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, 2000
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
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(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
7 Powder Horn Drive
Warren, New Jersey 07059
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(Address of principal executive offices) (Zip Code)
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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.
Aggregate market value of voting stock held by non-affiliates of registrant as of March 1, 2001: $1,847,889,460
CELGENE CORPORATION ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM NO. PAGE
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Part I
1. Business ................................................ 1
2. Properties .............................................. 25
3. Legal Proceedings ....................................... 25
4. Submission of Matters to a Vote of Security Holders...... 25
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters ..................................... 26
6. Selected Consolidated Financial Data .................... 27
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 28
7a. Quantitative and Qualitative Disclosures About
Market Risk ............................................. 31
8. Financial Statements and Supplementary Data ............. 32
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................... 32
Part III
10. Directors and Executive Officers of the Registrant ...... 33
11. Executive Compensation .................................. 35
12. Security Ownership of Certain Beneficial Owners and
Management .............................................. 39
13. Certain Relationships and Related Transactions .......... 39
Part IV
14. Exhibits, Financial Statements, Supplementary Data
and Reports on Form 8-K ................................. 40
Signatures and Power of Attorney......................... 42
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PART I
ITEM 1. BUSINESS
Celgene Corporation, a Delaware corporation incorporated in 1986, is an independent biopharmaceutical company engaged primarily in the discovery, development and commercialization of orally administered, small molecule drugs for the treatment of cancer and inflammatory diseases via gene regulation. The key mechanisms of action for our drugs are modulation of the overproduction of tumor necrosis factor alpha ("TNF(alpha)"), modulation of intracellular signaling pathways and inhibition of angiogenesis. We had total revenues of $84.2 million in 2000.
The Food and Drug Administration ("FDA") approved our first commercialized product THALOMID(Reg. TM) (thalidomide), for sale in the United States in July 1998. The approved indication for THALOMID is for the treatment of acute cutaneous manifestations of moderate to severe erythema nodosum leprosum ("ENL") and as maintenance therapy for prevention and suppression of cutaneous manifestation recurrences. ENL is an inflammatory complication of leprosy. We sell this product in the United States through our 98 person sales and commercialization organization.
Our pipeline of new drugs is highlighted by four classes of orally administered therapeutic agents: Immunomodulatory Drugs ("IMiDs(TM)"), Selective Cytokine Inhibitory Drugs ("SelCIDs(TM)"), Selective Estrogen Receptor Modulators ("SERMs") and cJun N-terminal kinase ("JNK") inhibitors. The IMiD class is based on the activity of THALOMID in modulating the overproduction of TNF(alpha) and inhibiting angiogenesis. In preclinical studies, our IMiDs have demonstrated a higher level of activity than thalidomide. In animal models, these compounds did not cause birth defects or sedation. As announced in February 2000, two IMiDs were well-tolerated in healthy human volunteers of Phase I trials. Two Phase I/II clinical studies of the lead IMiDs in multiple myeloma were initiated in 2000 at the Dana-Farber Cancer Institute and the University of Arkansas Cancer Research Center.
The second class of compounds, SelCIDs, is designed to modulate TNF(alpha) by selectively inhibiting phosphodiesterase ("PDE") 4, a key cell-signaling enzyme. Our SelCIDs are targeted to control inflammation without broad suppression of the immune system. Our lead SelCID compound, CDC 801, was safe and well tolerated in human Phase I trials. Common side effects of known PDE 4 inhibitors such as nausea or vomiting did not occur. CDC 801 is currently being tested in a Phase II trial for Crohn's disease and the results are expected in 2001. A Phase I trial was initiated for the second-generation SelCID compound, CDC 998, which is significantly more potent than CDC 801.
The SERMs are a class of drugs designed to mimic the positive effects of estrogen by inhibiting bone loss in postmenopausal women, while avoiding some of estrogen's adverse effects such as increasing risk of breast and uterine cancer. We intend to file an IND for the next generation SERM-(alpha) as an anti-cancer agent in 2001.
The fourth class of compounds are the JNK inhibitors. The JNK pathway controls the expression of specific sets of genes involved in cancer and inflammation. Drugs that inhibit JNK activation are expected to selectively block the over-activation of inducible genes and not affect normal cellular functions. We anticipate initiating a Phase I clinical trial for the lead JNK inhibitor in 2002.
Our chiral chemistry program develops chirally pure versions of existing compounds for both pharmaceutical and agrochemical markets, including d-methylphenidate ("d-MPH"), our chirally pure version of Ritalin(Reg. TM), for the treatment of attention deficit disorder ("ADD") and attention deficit hyperactivity disorder ("ADHD") . In April 2000, we announced that we had granted Novartis Pharma AG an exclusive worldwide license (except Canada) for the development and marketing of d-MPH in return for substantial milestone payments and royalties on d-MPH and all products in the Ritalin family of drugs. We have retained the rights to develop d-MPH for cancer-associated disorders.
CELGENE PRODUCT OVERVIEW
The target disease states for, and the clinical trial status of, THALOMID and our products and compounds currently under development are outlined in the following table:
PRODUCT INDICATION/INTENDED USE STATUS
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THALOMID(Reg. TM) Erythema Nodosum Leprosum Approved.
(ENL)
Multiple Myeloma Phase III pivotal trial underway.
Renal Cancer Phase III trial underway.
Colorectal Cancer Phase II trial completed.
Phase II/III trial protocol in preparation.
Myelodysplastic Syndromes (MDS) Phase II trial completed.
Phase III trial protocol in preparation.
Glioblastoma Initial Phase II trials completed.
Other Phase II trials underway.
Prostate Cancer Initial Phase II trials completed.
Other Phase II trials underway.
Recurrent Aphthous Stomatitis Phase III pivotal trial completed in AIDS
(RAS) patients.
Crohn's Disease Phase II trial completed and initial data
published.
Ulcerative Colitis Phase II trial underway.
Sarcoidosis Initial Phase II trial completed.
SelCIDs(TM)
CDC 801 Crohn's Disease Phase II trial underway.
CDC 998 Anti-Inflammatory Phase I trial underway.
IMiDs(TM)
CDC 501 Safety tolerability/Cancer Phase I trial completed.
CDC 501 Multiple Myeloma Phase I/II trials underway.
CDC 394 Safety tolerability/Cancer Phase I trial completed.
SERMs
SERM-alpha Cancer Preclinical studies underway.
SERM-alpha Osteoporosis Preclinical studies underway.
SERM-beta Cancer Preclinical studies underway.
SERM-beta Other Preclinical studies underway.
Kinases
JNK Cancer/Inflammatory Diseases Preclinical studies underway.
NF-kB Cancer/Inflammatory Diseases Preclinical studies underway.
p38 Cancer/Inflammatory Diseases Drug discovery underway.
Ligases Cancer/Inflammatory Diseases Target and drug discovery underway.
d-methylphenidate Attention Deficit Disorder and New drug application filed.
(d-MPH) Attention Deficit Hyperactivity
Disorder
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OVERVIEW OF GENES AND DISEASE
The human body contains an estimated 40,000 genes. Genes control all cellular functions responsible for maintaining human health by serving as blueprints for the production of proteins in cells, a process known as gene expression. Proteins, which control a cell's biological function, include hormones, enzymes and cytokines, which are proteins secreted by cells that mediate the inflammatory response. Critical cell functions regulated by proteins include growth, differentiation and survival.
Recent advances in cellular and molecular biology have shown that malfunctions in gene regulation either cause or predispose humans to most diseases. These malfunctions cause cells to produce inappropriate amounts or types of proteins. For example, the uncontrolled proliferation of cells characteristic of cancer and inflammatory diseases is the result of over-activation of multiple genes and the proteins they produce, such as cytokines and enzymes. Alternatively, under-activation of critical genes and their protein products, such as tumor suppressors and growth factors, also may give rise to disease, including cancer and neurological disorders. These complex, multi-genic diseases include cancer, obesity, diabetes and inflammatory, cardiovascular and neurological diseases.
