribution (for this purpose, shares of Common Stock in a Participant's Deferred Stock Account shall be valued based on the fair market value of the shares of Common Stock at the time of distribution), such balance shall be distributed in a lump sum no later than two and one-half months after the Participant's Termination of Employment or, if later, by December 31 of the calendar year in which the Participant's Termination of Employment occurs.
ARTICLE XII
CLAIMS PROCEDURE
Any claim by a Participant or Beneficiary ("Claimant") with respect to eligibility, participation, contributions, benefits or other aspects of the operation of the Plan shall be made in writing to the Committee or such other person designated by the Committee from time to time for such purpose. If the Committee believes that the claim should be denied, the Committee shall notify the Claimant in writing of the denial of the claim within 90 days after receipt thereof (this period may be extended an additional 90 days in special circumstances and, in such event, the Claimant shall be notified in writing of the extension). The written notice of extension shall indicate the special circumstances requiring the extension of time and provide the date by which the Committee expects to make a determination with respect to the claim. If the extension is required due to the Claimant's failure to submit information necessary to decide the claim, the period for making the determination shall be tolled from the date on which the extension notice is sent to the Claimant until the earlier of: (i) the date on which the Claimant responds to the Committee's request for information, or (ii) expiration of the 45 day period commencing on the date that the Claimant is notified that the requested additional information must be provided. If notice of the denial of a claim is not furnished within the required time period described herein, the claim shall be deemed denied as of the last day of such period.
If a claim is wholly or partially denied, the notice to the Claimant shall set forth: (i) the specific reason or reasons for the denial making reference to the pertinent provisions of the Plan or of Plan documents on which the denial is based; (ii) describe any additional material or information necessary to perfect the claim, and explain why such material or information, if any, is necessary; (iii) inform the Claimant of his or her right pursuant to this section to request review of the decision; and (iv) a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse determination on review.
A Claimant may appeal the denial of a claim by submitting a written
request for review to the Committee, within 60 days after the date on which such
denial is received or if no notification was provided, the date the claim is
deemed denied. Such period may be extended by the Committee for good cause
shown. The claim will then be reviewed by the Committee. A Claimant or his or
her duly authorized representative may discuss any issues relevant to the claim,
may upon request and free of charge, be provided with reasonable access to, and
copies of, relevant documents, records and other information relevant to the
Claimant's claim and may submit issues and comments in writing. If the Committee
deems it appropriate, it may hold a hearing as to a claim. If a hearing is held,
the Claimant shall be entitled to be represented by counsel. The Committee shall
decide whether or not to grant the claim within 60 days after receipt of the
request for review, but this period may be extended by the Committee for up to
an additional 60 days in special circumstances. Written notice of any such
special circumstances shall be sent to the Claimant. Any claim not decided upon
in the required time period shall be deemed denied. If the claim upon review is
denied, the notice to the Claimant shall set forth: (i) the specific reason or
reasons for the decision, with references to the specific Plan provisions on
which the determination is based; (ii) a statement that the Claimant is entitled
to receive, upon request and free of charge, reasonable access to, and copies
of, all documents, records and other information relevant to the claim; and
(iii) a statement of the Claimant's right to bring a civil action under Section
502(a) of ERISA. All interpretations, determinations and decisions of the
Committee with respect to any claim shall be made in its sole discretion based
on the Plan and other relevant documents and shall be final, conclusive and
binding on all persons.
The Committee may at any time alter the claims procedure set forth above, provided that the revised claims procedure complies with ERISA and the regulations issued thereunder.
The claims procedures set forth in this Section are intended to comply with United States Department of Labor Regulation ss. 2560.503-1 and should be construed in accordance with such regulation. In no event shall it be interpreted as expanding the rights of Claimants beyond what is required by United States Department of Labor Regulation ss. 2560.503-1. A Claimant must exhaust all administrative remedies under the Plan prior to bringing an action under ERISA or otherwise.
ARTICLE XIII
NON-ALIENATION OF BENEFITS
A Participant's Deferred Compensation Account shall not be subject to alienation, transfer, pledge, assignment, attachment, encumbrance, garnishment, execution or levy of any kind, and any attempt to cause any benefits to be so subjected shall not be recognized.
ARTICLE XIV
TERMINATION OR AMENDMENT OF THE PLAN
Notwithstanding any other provision of the Plan, the Board or Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan or any election hereunder, or suspend or terminate it entirely, retroactively or otherwise (including, without limitation, any amendment to the Plan or any election to comply with Section 409A of the Code). Upon a termination or suspension of the Plan, a Participant's Deferred Compensation Account shall be distributed in accordance with the Participant's elections pursuant to Section 11.1, provided that: (i) if the Plan is terminated prior to January 1, 2006, a Participant's Deferred Compensation Account shall be distributed in a lump sum as soon as practicable after such termination, but in no event later than December 31, 2005; or (ii) the Board or the Committee may, in its discretion, terminate the Plan and distribute a Participant's Deferred Compensation Account in a lump sum, in each case, within 12 months after a Change in Control.
ARTICLE XV
UNFUNDED PLAN
The Plan shall not be construed to require the Employer to fund any of the benefits payable under the Plan or to set aside or earmark any monies or other assets specifically for payments under the Plan. The Plan is intended to constitute an "unfunded" plan for incentive compensation and any amounts payable hereunder shall be paid by the Employer out of its general assets. Participants and their designated Beneficiaries shall not have any interest in any specific asset of the Employer as a result of the Plan. Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall create or be construed to create a trust of
any kind, or a fiduciary relationship amongst any Employer, the Committee, and the Participants, their designated Beneficiaries or any other person. Any funds which may be invested under the provisions of the Plan shall continue for all purposes to be part of the general funds of the applicable Employer and no person other than the applicable Employer shall by virtue of the provisions of the Plan have any interest in such funds. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the applicable Employer, nothing contained herein shall give any such Participant any rights that are greater than those of an unsecured general creditor of the applicable Employer. The Employer may establish a "rabbi trust" to hold the shares of Common Stock hereunder and to pay the shares of Common Stock payable hereunder, except in connection with changes in the Employer's financial health as provided in Section 409A of the Code. If the Employer decides to establish any advance accrued reserve on its books against the future expense of benefits payable hereunder, or if the Employer is required to fund a trust under the Plan, such reserve or trust shall not under any circumstances be deemed to be an asset of the Plan.
ARTICLE XVI
GENERAL PROVISIONS
16.1 WITHHOLDING OF TAXES. The Employer shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have to withhold Federal, state or local income or other taxes incurred by reason of payments pursuant to the Plan and the Participant shall pay to the Employer, or make arrangements satisfactory to the Employer with regard to its withholding obligations. In lieu thereof, the Employer shall have the right to withhold the amount of such taxes from any other sums due or to become due from the Employer to the Participant upon such terms and conditions as the Committee may prescribe[, which subject to the Committee's prior approval, may include withholding of amounts payable from the Deferred Compensation Account including shares of Common Stock].
16.2 OTHER PLANS. Nothing contained in the Plan shall prevent the Board or Committee from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
16.3 OTHER BENEFITS. No payment under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Employer nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.
16.4 NO RIGHT TO EMPLOYMENT. Neither the Plan nor the deferral of any amount hereunder shall impose any obligations on the Employer to retain any Participant as an Employee nor shall it impose on the part of any Participant any obligation to remain as an Employee of the Employer.
16.5 COSTS. The Company shall bear all expenses included in administering the Plan.
16.6 MINORS AND INCOMPETENTS. In the event that the Committee finds that a Participant is unable to care for his or her affairs because of illness or accident, then benefits payable
hereunder, unless claim has been made therefore by a duly appointed guardian, committee, or other legal representative, may be paid in such manner as the Committee shall determine, and the application thereof shall be a complete discharge of all liability for any payments or benefits to which such Participant was or would have been otherwise entitled under the Plan. Any payments to a minor from the Plan may be paid by the Committee in its sole and absolute discretion (i) directly to such minor; (ii) to the legal or natural guardian of such minor; or (iii) to any other person, whether or not appointed guardian of the minor, who shall have the care and custody of such minor. The receipt by such individual shall be a complete discharge of all liability under the Plan therefor.
16.7 SECTION 16(B) OF THE EXCHANGE ACT. To the extent applicable, all
elections and transactions under the Plan by persons subject to Section 16 of
the Exchange Act involving shares of Common Stock are intended to comply with
any applicable condition under Rule 16b-3. The Committee may establish and adopt
written administrative guidelines, designed to facilitate compliance with
Section 16(b) of the Exchange Act, as it may deem necessary or proper for the
administration and operation of the Plan and the transaction of business
thereunder.
16.8 TOP-HAT STATUS. The Plan is intended to constitute a "top-hat" pension plan under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. To the extent necessary to comply with the top-hat requirements, the Committee may terminate an Eligible Employee as a Participant and, to the extent no adverse tax consequences are triggered under Section 409A of the Code, may, in its sole discretion, distribute his or her Deferred Compensation Account.
16.9 SECTION 162(M) OF THE CODE. The portion of the Plan attributable to the Stock Option Gains and Deferred Stock Option Gains is intended to comply with Section 162(m) of the Code and shall be interpreted as part of the LTIP.
16.10 REPRESENTATION AND LEGEND. The Committee may require each person receiving shares of Common Stock hereunder to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by the Plan, the certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or any national securities association system upon whose system the Common Stock is then quoted, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
16.11 LISTING AND OTHER CONDITIONS.
(a) As long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issue of any shares of Common Stock hereunder shall be conditioned upon such shares being listed on such
exchange or system. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to receive any shares of Common Stock shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock hereunder is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to shares of Common Stock issued hereunder and the right to receive any shares of Common Stock shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company.
Upon termination of any period of suspension under this Section 16.11, any shares of Common Stock affected by such suspension which remain payable shall be payable as to all shares payable before such suspension and as to shares which would otherwise have become payable during the period of such suspension.
16.12 ASSIGNMENT. The Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns and the Participants and their heirs, executors, administrators and legal representatives. In the event that the Company sells all or substantially all of the assets of its business and the acquiror of such assets assumes the obligations hereunder, the Company shall be released from any liability imposed herein and shall have no obligation to provide any benefits payable hereunder.
16.13 GOVERNING LAW. Except to the extent preempted by ERISA or other Federal law, the Plan shall be governed by and construed in accordance with the laws of the State of New Jersey (regardless of the law that might otherwise govern under applicable New Jersey principles of conflict of laws).
16.14 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.
16.15 CONSTRUCTION. Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.
16.16 HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.
Exhibit 10.33
Private & Confidential
DATED 21 OCTOBER 2004
PENN PHARMACEUTICAL SERVICES LIMITED (1)
PENN T LIMITED (2)
CELGENE CORPORATION (3)
PENN PHARMACEUTICALS HOLDINGS LIMITED (4)
ADDLESHAW GODDARD
CONTENTS
CLAUSE PAGE
1 Interpretation........................................................2
2 Provision of Services.................................................8
3 Payment of the Fees and other payment matters........................11
4 Penn T Employees and the Premises....................................11
5 Order Process and Forecasting........................................12
6 Procurement and storage of Raw Materials, Consumables
and Finished Products..............................................12
7 Manufacture, Testing and supply......................................13
8 Dispatch of Finished Products........................................14
9 Sub-contracting by PPSL..............................................16
10 Confidentiality and Data Protection..................................16
11 Publicity............................................................18
12 Provision of information and defects in Finished Product.............18
13 Records and reporting................................................19
14 Intellectual Property................................................20
15 Warranties and limitation of liability...............................21
16 Change Control.......................................................23
17 Insurance............................................................24
18 Step-In Rights.......................................................25
19 Duration.............................................................27
20 Termination..........................................................27
21 Supply after Termination and Termination Assistance..................29
22 Force majeure........................................................29
23 Assignment...........................................................30
24 Guarantee............................................................30
25 Notices..............................................................31
26 Waiver...............................................................31
27 Entire Agreement.....................................................31
28 Void provision.......................................................31
29 Variation............................................................31
30 Costs................................................................31
31 Third Party Rights...................................................32
32 Dispute Resolution Procedure.........................................32
33 Governing Law and Jurisdiction.......................................32
4 Quality Agreement
5 Part 1 -Trademarks
Part 2 - Trademark Assignment
|
THIS AGREEMENT is executed and delivered as a deed on 21 October 2004
BETWEEN
(1) PENN PHARMACEUTICAL SERVICES LIMITED (registered in England and Wales, Company No. 1331447) whose registered office is at Units 23/24 Tafarnaubach Industrial Estate, Tredegar, Gwent, Wales, NP22 3AA (PPSL);
(2) PENN T LIMITED (registered in England and Wales, Company No. 4272045) whose registered office is at Units 23/24 Tafarnaubach Industrial Estate, Tredegar, Gwent, Wales, NP22 3AA (PENN T);
(3) CELGENE CORPORATION (registered in the State of Delaware), whose principal place of business is at 7 Powder Horn Drive, Warren, New Jersey 07059 USA; and
(4) PENN PHARMACEUTICALS HOLDINGS LTD (registered in England and Wales Company No. 04294120) whose registered office is at Units 23/24 Tafarnaubach Industrial Estate, Tredegar, Gwent, Wales, NP22 3AA (PPHL).
WHEREAS
(A) PPSL has knowledge, experience and regulatory approval to perform a wide variety of services to companies in the pharmaceutical industry, including but not limited to the manufacture, quality control, packaging and distribution of medicinal products and holds appropriate licences and authorisations to carry out such services;
(B) Penn T has a requirement, in relation to certain of its medicinal products, for the provision of such services.
(C) PPSL and Penn T have entered into this Agreement with the intent that PPSL shall provide certain services to Penn T upon and subject to the terms of this Agreement.
(D) This Agreement sets out the general provisions relating to the Services and the Technical Documents (as defined below) set out specific technical aspects of the Services required to manufacture particular formulations of Thalidomide.
IT IS AGREED as follows:
1 INTERPRETATION
1.1 In this Agreement the following capitalised terms shall save where the
context otherwise requires, have the following meanings:
AFFILIATE means, with respect to any party, any person or entity which,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such party. A person or
entity shall be deemed to control a corporation (or other entity) if
such person or entity possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation (or other entity) whether through the ownership of voting
securities, by contract or otherwise
API means the active pharmaceutical ingredient required to manufacture
a formulation of Thalidomide
AUDIT REPRESENTATIVES means Penn T's appointed independent accounting
firm and any other technical and manufacturing inspectors or
consultants which Penn T appoints from time to time
BATCH means one (1) production lot of Finished Products
BATCH RECORD means the document created as and after each Batch is
manufactured that, if complete and accurate, reflects and incorporates
all aspects of the Master Batch Formula, the Certificate of Analysis,
and any MD Reports issued, with respect to such Batch
|
BUDGETED FEES means the estimated annual costs to PPSL of providing the
Services, apportioned to reflect the agreed percentage to be recharged
to Penn T. The table of Budgeted Fees for the first Quarter of this
Agreement is set forth in Appendix 1 to schedule 2
CALENDAR QUARTER means a period of three (3) calendar months commencing
on 1st January, 1st April, 1st July or 1st October as applicable save
that the Parties agree that the first Calendar Quarter shall commence
on the Commencement Date and end on the 31 Decemboer 2004
CELGENE PHARMION AGREEMENT means the licence agreement dated 16
November 2001 between Celgene (1) Pharmion GmbH (2) and Pharmion Corp
(3) (as amended and restated from time to time)
CERTIFICATE OF ANALYSIS means a certificate issued by PPSL stating that
a Batch has been manufactured in accordance with the Master Batch
Formula and stating the Test results
CGMPS means current Good Manufacturing Practices promulgated by any
Relevant Authority
CHANGE CONTROL means the change control provisions set forth in clause
16
COMMENCEMENT DATE means the date of this Agreement
CONSUMABLES means all materials or products required by PPSL in order
for PPSL to provide the Services other than the Raw Materials
CUSTOMER means a customer of Penn T who contracts with Penn T directly
for the supply of Finished Products
DCF means the dedicated containment facility provided by PPSL at the
Premises for the manufacture of Finished Product
DRUG MASTER FILE or DMF means the drug master file that relates to the
API
EMPLOYMENT REGULATIONS means the Transfer of Undertakings (Protection
of Employment) Regulations 1981;
EXCLUDED SERVICES means
(a) any services (including manufacture) related to Thalidomide
analogs, homologs or pro-drugs;
(b) analytical development, stability programs, any testing other than
Testing, formulation development, research, development and customised
clinical packaging which is not carried out in the DCF whether any such
services relate to Thalidomide or otherwise; and
(c) any services which fall outside what PPSL reasonably determine are
PPSL's core capabilities from time to time including, without
limitation any services related to parenterals; sterile products;
transdermals or inhalation products.
FDA means the United States Food and Drug Administration
FEES means the Pass Through Costs and Services Costs payable for the
Services set forth in schedule 2, as amended from time to time
FFDCA means the United States Federal Food Drug and Cosmetic Act
FINISHED PRODUCTS means any formulation of Thalidomide together with
the required Packaging and Labelling as set forth in the Technical
Documents as relevant, manufactured in accordance with this Agreement
|
FORCE MAJEURE means any event beyond the reasonable control of a Party
which prevents such Party being able to perform its obligations under
this Agreement including without limitation act of God, fire, flood,
storm, revolution, act of terrorism, riot or civil commotion (but
excluding strikes or industrial disputes of that Party's employees and
excluding any event which could have been avoided if such Party had
implemented reasonable risk management processes which are common
industry practice)
HAZARDOUS WASTE means all waste that is defined as hazardous by
Relevant Law, to the extent that such waste arises out of PPSL's
Processing or Packaging of Finished Products in accordance with this
Agreement
IN-PROCESS MATERIALS means the API and the Materials with respect to a
Batch during the time period beginning at the time PPSL begins
Processing Finished Products in accordance with the Master Batch
Formula and ending at the PPSL Approval Date
INTELLECTUAL PROPERTY means patents, registered designs, trade marks
and service marks (whether registered or not and including applications
for any of the foregoing), copyright, design right, rights in and to
software including source codes, rights in and to the technical
information and other confidential information and know-how, rights in
and to databases and all other intellectual property rights and similar
property rights of whatever nature subsisting in any part of the world
INTELLECTUAL PROPERTY RIGHTS means all rights existing anywhere in the
world in and to Intellectual Property
KNOW-HOW means all designs, specifications, datasheets, techniques,
operating procedures and materials, processes, inventions, formulations
and formulae, performance data, product and pre-clinical and clinical
trial data and records, calculations and other manufacturing and
technical data and information
LABEL or LABELLING means (1) written, printed or graphic materials, as
set forth in the Master Packaging Record or (2) the act of supplying
written, printed or graphic materials, as set forth in the Master
Packaging Record, including (i) upon the Finished Product, (ii) upon
any container or wrapper utilized with the Finished Product, or (iii)
accompanying the Finished Product, including, without limitation,
package inserts
LABORATORY means the laboratory determined pursuant to clause 8.4
LICENCES means the licences, authorisations and permits under Relevant
Law from time to time required to be held by PPSL to perform the
Services including without limitation being:
Wholesale Dealers Import - WI/4351/2
Wholesale Dealers - WL/4351/1
Manufacturer's Licence - ML/4351/1
Manufacturer's Special Licence - ML/4351/1
Manufacturer's Authorisation - IMP - MA (IMP) 4351
LIFE OF THIS AGREEMENT means the period commencing on the Commencement
Date and continuing until determined in accordance with clauses 19 and
20, during which this Agreement is in full force and effect
MASTER BATCH FORMULA means, for any Finished Product, the document
containing the formulas for API and Materials and the description of
the Process required to manufacture such Finished Product as set forth
in the Technical Documents relevant to such Finished Product
MASTER BATCH RECORD means, for any Batch, the Master Batch Formula,
Master Packaging Record
MASTER PACKAGING RECORD means, for any Finished Product, the document
containing the procedures and specification for Packaging and Labelling
such Finished Product as set forth in the Technical Documents relevant
to such Finished Product
|
MATERIALS means the excipients listed in the Master Batch Formula
required for incorporation into the Finished Products during
Processing, including, without limitation, capsules and any other
packaging materials, but excluding API
MD REPORT or MANUFACTURING DEVIATION REPORT means a report indicating
any deviation from the Processing and/or Packaging procedures set forth
in the Master Batch Record
MSDS means the Material Safety Data Sheet for API
NON-CONFORMING BATCH means any Batch that does not comply with the
applicable Specification or Master Batch Record or any Batch processed
in violation of cGMPs
NON-HAZARDOUS WASTE means all rejected Finished Product or In-Process
Materials or waste arising out of Processing and/or Packaging,
including without limitation, rejected or unusable Materials or API,
disposable manufacturing equipment (including filters used in
Processing and Packaging), wash rinse, and previously used or discarded
protective clothing, except to the extent that any of the foregoing is
Hazardous Waste
OFFICE FACILITIES means a lockable office space on the Premises with
secure document storage and all such office equipment, services and
utilities (including, for the avoidance of doubt electricity, gas and
water) as Penn T shall reasonably request. Such office space shall have
all the amenities enjoyed generally by PPSL and its employees including
access to such telephone lines and ISDN/broadband connections as Penn T
may reasonably require but excluding access to the PPSL local area
network or PPSL data storage whether electronic or otherwise
PACKAGE or PACKAGING means the procedures used in packing the Finished
Products into containers, bottles, cartons, shipping cases or any other
like matter, or the materials thereof, as set forth in the applicable
Master Packaging Record
PASS THROUGH COSTS means the costs incurred by PPSL as detailed in
paragraph 1(c) of schedule 2 and any other costs expressed as a Pass
Through Cost elsewhere in this Agreement but shall not include any
costs incurred in the name of Penn T and at no cost to PPSL
PARTIES means PPSL and Penn T
PAYMENT TERMS means the payment provisions set forth in clause 3 and
schedule 2
PENN PHARMION AGREEMENT means the agreement dated 7 March 2001 between
Pharmion GmbH (1) and Penn T (2) as amended and restated from time to
time (including by a subsequent agreement dated 16 November 2001) and
any other amendments or related agreements
PENN T EMPLOYEES means the Penn T Personnel who are officers or
employees of Penn T
PENN T INFORMATION means all information and data including, without
limitation, proprietary information and materials (whether or not
patentable) regarding Penn T's or its Customers' technology, products,
business information or objectives, as well as trade secrets and
information equivalent to them of Penn T and its Customers (including,
but not limited to, formulae, processes, methods, knowledge and
Know-how) in connection with the manufacture, sale of or other dealing
in the Finished Products or any other product formulations containing
Thalidomide or Thalidomide analogs, homologs or prodrugs
PENN T PERSONNEL means officers, employees, agents, representatives or
sub-contractors of Penn T or a company within the Celgene group or the
Customers, including without limitation the Audit Representatives
PHARMION THALIDOMIDE means any formulation or product containing
thalidomide as the active ingredient, as distributed by Pharmion Corp
or GmbH from time to time and for the time being including, without
limitation, that distributed under the Penn Pharmion Agreement and the
Celgene Pharmion Agreement
|
PPSL APPROVAL DATE means the date on which PPSL's quality assurance
department approves each Batch for shipment in compliance with the
Master Batch Record
PPSL INFORMATION means all information and data including, without
limitation, proprietary information and materials (whether or not
patentable) regarding PPSL's or PPSL's customers' (excluding Penn T or
Celgene) technology, products, business information or objectives, as
well as trade secrets and information equivalent to them (including,
but not limited to, formulae, processes, methods, knowledge and
Know-how) which is made known by PPSL to any Penn T Personnel.
PPSL KNOW-HOW means Know-How of PPSL or PPSL's customers (excluding
Celgene and Penn T) utilised by PPSL prior to the Commencement Date and
any Know-How developed by PPSL during the provision of the Services
which is of general application to PPSL's business
PREMISES means Units 23/24 Tafarnaubach Industrial Estate, Tredegar,
Gwent, Wales NP22 3AA and shall include the DCF
PROCESS or PROCESSING means the procedures, or any part thereof,
involved in manufacturing the Finished Product from the API and
Materials as set forth in the Master Batch Formula
QUALITY ASSURANCE or QA means the sum of the organised arrangements
made with the object of ensuring Finished Products are of the required
quality
QUALIFIED PERSON or QP means any person eligible to act as a "Qualified
Person" under EU Directive 2001/83/EC and named as such on any of the
Licences
QUALITY AGREEMENT means the quality agreement between PPSL and Penn T
setting out the quality control (being the organisation, documentation
and release procedures which ensure that the necessary and relevant
tests are actually carried out and that the materials are not released
for use, nor products released for sale or supply, until their quality
has been judged to be satisfactory) and QA responsibilities of PPSL and
Penn T as set forth in schedule 4
RAW MATERIALS means API and Materials
RECALL means a recall, field correction, market withdrawal, stock
recovery or other similar action in relation to a Finished Product
RELEVANT AUTHORITY means any regulatory authority or agency anywhere in
the world, the regulatory requirements stipulated by which are
applicable to the performance or receipt of Services including without
limitation the FDA and its equivalents in other jurisdictions
RELEVANT LAW means all applicable statutory, sub-ordinate legislation,
rules or regulations to which a Party is subject from time to time,
including the rules, regulatory submissions, regulatory approvals,
regulatory standards, codes of conduct, codes of practice, guidance and
accreditation terms stipulated by any Relevant Authority to which any
Party is subject from time to time including without limitation the
FFDCA and its equivalents in other jurisdictions
RESTRICTED SERVICE means to manufacture, sell or otherwise deal in the
Finished Products or any other product formulations containing
Thalidomide or Thalidomide analogs, homologs or prodrugs thereof and
RESTRICTED SERVICES shall be construed accordingly
RESTRICTED PRODUCTS means the thalidomide drugs known as Thalomid(R),
Sauramide and Pharmion Thalidomide
SAA means the share acquisition agreement entered into on or around the
date hereof between Craig Rennie and others (1), Celgene UK
Manufacturing Limited (2) and Celgene (3).
SAURAMIDE means the formulation of Thalidomide with the specification
set forth in the Technical Documents relevant to Sauramide
|
SAURAMIDE DEDUCTION means the amount calculated pursuant to paragraph
1(d) of schedule 2
SECONDARY RESTRICTED PRODUCTS means any formulation containing
thalidomide or thalidomide analogs, homologs or prodrugs thereof
including, without limitation, any formulation that contains
thalidomide but excluding the thalidomide drugs known as Thalomid,
Sauramide and Pharmion Thalidomide
SERVICES means the services to be carried out by PPSL as detailed in
schedule 1 and the Technical Documents
SERVICES COSTS means the costs incurred by PPSL, as detailed in
paragraph 1(b) of schedule 2
SPECIFICATION means, for each Finished Product, the appropriate
standards of identity, strength, quality and purity for the Materials,
API, In-Process Materials and Finished Product, and the Tests thereof,
as set forth in the Quality Agreement and in the Technical Documents
relevant to such Finished Product
STEP-IN means the right of Penn T to take over the provision of the
Services or any part thereof in accordance with clause 18
TECHNICAL DOCUMENTS means any one of or combination of the Quality
Agreement the Specification for any Thalidomide formulation, Master
Batch Formula, Master Packaging Record and any other technical protocol
or technical details of how the Services are to be performed or how the
Premises are to be maintained each of which are agreed, amended or
supplemented by the Parties from time to time
TERRITORY means all territories covered in any and all agreements
entered into by (or assigned or novated to) Penn T or Celgene and which
relate to the formulation, storage, supply, sale or distribution of any
Restricted Product or any Finished Product and any other agreement with
any third party to do the same
TESTS or QC TESTS means the analytical procedures to be performed as
applicable on the Raw Materials, Consumables, In-Progress Materials and
Finished Products to determine whether such Raw Materials, Consumables,
In-Progress Materials and Finished Products are in accordance with the
applicable Specification, as such tests are set forth in the Technical
Documents
THALIDOMIDE means the drug commonly known as thalidomide which is
represented by the chemical name a-(N-phthalimido)glutarimide
(+/-)2-(2,6-dioxo-3-piperidyl)isoindoline-1,3-dione.
TRADEMARKS means the trademarks set forth in Part 1 of Schedule 5
YEAR means a 12 month period ending on any anniversary of the
Commencement Date.
1.2 In addition:
(a) the recitals, schedules and Technical Documents form part of
this Agreement and references to this Agreement include the
recitals, schedules and Technical Documents;
(b) references to recitals, clauses and schedules are to recitals
and clauses of and schedules to this Agreement; references in
a schedule to paragraphs are to the paragraphs of that
schedule; and a reference to a clause or paragraph number is,
unless otherwise specified, a reference to all its sub-clauses
or sub-paragraphs;
(c) words importing a gender include every gender and references
to the singular include the plural and vice versa;
(d) words denoting persons include individuals and bodies
corporate, partnerships, unincorporated associations, limited
liability company, trust, business trust, association, joint
stock company, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed
herein;
|
(e) references to this Agreement or any other document are to this
Agreement or that document as in force for the time being and
as amended, supplemented, varied or replaced from time to time
in accordance with the requirements of this Agreement or that
document (as the case may be);
|
(f) a reference to any body is:
(i) if that body is replaced by another organisation, deemed to refer to that replacement organisation; and
(ii) if that body ceases to exist, deemed to refer to that
organisation which most substantially serves the same
purposes as the original body;
(g) a reference to a statute or statutory provision shall be
construed as including a reference to any subordinate
legislation (as defined by section 21(1) Interpretation Act
1978) made from time to time under the statute or statutory
provision whether on, before or after the Commencement Date;
(h) a reference to a statute, statutory instrument or any other
subordinate legislation shall unless otherwise stated be
construed as including a reference to that statute, statutory
instrument or subordinate legislation as in force at the
Commencement Date and as from time to time modified or
consolidated, superseded, re-enacted or replaced after the
Commencement Date; and
(i) references in this Agreement to a party shall, except where
the context requires otherwise, include its successors in
title and permitted assignees.
1.3 The headings and contents table in this Agreement are for convenience
only and do not affect its interpretation.
2 PROVISION OF SERVICES
2.1 In consideration of the payment by Penn T of the Fees, PPSL hereby
agrees to provide the Services to Penn T in accordance with the
Technical Documents and upon the terms and conditions set out in this
Agreement.
2.2 Except pursuant to this Agreement, PPSL shall not, and shall procure
that its Affiliates shall not directly or indirectly carry out any of
the Restricted Services for the Life of this Agreement save that
neither PPSL nor its Affiliates shall be in breach of this Agreement
where any one of them provides any Restricted Service to Celgene or any
of Celgene's Affiliates.
2.3 PPSL shall not, and shall procure that its Affiliates shall not
directly or indirectly carry out any of the Restricted Services for a
period of 2 years following termination of this Agreement, save that
neither PPSL nor its Affiliates shall be in breach of this Agreement
where any one of them provides any Restricted Service to Celgene or any
of Celgene's Affiliates.
2.4 Except as otherwise agreed between the Parties, or in relation to the
manufacture of Sauramide under the licence granted by Celgene in clause
14.3(b), PPSL shall use the DCF exclusively for the manufacture of the
Finished Products and not for any other purpose whatsoever, for the
Life of the Agreement.
2.5 At the request of Penn T, PPSL shall assist Penn T in obtaining a
Wholesale Dealers licence and any other licences for its business
carried on at the Premises considered to be necessary by Penn T in
order for Penn T to carry on its business, meet its obligations with
Customers and/or to perform any of the Services itself and the cost of
such assistance shall be at no cost to Penn T.
2.6 In the performance of the Services, PPSL shall make available the
services of the QP and shall ensure that the QP shall carry out his/her
duties in accordance with all Relevant Law and within the "Code of
Practice for Qualified Persons" produced jointly by the professional
and regulatory bodies for the pharmaceutical industry.
|
2.7 If Penn T requires additional or alternative work from PPSL not
specified herein, and such work is required or is necessary for the
commercial or clinical manufacture of any formulation of Thalidomide
such work and the fees for such work shall be determined through Change
Control. Any other services, including without limitation the Excluded
Services, if accepted by PPSL in its sole discretion shall, unless
otherwise agreed between the Parties, be performed under a separate
agreement and is beyond the scope of this Agreement.
2.8 The Services shall be provided by the PPSL personnel approved by Penn T
prior to the Commencement Date and PPSL shall consult with Penn T in
relation to any proposed changes to such personnel and, for the
avoidance of doubt, Penn T's approval shall not be required for any
such change. PPSL acknowledges that certain of its personnel and in
particular Craig Rennie; Keren Winmill; Paul Thomas; Steve Evans and
Richard Barnett are key to the provision of the Services and PPSL shall
use its best endeavours to retain and incentivise these key personnel
in the normal course of its business, provided that nothing in this
clause 2.8 shall fetter the rights and discretion of the management of
PPSL to make decisions relating to such employees which are in the best
interests of PPSL and its business. PPSL acknowledges that Penn T may
also wish to provide additional incentives to such personnel through
PPSL at Penn T's costs.
2.9 Notwithstanding clauses 2.2 and 2.3 above, PPSL undertakes with Penn T
that without the prior consent in writing of Penn T, PPSL will not and
will procure that its Affiliates will not, except pursuant to this
Agreement and, in particular, in order for it to perform its
obligations to carry out the Service hereunder directly or indirectly,
whether by itself, its employees (whilst an employee of PPSL) or agents
(whilst acting as an agent for PPSL) and whether on its own behalf or
on behalf of any other person, firm or company, during the Life of the
Agreement :
RESTRICTED PRODUCTS
(a) (subject to clause 2.12) carry on, be employed or otherwise
engaged, concerned or interested in, any business which is
engaged in (or arranges with any third party for) the
manufacture, procurement of manufacture, distribution or sale
of the Restricted Products or any of them in the Territory (a
COMPETING BUSINESS);
(b) in relation to the manufacture, production, distribution or
sale of Restricted Products or any of them in the Territory,
solicit or canvass, accept orders from or otherwise deal with
any person, firm, company or other organisation who was a
customer of Penn T, at any time during the Life of the
Agreement and with whom any PPSL employee had personal
dealings;
(c) solicit or entice away or endeavour to solicit or entice way
or hire from Penn T, any person employed or otherwise engaged
by the same in the manufacture, procurement of manufacture,
distribution or sale of the Restricted Products or any of them
in the Territory, whether or not that person would commit any
breach of his contract of employment by reason of his leaving
the service of the same;
SECONDARY RESTRICTED PRODUCTS
(d) (subject to clause 2.12) carry on, be employed or otherwise
engaged, concerned or interested in, any business which is
engaged in (or arranges with any third party for) the
manufacture, procurement of manufacture, distribution or sale
of the Secondary Restricted Products or any of them in the
Territory (a SECONDARY COMPETING BUSINESS);
(e) in relation to the manufacture, production, distribution or
sale of Secondary Restricted Products or any of them in the
Territory, solicit or canvass, accept orders from or otherwise
deal with any person, firm, company or other organisation who
was a customer of Penn T, at any time during the Life of the
Agreement and with whom any employee of PPSL had personal
dealings;
|
(f) solicit or entice away or endeavour to solicit or entice way
or hire from Penn T, any person employed or otherwise engaged
by the same in the manufacture, procurement of manufacture,
distribution or sale of the Secondary Restricted Products or
any of them in the Territory, whether or not that person would
commit any breach of his contract of employment by reason of
his leaving the service of the same.
2.10 Notwithstanding clauses 2.2 and 2.3 above, PPSL undertakes with Penn T
that without the prior consent in writing of Penn T, PPSL will not and
will procure that its Affiliates will not, directly or indirectly,
whether by itself, its employees (whilst an employee of PPSL) or agents
(whilst acting as an agent for PPSL) and whether on its own behalf or
on behalf of any other person, firm or company, for a period of 2 years
following termination of this Agreement:
RESTRICTED PRODUCTS
(a) (subject to clause 2.12) carry on, be employed or otherwise
engaged, concerned or interested in, any business which is
engaged in (or arranges with any third party for) the
manufacture, procurement of manufacture, distribution or sale
of the Restricted Products or any of them in the Territory (a
COMPETING BUSINESS);
(b) in relation to the manufacture, production, distribution or
sale of Restricted Products or any of them in the Territory,
solicit or canvass, accept orders from or otherwise deal with
any person, firm, company or other organisation who was a
customer of Penn T, at any time during the Life of the
Agreement and with whom any PPSL employee had personal
dealings;
(c) solicit or entice away or endeavour to solicit or entice way
or hire from Penn T, any person employed or otherwise engaged
by the same in the manufacture, procurement of manufacture,
distribution or sale of the Restricted Products or any of them
in the Territory, whether or not that person would commit any
breach of his contract of employment by reason of his leaving
the service of the same;
SECONDARY RESTRICTED PRODUCTS
(d) (subject to clause 2.12) carry on, be employed or otherwise
engaged, concerned or interested in, any business which is
engaged in (or arranges with any third party for) the
manufacture, procurement of manufacture, distribution or sale
of the Secondary Restricted Products or any of them in the
Territory (a SECONDARY COMPETING BUSINESS);
(e) in relation to the manufacture, production, distribution or
sale of Secondary Restricted Products or any of them in the
Territory, solicit or canvass, accept orders from or otherwise
deal with any person, firm, company or other organisation who
was a customer of Penn T, at any time during the Life of the
Agreement and with whom any employee of PPSL had personal
dealings;
(f) solicit or entice away or endeavour to solicit or entice way
or hire from Penn T, any person employed or otherwise engaged
by the same in the manufacture, procurement of manufacture,
distribution or sale of the Secondary Restricted Products or
any of them in the Territory, whether or not that person would
commit any breach of his contract of employment by reason of
his leaving the service of the same.
2.11 Subject to clauses 2.12 and 11, PPSL undertakes with Penn T that it
will not at any time during the Life of the Agreement directly or
indirectly, whether by itself, its employees (whilst employed by PPSL)
or agents (whilst agents of PPSL) or otherwise howsoever in the course
of carrying on any trade or business, claim, represent or otherwise
indicate any present association with Penn T.
2.12 The restrictions in clause 2.9, 2.11 and 2.10 shall not operate to
prohibit PPSL or any of its directors, officers or employees, from
holding in aggregate up to 3 per cent of the shares of any company
operating a Competing Business or a Secondary Competing Business (as
the case may be), the shares of which are listed or dealt in on a
recognised stock exchange.
|
2.13 If a covenant is held to be illegal, invalid or unenforceable but would
be legal, valid or enforceable if some part were deleted or the period
or area of application were reduced or modified, then the covenant
shall apply with such modification as may be necessary to make it
legal, valid and enforceable.
3 PAYMENT OF THE FEES AND OTHER PAYMENT MATTERS
3.1 In consideration of the matters set forth in clause 2 Penn T agrees
during the Life of this Agreement to pay the Fees in accordance with
the Payment Terms.
3.2 The Services Costs are exclusive of value added tax and value added tax
shall be added to the Fees where appropriate. Any further tax or duty
(other than corporation tax or other tax on profits) which directly
affect PPSL's operating costs to provide the Services and which it
would not have incurred except by reason of providing the Services,
shall be recharged to Penn T as Pass Through Costs.
3.3 Penn T shall be entitled to set off and withhold any payment in
satisfaction or part satisfaction of any bone fide claim for breach of
this Agreement.
3.4 In the event of late payment of any sum due to either Party, such Party
may without prejudice to its other rights and remedies hereunder charge
interest at the rate of 2% per annum above the base lending rate from
time to time of The Royal Bank of Scotland. Such interest will accrue
from the date upon which payment was due until payment in full. Such
interest shall continue both before and after judgment.
3.5 If PPSL fails to deliver Finished Product by the agreed date or
otherwise breaches the Agreement and such breach causes Penn T to incur
liability to its Customers, PPSL shall, subject to clauses 15.6 and
15.10 and provided that Penn T complies with 15.11, indemnify Penn T
against such liability.
3.6 If Penn T fails to make any payment that is due under this Agreement or
Celgene fails to make any payment under its parent company guarantee to
PPSL, such that the monies owing would give PPSL a right to terminate
this Agreement pursuant to clause 20.3, PPSL may, without prejudice to
its other rights and remedies suspend all Services until such payments
with interest thereon have been paid.
4 PENN T EMPLOYEES AND THE PREMISES
4.1 Penn T shall have the right to locate up to three (3) Penn T Employees
at the Premises in order to perform any function relating to this
Agreement or its business with Customers from time to time and the
identity of such individuals shall, subject to clause 4.4, be at the
sole discretion of Penn T. Penn T may locate additional Penn T
Personnel in the Premises with the consent of PPSL, such consent not to
be unreasonably withheld or delayed. Penn T shall give PPSL reasonable
advance notice in writing of the identity of all Penn T Personnel to be
located at the Premises from time to time.
4.2 PPSL shall make the Office Facilities available at the Premises to Penn
T Personnel in accordance with the terms of this Agreement. PPSL shall
allow Penn T Personnel full access to and from the Premises so far as
the same is reasonably required by Penn T, subject to compliance with
clauses 4.4 and 4.5 below.
4.3 PPSL shall be responsible for the maintenance, repair, servicing and
upkeep of the Office Facilities. PPSL will give notice to Penn T of any
scheduled or emergency maintenance, repairs, shutdowns and alterations
which may affect Penn T's use of the Office Facilities. PPSL will use
reasonable efforts to accommodate the requirements of Penn T in this
respect, except in the case of genuine emergencies.
4.4 PPSL shall have the right to refuse access to the Premises to:
(a) any Penn T Personnel who does not comply with the standard
policies, safety procedures and regulations applicable to the
Premises and notified to Penn T Personnel from time to time;
and
|
(b) any Penn T Personnel who is a competitor of or who is an
officer or employee of a competitor of PPSL (but excluding
Penn T Employees).
4.5 Penn T shall and shall ensure the Penn T Personnel shall use the Office
Facilities and Premises in accordance with PPSL's standard policies,
safety procedures and regulations applicable to PPSL personnel, which
are notified to Penn T from time to time.
4.6 PPSL shall be responsible for identifying, obtaining and maintaining
all consents, licences and permits (including any consents which may be
required from PPSL's bankers or holders of security over PPSL's assets)
which may be required to allow Penn T to locate the Penn T Personnel at
the Premises as envisaged by this clause 4 and in the event that Penn T
exercises its Step-In Rights pursuant to clause 18.
5 ORDER PROCESS AND FORECASTING
5.1 Not less than forty-five (45) days prior to the first day of each
Calendar Quarter, Penn T shall prepare and provide PPSL with a written
forecast of its estimated Finished Product requirements for each of the
following four (4) Calendar Quarters. Subject in all cases to clause
5.2, Penn T shall not without the prior written consent of PPSL,
increase the quantity estimated for the first Calendar Quarter of each
forecast by more than twenty-five percent (25%) from the quantity
estimated for the second Calendar Quarter of the previous forecast.
5.2 Penn T shall not provide to PPSL any forecast, estimating Penn T's
Finished Product requirement, if such requirement is in excess of the
manufacturing capacity of the DCF and PPSL shall provide Penn T with
details of such capacity on request.
5.3 If Penn T places any order for Finished Product, the delivery time for
which would require PPSL to manufacture Finished Product in excess of
the manufacturing capacity of the DCF, the delivery time shall be
adjusted only to the extent necessary to allow for such manufacturing
capacity restraint and PPSL shall fully co-operate with Penn T in
relation to any expansion of the DCF or other increase in the
manufacturing capacity of PPSL in relation to Finished Products, the
process and capital costs of which shall be determined through Change
Control.
5.4 Penn T shall purchase manufacturing services hereunder by submitting
firm purchase orders to PPSL. Each purchase order shall be in writing
in a form reasonably acceptable to PPSL, and shall specify the Finished
Products ordered, the quantity ordered, the required delivery date
(which shall not be a date sooner than 90 days after the date of such
purchase order) and delivery terms.
5.5 The minimum size of any order for Finished Products shall be a single
Batch with larger orders being in whole number multiples of a Batch. In
the event of a conflict between the terms and conditions of any
purchase order and this Agreement, the terms and conditions of this
Agreement shall prevail.
5.6 Each Calendar Quarter, PPSL shall manufacture, supply and deliver to
Penn T such quantities of Finished Products as Penn T orders under
clause 5.4 above. PPSL shall, subject to clause 5.2, use its
commercially reasonable efforts to manufacture and supply to Penn T any
quantities of Finished Products in excess of one hundred percent (100%)
of the quantity ordered for such Calendar Quarter under clause 5.4
above, provided that Penn T has furnished PPSL with the necessary
amount of Raw Materials.
5.7 If PPSL becomes aware of any circumstances that may cause PPSL to
default in its obligation above to deliver such quantities of
conforming Finished Products as Penn T forecasted for any Calendar
Quarter, PPSL shall give Penn T prompt written notice describing such
circumstances, together with a proposed course of action to remedy such
failure.
6 PROCUREMENT AND STORAGE OF RAW MATERIALS, CONSUMABLES AND FINISHED
PRODUCTS
6.1 As required by Penn T, PPSL shall procure on behalf of Penn T, such Raw
Materials as are required for the provision of the Services. Penn T
shall notify PPSL of the quantity of any Raw Materials to be purchased
and the identity of the supplier with which the order should be placed.
Penn T hereby authorises PPSL to execute purchase orders for Raw
Materials on Penn T's behalf and Penn T shall be directly liable to any
third party supplier for payment for such Raw Materials.
|
6.2 PPSL shall purchase all Consumables as are required for the provision
of the Services and shall recharge such Consumables to Penn T at cost.
6.3 Unless otherwise agreed in writing, PPSL will arrange as necessary for
clearance through customs of all Raw Materials shipped to PPSL.
6.4 PPSL shall use reasonable endeavours to ensure any goods or services
which PPSL procures for or purchases and recharges to Penn T shall be
at the best price available and, subject to clause 9.4, Penn T shall be
entitled to require PPSL to use alternative suppliers or service
providers.
6.5 Title to all Raw Materials, In-progress Materials and Finished Products
shall remain with Penn T at all times.
6.6 PPSL shall hold Raw Materials, Consumables, In-Process Materials and
Finished Products in a safe, secure and suitable environment at the
Premises and in accordance with recognised industry standards and all
Relevant Laws.
6.7 PPSL shall keep all API segregated from other materials within its
ownership or reasonable control so as to maintain the integrity of the
substance and shall not allow any samples of the substance to be used
or Tested by any party not under its direct supervisory control for any
purposes.