Gene regulation is a highly controlled process in which specific sets of genes are switched on and off in select tissues to maintain the body's essential functions. Genes are controlled by networks of proteins inside cells that relay information through pathways from a cell's surface to its nucleus where genes are expressed. These pathways consist of several large and distinct classes of gene regulating proteins, or gene switches, which include transcription factors, kinases and ligases. Transcription factors are molecular switches that bind to the regions of genes that control the level and duration of gene expression and protein production. Kinases are enzymes that transmit information within cells and ultimately lead to gene expression. Ligases control the proper levels of gene regulating proteins in cells. Each of these three classes of gene switches can control not just one but multiple genes that contribute to disease. Therefore, drugs designed to target these gene switches at pivotal points in a gene regulating pathway can have a major impact on the subsequent expression of entire sets of genes that contribute to disease.
Genomics is the large-scale identification and sequencing of the genes that comprise the human genome. The sequencing of the entire human genome was completed in 2000 and currently this information is being compiled in databases. These genomic databases provide a starting point for understanding the underlying role of genes in disease, but by themselves are inadequate to identify key disease-related gene switches. To realize the substantial potential of genomics initiatives, key gene switches involved in disease need to be identified in order to permit the rapid development of superior drug therapies.
Conventional drug discovery efforts principally are focused on identifying compounds that affect targets outside the cell, such as cell surface receptors and secreted proteins, and provide only symptomatic relief without treating the underlying molecular causes of disease. For example, in rheumatoid arthritis, aspirin and related compounds only relieve the symptom of pain and inflammation. These drugs do not address the destruction of arthritic joints caused by the disease. Drugs directed toward targets outside the cell also have a number of potential limitations in treating complex diseases where the underlying molecular mechanisms are located within cells. These drugs often do not control the specific sets of genes that are responsible for the onset and progression of disease and may also result in side effects due to their non-specific action. Further, by focusing principally on the receptors and other proteins located outside the cell, these drugs are directed toward only a limited number of the total potential disease targets. An additional limitation is that many current drugs or drugs in development, especially proteins, must be injected and are not available in pill form.
Recent advances in genomics have the potential to significantly improve drug discovery. Most genomics efforts have been directed principally toward the identification and sequencing of the large number of genes that comprise the human genome. These developments have not enabled the rapid identification of drug targets because the gene sequence data by itself provides limited information, if any, about a gene's relationship to a specific disease. To fully capitalize on the therapeutic potential of genomics, there is a need to map critical gene regulating pathways and identify key gene switches as drug targets for disease therapy.
OVERVIEW OF OUR GENE REGULATING TECHNOLOGY
We have developed and integrated a large set of proprietary target and drug discovery technologies to accelerate the application of genomics to the discovery of important new classes of gene regulating drugs. We first map the gene regulating pathways to identify drug targets, or gene switches, that control specific genes and result in disease. This information is then used to discover novel gene regulating drugs
by applying our drug discovery engine. We believe our discovery and development capabilities provide us and our collaborators with a highly advanced and competitive technology platform for target and drug discovery. This engine consists of :
- ADVANCED CELLULAR, MOLECULAR AND GENOMIC TECHNOLOGIES
We use information produced from human genomics initiatives to map gene regulating pathways and identify clinically important drug targets for specific diseases. We have generated proprietary human cell lines, from multiple tissues of the body, to create in vitro, or test tube, models of disease and to evaluate the activity and selectivity of drug candidates. We also use functional genomics and proteomics, which is the large-scale linking of genes and their protein products to their biological functions, for mapping gene regulating pathways and identifying disease targets for use in drug discovery.
- PROPRIETARY HIGH THROUGHPUT SCREENING SYSTEMS AND DIVERSE COMPOUNDS LIBRARIES
We have assembled a library of more than 300,000 distinct small molecule compounds and natural products which we screen using our proprietary biochemical and cell-based screening technologies. Our screening systems include a proprietary screening technology that simultaneously screens multiple kinases to provide drug activity and specificity data across multiple drug targets.
- A PROPRIETARY, SPECIALLY DESIGNED KINASE INHIBITOR LIBRARY
We identified the active sites, or molecular locks, on a number of gene regulating kinase targets using our extensive knowledge of the three dimensional structures of these targets. We believe gene regulating targets identified in the future will contain similar locks. Our kinase inhibitor library is designed to contain compounds expected to fit like molecular keys into these locks, enhancing our ability to identify effective inhibitors of current as well as yet-undiscovered gene regulating targets. In addition, we design these compounds to have attractive pharmaceutical properties, such as solubility, chemical stability, non-reactivity and the ability to be taken in pill form, which accelerates the development of viable drug candidates.
- STRUCTURE-BASED DRUG DESIGN
We use our proprietary three-dimensional models of drug targets, combined with advanced chemistry technologies, to efficiently generate drug leads and advance drug candidates into preclinical and clinical development.
Our drug discovery and development programs are focused in several disease areas in which gene dysregulation plays a major role in the onset and progression of disease, including cancer and inflammatory diseases.
OVERVIEW OF ONCOLOGY AND IMMUNOLOGY
Our clinical and commercial focus is to produce a portfolio of highly potent and selective small molecule drugs that have the potential to regulate the overproduction of TNF(alpha) and are anti-angiogenic via gene regulation.
TNF(alpha), produced primarily by certain white blood cells, is one of a number of proteins called cytokines that act as chemical messengers throughout the body to regulate many aspects of the immune system. TNF(alpha) is essential to mounting an inflammatory response, which is the normal immune system reaction to infection or injury that rids the body of foreign agents and promotes tissue repair. However, chronic or excessive production of TNF(alpha) has been implicated in a number of acute and chronic inflammatory diseases. These disease states, which are inadequately treated with existing therapies, may include diabetes, Alzheimer's disease, congestive heart failure, inflammatory bowel disease, rheumatoid arthritis, cancer cachexia, Parkinson's disease, multiple sclerosis and lupus.
Traditional therapies for these disease states include anti-inflammatory drugs and immunosuppressive agents. These therapies often fail to achieve significant clinical benefits and can cause serious side effects such as severe drops in certain blood component counts, liver toxicity, osteoporosis,
teratogenicity and various endocrine abnormalities. We believe that selective control and reduction of TNF(alpha) represents a promising new strategy for treating chronic inflammatory diseases. In pursuit of this strategy, two broad classes of compounds have been investigated: proteins and small synthetic molecules.
Anti-TNF(alpha) proteins, including anti-TNF(alpha) antibodies and TNF(alpha) soluble receptors, have demonstrated efficacy in the treatment of such chronic inflammatory diseases as rheumatoid arthritis and Crohn's disease. While initial doses of these anti-TNF(alpha) proteins have been well tolerated and have reduced disease activity in clinical studies, these proteins exhibit certain shortcomings linked to their nature as proteins. First, they are large molecules that must currently be injected or infused. Second, the period of efficacy of a given dosage of a protein-based drug can decline with repeated administration, rendering protein-based drugs more suitable for treatment of acute pathological conditions rather than chronic disease states. This limitation is due in part to increasing production by a patient's immune system of antibodies that neutralize administered proteins.
There are a number of large molecule, protein-based therapeutic products under development by other companies for TNF(alpha) modulation. One product has received approval from the FDA for the treatment of Crohn's disease and rheumatoid arthritis, and another has received approval for rheumatoid arthritis. Synthetic small molecule drugs, however, if successfully developed, may prove to be preferable in the treatment of chronic inflammatory diseases due to factors such as oral dosing, lower cost of therapy and avoidance of undesirable immune response that results in adverse side effects and reduced efficacy. We believe that our small molecule immunotherapeutic compounds have the potential to selectively modulate TNF(alpha) while affording these benefits.
In addition, research has indicated that our small molecule drug, THALOMID, is anti-angiogenic. Angiogenesis is the fundamental biological process by which new blood vessels are formed. Cancer cells require oxygen and nutrients and initiate a biochemical mechanism that stimulates angiogenesis, which, in turn , provides the cancerous cells with the blood supply they need to grow. Inhibition of angiogenesis could adversely affect the graft of a tumor and be a potential anti-cancer therapy. This therapy could be also used in conjunction with radiation or more traditional chemotherapeutic agents. Currently, a number of anti-angiogenic agents are being developed by a number of companies. However, we believe that THALOMID is the only product on the market that has a direct anti-angiogenic effect. Moreover, preliminary research suggests that our two new classes of small molecule immunotherapeutic compounds, one of which is based on thalidomide's activity, may be anti-angiogenic.