7 MANUFACTURE, TESTING AND SUPPLY
7.1 PPSL shall verify the quantity and quality of all API received by PPSL
according to the methods and procedures set forth in the Specification
within sixty (60) days of receipt by PPSL of the API. Within such sixty
(60) day period and promptly following any determination of a
discrepancy by PPSL, PPSL shall inform Penn T in writing of and provide
supporting documents in relation to any discrepancies in the quantity
and/or quality of the API received and the documents accompanying each
shipment of the API.
7.2 If PPSL notifies Penn T of a discrepancy in the quantity or quality of
the API within the sixty (60) day period described in clause 7.1 above,
Penn T shall use its best efforts to either ship to PPSL, or authorise
PPSL to purchase pursuant to clause 6.1 above additional API within the
time period necessary for PPSL to manufacture Finished Product in
accordance with the completion date for delivery of Finished Product
pursuant to the applicable purchase order.
7.3 If PPSL fails to inform Penn T of any discrepancy in the quantity or
quality of the API within the sixty (60) day period described in clause
7.1 above or if there is damage to the API within the foregoing sixty
(60) day period and PPSL cannot demonstrate that such damage occurred
prior to delivery to PPSL or if any such damage is the result of PPSL's
failure to handle the API in accordance with the terms of this
Agreement, then PPSL shall (a) at PPSL's option return the API to Penn
T or dispose of the same according to Penn T's instructions and (b) at
Penn T's option, either (i) purchase from Penn T replacement API for a
value equal to Penn T's then current API cost for the API that is lost,
damaged or destroyed, or (ii) credit Penn T on it's next invoice for an
amount equal to Penn T's then-current cost for such API.
7.4 In respect of any Raw Materials, Consumables, In-Progress Materials and
Finished Products PPSL shall perform such Tests and analysis as are
necessary for this Agreement or as are requested by Penn T, but
excluding any Excluded Services, and shall maintain the confidentiality
of such Test results in accordance with clause 10.
7.5 PPSL shall Process, Test (unless PPSL is requested by Penn T to conduct
a full analysis), Package and Label the Finished Products in conformity
with the Master Batch Record. Unless otherwise required by Relevant
Law, PPSL shall not make any changes to the Master Batch Record or
Tests without prior written consent from Penn T, which consent shall
not be unreasonably withheld. Penn T shall notify PPSL in writing of
any proposed changes to the Master Batch Record or Tests. PPSL shall
use reasonable commercial efforts to promptly implement changes
directed by Penn T to the Master Batch Record or Tests including, but
not
|
limited to, any required capital equipment expenditures. PPSL shall
notify Penn T and obtain prior written approval (such approval shall
not be unreasonably withheld) for any proposed changes related to the
Finished Product outside the Master Batch Record or Tests prior to
their implementation by PPSL.
7.6 PPSL shall manufacture the Finished Products in accordance with cGMPs
and all Relevant Law.
7.7 PPSL shall provide all Labelling and Packaging for the Finished
Products and such Labelling and Packaging shall be in accordance with
the Master Packaging Record. PPSL shall afford Penn T the opportunity
to approve, on a sample basis, and Penn T shall review and approve the
Labels for the Finished Products. Should Penn T desire or be required
to make any change to any such Labels, Penn T shall revise and update
all artwork and text associated with such change and provide such
changes to PPSL. PPSL shall make all commercially reasonable and
necessary arrangements to print such changed Labels and shall provide
printer's proofs to Penn T for review and approval. Penn T shall
promptly provide PPSL with any necessary corrections thereto or notify
PPSL of its approval of such proofs.
7.8 PPSL shall keep accurate and complete records of all stock of Raw
Materials and Finished Products and shall furnish to Penn T a stock
report on an annual basis on request by Penn T.
8 DISPATCH OF FINISHED PRODUCTS
8.1 Upon production of Finished Products pursuant to this Agreement, PPSL
shall pack, dispatch and deliver Finished Products to the Customer's
delivery destination as detailed on the relevant purchase order or
otherwise as instructed by Penn T.
8.2 Unless otherwise agreed in writing, risk in the Raw Materials shall
pass to PPSL when the Raw Materials are delivered at the Premises and
risk in the Raw Materials, In-Progress Materials and Finished Products
shall remain with PPSL until the Finished Products are delivered to the
Customer's delivery destination as detailed on the relevant purchase
order or otherwise as instructed by Penn T, whereupon risk will pass to
the Customer and/or Penn T as appropriate.
8.3 The Batch Records shall be accepted as complete and accurate unless
Penn T notifies PPSL in writing within forty-five (45) days of delivery
of Finished Products that Penn T Customer has determined that either
the Finished Products do not conform to the Specification or that the
Batch Records are not complete, provided, however, in the case of
Finished Product having latent defects, which upon diligent examination
in accordance with all quality control Testing procedures set out in
the Specifications and Quality Agreement upon receipt could not have
been discovered, Penn T must give notice to PPSL within twenty (20)
days after discovery of such latent defect, setting forth the specific
basis for such rejection. Upon written notification by Penn T of a
deficient Batch Record or Non-Conforming Batch, PPSL shall review the
specific basis for such rejection and upon acceptance of such
rejection, PPSL shall correct the deficiency to the Batch Record or
undertake additional, approved, manufacturing activity, including
recovery of materials by weight, sorting or de-Labelling and
re-Labelling (but excluding any reworking) within forty-five (45)
business days of such notification with no additional cost to Penn T
(subject to clause 8.4 below).
8.4 If prior to either Penn T's acceptance of the Batch Record, or Penn T's
notification to PPSL of latent defects, the Parties disagree concerning
whether the Finished Product meets Specification or whether the Batch
Records are complete, Penn T may ask PPSL's Qualified Person to provide
details and test data about the quality and the manufacturing
procedures relating to the Finished Goods in question. If, contrary to
the determination of PPSL's QP, Penn T determines that the Finished
Products do not meet the Specification or that the Batch Record is
incomplete, either Party may request, in writing, at any time, that an
independent laboratory be used to determine whether the Finished
Product meets the Specification and whether the Batch Record is
complete. Thereafter, the Parties shall promptly name a reputable and
mutually acceptable independent laboratory that has been qualified for
the appropriate testing method(s) set forth in the applicable
regulatory licence application and in the absence of agreement by the
Parties within fourteen (14) days, the dispute shall be referred to the
laboratory used by the Home Office Forensic Science Service from time
to time (or if this laboratory cannot undertake the Service in a timely
fashion by an alternative
|
laboratory nominated by the Home Office Forensic Science Service). The
Laboratory shall Test the Finished Product for compliance with the
Specification, and such Test results obtained by the Laboratory shall
be final and binding.
8.5 If the Laboratory determines that the Finished Product meets
Specification, Penn T shall:
(a) pay to PPSL the amount invoiced for such Finished Product, and
all other expenses reasonably attributable or resulting from
the Laboratory referral; and
(b) pay to the Laboratory the amount of the fees charged by the
Laboratory for such Testing.
8.6 If the Laboratory determines that such sample fails to conform to the
applicable Specification, then PPSL shall:
(a) undertake additional, approved manufacturing as described in
clause 8.3 above as soon as reasonably practicable and in any
event within forty-five (45) business days after receipt of
the Laboratory findings;
(b) pay to the Laboratory the amount of the fees charged by the
Laboratory for such Testing and all other expenses reasonably
attributable or resulting from the Laboratory referral;
(c) purchase at PPSL's cost the required additional Raw Material
and Consumables necessary to manufacture conforming Finished
Product;
(d) explain to Penn T in writing the reason for the failure,
provide copies of all Test data and reports and produce an
investigation report in accordance with the Quality Agreement;
and
(e) within 30 days offer the occurrence of the problem report to
Penn T the steps to be taken to prevent a re-occurrence of the
problem.
8.7 If PPSL fails to deliver to Penn T the quantity of conforming Finished
Products that Penn T orders under any purchase order on the agreed
delivery date or if none stated within ninety (90) days of the date of
the purchase order, after providing written notice to PPSL, Penn T
shall where the circumstances described in clause 8.8 do not apply,
have the right to purchase substitute Finished Products from a third
party in substitution for the quantity of conforming Finished Products
which PPSL failed to deliver hereunder. PPSL shall reimburse Penn T
within 14 days for the difference between the cost of obtaining such
substitute Finished Products (plus any commercially reasonable charges,
expenses or commissions incurred by Penn T in connection with effecting
cover, and any other reasonable expenses incident to such failure),
less the price which would have been due to PPSL for the manufacture of
the like quantity of Finished Products if supplied by PPSL hereunder
provided always that Penn T shall use commercially reasonable efforts
to purchase the substitute Finished Products at the best price
available in the open market and on the best commercial terms
available.
8.8 PPSL shall not be liable for delays in delivery of Finished Product or
any other breach of this Agreement to the extent that such delay in
delivery or other default is directly caused by an act or omission of
Penn T (including without limitation Penn T Personnel) or Celgene
provided such act or omission:
(a) was notified and detailed to Penn T as soon as the act or
omission occurred; and
(b) was not thereafter rectified by Penn T as soon as reasonably
practicable.
8.9 Neither Party shall be required to comply with any provision of this
Agreement or with the instructions of the other or the instructions of
Celgene or a Customer if such compliance would cause that Party to be
in violation of any Relevant Law.
|
8.10 PPSL shall, on reasonable written notice and at Penn T's sole cost,
dispatch any remaining Raw Materials, In-Progress Materials or Finished
Products to Penn T or arrange for the destruction of Raw Materials,
In-Progress Materials or Finished Products so requested by Penn T to be
so destroyed whether upon the expiry date of the Raw Materials or
otherwise. PPSL shall ensure destruction of Raw Materials, In-Progress
Materials or Finished Products in accordance with all Relevant Law and
shall upon written request furnish Penn T promptly with a certificate
of such destruction.
9 SUB-CONTRACTING BY PPSL
9.1 PPSL may not sub-contract any part of the Services except to a
sub-contractor approved in writing in advance by Penn T and on
condition that the sub-contractor enters into a contract with PPSL
|
which:
(a) incorporates all the applicable terms of this Agreement; and
(b) the right to visit the site and audit the records of the sub-contractor to the extent necessary for Penn T to exercise its rights of audit under this Agreement.
provided that this clause shall not apply to PPSL's sub-contractors who supply PPSL with services or goods which do not impact on the quality of Finished Products or affect either Party's ability to comply with Relevant Law and which fall into the following categories: the supply of Consumables, calibration services, specialist maintenance services, qualification services relating to air cleanliness in manufacturing rooms, treatment services for portable water, waste management services, freight services, pest control services, security services and IT services.
9.2 Where the Services or part thereof are sub-contracted by PPSL, PPSL shall carry out such reconciliations, checks and testing as are reasonable to verify the integrity of the work carried out by such sub-contractor and to verify that all unused materials including but not limited to Raw Materials provided by PPSL to such sub-contractor are duly returned to PPSL.
9.3 PPSL shall be responsible for the delivery of its sub-contractors service and PPSL shall, subject to clauses 15.6 and 15.10 and provided that Penn T complies with clause 15.11, indemnify Penn T against any liability, costs expenses incurred or losses suffered by Penn T arising from any act or omission of its sub-contractors.
9.4 Penn T shall have the right to require PPSL to sub-contract any part of the Service, which is already sub-contracted, to a sub-contractor of Penn T's choice provided:
(a) PPSL may veto any required subcontractor that cannot meet PPSL's standard technical requirements; and
(b) PPSL shall have the right to terminate its contract with any required subcontractor if the subcontractor is in breach of its contract with PPSL and as a direct result PPSL is in breach of this Agreement.
10 CONFIDENTIALITY AND DATA PROTECTION
10.1 Subject to clause 10.2, PPSL shall keep the Penn T Information
confidential and Penn T shall keep the PPSL Information confidential
and both Penn T and PPSL shall keep the terms of this Agreement
confidential and in respect of the other Party's information
(INFORMATION) neither PPSL or Penn T shall :
(a) make use of the Information, except in connection with the
provision of the Services; or
(b) disclose the Information to any third party for a period of 10
years from the date of receipt of such Information.
10.2 The provisions of clause 10.1 shall not prevent either Party from using
any Information to the extent that such Information:
(a) has come into the public domain otherwise than by reason of a
breach by the receiving party, its directors, officers,
employees or agents of the terms of this clause;
|
(b) has been obtained by the receiving party from any other source
having a right of further disclosure or;
(c) in the case of Penn T only, was already known to Penn T at the
time of such disclosure to it;
(d) is required to be disclosed by the receiving party by Relevant
Law including but not limited to disclosure for regulatory
purposes, provided however that the receiving party shall so
notify the disclosing party of its intent and cooperate with
the disclosing party on reasonable measures to protect the
confidentiality of the Information;
(e) in the case of Penn T only, is required to be disclosed by
Penn T to its Customers; or
(f) in the case of PPSL only, is required for the manufacture,
distribution, sale and export of Sauramide pursuant to the
licence provided by Celgene in clause 14.3(b).
10.3 PPSL shall ensure that none of Penn T's Information shall be used by
the directors, officers, agents, employees, consultants or contractors
of PPSL, except on like terms of confidentiality as aforesaid, and that
the Penn T Information and the Raw Materials shall be kept fully
private and confidential by them. Further PPSL, prior to disclosure of
Penn T's Information to any directors, officers, agents, employees,
consultants or contractors of PPSL, shall ensure that each such person
is bound in writing to observe confidentiality provisions which are
substantially the same as this clause.
10.4 Penn T shall ensure that none of the PPSL Information shall be used by
the directors, officers, agents, employees, consultants or contractors
of Penn T or Celgene, except on like terms of confidentiality as
aforesaid, and that the PPSL Information shall be kept fully private
and confidential by them. Further Penn T, prior to disclosure of PPSL's
Information to any directors, officers, agents, employees, consultants
or contractors of Penn T or Celgene, shall ensure that each such person
is bound in writing to observe confidentiality provisions which are
substantially the same as this clause.
10.5 For the purposes of this clause 10 "Data Controller", "Data Processor",
"Data Subject", "Personal Data" and "processing" shall have the
meanings ascribed to them in the Data Protection Act 1998.
10.6 The Parties acknowledge that PPSL will act in the capacity of Data
Processor on behalf of Penn T (as Data Controller) in respect of any
Personal Data that PPSL receives from Penn T and which is processed by
PPSL in the course of providing the Services.
10.7 PPSL agrees that it shall:
(a) only process such Personal Data in accordance with the
instructions of Penn T from time to time;
(b) implement appropriate technical and organisational measures to
protect Personal Data against unauthorised or unlawful
processing and accidental destruction or loss;
(c) at all times process Personal Data in connection with the
Services in accordance with the Data Protection Act 1998;
(d) not transfer its data processing function outside of the
European Economic Area or outsource it to a third party
without the prior written consent of Penn T;
(e) permit Penn T on reasonable notice to audit the procedures of
PPSL for the purpose of ensuring compliance with this clause
10 and to take any reasonable steps to satisfy itself that
PPSL is so complying;
(f) promptly notify Penn T of any queries from Data Subjects, the
Information Commissioner or any other law enforcement or
regulatory authority;
|
(g) promptly and without further charge provide such information
and assistance to Penn T as Penn T may reasonably require to
enable it to act in accordance with the rights of Data
Subjects.
10.8 The provisions of this clause 10 shall survive termination of the
Agreement.
11 PUBLICITY
11.1 Subject to the provisions of clause 10 and clause 11.2, Penn T and
Celgene each hereby agrees to permit PPSL to use the name of or refer
to Penn T and/or Celgene and the fact that PPSL provides Services to
Penn T, whether verbally or in writing, in any of PPSL's publicity
material, including but not limited to PPSL's submissions to secure new
business or in promoting or marketing itself, provided that in each
case no details of any individual project undertaken for Penn T shall
be disclosed.
11.2 Prior to any disclosure or publicity under clause 11.1, Penn T and
Celgene shall be entitled to review the form and substance of the
material and Penn T and Celgene shall have the right to require PPSL to
amend the materials for reason of accuracy, use of Intellectual
Property or confidentiality.
12 PROVISION OF INFORMATION AND DEFECTS IN FINISHED PRODUCT
12.1 Each Party acknowledges that it has an obligation to furnish the other
Party promptly with any information in its possession which is relevant
to the provision of the Services. If PPSL becomes aware that it
requires any further information in order to allow it to perform the
Services it shall notify Penn T in a timely fashion and Penn T shall
furnish the additional information to PPSL as soon as reasonably
practicable.
12.2 PPSL and Penn T shall make available (or cause to be made available) to
each other as soon as practicable (but in any event within one (1) day)
of receipt of regulatory correspondence regarding regulatory letters,
recalls, adverse experiences and all other regulatory correspondence
bearing on the safety and efficacy of the Finished Products which may
concern chemistry, manufacturing or control issues.
12.3 Penn T will promptly submit to PPSL all Finished Product safety and
efficacy enquiries, Finished Product quality complaints and adverse
drug event reports received by it which may concern chemistry,
manufacturing or control issues, together with all available evidence
and other information relating thereto. Except as otherwise required by
Relevant Law, Penn T will be responsible for investigating and
responding to all such enquiries, complaints and adverse events
regarding Finished Product. It shall be the responsibility of Penn T to
comply with all applicable Relevant Law including but not limited to
legal and regulatory reporting requirements regarding adverse drug
events and Finished Product quality matters, except where such events
or matters are caused by acts or omissions of PPSL or PPSL's
Affiliates, in which case Penn T may, consistent with applicable
Relevant Law, require PPSL's assistance in such compliance. Penn T will
forward a copy of all applicable legal and regulatory submissions
required under Relevant Law relating to the provision of the Services
within ten (10) business days of receipt of the submission from its
Customers. PPSL shall promptly notify Penn T where any Relevant
Authority contacts PPSL or any member of the Penn Group directly
concerning the Services or the Finished Products.
12.4 In the event Penn T or any of its Customers believe it may be necessary
to conduct a Recall with respect to any Finished Products which were
manufactured by PPSL for Penn T pursuant to this Agreement, PPSL and
Penn T shall consult with each other as to how best to proceed, it
being understood and agreed that the final decision as to any Recall of
any Finished Product shall be made by Penn T or its Customers,
provided, however, that PPSL shall not be prohibited hereunder from
taking any action that it is required to take by Relevant Law. Penn T
and its Customers shall bear all costs in connection with any such
Recall; provided, however, that PPSL shall reimburse Penn T for
reasonable out-of-pocket expenses incurred by Penn T in connection with
any such Recall to the extent attributable to any negligence, breach of
this Agreement or breach of Relevant Law or error on the part of PPSL
or as a result of a latent defect to the extent such latent defect is
attributable to PPSL.
|
12.5 Pursuant to any reported complaint and/or adverse drug event, if the
nature of the reported complaint and/or adverse drug event requires
Testing, PPSL will, at Penn T's reasonable request and expense, perform
analytical Testing according to the Specification of corresponding
retention samples and provide the results thereto to Penn T as soon as
reasonably practicable and in any event within 28 days or the time
period specified by the Relevant Authority, whichever is shorter,
provided however PPSL shall be responsible for the cost of such Testing
and reporting to the Relevant Authority to the extent that if it is
determined that such reported complaint and/or adverse drug event is
attributable to any negligence, breach of this Agreement or breach of
Relevant Law or error on the part of PPSL.
12.6 PPSL shall assist Penn T or its Customer in reporting to any Relevant
Authority the results of the Testing referred to in clause 12.5.
13 RECORDS AND REPORTING
13.1 Penn T acknowledges that PPSL must retain originals and/or copies of
certain documents generated by it in relation to the Services in order
to comply with Relevant Law and PPSL agrees to provide Penn T promptly
upon reasonable written request and at Penn T's cost with copies of the
same.
13.2 During the Life of this Agreement, and for a period of at least 36
months or such longer period thereafter required by Relevant Law, PPSL
will maintain a complete audit trail of all data created in the normal
course of business relating to this Agreement and all data referred to
in the Quality Agreement which is required by such Relevant Law
including financial and non-financial transactions, Test results and
scientific and technical data relating to the Services.
13.3 Penn T (and its Audit Representatives) will have the right to perform
audits and inspections of PPSL during normal business hours:
(a) on an annual basis (with effect from the date falling twelve
(12) months from the Commencement Date), for stock taking
purposes in respect of Finished Products, In-Process
Materials, Raw Materials and Consumables;
(b) on an annual basis (with effect from the date falling twelve
(12) months from the Commencement Date) in order to carry out
verification of the accuracy of all Fees, accounting practices
and invoices relating to this Agreement;
(c) on an annual basis (with effect from the date falling twelve
(12) months from the Commencement Date) for examination of
PPSL's performance of the Services, including PPSL's
manufacturing and Testing practices and procedures in
accordance with the Quality Agreement and any other audit
activity to the extent required pursuant to any Relevant Law;
(d) On a quarterly basis (with effect from the date falling three
(3) months from the Commencement Date), for inspection of Penn
T's books of accounts; and
(e) at any time where Penn T has reasonable grounds to suspect
that circumstances exist which merit investigation, including
without limitation reasonable suspicion by Penn T that PPSL is
not complying with its accounting and record keeping
obligations or is otherwise in breach of this Agreement or
"FOR CAUSE" as described in clause 19 of the Quality
Agreement.
13.4 Penn T shall use its reasonable endeavours to ensure that its Audit
Representatives perform any audit or inspection of PPSL in a reasonable
manner so as not to have a material adverse effect on the performance
of the Services or other business of PPSL.
13.5 PPSL will provide full co-operation to Penn T and its Audit
Representatives for the purposes of any audit or inspection including
providing access to the Premises, any PPSL personnel, data, records and
systems (excluding PPSL's IT system and local area network) relating to
the Services to the extent necessary for Penn T to carry out the audit
as set out in this clause 13.5.
|
13.6 On completion of an audit, the Audit Representative will prepare a
written audit report detailing its findings. If any audit or inspection
reveals any error, incorrect cost allocation or calculation or
overcharging, PPSL shall, within thirty (30) days of the audit report,
reimburse Penn T for the amount overpaid by Penn T.
13.7 If any audit or inspection reveals any sub-standard or defective
accounting practices, manufacturing process or environmental or
technical conditions relating to the Services and the Premises, PPSL
shall at its cost, and in consultation with Penn T and the Audit
Representative, promptly implement such changes as Penn T shall
reasonably require.
13.8 The fees and expenses of the Audit Representative shall be paid by Penn
T provided however that if the audit reveals an error or miscalculation
in excess of the lesser of (pound)3,000 or 3% of the Fees paid in the
month to which the error relates, then PPSL shall pay Penn T's and the
Audit Representatives' fees and expenses. PPSL shall provide such
assistance as Penn T and its Audit Representatives reasonably require
at no cost to Penn T provided that Penn T shall reimburse PPSL its
costs in accordance with the Payment Terms:
(a) for any audits required by Penn T in addition to those
described in clause 13.3 above; or
(b) for any audit carried out pursuant to clause 13.3(e) above the
results of which show PPSL in compliance with its accounting
and record keeping obligations and/or is not otherwise in
breach of this Agreement.
13.9 If there is a dispute in relation to any audit findings or report, then
the Parties will resolve such dispute in accordance with the provisions
of clause 32.
14 INTELLECTUAL PROPERTY
14.1 Provision of the Services by PPSL to Penn T will not entitle PPSL to
acquire any Intellectual Property Rights in the Finished Products or in
their use or any licence to use such Intellectual Property Rights other
than as required to perform its obligations under this Agreement.
14.2 The ownership of all Intellectual Property Rights and Know-How in the
Finished Products and the manufacture thereof pursuant to this
Agreement shall at all times remain with Celgene.