THALOMID
In July 1998, we received FDA approval to market THALOMID for the treatment of ENL and the product was launched in late September 1998. THALOMID is the first drug approved under a special "Restricted Distribution for Safety" regulation and is distributed through our patented System for Thalidomide Education and Prescribing Safety ("S.T.E.P.S.(TM)") program. Our program is designed to support the safe and appropriate use of THALOMID and has been made a part of the approved labeling for THALOMID. We are currently developing THALOMID for the treatment of a variety of serious disease states for which we believe there are no adequate approved therapies. Our current intent is to seek FDA approval for THALOMID for at least one cancer of the blood, such as multiple myeloma, and one solid tumor.
The immunological and anti-angiogenic properties of THALOMID are being investigated as the basis for treatment of a variety of oncological diseases and a number of trials are ongoing, some in cooperation with the NCI, to evaluate the potential of the drug in cancer. Key investigations include multiple myeloma, myelodysplastic syndromes, colorectal cancer and prostate cancer.
Our work with thalidomide was originally based on a scientific collaboration with The Rockefeller University's Laboratory of Cellular Physiology and Immunology. In the early 1990s, researchers at The Rockefeller University discovered that thalidomide is a selective modulator of TNF(alpha) and, therefore, could be of potential benefit in treating many serious immune-related disease states, including cachexia and other AIDS-related conditions. We believe that, in serious and debilitating disease states, the risk of birth defects and other potential side effects related to thalidomide is outweighed by the drug's potential
clinical benefits. The Rockefeller University has granted to us certain exclusive rights and licenses to manufacture, use and sell thalidomide for treating the toxicity associated with high concentrations of TNF(alpha) in septic shock, cachexia and HIV-related disease states. Researchers at the Children's Medical Center, which is affiliated with Harvard University, discovered that thalidomide is anti-angiogenic and filed patents on this utility. These patents, some of which have not issued in the United States, are exclusively licensed to EntreMed, Inc. We were granted an exclusive sublicense to all of EntreMed's thalidomide patents in December 1998.
As a result of our own applications and designations acquired from EntreMed, we now have Orphan Drug designations from the FDA for THALOMID covering: primary brain malignancies; HIV associated wasting syndrome; severe Recurrent Aphthous Stomatitis, or RAS, in severely, terminally immunocompromised patients; clinical manifestations of mycobacterial infections caused by Mycobacterium tuberculosis and non-tuberculous mycobacteria; ENL; multiple myeloma; Crohn's disease and Kaposi's sarcoma. If the FDA approves any of these indications for THALOMID, we will be granted a seven-year period of exclusivity during which time the FDA is prohibited, except under some conditions, from approving another version of thalidomide for the approved indication.
Thalidomide was developed initially as a sedative, and was also widely prescribed by doctors in Europe in the late 1950s and early 1960s to pregnant women for relief of morning sickness. After severe birth defects were later observed with use of the drug, it was virtually removed from the world market. Thalidomide was later discovered to have therapeutic effects in the treatment of ENL, a disease that is rare in the United States but common in many parts of the developing world. Although the FDA had never, until 1998, approved the marketing of thalidomide, the U.S. Public Health Service has dispensed the drug for the treatment of ENL for the past 25 years. We note that thalidomide's history may limit market acceptance of THALOMID.
ONCOLOGY
Cancer tissue has many blood vessels. This observation has led to the realization that growth of blood vessels is essential for tumor growth, invasion and metastasis. Specifically, developing solid primary tumors are believed to remain clinically insignificant unless they can arrange to obtain nourishment from their host. Biochemically, an invasive tumor acts by altering a complex system of factors causing the formulation of new blood vessels from existing ones. Almost three decades ago, it was proposed that this tumor angiogenesis could be a target of cancer therapy. Anti-angiogenic compounds were believed to be able to work by reducing or halting remaining tumor growth and could also be used in conjunction with more traditional chemotherapeutic agents. Thalidomide was discovered to be anti-angiogenic at the Children's Medical Center in Boston.
We are currently working with the NCI and a number of clinical investigators to assess the potential of THALOMID in the treatment of various cancers. In the first 12 months after THALOMID was commercially launched in the United States, approximately 70% of the product's prescriptions were in oncology, as reported by prescribers on our S.T.E.P.S. program enrollment surveys. Currently we estimate that approximately 92% of THALOMID prescriptions are in oncological indications.
Multiple Myeloma. Multiple myeloma is a malignant proliferation of plasma cells and plasmacytoid cells. It is the second most common blood borne malignancy and is invariably fatal. According to the Leukemia Society of America, multiple myeloma accounts for about 13% of blood borne disease and affects approximately 40,000 people in the United States. The incidence of this disease is approximately four per 100,000, and approximately 14,400 cases are reported annually with approximately 11,000 deaths associated with the disease each year.
At the 42nd annual meeting of the American Society of Hematology (ASH) in December 2000 over twenty abstracts studying thalidomide in the setting of multiple myeloma were presented, including results on thalidomide as treatment for newly diagnosed and refractory multiple myeloma patients and results on thalidomide in combination with conventional therapies for relapsed or refractory multiple myeloma. The clinical data presented was consistent with previously published results on the potential use of THALOMID in treating refractory multiple myeloma and included survival data of patients.
In 2000, it was reported by prescribers on our S.T.E.P.S. program enrollment surveys that approximately 46% of the oncology-related THALOMID prescriptions were for multiple myeloma. Based on this information and on the growing volume of clinical trial data, our plan is to file a supplemental NDA for THALOMID for the treatment of multiple myeloma in 2001.
Myelodysplastic Syndromes. Myelodysplastic Syndromes (MDS) are a group of conditions caused by abnormalities of the blood-forming cells in the bone marrow resulting in a shortage of blood cells and, ultimately, low blood counts. The five types of MDS are refractory anemia, refractory anemia with ringed sideroblasts, refractory anemia with excess blasts, refractory anemia with excess blasts in formation, and chronic myelomonocytic leukemia. According to the American Cancer Society 14,000 new cases of MDS are diagnosed each year in the US, with survival rates ranging from six months to five years for the different types of MDS.
Azra Raza, M.D. of the Rush Cancer Institute at Rush-Presbyterian-St. Luke's Medical Center presented results of two studies evaluating the use of THALOMID as a single agent and in combination treatment for patients with MDS at the ASH meeting in December 2000. Dr. Raza's group also presented data on the use of THALOMID in combination with topotecan, pentoxifylline, ciprofloxacin, dexamethasone, or etanercept for patients with low risk MDS. Initial results suggest that the use of thalidomide as part of combination treatment for MDS may cause a reduction of pro-inflammatory cytokines, cell death and angiogenesis.
Other Oncology Indications. We have seen encouraging results with the use of THALOMID as treatment for renal cell cancer and malignant melanoma which account for seven and three percent respectively of the oncology-related THALOMID prescriptions written in 2000. We are currently conducting other evaluations of THALOMID as renal cell cancer and malignant melanoma therapy that could lead to regulatory submissions. In addition, large, randomized prostate cancer trials are ongoing at the National Cancer Institute and MD Anderson and we are awaiting the results.
INFLAMMATORY DISEASES
THALOMID has been shown to impact the immune system both in vitro and in vivo. Examples of such biological activities include the inhibition of TNF(alpha), stimulation of the anti-inflammatory cytokine IL-10 and activation of T-cell function. These types of activities could prove to have therapeutic benefit in a variety of inflammatory, infectious and autoimmune diseases. The two key areas of investigation at present involve inflammatory bowel disease and serious complications associated with HIV/AIDS. In addition, other areas of investigation include sarcoidosis, an inflammation of body tissue, which often attacks the lungs and lymph nodes, and scleroderma, a chronic tissue disorder.