14.3 Celgene hereby grants to PPSL and its sub-contractors a non-exclusive
licence to use Celgene Intellectual Property Rights:
(a) for the life of this Agreement and to the extent necessary to
perform the Services in accordance with this Agreement; and
(b) to manufacture, distribute, sell and export Sauramide on the
terms of this Agreement making the necessary amendments to
take account that PPSL will manufacture Sauramide for its own
account and PPSL shall indemnify Penn T and Celgene on the
terms of clause 14.6.
14.4 The licence granted by Celgene under 14.3(b) may be terminated by
Celgene at any time on 30 days written notice and following termination
PPSL shall assign all PPSL's Intellectual Property relating to the
manufacture and sale of Sauramide including without limitation the
Trademarks, on the terms set forth in Part 2 of Schedule 5.
14.5 Notwithstanding any other provision of this Agreement, Celgene
acknowledges that it has full responsibility for the safety and
efficacy of the In-Progress Materials, API and Finished Products
manufactured in accordance with this Agreement and provided that PPSL
complies with clause 15.11 Celgene shall indemnify PPSL and keep PPSL
indemnified against all costs, losses, liabilities, claims, actions,
proceedings, damages and expenses (including without limitation
reasonable legal fees and expenses) incurred by PPSL (LOSSES) or claims
(including but not limited to any claims, actions or litigation brought
by third parties relating to the use of Intellectual Property Rights in
the Finished Products) or proceedings of whatsoever nature involving
PPSL (CLAIMS) in connection with or arising out of the use of the API
or Finished Products by PPSL, Celgene or any third party (which third
parties shall include but not be limited to sub-contractors, assigns
and agents in addition to Customers, consumers
|
and end users) provided that this indemnity shall not operate to the
extent that such Losses or Claims have arisen out of a failure by PPSL
to comply with the terms of this Agreement or to the extent PPSL has
acted negligently or with wilful misconduct or has failed to comply
with Relevant Law.
14.6 Subject always to clauses 15.6 and 15.10 and provided that Penn T and
Celgene each comply with clause 15.11, PPSL shall indemnify Penn T and
Celgene and keep Penn T and Celgene indemnified against all Losses and
Claims in connection with or arising out of use by any third party of
Sauramide which has been manufactured, supplied or distributed by PPSL
save that this indemnity shall not apply to any Sauramide which has
been manufactured for Penn T.
15 WARRANTIES AND LIMITATION OF LIABILITY
15.1 During the term of this Agreement, Penn T hereby acknowledges that it
shall at all times be responsible for the safety and efficacy of the
|
API, and Finished Products and warrants as follows:
(a) the API shall, at the time it is shipped to PPSL:
(i) not be adulterated or misbranded within the meaning of any Relevant Law;
(ii) not be articles that may not, under any Relevant Law, including Section 505 of the FFDCA be introduced into interstate commerce;
(iii) have been manufactured, processed, and packed in compliance with all requirements under all Relevant Law; and
(iv) conform to the Specification for the API as documented on the certificate of analysis included with each delivery of API.
15.2 PPSL warrants:
(a) that the Services will be carried out with reasonable skill and care and will conform to the Technical Documents; and
(b) that it shall manufacture, Process, Test, Package and Label the Finished Products in accordance with the Specification and the Technical Documents and with any Relevant Law.
15.3 PPSL hereby further warrants as follows:
(a) The Finished Product shall, at the time it is shipped to Penn T or the Customer:
(i) not be adulterated or misbranded within the meaning of any Relevant Law including the FFDCA;
(ii) not be articles that may not, under any Relevant Law, including Section 505 of the FFDCA, be introduced into interstate commerce;
(iii) have been manufactured, processed, and packed in compliance with all requirements under all Relevant Law including the FFDCA and cGMP; and
(iv) conform to the Specification for the Finished Products
(b) PPSL shall comply in all material respects with any Relevant Law applicable to the manufacture of the Finished Product, the handling of the Hazardous Waste prior to pick-up by the waste contractor, and the handling and disposal of the Non-Hazardous Waste and the provision of the Services;
(c) that PPSL shall maintain in effect and comply with the
Licences and all permits, licenses, orders, applications and
approvals required by any Relevant Authority and necessary for
the manufacture, Processing, Testing, Packaging and Labelling
and PPSL shall manufacture, Process, Test and Label in
accordance with all such permits, Licenses, orders,
applications and approvals;
(d) that without limiting the other provisions of this Agreement,
PPSL shall use its commercially reasonable efforts at all
times to minimize Finished Product delivery time.
15.4 PPSL will promptly, at its own cost and at Penn T's option, re-perform
Services as soon as practicable or credit Penn T with the relevant Fees
for any Services or part thereof provided that Penn T can show, to
PPSL's reasonable satisfaction, that the Services have been performed
defectively and not in accordance with Technical Documents.
15.5 Except as provided for in this Agreement any warranties, (whether
express or implied by statute or common law or a previous course of
dealing or trade custom or usage or otherwise howsoever) including but
without limitation those of satisfactory quality or of fitness for a
particular purpose (even if that purpose is made known expressly or by
implication to PPSL) are (insofar as is permitted by law) hereby
excluded.
15.6 Subject to clauses 14.5, 15.7 and 15.8 under no circumstances shall any
Party be liable for any indirect, special or consequential loss or loss
of business opportunity or reputation howsoever arising whether in
contract, tort (including negligence) or breach of statutory duty or
otherwise.
15.7 The Parties, PPHL and Celgene each acknowledges that notwithstanding
any other provision of this Agreement, none of PPSL, Penn T, Celgene or
PPHL seeks to exclude or limit liability for loss arising from death or
personal injury caused by negligence or for fraud or in respect of any
other liability arising out of or in connection with this Agreement
which cannot be excluded or restricted by law.
15.8 The Parties, PPHL and Celgene each acknowledges that notwithstanding
any other provision of this Agreement, none of PPSL, Penn T, Celgene or
PPHL seek to exclude liability for, and each of PPSL and PPHL on the
one hand and Penn T and Celgene on the other hereby indemnifies each
other for losses arising out of any act, omission, breach of its
obligations, negligence or wilful misconduct of the indemnifying party,
which relate to or arise from a claim by a third party against the
indemnified party :
(a) in relation to a death or personal injury claim asserted by
such third party;
(b) in relation to any other claims (excluding claims relating to
Intellectual Property) but subject to the limits set out in
clauses 15.6 and 15.9.
15.9 Subject to clauses 14.5, 15.7 and 15.8 the aggregate liability of each
of Penn T, Celgene and PPHL (whether in contract, tort (including
negligence) or breach of statutory duty or otherwise) to each other for
any loss or damage of whatever nature and howsoever caused shall be
limited to and in no circumstances shall exceed (pound)600,000 (six
hundred thousand pounds) in aggregate for the Life of this Agreement
|
15.10 Subject to clauses 15.7 and 15.8 the aggregate liability of PPSL (whether in contract, tort (including negligence) or breach of statutory duty or otherwise) to Penn T or Celgene for any loss or damage of whatever nature and howsoever caused shall be limited to and in no circumstances shall exceed the greater of:
(a) (pound)600,000 (six hundred thousand pounds) in aggregate for the Life of this Agreement; or
(b) in relation to a bona fide claim brought against PPSL for which PPSL has insurance, monies recovered by PPSL from its insurer; or
(c) in relation to a bona fide claim brought against PPSL for which PPSL has insurance, monies which would have been recovered by PPSL from its insurer had PPSL taken all appropriate steps in a timely manner to make a claim under any relevant insurance policy;
(d) in relation to a bona fide claim brought against PPSL for
which PPSL has insurance (other than any claim to which clause
15.10(e) relates), monies which would have been recovered by
PPSL from its insurer had PPSL's actions or omissions not
voided such policy; or
(e) in relation to a bona fide claim brought against PPSL for
which PPSL has insurance, the lesser of, monies which would
have been recovered by PPSL from its insurer had PPSL's
innocent actions or omissions not voided such policy, or
(pound)1,000,000 (one million pounds).
15.11 The party (INDEMNITEE) that intends to claim indemnification under this
Agreement shall notify the other party (INDEMNITOR) promptly in writing
of any action, claim or liability in respect of which the indemnitee
believes it is entitled to claim indemnification, provided that the
failure to give timely notice to the indemnitor shall not release the
indemnitor from any liability to the indemnitee. The indemnitor shall
have the right, by notice to the indemnitee, to assume the defence of
any such action or claim within the fifteen (15) day period after the
indemnitor's receipt of notice of any action or claim with counsel of
the indemnitor's choice and at the sole cost of the indemnitor. If the
indemnitor so assumes such defence, the indemnitee may participate
therein through counsel of its choice, but at the sole cost of the
indemnitee. The party not assuming the defence of any such claim shall
render all reasonable assistance to the party assuming such defence,
and all reasonable out-of-pocket costs of such assistance shall be for
the account of the indemnitor. No such claim shall be settled other
than by the party defending the same, and then only with the consent of
the other party which shall not be unreasonably withheld or delayed;
provided that the indemnitee shall have no obligation to consent to any
settlement of any such action or claim which imposes on the indemnitee
any liability or obligation which cannot be assumed and performed in
full by the indemnitor, and the indemnitee shall have no right to
withhold its consent to any settlement of any such action or claim if
the settlement involves only the payment of money by the indemnitor or
its insurer and the indemnitor established to the indemnitee's
reasonable satisfaction that funds are, or have been made, available
for such purpose.
15.12 All recommendations and advice given by or on behalf of PPSL to Penn T
as to methods of storing, using or applying Raw Materials or Finished
Products, the purposes for which Raw Materials or Finished Products may
be applied and the suitability of using Raw Materials or Finished
Products in any process or in connection with any other materials are,
subject to such recommendations and advice being expressly detailed in
the Technical Documents as part of the Services, given without
liability on the part of PPSL.
15.13 The provisions of this clause 15 shall survive termination of the
Agreement.
16 CHANGE CONTROL
16.1 If either Penn T or PPSL wishes to propose any amendment or
modification to this Agreement (a "Change") then it will notify the
other of that fact by sending a written notification ("Change
Request"), specifying in reasonable detail the nature of the Change.
16.2 As soon as reasonably practicable (but in any event within 14 days)
after sending or receipt of a Change Request), PPSL will provide Penn T
with a brief written proposal in relation to the relevant Change (a
|
"Change Proposal") including, but not limited to:
(a) summary of the scope of the Change;
(b) brief details of the likely impact, if any, of the Change Request on the existing Services or PPSL's obligations under this Agreement; and
(c) an estimate of the likely cost of implementation and/or on-going operation of the relevant Change.
16.3 Where the Change is required by Relevant Law or where the Change is
required or is necessary for the commercial or clinical manufacture of
any formulation of Thalidomide, PPSL shall, as soon as practicable,
provide to Penn T a Change Control Notice as set forth in clause 16.4
below. Where the Change relates to any other service including without
limitation Excluded Services it shall be at PPSL's discretion whether
to proceed under this Agreement or negotiate with Penn T the terms of a
separate agreement.
16.4 If, following receipt of the Change Proposal, Penn T wishes to proceed
with the proposed Change, it will notify PPSL in writing of such
intention (assuming that all requisite details are not already set out
in the Change Proposal). Within 30 days after receiving written notice
from Penn T to proceed with the proposed Change, PPSL shall provide
Penn T with a detailed written proposal (a "CHANGE CONTROL NOTICE")
including, but not limited to the following matters:
(a) full details of the proposed subject matter of the Change
Request including any outline specifications, requirements for
equipment, special conditions, deliverables or other
variations of this Agreement required;
(b) details of the impact, if any, of the Change Request on any
existing Services or PPSL's obligations under this Agreement;
|
(c) an itemised statement of the estimated charges made on the basis of the Fees calculation in Schedule 2 for the
implementation and/or ongoing operation of the relevant
Change; and
(d) a timetable for the implementation, together with any
proposals for acceptance, of the Change Request.
16.5 Penn T will review the proposed Change Control Notice as soon as
reasonably possible after its receipt and in any event within 15 days
will either accept or reject the proposed Change Control Note. If the
Change Control Notice has not been formally rejected within such 15 day
period, it shall be deemed accepted. If Penn T rejects the Change
Control Notice, the Parties shall negotiate in good faith to agree the
provisions of the Change Control Notice and where no agreement is
reached within thirty (30) days of receipt by Penn T of the Change
Control Notice, the issue shall be resolved in accordance with clause
32.
16.6 If Penn T accepts the proposed Change Control Notice, PPSL will make
the Change in accordance with that Change Control Notice and the
provisions of this Agreement. A Change Control Notice shall be treated
as accepted when it is signed by Penn T and PPSL and will constitute an
amendment to this Agreement.
16.7 Neither Penn T or PPSL shall have any obligation to effect any proposed
Change until the relevant Change Control Notice is agreed by Penn T and
pursuant to clause 16.6.
16.8 Changes agreed in accordance with the procedure above shall constitute
a variation of this Agreement in satisfaction of clause 29.
17 INSURANCE
17.1 Subject to clause 17.2 below, PPSL shall effect and maintain for the
Life of this Agreement and for a period of three (3) years or such
shorter period as directed by Penn T following the termination of this
Agreement, the following annual policies of insurance:
(a) product liability cover for not less than ten million pounds
((pound)10,000,000) per event and in the aggregate;
(b) employers liability insurance with cover of not less than ten
million pounds ((pound)10,000,000) per occurrence or series of
occurrences arising out of any one cause;
(c) public liability cover for not less than two million pounds
((pound)2,000,000) per event; and
|
(d) commercial combined insurance cover for not less than:
(i) five million pounds ((pound)5,000,000) in aggregate for the Premises buildings;
(ii) five million pounds ((pound)5,000,000) in aggregate for machinery, plant and all other contents;
(iii) five hundred thousand pounds ((pound)500,000) in
aggregate for stock and materials in trade;
(iv) two million five hundred thousand pounds
((pound)2,500,000) in aggregate for customer goods
held at the Premises,
and PPSL shall ensure Penn T's interest is noted on the relevant
policies.
17.2 If Penn T, at its own cost, effects and maintains during the Life of
this Agreement insurance in its own name which provides equivalent
cover for PPSL's liabilities relating to the provision of the Services
then for so long as such cover is in place Penn T may require PPSL to
cancel such equivalent parts of its insurance policies and the Services
Costs shall be reduced accordingly.
17.3 PPSL shall, when requested by Penn T, promptly provide copies of the
policies and certificates of insurance evidencing that such insurance
cover meets or exceeds the levels set out in clause 17.1 above and that
the premiums in respect of such insurance are fully paid. Where Penn T
is not satisfied that PPSL has adequate or appropriate levels of
insurance in place so as to satisfy its obligations under this clause
17, Penn T shall be entitled to effect, on behalf of PPSL, such
insurance cover as it believes is reasonably necessary so as to allow
for adequate or appropriate levels of insurance. Penn T shall be
entitled to recover the costs and expense of effecting such insurance
(including but not limited to any premiums paid) by way of a reduction
to the Fees.
17.4 Without prejudice to clause 15.10, the Parties shall, not less than
once every six (6) months, jointly review PPSL's compliance with the
requirements of the insurance policies detailed in clause 17.1 and PPSL
shall implement such recommendations agreed between the Parties in
connection with the requirements of any insurance policy and/or best
practice in the provision of the Services.
18 STEP-IN RIGHTS
18.1 During the Life of this Agreement, Penn T may exercise a right of
Step-In in respect of the Services or any part of them where:
(a) it is otherwise entitled to terminate this Agreement in any of
the circumstances in clause 20.2 (termination for cause);
(b) for reasons which resulted in Penn T being unable to meet its
sales orders from Customers and its Customers could not supply
Finished Products to end users without depleting stocks of
Finished Products held in reserve for Force Majeure or other
disaster recover purposes and, as a result of such
circumstance, the continued performance of the Services or
part thereof by PPSL would in its reasonable opinion be
seriously prejudiced, provided that such depletion of stocks
was caused by a breach of the Agreement by PPSL.
18.2 If Penn T wishes to Step-In, it must notify PPSL in writing of the
following matters (and shall use reasonable endeavours to provide such
notification not less than fourteen (14) days prior to the date the
action will commence):
(a) the action it intends to take which will be limited as Penn T
reasonably requires to allow Penn T to remedy the problem
and/or to ensure continued supply of Finished Product in
circumstances where Penn T reasonably believes that PPSL is
unable to resume and ensure such continued supply as
contemplated under this Agreement;
|
(b) the reason for taking such action;
(c) the date from which such action shall commence;
(d) the time period that it believes to be necessary for such
action which shall be no longer than the period of Step-In
determined pursuant to clause 18.11 below; and
(e) to the extent practicable, the anticipated effect on PPSL and
its obligations to provide the Services during the period such
action is being taken and the process for PPSL to resume
provision of the Services.
18.3 In exercising the right of Step-In, Penn T shall have the right to
enter the DCF and such of the Premises as is necessary for it to
exercise its rights of Step-In.
18.4 Without prejudice to the generality of clause 4.6, PPSL shall obtain
and maintain for the Life of this Agreement, all necessary third party
consents to allow Penn T to exercise its rights of Step-In.
18.5 PPSL shall give all reasonable assistance to Penn T whilst Penn T is
exercising its right of Step-In including providing the services of the
Qualified Person and any other person named on the Licences. Once Penn
T ceases to exercise its right of Step-In, Penn T shall allow PPSL to
re-assume the provision of the Services within a reasonable period of
time thereafter.
18.6 In respect of the Services in respect of which the right of Step-In is
exercised:
(a) PPSL shall be relieved from its obligations to provide such
Services and from any liability for not providing such
Services and/or for any consequences of such non-performance
to the extent required as a result of the Step-In; and
(b) the charges from Penn T to PPSL shall equal the amount PPSL
would receive if it were satisfying all its obligations and
providing the Services affected by the exercise of the right
of Step-In in full, less an amount equal to all Penn T's
reasonable costs of operation in taking the action.
18.7 Where Penn T is exercising its right of Step-In, it shall act in
accordance with all Relevant Law and cGMP and good industry practice
and in accordance with any pre-notified internal policies and standards
of PPSL whilst at the Premises.
18.8 PPSL shall grant to Penn T a non-exclusive licence to use PPSL's
Intellectual Property as may be necessary to enable Penn T to exercise
its right of Step-In and Penn T shall not use such Intellectual
Property for any other purpose whatsoever.
18.9 Penn T shall:
(a) take reasonable care of any assets of PPSL used during the
period of Step-In;
(b) be responsible for any deterioration assets used by Penn T
during the period of Step-In, save for any deterioration
resulting from their normal and proper use;
(c) use all reasonable endeavours not to disturb others who affect
the provision of the Services or any other PPSL personnel more
than is required for the purposes of exercising its right of
Step-In; and
(d) use all reasonable endeavours not to disrupt other aspects of
PPSL's business not related to the Services or obligations
assumed by PPSL under this Agreement.
18.10 Penn T may engage the services of an Affiliate or a third party to
assist in the performance of Step-In, provided such third party is
given prior written approval in advance by PPSL (such approval not to
be unreasonably withheld or delayed).
18.11 Penn T shall be entitled to exercise its right of Step-In for such time
as is required to rectify the breach or breaches in respect of which
its right of Step-In was exercised provided that the Step-In shall not
continue beyond a period of twenty-four (24) months from commencement
of the Step-In.
|
18.12 Where Penn T has exercised its right of Step-In, it shall not be
entitled to cease and re-commence a specific Step-In in order to extend
the time periods in clause 18.11.
19 DURATION
This Agreement shall come into effect on the Commencement Date and
shall subject to the provisions of clause 20 below remain in full force
and effect for a period of ten (10) years.
20 TERMINATION
20.1 Penn T shall have the right to terminate this Agreement for convenience
by giving PPSL not less than 12 months' notice in writing, provided
that such notice shall not expire prior to the fifth (5th) anniversary
of the Commencement Date.
20.2 Without prejudice to clause 22.5, Penn T may without prejudice to its
other rights or remedies hereunder forthwith terminate this Agreement
and/or the provision of all or any Services pursuant to this Agreement
by notice in writing to PPSL if PPSL:
(a) commits a material breach (which shall include without
limitation any persistent breach which by its persistence
becomes material) of any of its obligations hereunder and does
not remedy such breach within twenty-eight (28) days after
written notice has been given to it by Penn T (specifically
referring to this clause 20) requiring such remedy; or
(b) breaches any of its obligations hereunder and its liability as
a result of such breach would exceed the caps on its liability
referred to in clause 15.10; or
(c) becomes insolvent or enters into liquidation or receivership
or is the subject of an application for an administration
order or suffers an administrative receiver to be appointed in
relation to the whole or any part of its assets or makes a
composition or arrangement with its creditors or suffers any
judgement to be executed in relation to any of its property or
assets.
20.3 Without prejudice to clause 22.5, PPSL may, without prejudice to its
other rights or remedies hereunder, forthwith terminate this Agreement
|
by notice in writing to Penn T if:
(a) Penn T:
(i) fails to pay all undisputed sums due and owing under
this Agreement in accordance with the Payment Terms
and does not remedy such breach within twenty-eight
(28) days after written notice has been given to it
by PPSL; or
(ii) is in breach of clause 23.4 below.
20.4 PPSL shall forthwith notify Penn T in the event that:
(a) there is in contemplated a Relevant Transaction (as that
phrase is defined in the schedules to the SAA); or
(b) there is a material adverse change in its financial condition
such that it becomes likely that it will not be able to pay
its debts as and when they fall due for payment or perform its
obligations under this Agreement.
20.5 Any termination of this Agreement (whether under this clause or
otherwise) shall not relieve any Party, PPHL or Celgene of the
obligations under this Agreement which are expressed to continue after
termination.
20.6 Upon termination of this Agreement, Penn T agrees to pay PPSL for the
Services which have been performed by PPSL prior to termination of this
Agreement.
20.7 If Penn T terminates this Agreement for cause under 20.2(a) or if PPSL
terminates this Agreement for cause under clause 20.3 the Party in
breach shall, subject to clause 15.10(a), pay to the other
(pound)600,000 by way of liquidated damages which the Parties agree is
a fair estimate of the actual damages which Party each will suffer.
|
20.8 Subject to clause 20.9 where this Agreement is terminated pursuant to
clause 20.1 or 20.3 Penn T shall pay PPSL's reasonable costs arising
from the cessation of the Services including without limitation staff
redundancy costs and decommissioning the DCF, subject to PPSL taking
steps to mitigate such costs fully, and Penn T shall indemnify PPSL
against all and any costs, expenses (including reasonable legal fees),
liabilities, damages and losses arising out of any claim, action or
proceeding which arises or is alleged to arise or is made against PPSL
or its Affiliates by virtue of the termination of this Agreement
pursuant to clause 20.1 or 20.3.
20.9 On termination of this Agreement for whatever reason Penn T shall pay
to PPSL such amount as is required for PPSL to maintain its product
liability insurance post termination in accordance with clause 17.1.
20.10 The Parties believe that neither the exercise of Step-In rights by Penn
T or any other use by Penn T of the services of any PPSL employee
either before or after the termination of this Agreement shall amount
to a relevant transfer for the purposes of the Employment Regulations
(a "TRANSFER") and accordingly they agree that no employee of PPSL
shall transfer from the employment of PPSL into the employment of Penn
T by virtue of such Transfer.