Erythema Nodosum Leprosum. ENL is a complication of leprosy, a chronic bacterial disease. Although the disease is relatively rare in the United States, leprosy afflicts millions worldwide. ENL occurs in about 30% of leprosy patients and is characterized by cutaneous lesions, acute inflammation, fever and anorexia. On July 16, 1998 we received approval from the FDA to market THALOMID for the treatment of ENL.
Inflammatory Bowel Disease. According to the Crohn's and Colitis Foundation of America, there are approximately one million Americans with active inflammatory bowel disease. Inflammatory bowel disease is characterized by serious chronic inflammation of the wall of any part of the gastrointestinal tract and results in pain, bloating and diarrhea. In addition, the chronic inflammation may result in abscesses and fistula formation. The most serious form of inflammatory bowel disease is known as Crohn's disease with an estimated 70,000 to 125,000 U.S. patients diagnosed with active moderate to severe manifestation of the disease.
A Phase II pilot study using THALOMID in patients with severe Crohn's disease has been concluded at the Cedars-Sinai Medical Center, Los Angeles, and reported in the journal, GASTROENTEROLOGY. About 70% of the patients suffering from moderate to severe Crohn's disease who completed at least five weeks of the 12-week trial demonstrated a response when treated with low dose THALOMID, with 20% of these patients experiencing remission. Side effects were mild and mostly transient and included drowsiness, peripheral neuropothy, edema and dermatitis. All patients
were able to reduce their steroid regimen by at least 50%, with 44% of patients discontinuing steroids. Data from this trial suggests that THALOMID may provide clinical benefit and potentially reduce the need for steroid treatment. This combination of effects could mean improvement over current therapeutic options. Another study conducted at the University of Chicago and University of Toronto with a similar thalidomide formulation to Celgene's demonstrated that thalidomide can close fistulas associated with Crohn's Disease.
S.T.E.P.S(TM) PROGRAM
Working with the FDA and other governmental agencies as well as certain advocacy groups, we designed and implemented our S.T.E.P.S.(TM) program, the objective of which is the safe and appropriate use of THALOMID. This proprietary program includes comprehensive physician, pharmacist and patient education. Female patients are required to use contraception and are given pregnancy tests regularly. All patients are also subject to other requirements, including informed consent and participation in a confidential outcomes registry managed by an academic epidemiology research group. Physicians are also required to comply with the educational, contraception counseling, informed consent and pregnancy testing and other elements of the program. Dispensing pharmacists are required to confirm that the physician is a registered participant in the program, and that the patient has signed an informed consent. Automatic refills are not permitted under the program and each prescription may not exceed four weeks dosing. A new prescription is required each month.
In April 2000, we were granted a method of business patent on the S.T.E.P.S system. The patent covers controlled distribution systems that register pharmacists, patients and physicians who have agreed to follow the safety program. It includes systems that track compliance and authorize each prescription based on confirmation of compliance. It is designed as a blueprint for pharmaceutical products, which offer life-saving or other important therapeutic benefits, but have potentially serious side effects.
IMIDS
We have designed and synthesized a number of novel structural analogues of thalidomide called IMiDs that have been demonstrated in in vitro tests to be substantially more potent in inhibiting TNF(alpha) than thalidomide. There can be no assurance, however, that the same effect can be duplicated in humans. Animal models have suggested that our IMiDs do not cause the birth defects associated with thalidomide. Research on these compounds has identified two clinical trial candidates and each has completed a Phase I trial. Research continues on follow-on compounds with enhanced immunological and anti-angiogenic activity. IMiDs may have the potential for treating conditions where there is a deficiency in T-cell activity, such as viral diseases including HIV-related diseases, or for enhancing potential interleukin-12 mediated anti-tumor activities. In preclinical studies, our lead IMiD compound has been shown to inhibit interleukins 1-beta, 6 and 12 while stimulating the production of interleukins 2 and 10 as well as interferon gamma. T-cell activation is enhanced by the compound up to 100,000 times more than with thalidomide. The U.S. Patent and Trademark Office has issued Celgene composition of matter and use patents relating to its IMiDs.
Two Phase I/II clinical trials in multiple myeloma were initiated for the lead IMiD in 2000 at the Dana-Farber Cancer Institute and the University of Arkansas Cancer Research Center. Laboratory study results published in the November 1, 2000 issue of BLOOD reported results of a study conducted at the Dana-Farber Cancer Institute on the activity of the IMiDs on multiple myeloma cells. The results of this laboratory study and a similar study conducted at the Harvard Medical School were also presented at the 42nd annual meeting of the American Society of Hematology in December 2000. These results show that there is a dose dependent antibody effect of IMiDs on multiple myeloma cells. In addition, the data highlights that the IMiDs were found to have direct anti-tumor effects that include enhancement of multiple myeloma cell death (apoptosis) and cell cycle arrest.
SELCIDS
We have designed, synthesized and tested a large number of SelCIDs. These compounds have demonstrated the ability to be highly specific inhibitors of TNF(alpha) overproduction in in vitro bioassays of human cells. SelCIDs appear to have a specific inhibitory effect on PDE 4, which is linked to the
overproduction of TNF(alpha). Studies have determined that many of the SelCIDs decrease synthesis of TNF(alpha) through selective inhibition of PDE 4. Preclinical and animal tests have shown this class of compounds to be up to 100,000 times more active with a longer half-life than THALOMID. We believe that control of TNF(alpha) at its source, versus simple removal of plasma circulating levels of the cytokine, may facilitate more effective therapy without immune suppression. There can be no assurance, however, that the same effect can be duplicated in humans. Unlike many therapeutics that inhibit PDE 4, SelCIDs have not shown any evidence of acute nausea and vomiting in patients. The U.S. Patent and Trademark Office has issued to Celgene composition of matter and use patents relating to its SelCIDs.
A Phase II pilot trial in Crohn's disease for the lead SelCID compound, CDC 801, is ongoing at a number of centers including Cedars-Sinai Medical Center and results are expected in 2001. A Phase I clinical trial was initiated in 2000 for the second-generation SelCID compound, CDC 998. CDC 998 is significantly more potent than CDC 801.
SERMS
Estrogen Gene Regulation in Cancer
Estrogen is a hormone that has a broad spectrum of effects on tissues in both women and men. Many of these biological effects are beneficial, including maintenance of bone density and cardiovascular and neurological protection. In addition to estrogen's positive effects, however, the hormone is also a potent growth factor in the breast and uterus that has been demonstrated to increase significantly the risk of cancer in women. In addition, estrogen contributes to prostate cancer in men.
Two distinct estrogen receptors exist in the body, the estrogen receptor-alpha, or ER--, and the estrogen receptor-beta, or ER--, each of which has a distinct tissue distribution in the body. ER-- is found predominately in bone and in cardiovascular, breast and reproductive tissue, while ER-- is the predominately expressed estrogen receptor in the prostate and hippocampus region of the brain. Given the tissue-selective expression of ER-- and ER--, estrogen receptor modulators potentially can be designed to mimic the positive effects and block the negative effects of estrogen in different tissues. Drugs that modulate these receptors are termed selective estrogen receptor modulators or SERMs.
Unlike chemotherapeutic agents, which often cause significant toxic side effects, SERMs act through different, primarily non-toxic mechanisms. Currently, two SERMs are marketed for treatment of breast cancer. One of these SERMs, tamoxifen, is the most widely prescribed anti-hormonal therapy for cancer today. However, tamoxifen is associated with a number of adverse side effects, including an increased risk for uterine cancer, blood clotting and hot flashes. In addition, virtually all patients receiving tamoxifen become resistant to the drug.
We are using Signal's gene regulation expertise to design new classes of ER-- and ER-- selective SERMs with efficacy and safety profiles that we believe will be superior to those of many current chemotherapies and tamoxifen. We believe these SERMs will have significant potential for preventing and treating breast, endometrial, prostate, colon and other cancers whose growth is dependent on estrogen.
SP8490 - AN ER-(alpha) MODULATOR
Using Signal's drug discovery engine and expertise in estrogen gene regulating pathways, we have discovered and are developing a series of SERMs with improved efficacy and safety in animal models when compared with tamoxifen. In animal studies, these drug leads were orally effective in preventing breast cancer and demonstrated equal or superior efficacy to tamoxifen. Additionally, these compounds displayed a superior safety profile on uterine tissue compared to tamoxifen. A potential drug candidate, SP8490, currently is in preclinical development.