20.11 Notwithstanding clause 20.10 and subject to clauses 15.11 and 20.8, if,
as a result of any event mentioned in clause 20.10 and/or the
application of the Employment Regulations, any past or present employee
of PPSL is transferred or claims to have transferred to the employment
of Penn T:
(a) Penn T may within one month of the Transfer give notice to
such person to terminate such employment; and,
(b) in the event that Penn T exercises such entitlement PPSL shall
indemnify Penn T against all claims and losses arising out of
any such termination or the transfer of liabilities and duties
or the alleged transfer of liabilities and duties in relation
to such employee or in relation to any claim brought by such
employee against Penn T which claim and/or liability has
arisen by virtue of any act or omission of PPSL prior to the
Transfer of such employee, provided that Penn T shall;
(i) prior to giving notice to terminate any such person's
employment, notify PPSL of the person's transfer and
its intention to dismiss; and
(ii) allow PPSL 30 days to re-engage such person (and
shall not during any such period take any steps to
terminate the employment of any such person); and
(iii) in circumstances where it is not possible for PPSL to
re-engage such person within the prescribed 30 day
period, Penn T shall use its reasonable endeavours to
agree the method and procedure for termination with
PPSL with a view to mitigating any liability of PPSL
arising out of this clause.
|
20.12 Subject to clauses 15.11 and 20.8, if, as a result of any event mentioned in clause 20.10 and/or the application of the Employment Regulations, any past or present employee of PPSL is transferred or claims to have transferred to the employment of Penn T and Penn T does not terminate the employment of such employee within one month of becoming aware of such transfer and Penn T gives notice to PPSL that it wishes to retain the transferred employee, then:
(a) The indemnity in clause 20.11 shall no longer apply to such employee;
(b) PPSL shall indemnify Penn T against all liability for emoluments and outgoings in respect of the employment of such employee prior to the Transfer (including all wages, bonuses, commissions, PAYE, national insurance contributions and pension contributions) and against any claims and losses in connection with such employee(s) in respect of redundancy, unfair dismissal and any other claim whatsoever within the
jurisdiction of an employment tribunal, wrongful dismissal, breach of contract, personal injury, industrial disease or any other claim whatsoever which has arisen by virtue of any act or omission of PPSL prior to the Transfer; and
(c) Penn T shall indemnify PPSL against all liability for emoluments and outgoings in respect of the employment of such employee after the Transfer (including all wages, bonuses, commissions, PAYE, national insurance contributions and pension contributions) and against any claims and losses in connection with such employee(s) in respect of redundancy, unfair dismissal and any other claim whatsoever within the jurisdiction of an employment tribunal, wrongful dismissal, breach of contract, personal injury, industrial disease or any other claim whatsoever which has arisen by virtue of any act or omission of Penn T after the Transfer.
21 SUPPLY AFTER TERMINATION AND TERMINATION ASSISTANCE
21.1 If PPSL continues to supply any Service to Penn T after the termination
of this Agreement this shall not be construed as a waiver of such
termination or as a renewal of this Agreement.
21.2 Upon termination or expiration of this Agreement PPSL shall:
(a) provide Penn T with such assistance as it may reasonably
require to allow the Services to continue so far as possible
without interruption and to facilitate the orderly transfer of
the Services to Penn T or to its nominated sub-contractor;
(b) deliver to such location as Penn T shall specify PPSL's
inventory of Raw Materials, packaging, labelling, In-Process
Materials and Finished Products that conform to the
Specification and the Technical Documents;
(c) Subject to the provisions of clause 10 provide for transfer of
Know-How reasonably required for the provision of the
Services, which may, as appropriate include information,
records and documents. To facilitate the transfer of Know-How
from PPSL to Penn T, PPSL shall explain the procedures and
operations in the Technical Documents, and other standards and
procedures to Penn T's, or Penn T's contractor's, operations
personnel; and
(d) assist Penn T in obtaining any required licences in order for
Penn T to perform the Services itself including if required,
seconding the Qualified Person to work for Penn T in such
reasonable location, for such reasonable duration and at such
rates as the Parties shall agree.
21.3 The information which PPSL will provide to Penn T to further effect the
obligations in clause 21.2(b) include:
(a) copies of procedures and operations manuals, including the
Technical Documents and the Specification;
(b) subject to confidentiality obligations, copies of agreements
with third party suppliers of goods and services provided such
agreements are to be wholly transferred to Penn T;
(c) key support contact details for third party supplier
personnel.
21.4 For the purposes of this clause 21 (except where specifically stated to
the contrary), the costs of the assistance to be provided by PPSL shall
be borne by Penn T where termination is pursuant to clause 20.1 or as
applicable by the Party whose breach gave rise to the termination.
22 FORCE MAJEURE
22.1 If Penn T or PPSL (the "Affected Party") is prevented or delayed from
performing any of its obligations under this Agreement (whether in
whole or in part) by reason of a Force Majeure event it shall as
promptly as practicable given the nature of the event notify the other
Party (the "Unaffected Party") in writing of the circumstances
constituting the Force Majeure event and shall keep the Unaffected
Party regularly informed of the progress until resuming full
performance of its obligations.
|
22.2 The Affected Party shall take all reasonable steps to minimise the
adverse effects of the event of Force Majeure on the performance of its
obligations under this Agreement and, in the case of PPSL, shall, to
the extent feasible and practical, provide workarounds which in Penn
T's reasonable opinion are satisfactory.
22.3 Subject to clause 22.4, the Affected Party shall not be treated as
being in breach of this Agreement if and to the extent that its failure
to perform this Agreement results from Force Majeure.
22.4 Clause 22.3 shall only apply where the Affected Party complies with its
obligations under clause 22.1 or 22.2 above.
22.5 If the event of Force Majeure prevents the Affected Party from
complying with this Agreement for a period of two months then the
Unaffected Party may at the expiry of such two month period, provided
the Affected Party is at such time still unable to comply, give notice
in writing to the Affected Party terminating forthwith this Agreement.
If PPSL is the Affected Party, it shall be under a continuing
obligation to co-operate with Penn T in transferring the work to
another supplier or otherwise ensuring that Penn T's business needs
continue to be met despite the event of Force Majeure at Penn T's cost,
to the extent applicable and only at the rates set forth for the
Services in Schedule 2.
22.6 Where following an event of Force Majeure to which this clause applies
the Affected Party is able to resume performance of its obligations it
shall notify the Unaffected Party accordingly and as soon as
practicable resume performance of the affected obligations.
23 ASSIGNMENT
23.1 This Agreement shall not be assignable by PPSL without the prior
written consent of Penn T.
23.2 PPHL's guarantee shall not be assignable by PPSL without the prior
written consent of Penn T.
23.3 This Agreement may be assigned to a third party by Penn T provided
that:
(a) Penn T notifies PPSL of such assignment; and
(b) such third party agrees to perform fully Penn T's obligations
under this Agreement; and
(c) such third party is not a direct competitor of PPSL.
23.4 If Penn T assigns this Agreement to a third party, Celgene's Guarantee
shall terminate provided that Penn T shall ensure that Penn T's
assignee provides a replacement guarantor who will give a guarantee on
substantially the same terms as Celgene's guarantee and provided that
such replacement guarantor is of such financial standing that PPSL in
its reasonable opinion considered adequate in order to be able to
perform under the guarantee.
24 GUARANTEE
24.1 Celgene shall, and Penn T shall ensure that Celgene shall, on the
Commencement Date, give a guarantee as set out in schedule 3 part 1
(Celgene's guarantee) and shall ensure that such guarantee is
maintained in place in full force and effect in accordance with its
terms.
24.2 PPHL shall, and PPSL shall ensure that PPHL shall, on the Commencement
Date, give a guarantee as set out in schedule 3 part 2 (PPHL's
guarantee) and shall ensure that such guarantee is maintained in place
in full force and effect in accordance with its terms.
24.3 PPHL shall procure that any company which gains control (as that phrase
is defined in the schedules to the SAA) of PPHL as a result to any
management buy-out of PPHL shall replace PPHL in PPHL's guarantee and
PPHL shall forthwith inform Penn T of such change of control.
|
25 NOTICES
25.1 Any notice to be served by either Party hereunder shall be sent by
pre-recorded delivery or registered post or by facsimile transmission
to the other at the address stated at the head of this Agreement or the
facsimile numbers detailed below and shall be deemed to have been
received by the other:
(a) if sent by pre-paid recorded delivery or registered post, one
week after posting; or
(b) if sent by facsimile transmission, on the date sent provided
that the correct answer back code is received and a
confirmatory copy is sent by pre-paid recorded delivery or
registered post on the date of transmission,
PPSL fax number: 01495 713 613 (Attention: Chief Executive Officer)
PPHL fax number: 01495 713 613 (Attention: Chief Executive Officer)
Penn T fax number: 0207 071 9000 (Barlow Lyde & Gilbert - Attention:
John Cadman)
Celgene fax number: (732) 805 3931 (Attention: President and Chief
Operating Officer)
with a copy to : Proskauer Rose LLP, (Attention: Robert A. Cantone -
Fax No: 202 969 2900
25.2 A party may change the details recorded for it in this clause by notice
to the other in accordance with this clause 11.
25.3 Notices sent by email are not valid for the purposes of this Deed but
this clause shall not invalidate any other lawful mode of service.
26 WAIVER
No waiver by either Party of any of the requirements hereof or of any
of its rights hereunder shall release the other from full performance
of its remaining obligations stated herein.
27 ENTIRE AGREEMENT
This Agreement and the provisions of any Technical Documents, and any
variation of this Agreement in writing signed by Penn T and PPSL, and
any changes to this Agreement agreed through Change Control contain the
entire understanding between PPSL, Penn T, Celgene and PPHL relating to
the Services and supersedes all or any previous agreements between Penn
T and PPSL.
28 VOID PROVISION
Should any provision of this Agreement be void or voidable the
existence or avoidance thereof shall not prejudice the enforceability
of the remaining provisions hereof.
29 VARIATION
No variation or modification of this Agreement shall be binding until
agreed to in writing by PPSL and Penn T.
30 COSTS
The Parties, PPHL and Celgene shall each bear its own costs and
expenses incidental to the negotiation hereof and the preparation and
carrying into effect of this Agreement.
|
31 THIRD PARTY RIGHTS
A person who is not a party to this Agreement has no rights under the
Agreements (Rights of Third Parties) Act 1999 to enforce any term of
this Agreement but this does not affect any right or remedy of the
third party which exists or is available apart from that Act.
32 DISPUTE RESOLUTION PROCEDURE
32.1 In this clause 32, the word Party shall be interpreted as meaning any
of PPSL, Penn T, PPHL or Celgene and the word Parties shall be
interpreted as including PPSL, Penn T, PPHL and Celgene.
32.2 Except as mentioned in this clause 32 and except in relation to seeking
an interim injunction or other urgent relief or except where
commencement of court proceedings is required to prevent expiry of any
limitation period, neither Party may commence court proceedings in
respect of a dispute under this Agreement unless that Party has first
complied with this clause 32.
32.3 All disputes between the Parties arising out of or relating to this
Agreement shall, in the first instance, be referred to the Parties'
respective contract managers for resolution.
32.4 If any dispute has not been resolved by the Parties' respective
contract managers within a maximum of fourteen (14) days after it has
been referred in accordance with clause 32.3, then the Parties shall
each refer the matter to their respective divisional directors (or
equivalent) for determination.
32.5 If any dispute has not been resolved by the Parties' divisional
directors (or equivalent) within a maximum of fourteen (14) days after
it has been referred in accordance with clause 32.4, then the Parties
shall refer the matter to their respective Chief Executive Officers (or
equivalent) ("CEOS") for resolution.
32.6 If any dispute has not been resolved by the Parties' respective CEOs
within a maximum of twenty eight (28) days after it has been referred
in accordance with clause 32.5, then, in the event that the Parties
mutually agree to resolve the dispute by mediation the provisions of
clause 32.7 shall apply.
32.7 Where the Parties agree that it may be beneficial, they will seek to
resolve a dispute through mediation using the services of the Centre
for Effective Dispute Resolution to facilitate the mediation process.
If the dispute is not resolved through negotiation or mediation the
Parties agree that the English courts will have non-exclusive
jurisdiction in connection with the resolution of the dispute.
33 GOVERNING LAW AND JURISDICTION
33.1 This Agreement, regardless of where executed shall be governed and
interpreted in accordance with English Law.
33.2 Each Party, PPHL and Celgene, submits to the exclusive jurisdiction of
the Courts of England and Wales in relation to all claims, disputes,
differences or other matters arising out of or in connection with this
Agreement.
33.3 Each Party, PPHL and Celgene irrevocably waives any right that it may
have:
(a) to object on any ground to an action being brought in the
Courts of England and Wales, to claim that the action brought
in the Courts of England and Wales has been brought in an
inconvenient forum, or to claim that the Courts of England and
Wales do not have jurisdiction. The waiver contained in this
clause 33.3 includes (without limitation) a waiver of all
formal and substantive requirements of any otherwise competent
jurisdiction in relation to this clause 33.3(a)
(b) to oppose the enforcement of any judgment of any court of
England and Wales whether on any ground referred to in clause
33.3(a) or otherwise.
|
EXECUTED AND DELIVERED by PPSL, Penn T, PPHL and Celgene as a deed on the date first stated above.
Executed and delivered as a deed by ) PENN PHARMACEUTICAL SERVICES LIMITED ) .................... acting by /s/ Craig Rennie ......................................... (a director) and /s/ David Henderson ......................................... |
(a director/secretary)
Executed and delivered as a deed by ) PENN T LIMITED ) .................... acting by /s/ Craig Rennie ......................................... (a director) and /s/ David Henderson ......................................... |
(a director/secretary)
Executed and delivered as a deed by ) CELGENE CORPORATION ) .................... acting by /s/ Robert J. Hugin ......................................... (a director) and /s/ Robert J. Hugin ......................................... |
(a director/secretary)
Executed and delivered as a deed by ) PENN PHARMACEUTICALS HOLDINGS LIMITED ) .................... acting by /s/ Craig Rennie ......................................... (a director) and /s/ David Henderson ......................................... |
(a director/secretary)
Exhibit 10.35
CELGENE CORPORATION
7 Powder Horn Drive
Warren, NJ 07059
December 3, 2004
Pharmion Corporation
4865 Riverhead Road
Boulder, Colorado 80301
Pharmion GmbH
Aeschenvorstadt 71
P.O. Box 605
4010 Basel
Switzerland
Gentlemen:
Reference is made to (i) that certain License Agreement by and among Pharmion GmbH, Pharmion Corporation ("Pharmion") and Celgene Corporation ("Celgene", and, together with Pharmion GmbH and Pharmion, the "Parties") dated as of November 16, 2001 (as thereafter amended the "License Agreement") and (ii) that certain Letter Agreement among Pharmion GmbH, Pharmion and Celgene dated as of November 16, 2001 (as thereafter amended, the "S.T.E.P.S. License"). Except as otherwise indicated, capitalized terms used herein have the meaning ascribed to them in the License Agreement.
Pursuant to the S.T.E.P.S. License, among other matters, Celgene (a) provides Pharmion GmbH assistance in connection with Pharmion's efforts to obtain necessary regulatory approvals to distribute, market and sell the Product in the Territory, including (i) access to all available Product data, (ii) assistance in designing clinical trials, (iii) access to information concerning S.T.E.P.S., and (iv) access to Celgene personnel for consultations concerning any of the foregoing, and (b) grants to Pharmion GmbH an exclusive (including as to Celgene and its Affiliates) license to use in the Territory S.T.E.P.S. under the patent applications and patents rights (then existing or thereafter arising) in connection with seeking Regulatory Approval, and in connection with the registration, distribution, marketing, use and sale of the Products in the Territory.
The intention and practice of the Parties with respect to the calculation of the
fee payable under the S.T.E.P.S. License has not conformed to the provisions of
Section 4 of the S.T.E.P.S. License
and the Parties desire to reform the S.T.E.P.S. License to conform Section 4 thereof to the intention and practice of the Parties. Accordingly, Pharmion GmbH, Pharmion and Celgene hereby agree as follows:
1. Section 4(b) of the S.T.E.P.S. License is hereby amended and restated in its entirety as follows:
"(b) (i) a fee of U.S.$300,000 per calendar quarter, payable in advance on the first day of each calendar quarter, commencing with the quarter beginning January 1, 2002, and ending with the calendar quarter following the First Commercial Sale in the United Kingdom (which U.S.$300,000 fee shall be a credit against any fee payable pursuant to the following clause (ii)); and (ii) a fee with respect to each country in the Territory equal to eight percent (8%) of Net Sales arising prior to the First Commercial Sale in such country, calculated and payable in the same manner as the royalty under the License Agreement."
2. Except as expressly modified by this letter agreement, all terms and conditions of the S.T.E.P.S. License shall remain in full force and effect.
3. This letter agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, together, shall constitute one and the same agreement.
Very truly yours,
Celgene Corporation
By: /s/ Sol J. Barer
------------------------------------------
Sol J. Barer
President and Chief Operating Officer
|
Agreed:
Pharmion Corporation
Pharmion GmbH
By: /s/ Patrick J. Mahaffy
--------------------------------
Patrick J. Mahaffy
President and CEO
|
Exhibit 10.36
Celgene Corporation
7 Powder Horn Drive
Warren, New Jersey 07059
December 3, 2004
Pharmion Corporation
2525 28th Street
Boulder, Colorado 80301
Pharmion GmbH
Aeschenvorstadt 71
P.O. Box 605
4010 Basel
Switzerland
Gentlemen:
Reference is made to that certain License Agreement, dated as of November 16, 2001, as amended by Amendment No. 1, dated March 3, 2003, as further amended by Amendment No. 2, dated April 8, 2003, and as further amended by that letter agreement, dated August 18, 2003, by and among Pharmion GmbH, Pharmion Corporation ("Pharmion") and Celgene Corporation ("Celgene") (the "License Agreement"). Except as otherwise indicated, capitalized terms used herein have the meaning ascribed to them in the License Agreement.
Since the date of the License Agreement, Celgene has continued, and continues, to make a substantial investment in the development of world-wide intellectual property rights to the use of Thalidomide in oncology.
Against that background, Pharmion GmbH, Pharmion and Celgene hereby agree as follows:
1. The Territory is hereby expanded to include Hong Kong, Korea and Taiwan. Accordingly, the term "Territory" under the definitions set forth in Article I of the License Agreement is hereby amended in its entirety to read as follows:
"TERRITORY" shall mean all the countries of the world, except the United States, Canada, Mexico, Japan, and all provinces of China other than Hong Kong)."
In addition, Section 3.10 of the License Agreement is hereby deleted in its entirety.
2. In consideration of the parties' mutual interest in extending and expanding their relationship as a result of Pharmion's substantial investment in building a distribution infrastructure for Thalidomide sales in key markets in the Territory, its substantial investment seeking regulatory approval in such markets, and Pharmion's demonstrated success in
distributing Thalidomide in certain major markets in the Territory, and in view
of the unanticipated delay in obtaining UK Regulatory Approval, (i) Section
9.3(b) of the License Agreement is hereby amended to eliminate clause (i) in its
entirety, with the subsequent clauses of Section 9.3(b) being appropriately
renumbered and cross-references thereto being appropriately revised, and (ii)
Section 9.4 of the License Agreement is hereby amended to eliminate clause (a)
in its entirety, with the subsequent clauses of Section 9.4 being appropriately
renumbered and cross-references thereto being appropriately revised.
3. In consideration of the amendments set forth in Sections 1 and 2 above, contemporaneously with the execution and delivery of this letter agreement, Pharmion shall pay to Celgene U.S. $3,000,000 by wire transfer of immediately available funds.
4. In the interest of accurately reflecting the agreement of the parties to the License Agreement with respect to royalties thereunder, Section 3.5 of the License Agreement is amended in its entirety to read as follows:
"3.5 Royalties. In consideration of the license and rights granted by Celgene to Pharmion pursuant to this Article 3, Pharmion shall pay to Celgene a royalty with respect to each country in the Territory, equal to eight percent (8%) of Net Sales following the First Commercial Sale in such country, payable as provided below."
5. Except as expressly modified by this letter agreement, all terms and conditions of the License Agreement shall remain in full force and effect.
6. This letter agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which, together, shall constitute one and the same agreement.
Sincerely,
Celgene Corporation
By: /s/ Sol J. Barer
-----------------------------------------
Sol J. Barer
President and Chief Operating Officer
|
Agreed:
Pharmion Corporation
Pharmion GmbH
By: /S/ Patrick J. Mahaffy
------------------------------------------
Patrick J. Mahaffy
President and Chief Executive Officer
|
Exhibit 10.37
Pharmion Corporation
2525 28th Street
Boulder, Colorado 80301
December 3, 2004
Celgene Corporation
7 Powder Horn Drive
Warren, New Jersey 07059
Attention: Sol J. Barer
Gentlemen:
Pharmion GmbH ("Pharmion"), Pharmion Corporation ("Guarantor") and Celgene Corporation ("Celgene") have previously entered into a License Agreement dated November 16, 2001, as subsequently amended (the "License Agreement") pursuant to which Celgene has granted to Pharmion a license for Thalidomide products, including its Thalomid formulation. To further their mutual interests in Pharmion obtaining regulatory approval for the marketing and sale of Thalomid in the Territory (as defined in the License Agreement), Pharmion, Guarantor and Celgene have previously established a working relationship relating to the clinical development of Thalomid under a letter agreement dated April 2, 2003 ("2003 Clinical Trials Agreement"). Subsequently, on the basis of advice from the European Agency for the Evaluation of Medicinal Products ("EMEA") that it would require additional clinical data for Thalomid before it could reach an opinion on whether or not the drug should be approved as a treatment for multiple myeloma, Pharmion withdrew its Thalomid application in Europe in order to focus on preparing a new dossier with additional clinical data. Based on discussions with each other, Pharmion and Celgene have come to recognize that much of the research and development effort necessary for the regulatory approval and commercialization of Thalomid, including clinical trials that would support an EMEA submission, that each desires to be conducted is already being planned and implemented by Celgene. In order to further coordinate these development efforts, to insure continued consistency across US and European centers, and to avoid unnecessary duplication of efforts, Pharmion, Guarantor and Celgene hereby agree as follows:
1. The 2003 Clinical Trials Agreement shall remain in full force and effect. Capitalized terms therein defined or otherwise defined in the License Agreement shall have the same meaning in this letter agreement as ascribed to such terms in such documents.
2. The Thalomid Clinical Development Committee ("TCDC") established under the 2003 Clinical Trials Agreement as a forum to review the design, development, enrollment and progress of Thalomid clinical trials funded in part by Pharmion under the 2003 Clinical Trials Agreement shall also function in a similar manner with respect to the clinical trials
Celgene Corporation
December 3, 2004
contemplated by this agreement, and the provisions of the 2003 Clinical Trials Agreement relating to the TCDC are incorporated herein by reference in their entirety.