ER-(beta) MODULATORS
We have discovered and are developing a novel series of ER-(beta)-selective SERMs, which currently are undergoing lead optimization. Our SERM-(beta) drug leads represent a novel series of SERMs that, if successfully commercialized, may be useful in treating the larger number of cancer patients that develop
ER-positive cancers such as prostate, colon, ovarian and tamoxifen-resistant breast cancer. In October 1999, we entered into a collaboration with Axys Pharmaceuticals to discover and develop ER-beta-selective SERMs for cancer therapy.
JNK INHIBITORS
ONCOLOGY
The cJun N-terminal kinase, or JNK, pathway controls the expression of specific sets of genes involved in cancer, including:
- cytokines and growth factors that promote the growth of cancer cells;
- molecules on the surface of cells that are responsible for cell-to-cell attachment;
- tissue destructive enzymes that enable tumors to spread to distant sites in the body and invade normal tissues and organs, referred to as metastasis; and
- factors that lead to the growth of new blood vessels and aid in establishing new tumors, referred to as angiogenic factors.
We are applying our expertise in the JNK gene-regulating pathway to identify novel cancer targets that play a fundamental role in tumor growth and to design new classes of drugs that target abnormalities in the JNK gene regulating pathway to inhibit the transformation, growth and spread of cancer. Using our drug discovery engine, we have identified potent and selective small molecule inhibitors of the JNK pathway, which have demonstrated anti-proliferative activity in tumor cell lines in vitro.
INFLAMMATORY DISEASES
Activation of the JNK gene-regulating pathway increases the expression of a set of clinically important inflammatory genes, including tumor necrosis factor alpha, or TNF(alpha), interleukin-2, or IL-2, and gamma interferon. There are multiple types of the JNK regulatory enzyme, each of which controls the expression of genes in specific cells and in response to specific stimuli. We have eight issued United States patents, four issued foreign patents and related patent applications covering JNK, its use in drug discovery and JNK inhibitors. Over-activation of JNK causes or exacerbates several inflammatory and autoimmune diseases, including rheumatoid arthritis, asthma and multiple sclerosis.
We have developed and initiated high throughput screening for JNK1, JNK2 and JNK3 inhibitors using proprietary biochemical and cell-based screens. Using our kinase-focused inhibitor library, we have identified several potent compounds that inhibit JNKl, JNK2 and JNK3 activity. In addition to significantly reducing inflammation, one of these drug leads prevents the destruction of joints in an animal model of arthritis. This drug lead also demonstrates potent disease-modifying activity in animal models of asthma, liver ischemia reperfusion injury and epilepsy. We currently are optimizing drug leads to improve the potency, selectivity and other pharmaceutical properties of its JNK inhibitors. We also are developing additional high throughput drug screens for several other drug targets in the JNK pathway, including JNKKl and JNKK2.
NF-kB INHIBITORS
NF-kB plays a pivotal role in inflammatory disease processes by regulating cytokine genes, such as TNF(alpha), IL-l, IL-2, IL-6, IL-8, along with genes that code for molecules on the surface of cells and the cyclooxygenase-2 or, COX-2, inflammatory enzyme. Our researchers and collaborators have identified six drug targets that regulate NF-kB activation. Our discovery of three of these targets was reported in the journals Science, Nature and Cell. We believe drugs that inhibit NF-kB and the activation of select disease-associated genes will have potential disease modifying effects. We have been issued four United States patents and we, along with our collaborators, have filed related patent applications for targets in this pathway.
We have developed and initiated high throughput screening for NF-kB inhibitors using proprietary biochemical and cell-based screens. We also have developed technology for profiling the effects of active compounds on a number of immune-inflammatory genes and proteins in cells and animals. Using our
kinase inhibitor library, we have identified several small molecule drug leads that selectively inhibit a kinase target in the NF-kB pathway. One of these drug leads potently inhibits expression of the TNF(alpha) inflammatory response gene in an animal model. We are optimizing these drug leads to further enhance potency, specificity and bioavailability and are developing additional high throughput drug screens for other targets in the NF-kB pathway. In November 1997, we initiated a collaborative development and license agreement with Serono to discover novel NF-kB inhibitors for inflammatory and other diseases.
P38 INHIBITORS
Activation of the p38 gene regulating pathway causes the expression of multiple cytokine genes, including IL-l, IL-6, IL-8 and TNF(alpha), which regulate the development and proliferation of cells in response to disease and tissue injury. When inappropriately activated, the p38 pathway is believed to play an important role in diseases arising from abnormal production of cytokines, including cardiovascular and autoimmune diseases. To date, Celgene and its academic collaborators have identified five proprietary drug targets in the p38 pathway. One of these targets is p38-2, a subtype of p38, which is highly expressed in heart and skeletal muscle and not in most other tissues. Celgene and its collaborators have been issued four United States patents for three drug targets in the p38 pathway, MKK3, MKK6 AND p38-2, and have filed related patent applications with regard to other potential drug targets in this pathway. In the p38 pathway, Celgene has screened two targets using its kinase inhibitor compound library and has identified novel inhibitors which it plans to optimize as drug leads.
CHIRAL CHEMISTRY
Many human pharmaceuticals and agrochemicals exist in two different three-dimensional configurations that are identical in chemical structure but are mirror images of each other. These conformations, known as enatiomers, or isomers, generally interact differently with biological targets. In clinical applications, one isomer may result in the desired therapeutic effect by stimulating or inhibiting a targeted biological function, while the other isomer may be inactive or cause undesirable side effects. In contrast to racemic compositions, which contain both isomers, the use of chirally pure pharmaceuticals can result in significant clinical benefits such as reduced toxicity and increased efficacy. In agrochemical applications, the use of chirally pure chemicals can result in a substantially reduced volume of product required to achieve the desired benefit, thereby potentially lowering manufacturing costs and reducing the environmental burden as compared with racemic chemicals.
Our biocatalytic process enables the efficient production of chirally pure compounds. This patented process is based primarily on the use of enzymes called aminotransaminases, which are optimized by us through a variety of techniques including genetic engineering. These enzymes catalyze the production of only the desired stereoisomer of a chiral compound and can be used in conventional chemical synthesis reactors at room temperature.
Our biocatalytic process for producing chirally pure compounds differs from the more common approach of producing racemic mixtures followed by separation of the desired stereoisomer through resolution techniques such as crystallization or chromatography. These traditional approaches to producing chirally pure compounds can be cumbersome, result in low yields, use substantial amounts of raw materials and involve the disposition of waste product. Traditional approaches also are generally less economical than our process. We believe that our biocatalytic process can be applied to the manufacture of a wide variety of organic chemicals.
We believe there is a significant incremental opportunity in developing selected, chirally pure versions of approved drugs currently sold in racemic form. Compounds that have been approved and marketed have a significant body of information regarding their safety and efficacy and consequently:
- The cost and duration of preclinical evaluations and clinical trials may be reduced if reference may be made to data used in the course of obtaining regulatory approval for the racemic parent compound.
- The risk of not obtaining regulatory approval may be reduced.
- Marketing risks may also be reduced due to the established market for the parent compound.
We have made significant progress over the past year in the development of d-methylphenidate, the chirally pure version of Ritalin. We have also made significant progress in the development and production of chirally pure agrochemicals. We believe that the agrochemical market presents a substantial opportunity because many agrochemicals produced in racemic form could be manufactured in chirally pure form.
D-MPH
On April 26, 2000, we announced that we had entered into an agreement with Novartis Pharma AG wherein we granted to Novartis an exclusive worldwide license (except Canada) for the development and marketing of d-methylphenidate. We also granted rights to all of our related intellectual property and patents, including new formulations of the currently marketed Ritalin. We received an upfront payment of $10 million in July 2000 and a milestone payment of $5 million in December 2000. We are entitled to receive substantial milestone payments in addition to royalties on the entire family of Ritalin drugs. We have retained the rights to develop d-MPH for cancer-associated disorders. D-methylphenidate is licensed to Biovail Corporation in Canada, which purchased $2.5 million dollars worth of our stock and will pay Celgene licensing fees, milestone payments and royalties.