3. Celgene has shared with Pharmion its summary of, and budget for, its 003 Phase III multiple myeloma clinical trial plan for Thalomid for the years 2005, 2006 and 2007 as currently contemplated by Celgene, and also has advised Pharmion of certain other Phase II clinical studies that are either underway or contemplated to evaluate the clinical potential of Thalomid in treating other solid tumor and blood cancers. Through the TCDC, Celgene shall, on a quarterly basis, keep Pharmion apprised of the changes in the scope and direction of its currently contemplated clinical development plans for Thalomid, the progress of such trials, their provisions for compliance with Good Clinical Practice requirements, and the data resulting from the such trials. Celgene shall consider in good faith the views of Pharmion with respect to the overall clinical development plan for Thalomid during the forthcoming three calendar years and the suggestions that Pharmion may make with regard to the mix of trials, other hematological or solid tumor indications for Thalomid that would merit clinical development, other new indications or other drug combinations for clinical trials. Celgene shall also consider in good faith the views of Pharmion concerning possible adjustments of any of the specific trials that may be appropriate to address the requirements of the EMEA or other regulatory authorities in connection with obtaining regulatory approval or label expansion of Thalomid in the Territory. Notwithstanding anything to the contrary in this agreement, Celgene shall have sole authority with respect to, and control of, such clinical trials.
4. During the period commencing on January 1, 2005 and ending December 31, 2007, in addition to any remaining amounts payable by Pharmion to Celgene under the 2003 Clinical Trials Agreement, Pharmion and Guarantor, jointly and severally, shall reimburse Celgene for an aggregate of $8 million (the "Funding") for the expenses and internal costs incurred by Celgene for the conduct of Thalomid research and development, including clinical trials ("Funded Expenses"). The Funding shall be provided in installments of $666,666 each, payable on the last day of each calendar quarter in 2005, 2006 and 2007. Celgene shall present a statement of Funded Expenses within forty-five (45) days after the end of each calendar quarter in the period from the date of this letter agreement to December 31, 2007. Such statement shall include a summary of expenses incurred for each clinical trial funded, at least in part, by Pharmion. Celgene currently anticipates that the total Funded Expenses in the three-year period ending December 31, 2007 to be well in excess of $8 million. However, if at any time during such period, Celgene anticipates that the total Funded Expenses for such period shall be less than $8 million, Celgene shall confer with Pharmion regarding an appropriate adjustment of Pharmion's funding obligations under this letter agreement.
5. To the extent there is any conflict between the terms of this letter agreement and the License Agreement, this Agreement shall control.
6. This letter agreement shall be governed by and construed in accordance with the laws of the State of New York.
Celgene Corporation
December 3, 2004
Please indicate your acceptance of, and agreement with, the foregoing by signing the enclosed copy of this letter and returning it to us.
Very truly yours,
Pharmion Corporation
Pharmion GmbH
By:/s/ Patrick J. Mahaffy
-----------------------------------------
Patrick J. Mahaffy
President and CEO
|
ACCEPTED AND AGREED:
Celgene Corporation
By:/s/ John W. Jackson
-----------------------------------------
John W. Jackson
Chairman and Chief Executive Officer
|
Exhibit 10.38
Amendment No. 2 to
Amended and Restated Distribution and License Agreement
This Amendment No. 2, dated December 3, 2004, to the Amended and Restated Distribution and License Agreement, dated as of November 16, 2001 (the "Supply Agreement"), by and between Pharmion GmbH, a Swiss limited liability company ("Pharmion"), and Celgene UK Manufacturing II Limited (formerly, Penn T Limited), a corporation organized under the laws of England and Wales ("CUK"), as amended by Amendment No. 1 to the Amended and Restated Distribution and License Agreement, dated March 4, 2003, by and between Pharmion and CUK ("Amendment No. 1"), and as supplemented by the Supplementary Agreement to the Amended and Restated Distribution and License Agreement, dated June 18, 2003, by and between Pharmion and CUK (the "Supplementary Agreement").
WHEREAS, Pharmion desires to reduce its future cost of purchasing Products under the Supply Agreement and is willing to make a one-time payment to CUK in consideration of such reduction: and
WHEREAS, in connection with such reduction in cost and one-time payment, Pharmion and CUK desire to effect certain other changes in their relationship and, accordingly, Pharmion and CUK wish to amend the Supply Agreement as provided below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, CUK and Pharmion hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise expressly defined in this Amendment shall have the meanings ascribed to such terms in the Agreement.
2. EFFECTIVENESS. This Amendment shall become effective on the date hereof.
3. PAYMENT. Concurrently with the execution and delivery of this Amendment, and in consideration therefore, Pharmion shall pay Seventy Seven Million U.S. Dollars ($77,000,000) to CUK by wire transfer in immediately available funds (in accordance with written instructions heretofore provided by CUK).
4. TERMINATION OF AMENDMENT NO. 1 AND SUPPLEMENTARY AGREEMENT. Amendment No. 1 and the Supplementary Agreement are hereby terminated and, except for amounts due and owing thereunder for periods prior to the effective date of this Amendment, shall be of no further force or effect.
5. AMENDMENTS TO THE SUPPLY AGREEMENT. The Supply Agreement is hereby amended as follows:
(a) The heading is amended and restated in its entirety to read as follows:
"Product Supply Agreement".
(b) All references to "Penn" are deleted and replaced by "CUK".
(c) The seventh recital paragraph is hereby amended and restated in its entirety to read as follows:
"WHEREAS, Pharmion and Celgene Corporation ("Celgene") have entered into a License Agreement dated March 7, 2001, pursuant to which Pharmion has acquired a license to register, distribute, market, use and sell Celgene's formulation of Thalidomide in a territory including all countries in the world except the United States, Canada, Mexico, Japan, and all provinces of China, other than Hong Kong."
(d) Article I is hereby amended as follows:
(i) The definition of "Celgene Territory" is hereby amended to provide for the addition of Korea, Taiwan and Hong Kong and restated in its entirety to read as follows:
" 'CELGENE TERRITORY' shall mean all the countries of the world except the United States, Canada, Mexico, Japan, and all the provinces of China other than Hong Kong."
(ii) A definition for "Contract Purchase Price" reading as follows is hereby added to Article I:
" 'CONTRACT PURCHASE PRICE' shall, as to each calendar quarter (or period of less than a quarter either at inception or termination), be equal to (a) fifteen and one half percent (15.5%) of Net Sales of Products in the Territory during such period, less (b) the Initial Invoice Price paid by Pharmion for units of Products sold during such period (as charged to Pharmion by CUK in accordance with Section 6.1(a) based upon a "first-in/first-out" accounting of Pharmion's Products inventory)."
(iii) A definition for "Initial Invoice Price" reading as follows is hereby added to Article I:
" 'INITIAL INVOICE PRICE' shall have the meaning set forth in Section 6.1(a)."
(iv) The definition of "Minimum Royalty" is hereby deleted in its entirety.
(v) The definition of "Penn Territory" is hereby amended and restated in its entirety to read as follows:
" 'CUK TERRITORY' shall mean all countries throughout the world, with the exception of the United States and Canada."
(vi) A definition for "Special Authorizations" reading as follows is hereby added to Article I:
" 'SPECIAL AUTHORIZATIONS' shall have the meaning set forth in Section 7.3."
(e) The last sentence of Section 2.1 is hereby amended and restated in its entirety to read as follows:
"Without limiting the foregoing, during the term of this Agreement, CUK will not manufacture (or cause to be manufactured) any formulation of Thalidomide for distribution or sale by any Person other than Pharmion within the CUK Territory, provided that, CUK may manufacture formulations of Thalidomide using the Celgene Technology for distribution or sale by Celgene (or a distributor or licensee of Celgene) within Mexico, Japan and all provinces of China other than Hong Kong."
(f) Section 2.4 is hereby deleted in its entirety.
(g) The last sentence of Section 3.6 is hereby amended and restated in its entirety to read as follows:
"Correspondingly, CUK shall not actively export any Products into the Territory except (a) to Pharmion and (b) to Celgene (or one of its subdistributors or licensees) as provided in Section 2.1 with respect to Mexico, Japan and all provinces of China other than Hong Kong."
(h) Sections 11.3, 12.1 and 13.3 are amended to replace, unless the context otherwise requires, each reference therein to "Pharmion" with "Pharmion and its Affiliates".
(i) Article VI is hereby amended and restated in its entirety to read as follows:
"Article VI"
PRODUCT PRICING; PAYMENT
Section 6.1 PURCHASE PRICE. Pharmion shall pay for the purchase of Products from CUK in the manner described below:
(a) INITIAL INVOICE PRICE. For each shipment of Products, CUK shall invoice Pharmion and Pharmion shall pay to CUK the then applicable Minimum Price times the number of units of Product included in such shipment (the "Initial Invoice Price"). Pharmion shall pay for each shipment of Products at the Initial Invoice Price within thirty (30) days from the date of invoice for each shipment, which shall not be earlier than the date of shipment.
Such invoicing shall be subject to annual audit by Pharmion, and adjustment, if appropriate, as provided in Section 15.3.
(b) QUARTERLY PAYMENTS. Pharmion shall pay the Contract Purchase Price for Products sold by CUK to Pharmion (except as specifically provided in Section 7.4(b)), based upon Pharmion's Net Sales of Products, as follows:
(i) QUARTERLY PAYMENTS. Payments in respect of the Contract Purchase Price shall be calculated and paid to CUK quarterly, and shall be due as to Net Sales within any of the United Kingdom, Germany or Australia forty-five (45) days following the end of each calendar quarter and as to Net Sales elsewhere within ninety (90) days following the end of each calendar quarter.
(ii) NET SALES REPORTS. Pharmion shall submit quarterly Net Sales reports to CUK within forty-five (45) days following the end of each calendar quarter. Such reports shall include, but not be limited to:
(1) An accounting of Net Sales within the Territory during such quarter on a country by country basis;
(2) An accounting of the purchase price of the units of Products sold during such quarter; and
(3) An accounting of Net Sales set out in clauses
(1) and (2) above (in U.K. Pounds Sterling) and
the calculation of the Contract Purchase Price
owing to CUK pursuant to this Section 6.1 (in
U.K. Pounds Sterling), including, if applicable,
the exchange rates used in determining the
amount of U.K. Pounds Sterling.
(c) INVOICES FOR CONTRACT PURCHASE PRICE. If required by Pharmion,
CUK shall submit a written invoice addressed to Pharmion for
the quarterly Contract Purchase Price to be paid by Pharmion
under this Agreement. CUK shall submit these written invoices
to Pharmion within a reasonable period following the request
from Pharmion and based upon the last quarterly Net Sales
report from Pharmion provided to CUK in accordance with
Section 6.1(b)(ii).
(d) UNIT PRICE REPORTS. Pharmion shall provide Celgene on a quarterly basis with a report showing the average price at which it sold Products on a per unit, country by country basis within forty-five (45) days following the end of each calendar quarter.
(e) WITHHOLDING TAX. Any tax that Pharmion is required to pay or withhold from payments in respect of the Contract Purchase Price to be paid to CUK under this Agreement shall be deducted from the amount otherwise due, provided that, in regard to any such deduction, Pharmion shall give
CUK such assistance as may be reasonably necessary to enable or assist CUK to claim exemption therefrom or a reduction thereof and shall provide CUK with an official tax certificate as soon as possible.
(f) CURRENCY. All prices for Products shall be quoted by CUK to Pharmion, and payments by Pharmion to CUK under this Agreement shall be made, in U.K. Pounds Sterling."
(g) PRICING. CUK has expressed a concern that as a result of macroeconomic conditions it could, at some point, potentially be at risk of experiencing increases in its costs that were beyond its control, thereby causing its fully allocated cost of manufacture of the Product to exceed 3% of Net Sales (a "Macroeconomic Cost Increase"), and correspondingly reducing CUK's net margin on the Contract Purchase Price below 12.5% of Net Sales. Pharmion hereby acknowledges that it would take such Macroeconomic Cost Increases into account and would make a reasonable effort to increase its pricing of the Products to compensate CUK for any such cost increases, to the extent feasible and after taking into consideration relevant pricing factors which include, but are not limited to, customer demand, competition, regulatory requirements and third-party reimbursement. Notwithstanding the foregoing, CUK acknowledges that Pharmion retains the sole right to make pricing decisions regarding the Products in the Territory.
(j) Article VII is hereby amended and restated in its entirety to read as follows:
"Article VII
BELGIUM AND FRANCE
Section 7.1 CURRENT SALES IN BELGIUM AND FRANCE. Pharmion's subsidiary, Pharmion Developpement ("Developpement") currently sells in Belgium and France a formulation of Thalidomide produced by and purchased from its former affiliate Laphal Industrie ("Industrie"). Such purchases and sales have been made pursuant to previously agreed upon concessions from CUK to Pharmion set out in Amendment No. 1.
Section 7.2 COMMERCIALLY REASONABLE EFFORTS. Pharmion shall continue to use commercially reasonable efforts (i) to cause the existing ATU (AUTORISATION TEMPORAIRE D'UTILISATION), as well as any other temporary, specials or named-patient authorizations pursuant to which Developpement sells Thalidomide purchased from Industrie in Belgium and France to be amended to provide for the substitution of a Thalidomide formulation produced by CUK (preferably the Celgene Product, but otherwise the CUK Product) for the formulation being produced by Industrie, and (ii) consistent with regulatory constraints, to cause such amendments to be effective as early as possible, consistent with Pharmion's non-terminable obligations under the supply contract between Pharmion and Industrie.
Section 7.3 PURCHASES FROM INDUSTRIE. Until the earlier of (a) the effectiveness of the amendments described in Section 7.2 above, and (b) the Approval Date with respect to Belgium and France, and notwithstanding the contrary provisions of Sections 3.1 and 5.1 of this Agreement, Developpement shall have the right to continue to purchase its requirements of Thalidomide from Industrie and to distribute Thalidomide under Developpement's ATUs and other temporary, specials or named-patient authorizations (collectively, "Special Authorizations") in Belgium and France. From and after the earlier of such dates, Pharmion shall cause Developpement to sell only Products originally sourced from CUK.
Section 7.4 PAYMENTS. In respect of sales of Thalidomide by Developpement in Belgium and France:
(a) THALIDOMIDE PURCHASED FROM INDUSTRIE. In consideration of (i) the concession from CUK to allow Pharmion to continue to utilize Thalidomide purchased from Industrie and (ii) to induce CUK to maintain an adequate manufacturing capacity to permit the shift contemplated by Section 7.2, Pharmion shall pay to CUK the following amounts in respect of Net Sales of Thalidomide by Developpement in Belgium and France until the earlier of (x) the effectiveness of the amendments described in Section 7.2 and (y) the Approval Date with respect to Belgium and France: as to all Net Sales in Belgium or France for Thalidomide, Pharmion shall pay to CUK the Contract Purchase Price in a manner consistent with Section 6.1; provided, that, for purposes of computing the Contract Purchase Price and the Initial Invoice Price applicable to this Section 7.4(a), the relevant fully allocated cost of product sold shall be the lesser of (A) Developpement's purchase price of product sold for the quarter, or (B) one hundred twenty percent (120%) of the equivalent cost of units sold during the quarter as if such units had been purchased from CUK, and "Territory" shall mean Belgium and France.
(b) THALIDOMIDE PURCHASED FROM CUK. During the period commencing on the effectiveness of the amendments described in Section 7.2 and ending on the Approval Date, Pharmion shall pay to CUK in respect of Net Sales the Contract Purchase Price in a manner consistent with Section 6.1."
(k) The notice address for Pharmion Corporation contained in Section 15.9 shall be replaced with the following:
Pharmion Corporation
2525 28th Street
Boulder, CO 80301
Attention: Chief Executive Officer
Fax No.: (720) 564-9191
6. ADDITIONAL PROVISIONS. Pharmion and CUK each hereby agree to negotiate in good faith a further amendment to the Supply Agreement that will provide a greater level of
detail with regard to a number of manufacturing, production, capacity and scheduling issues, including (a) Pharmion's desire to incorporate the following contractual commitments into the Agreement: (i) a formal recognition by CUK of the applicable manufacturing standards (including, but not limited to, ICH, EC Directives and cGMP) for Products sold in the Territory; (ii) an obligation on the part of CUK to make available a minimum manufacturing capacity for production of Products under the Agreement, as well as provisions dealing with reasonable allocations among customers of CUK in the event of shortages of supply; (iii) a formalization of standards for a minimum remaining shelf life of the Products at the time of delivery to Pharmion; (iv) a requirement on the part of CUK to maintain a mutually agreed upon level of safety stock of the active pharmaceutical ingredient, raw materials and components; (v) a process by which CUK will accept Pharmion purchase orders; (vi) a requirement on the part of CUK to notify Pharmion of the manufacturing and delivery schedule; (vii) an expansion of Pharmion's right to secure a second source of thalidomide in the event of a failure by CUK to supply Products; (viii) clarifications to the procedures for implementing changes to the manufacturing process and allocation of costs for required and discretionary changes to such process; (ix) responsibility for environmental, safety and health aspects of manufacturing thalidomide and (x) obligations of CUK to perform additional services, such as stability testing programs, management of sample retention and package design; and (b) CUK's desire to incorporate the following contractual commitments into the Agreement: (i) the sourcing of Product by CUK from one or more manufacturers other than PPSL, and (ii) to the extent permitted by applicable law, a requirement of Pharmion to safeguard that Product supplied to it by CUK or Industrie is not distributed in the United States, Canada, Mexico, Japan or any of the provinces of China other than Hong Kong. Notwithstanding the preceding sentence, Pharmion acknowledges that CUK procures the supply of Products from an unaffiliated entity, PPSL, pursuant to the terms of a Technical Services Agreement dated October 21, 2004 between CUK and PPSL (the "TSA") and that the negotiation of the foregoing contractual commitments are subject to the rights and obligations of CUK as provided in the TSA. It is the intention of the parties that such further amendment be entered into no later than six (6) months from the date hereof.
7. UNMODIFIED PROVISIONS. Except as expressly modified by this Amendment and Amendment No. 1, all terms and conditions of the Supply Agreement shall remain in full force and effect.
8. GOVERNING LAW; CHOICE OF FORUM. The parties agree that this Agreement shall be governed by and construed in accordance with the laws of England and Wales.
9. CAPTIONS. All captions herein are for convenience only and shall not be interpreted as having any substantive meaning.
[Signature page follows.]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their authorized representatives, in duplicate on the dates written herein below.
Pharmion GmbH Celgene UK Manufacturing II, Limited
Exhibit 10.39
SUBLEASE
THIS SUBLEASE (this "Sublease") is made and entered into as of the 10th day of December, 2001, by and between GATEWAY, INC., a Delaware corporation (hereinafter called "Sublandlord"), and CELGENE CORPORATION, a Delaware corporation (hereinafter called "Subtenant").
W I T N E S S E T H:
WHEREAS, by that certain Lease dated as of April 15, 1999 (the "Original Lease") as amended by that certain First Amendment to Lease Agreement dated as of April 17, 2000 (the "First Amendment"); that certain Second Amendment to Lease dated concurrently herewith (the "Second Amendment"); and with the Original Lease, the First Amendment and the Second Amendment hereinafter collectively referred to as the "Prime Lease", a copy of which Prime Lease is attached hereto as EXHIBIT "A" and by this reference made a part hereof, Carramerica Development, Inc., a Delaware corporation (hereinafter, together with its successors and assigns, called "Landlord"), leased to Sublandlord the entirety of a building located at 4550 Towne Centre Court in San Diego, California containing approximately 78,202 gross rentable square feet (the "Premises" and sometimes also referred to herein as the "Building"); and
WHEREAS, subject to the consent of Landlord, Subtenant desires to sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, the entire Premises, all upon the terms and subject to the conditions and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Sublandlord and Subtenant hereby agree as follows:
1. DEMISE: USE. Sublandlord hereby leases to Subtenant and Subtenant hereby leases from Sublandlord the Premises for the term and rental and upon the other terms and conditions hereinafter set forth, to be used and occupied by Subtenant solely for the purpose of a specified Biohazard Level 1 biotech use as set forth in the Prime Lease (the "Biotech Use") and for general office use and for no other purpose, subject to the limitations set forth in the Prime Lease as may be amended and supplemented pursuant to the Consent Agreement (as defined below), including, without limitation, the provisions of paragraph 14 of the Schedule of the Prime Lease as well as the provisions of paragraph 6 of the Prime Lease. Notwithstanding the foregoing, (i) Subtenant shall be permitted to use the Premises for the Biotech Use only so long as Subtenant has obtained Landlord's consent thereto and complies with all of the terms and conditions imposed upon the Biotech Use as set forth by Landlord in the Prime Lease and as set forth in this Sublease, and (ii) in no event shall any vivarium used by Subtenant in the Premises be used for any animals other than rodents.
2. TERM. The term of this Sublease shall commence (the "Commencement Date") on the later of (i) the date possession of the Premises is delivered to Subtenant, and (ii) one (1) day after the full execution and delivery to Subtenant of this Sublease and the Consent Agreement, and, unless sooner terminated pursuant to the provisions hereof, shall terminate on the earlier of August 31, 2012 and the prior termination of the Term of the Prime Lease. As used herein, the phrase "Lease Year" shall mean the twelve calendar month period commencing on the Rent Commencement Date (as hereinafter defined) (or, if the Rent Commencement Date is not the first day of a calendar month, then commencing on the first day of the calendar month during which the Rent Commencement Date occurs) and each anniversary thereof, except that (i) the first Lease Year shall including that period of time from the Commencement Date up to and including the Rent Commencement Date, and (ii) the last Lease Year may not be twelve calendar months and shall terminate on the last day of the term of this Sublease. Notwithstanding the foregoing, this instrument shall be deemed and agreed to be a sublease only and not an assignment.
3. MINIMUM RENT.
(a) Commencing on the Rent Commencement Date, Subtenant shall pay to Sublandlord minimum annual rental (hereinafter called "Minimum Rent") for the Premises as follows:
--------------------------------------------------------------------------------
ANNUAL
MINIMUM RENT ANNUAL MINIMUM
RATE PER RENT (BASED ON
RENTABLE SQUARE 78,202 RENTABLE MONTHLY
TIME PERIOD FOOT SQUARE FEET) INSTALLMENTS
----------- ---- ------------ ------------
--------------------------------------------------------------------------------
First Lease Year $22.44 $1,754,852.88 $146,237.74
--------------------------------------------------------------------------------
Second Lease Year $23.23 $1,816,632.46 $151,386.04
--------------------------------------------------------------------------------
Third Lease Year $24.04 $1,879,976.08 $156,664.67
--------------------------------------------------------------------------------
Fourth Lease Year $24.88 $1,945,665.76 $162,138.81
--------------------------------------------------------------------------------
Fifth Lease Year $25.75 $2,013,701.50 $167,808.46
--------------------------------------------------------------------------------
Sixth Lease Year $26.65 $2,084,083.30 $173,673.61
--------------------------------------------------------------------------------
Seventh Lease Year $27.58 $2,156,811.16 $179,734.26
--------------------------------------------------------------------------------
Eighth Lease $28.55 $2,232,667.10 $186,055.59
--------------------------------------------------------------------------------
Ninth Lease Year $29.55 $2,310,869.10 $192,572.43
--------------------------------------------------------------------------------
Tenth Lease Year $30.58 $2,391,417.16 $199,284.76
--------------------------------------------------------------------------------
|
--------------------------------------------------------------------------------
ANNUAL
MINIMUM RENT ANNUAL MINIMUM
RATE PER RENT (BASED ON
RENTABLE SQUARE 78,202 RENTABLE MONTHLY
TIME PERIOD FOOT SQUARE FEET) INSTALLMENTS
----------- ---- ------------ ------------
--------------------------------------------------------------------------------
Eleventh Lease Year* $31.65 $2,475,093.30 $206,257.78
--------------------------------------------------------------------------------
|
*Note: Sublandlord and Subtenant acknowledge and agree that as the expiration of the Term of the Prime Lease is August 31, 2012, the eleventh Lease Year shall consist solely of the month of August, 2012, and accordingly the Annual Minimum Rent category for such eleventh Lease Year as set forth in schedule above is for explanatory purposes only.