We have been issued patents for the use of d-methylphenidate for the treatment of ADD and ADHD, and for the once-a-day administration of methlyphenidate drugs in a controlled or pulsed release formulation that includes both the chirally pure d-methlyphenidate and the racemic form. In addition, we have been issued process patents covering the manufacturing process of the active substance. In December 2000, we announced that the FDA accepted for filing the New Drug Application, or NDA, for d-methylphenidate.
Ritalin controls the symptoms of ADD and ADHD in school-age children. The Journal of the American Medical Association has reported that three to six percent of school-age children (elementary to high school) have ADD/ADHD. The condition is characterized by symptoms of inappropriate inattention, hyperactivity and impulsiveness. It is estimated that between one and two million children in the U.S. are now being treated for these conditions. North American sales of drugs treating the symptoms of ADD and ADHD are estimated to exceed $600 million per year.
CHIRALLY PURE AGROCHEMICALS
Celgro is applying our proprietary biocatalytic synthesis technology to agrochemicals. Celgro's approach is to work with agrochemical companies to adapt our biocatalytic technology to the manufacture of chirally pure versions of their existing crop protection product and then license the technology to these companies in exchange for royalties. Celgro will also seek to develop chirally pure versions of existing agrochemicals on its own and then enter into license agreements with third parties, who would manufacture and sell the agrochemicals. We expect that these arrangements typically will include milestone payments, reimbursement of research and development expenses and royalty arrangements. We have entered into research and development arrangements with two leading agrochemical companies and initiatives are underway to secure additional collaborations.
We also believe that our chiral technology can be enabling in agrochemical applications because it has the potential to significantly lower manufacturing costs compared to conventional technologies and other chiral technologies. Compared to our biocatalytic process, conventional technologies require more raw materials and greater plant capacity to produce the same effective quantity of product, while other chiral technologies require specialized equipment, more expensive chiral agents, more raw material and greater capacity for handling hazardous wastes produced in the separation process. In addition, it is anticipated that the required application amount to chirally pure form of an agrochemical could be substantially less than the racemic form and achieve the same or better results, thereby reducing the environmental burden. Agrochemicals are highly price sensitive and, therefore, a process that produces chirally pure products at significant cost savings could be in substantial demand.
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.
Under an agreement with The Rockefeller University, we have obtained certain exclusive rights and licenses to manufacture, have manufactured, use and sell products that are based on compounds identified in research carried out by The Rockefeller University and us that have activity associated with TNF(alpha). The Rockefeller University has 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 license from The Rockefeller University. However, The Rockefeller University did not seek corresponding patents in any other country in respect of this invention. There can be no assurance that this issued patent will provide us with proprietary protection or commercial advantage. Nor can we guarantee that this patent will not be either infringed or circumvented by others. Under the license from The Rockefeller University, we were obligated to pay certain specified royalties to The Rockefeller University on net sales of licensed products for covered indications. In November 1999, we agreed with The Rockefeller University to substitute a lump sum payment and issue stock options to The Rockefeller University and the inventors in lieu of the royalties previously payable under the license. The license from The Rockefeller University is coterminous with the last to expire of the licensed patents and is terminable by The Rockefeller University only in the event of a breach of the agreement's terms by us which breach shall fail to be remedied for more than sixty days after notice thereof. Any termination of the license from The Rockefeller University could have a material adverse effect on our business, financial condition and results of operations.
In 1998, we were granted an exclusive sublicense to all patents and patent applications, worldwide, exclusively licensed to EntreMed Inc. ("EntreMed") by the Children's Medical Center Corporation, which is affiliated with Harvard University, that relate to the anti-angiogenic action of thalidomide. Several U.S. patents have issued to Children's Medical Center Corporation in this patent family, each of which is set to expire in 2014. Corresponding foreign patent applications and additional U.S. patent applications are still pending. Further, we have also exclusively sublicensed from EntreMed pending U.S. and foreign patent applications related to the use of thalidomide in combination with other therapeutic agents. There can be no assurance that additional patents will issue to Children's Medical Center Corporation from any of the pending applications or that, if patents issue, that such patents will 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 or circumvented by others. The license from EntreMed is coterminous with the last to expire of the licensed patents and we must pay royalties for at least 12 years from our first commercial sale in the United States. The EntreMed license is terminable in the event of a breach by us, which breach shall fail to be remedied for 60 days after notice thereof. Any termination of the license from EntreMed could have a material adverse affect on our business, financial condition and results of operations.
We have been issued a total of 40 U.S. patents and has filed an additional 31 U.S. patent applications. Of the issued patents, 18 relate to our oncologic or immunologic compounds and uses and 6 are directed to methylphenidate therapeutic compositions and processes. We have filed patent applications and in some instances has obtained patents in certain other countries which correspond to some, but not all, of our U.S. patents. We expect to continue to file patent applications covering the use of our proprietary inventions. Our U.S. patents include a patent for a method of delivering a teratogenic drug to a patient without delivering the drug to pregnant patients. We have not filed for corresponding foreign patents; however, we intend to seek protection worldwide on improvements to this method. We do not currently have, nor do we intend to seek, patent protection relating to the use of THALOMID to treat ENL.
Signal, which is our research division, seeks patent protection for the molecular targets we discover, as well as therapeutic products and processes, drug discovery technologies and other inventions. Specifically, our research division has developed proprietary technology for use in molecular target discovery, regulatory pathway identification, assay design and potential product candidates. As of February 28, 2001, our research division owned, in whole or in part, 14 issued U.S. patents, one corresponding issued foreign patent and 24 pending U.S. patent applications. An increasing percentage of our recent patent applications has been related to potential product candidates, or compounds, that our research division has discovered. Our research division also holds licenses to 13 U.S. patents and 12 pending U.S. patent applications. Some of our research division's issued patents and pending applications are licensed exclusively to third parties in connection with sponsored or collaborative research relationships.
We are also aware of U.S. patents, which have issued to a third party claiming subject matter relating to the NF-kB pathway which appears to overlap with technology claimed in some of Signal's pending NF-kB patent applications. We beleive 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-kB 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 two additional issued U.S. patents relating to the NF-kB pathway. We believe that we have not infringed, and are not currently infringing, the claims of the patents. Nonetheless, we may in the future have to prove that we are not infringing these patents or we may be required to obtain licenses to one or more of these patents. However, we do not know whether such licenses will be available on commercially reasonable terms, or at all.
Prior to the enactment in the U.S. of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade, the exclusive rights afforded by a U.S. patent were for a period of 17 years measured from the date of grant. Under these new laws, the term of any U.S. patent granted on an application filed subsequent to June 8, 1995 will terminate 20 years from the date on which the patent application was filed in the United States or the first priority date, whichever occurs first. Future patents granted on an application filed before June 8, 1995 will have a term that terminates 20 years from such date, or 17 years from the date of grant, whichever date is later.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a U.S. product patent or use patent may be extended for up to five years under certain circumstances to compensate the patent holder for the time required for FDA regulatory review of the product. The benefits of this act are available only to the first approved use of the active ingredient in the drug product and may be applied only to one patent per drug product. There can be no assurance that we will be able to take advantage of this law.
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 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 provide significant proprietary protection or commercial advantage, or whether they will be circumvented or infringed upon by others.
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 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 its inventions, we, or our licensors, may have to participate in interference proceedings declared by 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.
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 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. 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.
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. 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, safety, 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 may result in restrictions on their manufacture, sale or use or in their withdrawal from the market. Any failure by us, our 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, royalty 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 product chemistry and animal studies to assess the potential safety and efficacy of a product and its formulations. The results of these studies must be submitted to the FDA as part of an Investigational New Drug application, or 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 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 well-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. However, in some limited circumstances, Phase III trials may be modified to allow evaluation of safety and efficacy in a less regimented manner, which may allow us to rely on historical data relating to the natural course of disease in untreated patients. In some cases, as a condition of NDA approval, confirmatory trials are required to be conducted after the FDA's approval of an NDA in order to resolve any open issues. 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.
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 adequate 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 manufacturer 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 development 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 the NDA is entitled to exclusive marketing rights in the United States for such drug for that indication for seven years. 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 United States Congress and possible reinterpretation by the FDA are the subject of frequent discussion. FDA regulations reflecting certain definitions, limitations and procedures 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. We have received from the FDA orphan drug approval for thalidomide for the treatment of ENL. We also have received orphan drug designations for thalidomide: for the treatment of multiple myeloma; for the treatment of HIV-associated wasting syndrome; for the treatment of the clinical manifestations of mycobacterial infection caused by Mycobacterium tuberculosis and non-tuberculosis mycobacteria; for the treatment of severe recurrent apthous stomatitis in severely, terminally compromised patients; and for the treatment of Crohn's disease. We also obtained orphan drug designation in Kaposi's sarcoma and primary brain malignancies as part of our agreement with EntreMed. However, there can be no assurance that another company also holding orphan drug designation will not receive approval prior to us for the use of thalidomide for the treatment of one or more of these indications, other than ENL. 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.
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 cGMP. 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 prices is required in most countries other than the United States. There can be no assurance that the resulting prices would be sufficient to generate an acceptable return to us.
COMPETITION
The pharmaceutical and agrochemical industries in which we compete are each highly competitive. Our competitors include major pharmaceutical and biotechnology companies, most of which have considerably greater financial, 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 immunology areas being addressed by us, is particularly intense. Numerous companies are pursuing techniques to modulate TNF(alpha) production through various combinations of monoclonal antibodies, TNF(alpha) receptors and small molecule approaches. Two U.S. companies, Centocor Inc., a wholly owned subsidiary of Johnson & Johnson, and Immunex Corporation, have registered drugs that block the disease-causing effects of TNF(alpha) in inflammatory arthritis and bowel disease. Both drug products are registered in the United States and in Europe and have been marketed since 1998. In the United States the present cost of TNF(alpha) modulating drugs, not including medical or other charges, is between $7,000 and $11,500 per patient year. Amgen Inc. is currently also developing a soluble TNF(alpha) receptor. BASF A.G. has a human antibody in development and Celltech Group plc has a humanized antibody. In addition, a number of other companies are attempting to address, with other technologies and products, the disease states currently being targeted by us. EntreMed is researching the effectiveness of its own thalidomide analogues as anti-angiogenic agents in the treatment of retinal disease and cancer. Andrulis Pharmaceuticals Corp., a small, privately held company, is attempting to develop thalidomide for the treatment of AIDS-related complications.
Several companies have established chiral products and chiral technologies. Sepracor Inc. and Chiroscience Group plc are actively developing chirally pure versions of pharmaceuticals currently marketed in racemic form. Chiroscience has completed Phase I trials in the United Kingdom for a chirally pure version of dl-methylphenidate and is working with Medeva plc, a leading supplier of dl-methylphenidate in the United States, towards full clinical development. Chiroscience has also taken certain steps to assert patent and proprietary rights with respect to its formulation of a chirally pure version of dl-methylphenidate. The agrochemical market is large and, within this market, efforts are underway by the in-house development staffs of agrochemical companies to produce chirally pure versions of their existing racemic crop protection agents.
The pharmaceutical and agrochemical industries have undergone, and are expected to continue to undergo, rapid and significant technological change, and competition is expected to intensify as technical advances in each field are made and become more widely known. In order to compete effectively, we will be required to continually upgrade our scientific expertise and technology, identify and retain capable management, and pursue scientifically feasible and commercially viable opportunities.
Our competition will be determined in part by the indications 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 will be 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 and patent position.
MANUFACTURING
THALOMID is formulated and encapsulated for us by Penn Pharmaceuticals Ltd. of Great Britain in an FDA approved facility devoted exclusively to the production of THALOMID capsules. Both the bulk manufacturing facility that produces the drug substance for THALOMID and the Penn facility have been certified as cGMP compliant. In certain instances, we may be required to make substantial capital expenditures to access additional manufacturing capacity. In addition, we have established a contract with another cGMP certified bulk drug substance supplier for THALOMID that will begin in 2001 once the regulatory process is completed. We are also actively seeking an alternate manufacturer to provide additional capacity for the formulation and encapsulation of THALOMID and expect that this will be concluded in 2001.
SALES AND COMMERCIALIZATION
We have established an organization of approximately 98 persons to sell and commercialize THALOMID. These individuals have considerable experience in the pharmaceutical industry and many have experience with oncological and immunological products. We expect to expand our THALOMID sales and commercialization group to support products we develop to treat oncological and inflammatory diseases. We intend to market and sell the products we develop for indications with accessible patient populations. For drugs with indications with larger patient populations, we anticipate partnering with other pharmaceutical companies. In addition, we are positioned to accelerate the expansion of these sales resources as appropriate to take advantage of product in-licensing and product acquisition opportunities. We intend to establish commercial relationships with selected companies in other countries to market THALOMID.
EMPLOYEES
As of February 15, 2001, we had 316 full-time employees, 153 of whom were engaged primarily in research and development activities, 98 of whom were engaged in sales and commercialization activities and the remainder of whom were engaged in executive and administrative activities. Of these employees, 112 have advanced degrees, including 68 who have Ph.D. degrees. We also maintain consulting arrangements with a number of scientists 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:
-- our strategy;
-- new product development or product introduction;
-- product sales, royalties and contract revenues;
-- expenses and net income;
-- our credit risk management;
-- our liquidity;
-- our asset/liability risk management; and
-- 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
IF WE ARE UNSUCCESSFUL IN DEVELOPING AND COMMERCIALIZING OUR PRODUCTS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
Many of our products and processes are in the early or mid-stages of 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. We have not yet sold any of our products other than THALOMID. All of our other products will require further development, clinical testing and regulatory approvals, and there can be no assurance that commercially viable products will result from these efforts. 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.
DURING THE NEXT SEVERAL YEARS, WE WILL BE VERY DEPENDENT ON THE COMMERCIAL
SUCCESS OF THALOMID.
At our present level of operations, we may not be able to attain profitability if physicians prescribe THALOMID only for those who are diagnosed with ENL. Under current FDA regulations, we are precluded from promoting THALOMID outside this approved use. The market for the use of THALOMID in patients suffering from ENL is relatively small. We have initiated clinical studies to examine whether or not THALOMID is effective and safe when used to treat disorders other than ENL, but we do not know whether these studies will in fact demonstrate safety and efficacy, or if they do, whether we will succeed in receiving regulatory approval to market THALOMID for additional indications. If the results of these studies are negative, or if adverse experiences are reported in these clinical studies or otherwise in connection with the use of THALOMID 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 in the ENL market. FDA regulations restrict 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.
IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
There can be no assurance that those of our products that receive regulatory approval, including THALOMID, or those products for which no regulatory approval is required, will achieve market acceptance. A number of factors render the degree of market acceptance of our products uncertain, including the extent to which we can demonstrate 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. Failure of our products to achieve market acceptance would have a material adverse effect on our business, financial condition and results of operations.
WE FACE A RISK OF PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN
INSURANCE.
We may be subject to 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 or by patients using 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, and there can be no assurance that such precautions will be observed in all cases or, if observed, will 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, there can be no assurance that we will be able to obtain additional coverage if required, or that such coverage will be adequate to protect us in the event claims are asserted against us. Our obligation to defend against or pay any product liability or other claim may have a material adverse effect on our business, financial condition and results of operations.
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT AND MAY
NEED TO SEEK ADDITIONAL FUNDING.
We have sustained losses in each year since our incorporation in 1986. We sustained net losses applicable to common stockholders of $16.3 million, $30.5 million and $29.4 million for the years ended December 31, 2000, 1999 and 1998, respectively. We had an accumulated deficit of $220.5 million at December 31, 2000. We expect to make substantial expenditures to further develop and commercialize our products. We 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.
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:
-- demand for our products;
-- regulatory approvals for our products;
-- the timing of the introduction and market acceptance of new products by us or competing companies;
-- the timing and recognition of certain research and development milestones and license fees; and
-- our ability to control our costs.
WE HAVE NO MANUFACTURING CAPABILITIES AND WE ARE DEPENDENT ON ONE SUPPLIER FOR THE RAW MATERIAL AND ONE MANUFACTURER FOR THE FORMULATION AND ENCAPSULATION OF THALOMID.