Annual Minimum Rent shall be due and payable in twelve equal installments. Each such installment shall be due and payable in advance on the first day of each calendar month of the term hereof. If the term of this Sublease commences on a day other than the first day of a month or ends on a day other than the last day of a month, Minimum Rent for such month shall be prorated; prorated Minimum Rent for any such partial first month of the term hereof shall be paid on the date on which the term commences. Notwithstanding anything in this Sublease to the contrary, Subtenant shall pay to Sublandlord the first monthly installment of Minimum Rent due under this Sublease upon the execution and delivery of this Sublease by Subtenant to Sublandlord.
(b) All Minimum Rent and additional rent shall be paid without setoff or deduction whatsoever and shall be paid to Sublandlord at the following address: Real Estate Administration, Gateway, Inc., 610 Gateway Drive Y91, North Sioux City, South Dakota 97049 or at such other place as Sublandlord may designate by notice to Subtenant.
(c) As used herein, the term "Rent Commencement Date" shall mean that date which is nine (9) months after the Commencement Date.
(d) Notwithstanding anything to the contrary contained in this
Sublease, Sublandlord and Subtenant hereby acknowledge and agree that
prior to the Rent Commencement Date in no event shall Subtenant be
obligated to pay any Minimum Rent or any Operating Cost Share Rent or Tax
Share Rent (as such terms are hereinafter defined); provided, however,
Sublandlord and Subtenant acknowledge and agree that Subtenant shall be
responsible to pay or reimburse to Sublandlord any and all costs relating
to the Premises for that period of time following the Commencement Date up
to and including the Rent Commencement Date that exceed the monthly "Base
Expense Amount" (as hereinafter defined). As used herein, the "Base
Expense Amount" is an amount equal to $59,251.00 and represents the
average of the monthly expenses other than "Base Rent" (as defined in the
Prime Lease) incurred by Sublandlord for the Premises over the last twelve
(12) months prior
to the date hereof. In clarification of the foregoing, Subtenant shall be responsible for any and all costs related to the Premises for utilities, heating, ventilating and air conditioning services, emergency generator costs, construction hauling and or scavenger costs to the extent that such costs exceed the average monthly cost for such expenses incurred by Sublandlord during the prior twelve (12) month period. Subtenant shall pay or reimburse such amounts to Subtenant within thirty (30) days following Sublandlord's tender of an invoice therefore to Subtenant and any and all such amounts shall be deemed additional rent due under this Sublease. In addition to the foregoing, Subtenant shall be responsible to comply with all of the insurance and indemnification provisions of this Sublease from and after the Commencement Date.
4. ADDITIONAL RENT; PAYMENTS; INTEREST.
(a) Except for "Base Rent" (as such term is defined in the Prime
Lease and for the payment of which Subtenant shall have no obligation
under this Sublease), Subtenant shall also pay to Sublandlord all other
amounts payable by Sublandlord under the Prime Lease which are
attributable to the Premises or attributable to Subtenant, its agents,
employees, customers or invitees, including without limitation, the
Operating Cost Share Rent, the Tax Share Rent and Additional Rent (as such
terms are defined in the Prime Lease); provided, however, Sublandlord and
Subtenant acknowledge and agree that the rental and other payment
obligation for the period from the Commencement Date up to and including
the Rent Commencement Date shall be determined as set forth in Paragraph 3
(d) hereinabove. By way of example and not by way of limitation, charges
by Landlord for furnishing air conditioning or heating to the Premises at
times in addition to those certain times specified in the Prime Lease,
costs incurred by Landlord in repairing damage to the Building caused by
an employee of Subtenant, increased insurance premiums due as a result of
Subtenant's use of the Premises, and amounts expended or incurred by
Landlord on account of any default by Subtenant which gives rise to a
default under the Prime Lease would be amounts payable by Subtenant
pursuant to this Subsection 4(a).
(b) Each amount due pursuant to Subsection 4(a) above and each other amount payable by Subtenant hereunder, unless a date for payment of such amount is provided for elsewhere in this Sublease, shall be due and payable on the fifth day following the date on which Landlord or Sublandlord has given notice to Subtenant of the amount thereof.
(c) All amounts other than Minimum Rent payable to Sublandlord under this Sublease shall be deemed to be additional rent due under this Sublease. All past due installments of Minimum Rent and additional rent which are not paid on or before the third (3rd) business day after such amount is due shall bear interest from the date due until paid at the rate per annum equal to five percent (5%) in excess of the Prime Rate (as hereinafter defined) in effect from time to time, which rate shall change from time to time as of the effective date of each change in the Prime Rate, unless a lesser rate shall then be the maximum rate permissible by law with respect thereto, in which event said lesser rate shall
be charged. For the purposes of this Sublease, the term "Prime Rate" shall mean the rate of interest announced from time to time by Bank One as its prime or corporate base rate.
(d) Subtenant shall pay Landlord on the due dates for services requested by Subtenant which are billed by Landlord directly to Subtenant rather than Sublandlord.
(e) In addition to the Minimum Rent payable pursuant to Section 3 above, from and after the Rent Commencement Date, for each calendar year of the term, Subtenant, as additional rent, shall pay Subtenant's Percentage Share (which Sublandlord and Subtenant acknowledge and agree is equal to 100%) of Operating Cost Share Rent, Tax Share Rent and Parking Rent payable by Sublandlord for the then current calendar year. Sublandlord shall give Subtenant written notice of Sublandlord's estimate of the amount of additional rent per month payable pursuant to this Subsection for each calendar year following Sublandlord's receipt of Landlord's estimate of such amounts payable under the Prime Lease. Thereafter, the additional rent payable pursuant to this Subsection shall be determined and adjusted in accordance with the provisions below.
(f) The determination and adjustment of additional rent contemplated under Subsection 4(e) above shall be made in accordance with the following procedures:
(1) Upon receipt of a statement from Landlord specifying the estimated Operating Cost Share Rent, Tax Share Rent and Parking Rent to be charged to Sublandlord under the Prime Lease with respect to each calendar year, or as soon after receipt of such statement as practicable, Sublandlord shall give Subtenant written notice of its estimate of additional rent payable under Subsection 4(e) for the ensuing calendar year, which estimate shall be prepared based on the estimate received from Landlord (as Landlord's estimate may change from time to time), together with a copy of the statement received from Landlord. Sublandlord's estimate of additional rent to be paid by Subtenant pursuant to this Sublease shall not exceed Subtenant's Percentage Share of Landlord's estimate delivered to Sublandlord pursuant to the Prime Lease (as Landlord's estimate may change from time to time). On or before the first day of each month during each calendar year, Subtenant shall pay to Sublandlord as additional rent one-twelfth (1/12th) of such estimated amount together with the Minimum Rent.
(2) In the event Sublandlord's notice set forth in Subsection 4(f)(1) is not given in December of the calendar year preceding the calendar year for which Sublandlord's notice is applicable, as the case may be, then until the calendar month after such notice is delivered by Sublandlord, Subtenant shall continue to pay to Sublandlord monthly, during the ensuing calendar year, estimated payments equal to the amounts payable hereunder during the calendar year just ended. Upon receipt of any such post-December notice Subtenant shall (i) commence as of the immediately following calendar month, and continue for the remainder of the calendar year, to pay to Sublandlord monthly such new estimated payments and (ii) if the monthly installment of the new estimate of such additional rent is greater than the monthly installment of the estimate for the previous calendar year, pay
to Sublandlord within thirty (30) days of the receipt of such notice an amount equal to the difference of such monthly installment multiplied by the number of full and partial calendar months of such year preceding the delivery of such notice.
(3) Within thirty (30) days after the receipt by Sublandlord
of a final statement of such costs from Landlord with respect to each
calendar year, Sublandlord shall deliver to Subtenant a statement of the
adjustment to be made pursuant to Section 4(f) hereof for the calendar
year just ended, together with a copy of the statement received by
Sublandlord from Landlord. If on the basis of such statement Subtenant
owes an amount that is less than the estimated payments for the calendar
year just ended previously paid by Subtenant, Sublandlord shall credit
such excess to the next payments of rent coming due or, if the term of
this Sublease is about to expire, so long as Subtenant is not in default
under this Sublease, promptly refund such excess to Subtenant. If on the
basis of such statement Subtenant owes an amount that is more than the
estimated payments for the calendar year just ended previously made by
Subtenant, Subtenant shall pay the deficiency to Sublandlord within thirty
(30) days after delivery of the statement from Sublandlord to Subtenant.
(4) For partial calendar years during the term of this Sublease, the amount of additional rent payable pursuant to Subsection 4(f) that is applicable to that partial calendar year shall be prorated based on the ratio of the number of days of such partial calendar year falling during the term of this Sublease to 365. The expiration or earlier termination of this Sublease shall not affect the obligations of Sublandlord and Subtenant pursuant to this Section 4, and such obligations shall survive and remain to be performed after any expiration or earlier termination of this Sublease.
5. CONDITION OF PREMISES AND CONSTRUCTION OF IMPROVEMENTS.
Subtenant hereby acknowledges and agrees that it is to demise the Premises in an "as-is" condition and Subtenant's taking possession of the Premises shall be conclusive evidence as against Subtenant that the Premises were in good order and satisfactory condition when Subtenant took possession. No promise of Sublandlord to alter, remodel or improve the Premises, and no representation respecting the condition of the Premises have been made by Sublandlord to Subtenant except to the extent expressly set forth in this Sublease. Upon the expiration of the term hereof, or upon any earlier termination of the term hereof or of Subtenant's right to possession, Subtenant shall surrender the Premises in at least as good condition as at the commencement of the term of this Sublease, ordinary wear and tear excepted; provided, however, Sublandlord and Subtenant acknowledge and agree that upon the expiration of the term of this Sublease, Subtenant shall be permitted to surrender the Premises in the condition in which Landlord will require that Sublandlord surrender same to Landlord as provided for in the Prime Lease or as may be supplemented by the Consent Agreement. Notwithstanding the foregoing, in the event of the earlier termination of the term of this Sublease, then Subtenant shall be required to remove from the Premises any and all alterations, improvements or additions to the Premises installed therein by Subtenant to return same to "shell" condition except for areas where Landlord and Sublandlord retain the
discretion to require that they be returned to the existing office improvements (the Building lobby and Building restrooms) as set forth in the Consent; provided, however, Subtenant shall be permitted to leave in the Premises those alterations for which Subtenant has obtained Sublandlord's consent to leave such alterations, additions and/or improvements within the Premises upon the earlier termination of the term of this Sublease. In connection with the foregoing, Sublandlord shall, if requested to provide its determination at the time of receiving Subtenant's request to perform the Subtenant Work (as hereinafter defined) (along with all required information relating to such work, including without limitation, all plans and specifications, working drawings, floor plans, etc.), provide to Subtenant along with Sublandlord's acceptance or non-acceptance of such plans and specifications and other documentation with respect to Subtenant's Work Sublandlord's determination of what, if any, portions of Subtenant's Work that Sublandlord shall permit Subtenant to leave in the Premises upon the earlier termination of the term of this Sublease.
6. THE PRIME LEASE.
(a) This Sublease and all rights of Subtenant hereunder and with respect to the Premises are subject to the terms, conditions and provisions of the Prime Lease. Subtenant hereby assumes and agrees to perform faithfully and be bound by, with respect to the Premises, all of Sublandlord's obligations, covenants, agreements and liabilities under the Prime Lease and all terms, conditions, provisions and restrictions contained in the Prime Lease except:
(i) for the payment of "Base Rent" (as such term is defined in the Prime Lease);
(ii) that Subtenant shall not have any obligations to construct or install tenant improvements except as may be provided herein; and
(iii) that the following provisions of the Prime Lease do not apply to this Sublease: any provisions in the Prime Lease allowing or purporting to allow Sublandlord any rent concessions or abatements or construction or refurbishment allowances, any provisions allowing Sublandlord to extend or renew the term of the Prime Lease (provided if this Sublease is then in force, any election or right of Sublandlord to renew or extend shall not abrogate or affect Subtenant's right to extend with Landlord as set forth in the Consent Agreement), any provisions of the Prime Lease granting any option to purchase or lease the Building or any other space in the Project (provided, Sublandlord and Subtenant acknowledge and agree that the foregoing shall not limit or restrict any such options and rights that may be granted to Subtenant directly from
Landlord in the Consent Agreement so long as Sublandlord incurs no liability or obligation in connection therewith).
(b) Without limitation of the foregoing:
(i) Subtenant shall not make any changes, alterations or additions in or to the Premises except as otherwise expressly provided herein or in the Consent Agreement; provided, however, the foregoing shall not limit or restrict the obligation of Subtenant to obtain the consent of Sublandlord to any such changes, alterations or additions (such obligation shall be satisfied if the Consent Agreement contains the consent of Sublandlord to such changes, alterations or additions). In connection therewith, Sublandlord and Subtenant acknowledge and agree that Subtenant desires to make certain alterations, additions and/or improvements to the Premises following its occupancy thereof. In connection with such work (hereinafter referred to as the "Subtenant Work"), such work shall be performed at the sole cost and expense of Subtenant and shall strictly conform to all the terms and provisions of the Prime Lease and the Consent Agreement. Subtenant shall obtain the approval of both the Landlord and Sublandlord with respect to any and all aspects of the Subtenant Work prior to commencing same.
(ii) If Subtenant desires to take any other action and the Prime Lease and/or Consent Agreement would require that Sublandlord obtain the consent of Landlord before undertaking any action of the same kind, Subtenant shall not undertake the same without the prior written consent of Sublandlord. Sublandlord may condition its consent on the consent of Landlord being obtained and may require Subtenant to contact Landlord directly for such consent;
(iii) All rights given to Landlord and its agents and representatives by the Prime Lease and/or Consent Agreement to enter the Premises shall inure to the benefit of Sublandlord and their respective agents and representatives with respect to the Premises;
(iv) Sublandlord shall also have all other rights, and all privileges, options, reservations and remedies, granted or allowed to, or held by, Landlord under the Prime Lease and/or Consent Agreement or granted to Landlord in the Consent Agreement;
(v) Subtenant shall maintain insurance of the kinds and in the amounts required to be maintained by Sublandlord under the Prime Lease as well as set forth in the Consent Agreement. All policies of liability insurance shall name as additional insureds the Landlord and Sublandlord and their respective officers, directors or partners, as the case may be, and the respective agents and employees of each of them; and
(vi) Subtenant shall not do anything or suffer or permit anything to be done which could result in a default under the Prime Lease or permit the Prime Lease to be canceled or terminated.
(c) Notwithstanding anything contained herein or in the Prime Lease which may appear to be to the contrary, Sublandlord and Subtenant hereby agree as follows:
(i) Subtenant shall not assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Sublease or any interest of Subtenant in this Sublease, by operation of law or otherwise, or permit the use of the Premises or any part thereof by any persons other than Subtenant and Subtenant's employees, or sublet the Premises or any part thereof. Notwithstanding the foregoing, Subtenant shall have the right to assign this Sublease or sub-sublet all or any portion of the Premises to an entity into which Subtenant has merged or consolidated or to an entity to which substantially all of Subtenant's assets are conveyed (collectively a "Corporate Transaction") without the consent of Sublandlord so long as such assignee or sub-subtenant has a net worth equal to or exceeding the greater of Subtenant's net worth (i) on the execution date hereof and (ii) on the date of the Corporate Transaction, provided the net worth requirement for any assignment transaction other than a Corporate Transaction shall be satisfactory to Landlord and Sublandlord (in their sole discretion) and provided that Subtenant delivers not less than thirty (30) days prior written notice to Sublandlord and Landlord, which notice shall include information satisfactory to Sublandlord and Landlord in order to determine the net worth both of the original Subtenant named herein and of the successor subtenant immediately prior to such assignment or sub-sublet. Subtenant shall otherwise have the right to assign this Sublease or sublet all or any portion of the Premises in accordance with the terms and provisions of the Prime Lease and Sublandlord shall have all of the same rights as the Landlord in connection therewith. Further, any rights granted
to Subtenant herein to assign this Sublease or sub-sublet all or any portion of the Premises without the Sublandlord's consent shall be subject to the rights and obligations of the Landlord under the Prime Lease to consent thereto. In connection with any assignment of this Sublease or sub-sublet of all or any portion of the Premises as permitted Subtenant hereinabove, in no event shall Sublandlord be entitled to any amount of rent or other consideration received by Subtenant in connection with such transfer in excess of the rent due under the Sublease and if the rent or other consideration to be received exceeds the amount to be paid by Subtenant hereunder, Sublandlord also agrees to grant commercially reasonable non-disturbance rights to such party.
(ii) Neither rental nor other payments hereunder shall abate by reason of any damage to or destruction of the Premises or the Building or any part thereof, unless, and then only to the extent that, rental and such other payments actually abate under the Prime Lease with respect to the Premises on account of such event and Sublandlord and Subtenant acknowledge and agree that in the event monthly Rent (as defined in the Prime Lease) is abated pursuant to the provisions of Section 4.F. of the Prime Lease, then Subtenant shall be entitled to a consequent abatement of rent due under this Sublease to the extent that such monthly Rent actually abates under the Prime Lease;
(iii) Sublandlord and Subtenant acknowledge and agree that in
the event the Prime Lease permits the Tenant thereunder
to terminate the Prime Lease in the event of any
casualty to the Premises, then other than as set forth
below, in no event shall Sublandlord, as the Tenant
under the Prime Lease, elect to so terminate the Prime
Lease without obtaining the consent or approval from
Subtenant as to such termination. Notwithstanding the
foregoing, in no event shall the right of Sublandlord to
elect to so terminate the Prime Lease be limited or
restricted in the event Sublandlord would have the right
to terminate the Prime Lease as set forth in Paragraph
9.A thereof in the circumstance where the time to
restore any such casualty would exceed two (2) months
and the restoration work would begin during the last
twelve (12) months of the Term of the Prime Lease if (a)
Sublandlord provides prior notice of such election to
Subtenant and (b) such termination right is conditioned
upon Subtenant
having a written agreement with Landlord to continue in possession and occupy the Premises without interruption through exercise of Subtenant's option to extend set forth in the Consent;
(iv) Subtenant shall not have any right to exercise or have Sublandlord exercise any option under the Prime Lease, including, without limitation, any option to extend the term of the Prime Lease or lease additional space (provided, Sublandlord and Subtenant acknowledge and agree that the foregoing shall not limit or restrict any such options and rights that may be granted to Subtenant directly from Landlord in the Consent Agreement so long as Sublandlord incurs no liability or obligation in connection therewith); and
(v) In the event of any conflict between the terms, conditions and provisions of the Prime Lease and of this Sublease, the terms, conditions and provisions of this Sublease shall, in all instances, govern and control. In the event of any conflict between the terms, conditions and provisions of this Sublease and the Consent Agreement, as between Sublandlord and Subtenant, the terms, conditions and provisions of this Sublease shall, in all instances, govern and control; provided, however, Sublandlord and Subtenant acknowledge and agree that as between Landlord and Subtenant, the terms, conditions and provisions of the Consent Agreement shall, in all instances, govern and control.
(d) It is expressly understood and agreed that Sublandlord does not assume and shall not have any of the obligations or liabilities of Landlord under the Prime Lease and that Sublandlord is not making the representations, warranties or indemnifications, if any, made by Landlord in the Prime Lease. With respect to work, services, repairs and restoration or the performance of other obligations required of Landlord under the Prime Lease, Sublandlord's sole obligation with respect thereto shall be to request the same, upon written request from Subtenant, and to use reasonable efforts, at Subtenant's sole cost and expense, to obtain the same from Landlord. Sublandlord shall not be liable in damages, nor shall rent abate hereunder, for or on account of any failure by Landlord to perform the obligations and duties imposed on it under the Prime Lease. Sublandlord and Subtenant acknowledge and agree that any repair, maintenance and/or replacement obligations with respect to the Premises which are the responsibility of the Sublandlord, as Tenant under the Prime Lease, shall be performed by Subtenant at Subtenant's sole cost and expense. In the event that a condition exists in the Premises that Landlord is obligated to repair under the terms of the Prime Lease, Subtenant shall so advise Sublandlord, and Sublandlord, in turn, shall promptly advise Landlord thereof. At Subtenant's request, in the event that Landlord fails to fulfill any
repair or maintenance obligation under the terms of the Prime Lease with respect to the Premises, Sublandlord shall use its reasonable efforts to have Landlord fulfill such repair and maintenance obligations, all of which reasonable efforts shall be at Subtenant's sole cost and expense.
(e) Except for the Consent Agreement, nothing contained in this Sublease shall be construed to create privity of estate or contract between Subtenant and Landlord, except the agreements of Subtenant in Sections 10 and 11 hereof in favor of Landlord, and then only to the extent of the same.
7. DEFAULT BY SUBTENANT.
(a) Upon the happening of any of the following:
(i) Subtenant fails to pay any Minimum Rent within five (5) days after the date it is due;
(ii) Subtenant fails to pay any other amount due from
Subtenant hereunder and such failure continues for five
(5) days after notice thereof from Sublandlord to
Subtenant;
(iii) Subtenant fails to perform or observe any other covenant
or agreement set forth in this Sublease and such failure
continues for fifteen (15) days except that if such
default is not capable of being cured within such
fifteen (15) day period, then so long as Subtenant
continues to diligently attempt to cure such default,
the fifteen (15) day period shall be extended to sixty
(60) days or such lesser period as is reasonably
necessary to complete the cure of such default after
notice thereof from Sublandlord to Subtenant; or
(iv) any other event occurs which involves Subtenant or the
Premises and which would constitute a default under the
Prime Lease if it involved Sublandlord or the Premises
and such default continues for fifteen (15) days after
notice thereof from Sublandlord to Subtenant except that
if such default is not capable of being cured within
such fifteen (15) day period, then so long as Subtenant
continues to diligently attempt to cure such default,
the fifteen (15) day period shall be extended to sixty
(60) days or such lesser period as is reasonably
necessary to complete the cure of such default;
Subtenant shall be deemed to be in default hereunder, and Sublandlord may exercise, without limitation of any other rights and remedies available to it hereunder or at law or in equity,
any and all rights and remedies of Landlord set forth in the Prime Lease in the event of a default by Sublandlord thereunder.
(b) In the event Subtenant fails or refuses to make any payment or perform any covenant or agreement to be performed hereunder by Subtenant, Sublandlord may make such payment or undertake to perform such covenant or agreement (but shall not have any obligation to Subtenant to do so). In such event, amounts so paid and amounts expended in undertaking such performance, together with all costs, expenses and attorneys' fees incurred by Sublandlord in connection therewith, shall be additional rent hereunder.
8. NONWAIVER. Failure of either party to declare any default or delay in taking any action in connection therewith shall not waive such default. No receipt of moneys by Sublandlord from Subtenant after the termination in any way of the term or of Subtenant's right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the term or affect any notice given to Subtenant or any suit commenced or judgment entered prior to receipt of such moneys.
9. CUMULATIVE RIGHTS AND REMEDIES. All rights and remedies of Sublandlord under this Sublease shall be cumulative and none shall exclude any other rights or remedies allowed by law.
10. WAIVER OF CLAIMS AND INDEMNITY.
(a) Subtenant hereby releases and waives any and all claims against Landlord and Sublandlord and each of their respective officers, directors, partners, agents and employees for injury or damage to person, property or business sustained in or about the Building or the Premises by Subtenant other than by reason of the active negligence or wilful misconduct and except in any case which would render this release and waiver void under law.
(b) Subtenant agrees to indemnify, defend and hold harmless Landlord and Sublandlord and each of their respective officers, directors, partners, agents and employees, from and against any and all claims, demands, costs and expenses of every kind and nature, including attorneys' fees and litigation expenses, arising from Subtenant's use and occupancy of the Premises, Subtenant's construction of any leasehold improvements in the Premises, any release, discharge, storage, production, use or disposal of Hazardous Substances in the Premises caused or permitted by Subtenant or its agents, contractors, employees, licensees or invitees or in any way relating to any Hazardous Substances brought onto the Premises by Subtenant or its agents, contractors, employees, licensees or invitees, the installation, maintenance, repair and/or removal of any and all signage installed by Subtenant, including, without limitation, the Building Signage, or from any breach or default on the part of Subtenant in the performance of any agreement or covenant of Subtenant to be performed under this Sublease or the Consent Agreement or pursuant to the terms of this Sublease or the Consent Agreement, or from any act or neglect of Subtenant or its agents, officers,
employees, guests, servants, invitees or customers in or about the Premises. In addition, the foregoing indemnification of Sublandlord and the other noted parties herein shall include any and all liability assessed, imposed or charged against Subtenant for any violation of the provisions of the Prime Lease and/or Consent Agreement with respect to their respective provisions relating to Hazardous Substances, which violation was not caused by Sublandlord or its agents, contractors or employees. In case any such proceeding is brought against any of said indemnified parties, Subtenant covenants, if requested by Sublandlord, to defend such proceeding at its sole cost and expense by legal counsel reasonably satisfactory to Sublandlord.
(c) Sublandlord agrees to indemnify, defend and hold harmless Subtenant and its officers, directors, partners, agents and employees, from and against any and all claims, demands, cost and expenses of every kind and nature, including attorneys' fees and litigation expenses, arising from (i) any breach or default by Sublandlord under the Prime Lease (which breach or default was not attributable to Subtenant or its agents, contractors, employees, licensees or invitees under this Sublease and/or the Consent Agreement), and (ii) the active negligence or willful misconduct of Sublandlord or its agents, officers or employees or from any breach or default on the part of Sublandlord in the performance of any agreement or covenant of Sublandlord to be performed under this Sublease. In case any such proceeding is brought against any of said indemnified parties, Sublandlord covenants, if requested by Subtenant, to defend such proceeding at its sole cost and expense by legal counsel reasonably satisfactory to Subtenant.
11. WAIVER OF SUBROGATION. Anything in this Sublease to the contrary notwithstanding, Sublandlord and Subtenant each hereby waive any and all rights of recovery, claims, actions or causes of action against the other and the officers, directors, partners, agents and employees of each of them, and Subtenant hereby waives any and all rights of recovery, claims, actions or causes of action against Sublandlord and Landlord and their respective agents and employees for any loss or damage that may occur to the Premises, or any improvements thereto, or any personal property of any person therein or in the Building, by reason of fire, the elements or any other cause insured against under valid and collectible fire and extended coverage insurance policies, regardless of cause or origin, including negligence, except in any case which would render this waiver void under law.
12. BROKERAGE COMMISSIONS. Each party hereby represents and warrants to the other that other than Julien J. Studley, Inc. and The Staubach Company (whose commissions shall be payable by Sublandlord), it has had no dealings with any real estate broker or agent in connection with this Sublease, and that it knows of no real estate broker or agent who is or might be entitled to a commission in connection with this Sublease. Each party agrees to protect, defend, indemnify and hold the other harmless from and against any and all claims inconsistent with the foregoing representations and warranties for any brokerage, finder's or similar fee or commission in connection with this Sublease, if such claims are based on or relate to any act of the indemnifying party which is contrary to the foregoing representations and warranties.
13. SUCCESSORS AND ASSIGNS. This Sublease shall be binding upon and inure to the benefit of the successors and assigns of Sublandlord and shall be binding upon and inure to the benefit of the successors of Subtenant and, to the extent any such assignment may be approved, Subtenant's assigns. The provisions of Subsection 6(e) and Sections 10 and 11 hereof shall inure to the benefit of the successors and assigns of Landlord.
14. ENTIRE AGREEMENT. This Sublease contains all the terms, covenants, conditions and agreements between Sublandlord and Subtenant relating in any manner to the rental, use and occupancy of the Premises. No prior agreement or understanding pertaining to the same shall be valid or of any force or effect. The terms, covenants and conditions of this Sublease cannot be altered, changed, modified or added to except by a written instrument signed by Sublandlord and Subtenant.
15. NOTICES.
(a) In the event any notice from the Landlord or otherwise relating to the Prime Lease is delivered to the Premises or is otherwise received by Subtenant, Subtenant shall, as soon thereafter as possible, but in any event within one (1) business day, deliver such notice to Sublandlord if such notice is written or advise Sublandlord thereof by telephone if such notice is oral.
(b) In the event any default notice from the Landlord is received by Sublandlord, Sublandlord shall, as soon thereafter as possible, but in any event within one (1) business day, deliver such notice to Subtenant if such notice is written or advise Subtenant thereof by telephone if such notice is oral.
(c) Notices and demands required or permitted to be given by either party to the other with respect hereto or to the Premises (including, without limitation, any notice required by law to be given by Sublandlord as a condition to the filing of an action alleging an unlawful detainer of the Premises and any three day notice under Section 1161(2) or (3) of the California Civil Code of Procedure) shall be in writing and shall not be effective for any purpose unless the same shall be served either by personal delivery with a receipt requested, by overnight air courier service or by United States certified or registered mail, return receipt requested, postage prepaid; provided, however, that all notices of default shall be served either by personal delivery with a receipt requested or by overnight air courier service, addressed after the Rent Commencement Date to Subtenant at the Premises and otherwise as follows:
if to Sublandlord: GATEWAY, INC.
Real Estate Administration
610 Gateway Drive Y91
North Sioux City, South Dakota 97049
|
and
GATEWAY, INC.
14303 Gateway Place
Poway, California 92064
Attn: General Counsel
if to Subtenant: CELGENE CORPORATION
5555 Oberlin Drive
San Diego, California 92121
|
Notices and demands shall be deemed to have been given two (2) days after mailing, if mailed, or, if made by personal delivery or by overnight air courier service, then upon such delivery. Either party may change its address for receipt of notices by giving notice to the other party.
16. AUTHORITY. Subtenant represents and warrants to Sublandlord that this Sublease has been duly authorized, executed and delivered by and on behalf of Subtenant and constitutes the valid, enforceable and binding agreement of Subtenant and of each party constituting Subtenant, each of whom shall be jointly and severally liable hereunder in accordance with the terms hereof. Sublandlord represents and warrants to Subtenant that the Sublease has been duly authorized, executed and delivered by and on behalf of Sublandlord and constitutes the valid, enforceable and binding agreement of Sublandlord.
17. LIMITATION ON LIABILITY. Intentionally Deleted.
18. CONSENTS, APPROVALS AND DEFINITIONS. In any instance when Sublandlord's consent or approval is required under this Sublease, Sublandlord's refusal to consent to or approve any matter or thing shall be deemed reasonable if, among other matters, such consent or approval is required under the provisions of the Prime Lease incorporated herein by reference but has not been obtained from Landlord. Except as otherwise provided herein, Sublandlord shall not unreasonably withhold or delay its consent to or approval of a matter if such consent or approval is required under the provisions of the Prime Lease and Landlord has consented to or approved of such matter.
19. CONSENT OF LANDLORD. The obligations of Sublandlord and Subtenant under this Sublease are conditioned and contingent upon the Landlord consenting hereto by executing and delivering a counterpart of the consent of Landlord attached hereto as Exhibit "E" as (the "Consent
Agreement"). In the event Landlord's consent is not obtained within thirty (30) days after the date hereof, as evidenced by its execution and delivery of this Sublease and the Consent Agreement, this Sublease shall automatically terminate and become null and void, and neither Sublandlord nor Subtenant shall have any further obligations or liability hereunder or to each other with respect to the Premises. In connection with obtaining Landlord's consent, Sublandlord and Subtenant acknowledge and agree that Landlord is requiring that all legal fees and costs associated with obtaining its consent to this Sublease be reimbursed to Landlord. Accordingly, Sublandlord and Subtenant acknowledge and agree that Sublandlord shall be responsible to reimburse to Landlord not more than $2,500.00 in connection with such reimbursement and that Subtenant shall be responsible for any and all costs to reimbursed to Landlord in excess thereof. If such amounts are billed through Sublandlord then Subtenant shall pay to Sublandlord the costs of any and all such reimbursement which is in excess of $2,500.00 within ten (10) days of Sublandlord's invoice; therefore, and any such amounts due Sublandlord hereunder shall be deemed additional rent due under this Sublease.
20. EXAMINATION. Submission of this instrument for examination or signature by Subtenant does not constitute a reservation of or option for the Premises or in any manner bind Sublandlord, and no lease, sublease or obligation on Sublandlord shall arise until this instrument is signed and delivered by Sublandlord and Subtenant and the consent of Landlord is obtained as described in Section 19 above; provided, however, that the execution and delivery by Subtenant of this Sublease to Sublandlord shall constitute an irrevocable offer by Subtenant to sublease the Premises on the terms and conditions herein contained, which offer may not be revoked for five (5) business days after such delivery.
21. SECURITY DEPOSIT. Subtenant concurrently with the execution of this Sublease, shall deposit with Sublandlord cash or a letter of credit (the "Letter of Credit") equal to three (3) month's Minimum Rent. Such letter of credit shall be in a form satisfactory to Sublandlord (in its sole and absolute discretion) and issued upon a federally chartered bank with a minimum long term debt rating of "A", with a branch in San Diego, California for purposes of Sublandlord's ability to draw thereon and shall otherwise be satisfactory to Sublandlord (in its sole and absolute discretion). Further, such letter of credit shall be irrevocable, "evergreen", "clean" and in the full amount required naming Sublandlord as beneficiary, and providing for partial and multiple draws and shall otherwise be satisfactory to Sublandlord as set forth hereinabove. Such letter of credit shall be held by Sublandlord as security for the faithful performance by Subtenant of all terms, covenants and conditions of this Sublease. Subtenant agrees that Sublandlord may apply (or draw upon, as the case may be) the security deposit to remedy any failure by Subtenant to repair or maintain the Premises or to perform any other terms, covenants and conditions contained herein or make any payment owing hereunder, all following the expiration of applicable notice and cure periods. The security deposit shall not serve as an advance payment of rent or a measure of Sublandlord's damages for any default. Subtenant waives the provisions of California Civil Code Section 1950.7, and all other provisions of law now in force or that become in force after the date hereof, that provide that Sublandlord may claim from a security deposit only those sums reasonably necessary to remedy any defaults in the payment of rent, to repair any damage caused by Subtenant, or to clean the Premises.
If Subtenant has kept and performed all terms, covenants and conditions of this
Sublease during the term, Sublandlord will, within thirty (30) days after the
expiration hereof, promptly return the security deposit to Subtenant or the last
permitted assignee of Subtenant's interest hereunder or assign the security
deposit to Landlord as provided in the Consent Agreement. Should Sublandlord use
(or draw upon, as the case may be) any portion of the security deposit to cure
any default by Subtenant hereunder, Subtenant shall forthwith replenish the
security deposit to the original amount. Sublandlord shall not be required to
keep the security deposit separate from its general funds, and Subtenant shall
not be entitled to interest on any such deposit. Subtenant hereby acknowledges
and agrees that Sublandlord may draw upon such letter of credit at such time as
Sublandlord is permitted to do so under this paragraph 21 or if Subtenant fails
to provide Sublandlord with a replacement letter of credit no later than thirty
(30) days prior to the expiration date of any then held letter of credit in
Sublandlord's possession. In the event Sublandlord draws down such letter of
credit, then Sublandlord shall hold such cash security deposit in accordance
with the terms and provisions of this paragraph 21.
22. FURNITURE AND FIXTURES. Subtenant hereby covenants and agrees that it shall purchase all of the furniture and fixtures located in the Premises and scheduled on the schedule attached to this Sublease as EXHIBIT "C" at a cost equal to $409,375.00 (the "Furniture Cost"). Sublandlord and Subtenant acknowledge and agree that the Furniture Cost is full and actual consideration for the purchase of such furniture and fixtures from Sublandlord and not as rent or additional consideration for occupancy of the Premises by Subtenant or enhancement of the rent due under this Sublease. In connection therewith, Subtenant shall pay the Furniture Cost to Sublandlord within fifteen (15) days after the Commencement Date, failing which Subtenant shall be deemed in default under this Sublease. Upon Sublandlord's receipt of the Furniture Cost, Sublandlord shall provide to Subtenant a bill of sale to Subtenant conveying Sublandlord's interests in such furniture and fixtures to Subtenant without representation and warranty of any kind except to warrant that (i) Sublandlord has merchantable title to such items, and (ii) that such items are conveyed free and clear of any liens or security interests of Landlord or any other party. Warranties expressly disclaimed include, without limitation, warranties of merchantability, fitness for a particular purpose or any other thing or nature whatsoever. The form of such bill of sale is attached to this Sublease as EXHIBIT "D". Notwithstanding the foregoing, Sublandlord and Subtenant acknowledge and agree that in no event shall the furniture and fixtures conveyed to Subtenant pursuant to said bill of sale include the telecommunications system (including, with limitation, all switching equipment) located within the Premises, it being Sublandlord's intention to remove all such equipment from the Premises prior to the Commencement Date. In addition, as to the Non-Included Cafeteria Equipment (as defined in the Consent Agreement), Subtenant shall own such items in their AS-IS condition and shall have the right to remove and dispose of such items; provided if required by Landlord, Subtenant shall remove such items at the expiration or sooner termination of the Sublease and repair all damage caused by such removal.
23. PARKING. During the term of this Sublease, so long as Subtenant is not in default under this Sublease, Subtenant and its employees shall be entitled to use Subtenant's Percentage Share of the parking rights granted to Sublandlord as Tenant, under the Prime Lease, including,
without limitation, the terms and provisions of Section 4.G. of the Prime Lease. Subtenant acknowledges and agrees that its right to use such parking area shall be upon the terms and conditions set forth in the Prime Lease, including, without limitation, any and all rules and regulations promulgated by Landlord with respect thereto.
24. ROOF RIGHTS. Sublandlord and Subtenant acknowledge and agree that Subtenant desires to, at its sole cost and expense, install a satellite dish on the roof of the Building. So long as Subtenant is not in default under this Sublease, Sublandlord hereby consents to the installation of same upon the following terms and conditions: (i) Subtenant shall obtain the approval of Landlord and Sublandlord with respect to all aspects of the installation of such satellite dish, including, without limitation, the plans and specifications therefor, the manner of installation of same and the location of same; and (ii) the right granted to Subtenant hereunder shall be subject to all of the terms and conditions of the Prime Lease. In addition to such satellite dish, Sublandlord acknowledges and agrees that Subtenant may desire to install a central mechanical plant on the roof of the Premises and so long as the Subtenant obtains the consent of Landlord and Sublandlord as required hereunder and under the Prime Lease, Subtenant shall be permitted to utilize the roof of the Premises to install such a central mechanical plant.
25. GENERATOR. Sublandlord and Subtenant acknowledge and agree that adjacent to the Premises is an emergency diesel generator owned by Landlord which services the Premises and that same shall remain in place and may be utilized by Subtenant at no additional cost payable to Sublandlord for the use of such generator throughout the term of this Sublease; provided, however, Subtenant shall be solely responsible for any and all costs passed through under the Prime Lease or otherwise related to such generator, including, without limitation, those costs associated with the insuring, operation, maintenance and/or repair of such generator throughout the term of this Sublease.
26. SIGNAGE. Sublandlord and Subtenant hereby acknowledge and agree that so long as Subtenant is not in default under this Sublease, Subtenant shall be granted the right provided to Sublandlord, as Tenant under the Prime Lease, to install the Building Sign as set forth in Section 31 of the Prime Lease, subject to the following terms and conditions:
(i) in no event shall Subtenant be permitted to install such Building Sign unless and until Subtenant obtains any and all necessary approvals in connection therewith, including, without limitation, the approval of Landlord, Sublandlord and any necessary governmental entity or agency having jurisdiction over the Premises;
(ii) Subtenant shall comply with all of the terms and provisions of the Prime Lease and this Sublease in connection with the installation of same.
27. MEMORANDUM OF SUBLEASE. If required by Chicago Title Company to issue a subleasehold policy of title insurance to Subtenant and so long as Subtenant has obtained Landlord's
consent thereto, Sublandlord agrees to execute, acknowledge and deliver to Subtenant for recordation purposes a memorandum of this Sublease, in form and content reasonably satisfactory to Sublandlord; provided, however, the obligation of Sublandlord to execute, acknowledge and deliver such a memorandum shall be conditioned upon the delivery by Subtenant to Sublandlord contemporaneously therewith a fully executed quitclaim deed or other instrument sufficient to release such memorandum of this Sublease from the applicable public records upon the expiration of the term of this Sublease or earlier termination thereof. Sublandlord shall hold such instrument until the expiration of the term of this Sublease or the earlier termination thereof.
28. COUNTERPART: EXECUTION. This Sublease may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this Sublease to physically form one document. This Sublease may also be delivered by telefacsimile and any signature of a party on a telefacsimile copy shall be binding. Any party delivering an executed counterpart of this Sublease by telefacsimile shall also deliver by overnight service to the other party or parties an original counterpart of this Sublease, provided the failure to deliver an original counterpart shall not affect the validity, enforceability and binding effect of this Sublease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the date aforesaid.
SUBLANDLORD:
GATEWAY, INC.
a Delaware corporation
ATTEST:
By: By: /s/ Stephen Smurthwaite
----------------------------- ----------------------------
Its: Its: Vice President
-------------------------- -------------------------
|
STATE OF CALIFORNIA )
) SS:
COUNTY OF SAN DIEGO )
On this 10th day of DECEMBER, 2001, before me, the undersigned Notary Public in and for said County and State, personally appeared STEPHEN SMURTHWAITE of GATEWAY, a VICE PRESIDENT who executed the foregoing instrument on behalf of said corporation for the purposes therein expressed. He is personally known to me and did not take an oath. In witness whereof, I have hereunto set my hand and official seal the day and year last above written.
M REBECCA L. MOOT M /s/ Rebecca L. Moot
G COMM. # 1244581 G -----------------------------------
C [SEAL] NOTARY PUBLIC-CALIFORNIA C Notary Public
1 SAN DIEGO COUNTY 1 Printed/Typed Name: Rebecca L. Moot
COMM. EXP. DEC. 4, 2003 ---------------
----------------------------------- Commission No.: 1244581
-------------------
My commission expires: 12-4-03
------------
|
SUBTENANT:
CELGENE CORPORATION,
a Delaware corporation
ATTEST:
By: By: /s/ Robert J. Hugin
----------------------------- ----------------------------
Its: Its: SVP & CFO
-------------------------- -------------------------
|
State of California )
) ss.
County of San Diego )
|_| personally known to me
|X| proved to me on the basis of
satisfactory evidence
to be the person whose name is -------------------------------------- subscribed to the within instrument
N SHOLITA PACKER N and acknowledged to me that he
N Commission # 1289382 N executed the same in his authorized
A [SEAL] Notary Public - California A capacity, and that by his signature
1 San Diego County 1 on the instrument the person, or the
My Comm. Expires Jan 5, 2005 entity upon behalf of which the person
-------------------------------------- acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Sholita Packer
--------------------------------------
|
Place Notary Seal Above Signature of Notary Public
----------------------------------- OPTIONAL -----------------------------------
Though the information below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document: Sublease
-----------------------------------------------------
Document Date: December 10, 2001 Number of Pages: 23
-------------------- --------------------------
Signer Other Than Named Above: N/A
-------------------------------------------------
CAPACITY CLAIMED BY SIGNER
Signer's Name: Robert J. Hugin
---------------------------------------------- -----------------
RIGHT THUMBPRINT
|_| Individual OF SIGNER
|X| Corporate Officer -- Title: SVP, Chief Financial Officer -----------------
|_| Partner -- |_| Limited |_| General Top of thumb here
|_| Attorney in Fact
|_| Trustee
|_| Guardian or Conservator
|_| Other: __________________________________________________ [THUMB PRINT]
Signer Is Representing: Self
------------------------------------- -----------------
================================================================================
(C) 1999 National Notary Association o 9350 De
Soto Ave., P.O. Box 2402 o Chatsworth, CA
91313-2402 o www.nationalnotary.org
Prod. No. 5907
|
Reorder: Call Toll-Free 1-800-876-6827
EXHIBIT 21.1
LIST OF SUBSIDIARIES
--------------------------------------------------------------------------------
State or Other Jurisdiction
Name of Incorporation
--------------------------------------------------------------------------------
Signal Pharmaceuticals, Inc. California
Anthrogenesis Corp. New Jersey
Celgene International, Inc. Delaware
Celgene International SARL Switzerland
Celgene Luxembourg Finance Company SARL Luxembourg
Celgene UK Holdings, Limited United Kingdom
Celgene UK Manufacturing, Limited United Kingdom
Celgene UK Manufacturing II, Limited United Kingdom
Celgene Edinburgh Finance United Kingdom
Celgene Europe Ltd. United Kingdom
|
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Celgene Corporation:
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-70083, 333-91977, 333-39716 and 333-65908), in the registration statements on Form S-3 (Nos. 333-02517, 333-32115, 333-38861, 333-52963, 333-87197, 333-93759, 333-94915 and 333-75636) and in the registration statement on Form S-4 (No. 333-101196) of Celgene Corporation of our report dated March 15, 2005, with respect to the consolidated balance sheets of Celgene Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2004, and the related financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 and the effectiveness of internal control over financial reporting as of December 31, 2004, which reports appear in the December 31, 2004 annual report on Form 10-K of Celgene Corporation.
As further discussed in Note 2 of the consolidated financial statements, the consolidated financial statements for 2003 and 2002 have been restated.
Short Hills, NJ
March 15, 2004
/s/ KPMG -------------------- |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John W. Jackson, certify that:
1. I have reviewed this annual report on Form 10-K of Celgene Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of the registrant's Board of Directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Hugin, certify that:
1. I have reviewed this annual report on Form 10-K of Celgene Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of the registrant's Board of Directors (or persons performing the equivalent function):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10K of Celgene
Corporation ("the Company") for the period ended December 31, 2004 ("the
Periodic Report"), I, John W. Jackson, Chief Executive Officer of the Company,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that
the Periodic Report fully complies with the requirements of Section 13 (a) or 15
(d) of the Securities Exchange Act of 1934 and that the information contained in
the Periodic Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: March 15, 2005
------------------------- --------------------------------
John W. Jackson
Chief Executive Officer
|
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10K of Celgene
Corporation ("the Company") for the period ended December 31, 2004 ("the
Periodic Report"), I, Robert J. Hugin, Chief Financial Officer of the Company,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that
the Periodic Report fully complies with the requirements of Section 13 (a) or 15
(d) of the Securities Exchange Act of 1934 and that the information contained in
the Periodic Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: March 15, 2005
------------------------- --------------------------------
Robert J. Hugin
Chief Financial Officer
|