We currently have no experience in, or our own facilities for, manufacturing any products on a commercial scale. Currently, we obtain all of our bulk drug material for THALOMID from a single supplier and rely on a single manufacturer to formulate and encapsulate THALOMID. 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 current cGMP, regulations and guidelines. If the operations of the sole supplier or the sole manufacturer were to become unavailable for any reason, the required FDA review and approval of the operations of a new supplier or new manufacturer could cause a delay in the manufacture of THALOMID which could have a material adverse effect on our business, financial condition and results of operations. We intend to continue to utilize outside manufacturers if and when needed to produce 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, our business, financial condition and results of operations could be materially adversely affected.
WE HAVE LIMITED MARKETING AND DISTRIBUTION CAPABILITIES.
Although we have a 98 person sales and commercialization group to sell THALOMID, we may be required to seek a corporate partner to provide marketing services with respect to our other products. Any delay in developing these resources could have a material adverse impact on our results of
operations. We have contracted with a specialty distributor to distribute THALOMID. Failure of this specialty distributor to perform its obligations could have a material adverse effect on our business, financial condition and results of operations.
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 companies with the requisite experience and financial and other resources to obtain regulatory approvals and to manufacture and market such products. Accordingly, our success may depend, in part, upon the subsequent success of such third parties in performing preclinical and clinical trials, obtaining the requisite regulatory approvals, scaling up manufacturing, successfully commercializing the licensed product candidates and otherwise performing their obligations to us. We cannot assure you that:
-- we will be able to enter into joint ventures or other arrangements on acceptable terms, if at all;
-- our joint ventures or other arrangements will be successful;
-- our joint ventures or other arrangements will lead to the successful development and commercialization of any products;
-- we will be able to obtain or maintain proprietary rights or licenses to any technology or products developed in connection with our joint ventures or other arrangements; or
-- we will be able 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 WHICH 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 assure you that accidental injury or contamination will not occur. Any such accident or contamination could result in substantial liabilities, which could exceed our insurance coverage and financial resources. Additionally, we cannot assure you that the cost of compliance with environmental and safety laws and regulations will not increase in the future.
THE PHARMACEUTICAL AND AGROCHEMICAL INDUSTRIES ARE SUBJECT TO EXTENSIVE
GOVERNMENT REGULATION AND THERE IS NO ASSURANCE OF REGULATORY APPROVAL.
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. There can be no assurance that we will be able to obtain the necessary approvals required to market our products in any of these markets. The testing, marketing and manufacturing of our products will require regulatory approval, including approval from the FDA and, in some cases, from the U.S. Environmental Protection Agency, or the EPA, and the U.S. Department of Agriculture, or the USDA, or governmental authorities outside of the United States that perform roles similar to those of the FDA and EPA. Certain of our pharmaceutical products in development also fall under the Controlled Substances Act of 1970, or the CSA, which requires authorization by the U.S. Drug Enforcement Agency, or the DEA, of the U.S. Department of Justice in order to handle and distribute these products. It is not possible to predict how long the approval processes of the FDA, EPA, DEA or any other applicable federal, state or foreign regulatory authority or agency for any of our products will take or whether any such approvals ultimately will be granted. Positive results in preclinical testing and/or early phases of clinical studies are no assurance of success in later phases of the approval process. Risks associated with the regulatory approval process include:
-- in general, preclinical tests and clinical trials can take many years, and require the expenditure of substantial resources, and the data obtained from these tests and trials can be susceptible to varying interpretation that could delay, limit or prevent regulatory approval;
-- delays or rejections may be encountered during any stage of the regulatory approval 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;
-- requirements for approval may become more stringent due to changes in regulatory agency policy, or the adoption of new regulations or legislation;
-- the scope of any regulatory approval, when obtained, may significantly limit the indicated uses for which a product may be marketed;
-- approved drugs and agrochemicals, as well as their manufacturers, are subject to continuing and on-going review, and discovery of previously unknown problems with these products may result in restrictions on their manufacture, sale or use or in their withdrawal from the market; and
-- regulatory authorities and agencies may promulgate additional regulations restricting the sale of our existing and proposed products.
Once approved, we cannot guarantee that the FDA will permit us to market those products for broader or different applications, or that it will grant us approval with respect to separate product applications which represent extensions of our basic technology, or that existing approvals will not be withdrawn or modified in a significant manner. In addition, it is possible that the FDA will promulgate additional regulations restricting the sale of our present or proposed products.
Labeling and promotional activities are subject to scrutiny by the FDA and state regulatory agencies and, in some circumstances, by the Federal Trade Commission. FDA enforcement policy prohibits the marketing of approved products for unapproved, or off-label, uses. These regulations, and the FDA's interpretation of them, may impair our ability to effectively market THALOMID or other products which gain approval. The FDA actively enforces regulations prohibiting promotion of off-label uses and the promotion of products for which approval has not been obtained. Failure to comply with these requirements can result in regulatory enforcement action by the FDA. The FDA is aware that physicians prescribe THALOMID for off-label uses, and on April 21, 2000, we received an FDA Warning Letter regarding off-label promotions. We have responded to the FDA and believe we have taken all actions necessary to ensure that THALOMID is properly and safely commercialized. FDA approval of THALOMID requires that we distribute it under the rigid standards of our S.T.E.P.S. program in order to maintain approval.
Delays in obtaining, or the failure to obtain and maintain, necessary approvals from the FDA, EPA, DEA or other applicable regulatory authorities or agencies for our proprietary products or regulatory enforcement actions by FDA concerning our marketing practices would have a material adverse effect on our business, financial condition and results of operations.
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 firms, including ours, can be uncertain and involve complex legal and factual questions. In addition, the coverage sought in a patent application may not be obtained or may be significantly reduced before the patent is issued. Consequently, we do not know whether any of our pending applications, or any pending application we have licensed-in from third parties, will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or commercial advantage. Since, under the current patent laws, patent applications in the United States are maintained in secrecy until patents issue, and since publications of discoveries in the scientific and patent literature often lag behind actual discoveries, we cannot be certain that we were, or that the third parties from whom we have licensed patents or patent applications were, 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 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 described in our patents or patent applications, or those we have licensed-in, we could become involved in an interference proceeding declared by the United States Patent and Trademark Office to determine priority of invention. Such an interference could result in the loss of a United States patent or loss of any opportunity to secure United States patent protection for that invention. Even if the eventual outcome is favorable to us, such interference proceedings could result in substantial cost to us. 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. There can be no assurance, therefore, that the issuance to us or our licensor, in a given 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 interpretation given to the corresponding patent issued in another country. Furthermore, even if our patents, or those we have licensed are found 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. If any of our issued or licensed patents are infringed, we cannot guarantee that we will be successful in enforcing our intellectual property rights. Moreover we cannot assure you that we can successfully defend against any patent infringement suit that may be brought against us by a third party. Patent infringement lawsuits in the pharmaceutical and biotechnology industries can be complex, lengthy and costly to both parties. An adverse outcome in such a 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 these products or processes, subject to significant liabilities to such third party and/or required to license technologies from such third party. 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. We cannot assure you that these agreements will not be breached or that we would have adequate remedies for any such breach. We cannot assure you 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. Our right to practice the inventions claimed in some patents which relate to THALOMID arises under licenses granted to us by others, including The Rockefeller University and EntreMed, Inc. While we believe these agreements to be valid and enforceable, we cannot assure you that our rights under these agreements will continue or that disputes concerning these agreements will not arise. In addition, certain of the grants contained in the licenses granted to us depend upon the validity and enforceability of other agreements to which we are not a party.
THE PHARMACEUTICAL AND AGROCHEMICAL INDUSTRIES ARE HIGHLY COMPETITIVE AND
SUBJECT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE.
The pharmaceutical and agrochemical industries in which we operate are highly competitive and subject to rapid and significant technological change. Our present and potential competitors include major chemical and pharmaceutical companies, as well as specialized pharmaceutical firms. Most of these companies have considerably greater financial, technical and marketing resources than us. 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 and agrochemical industries have undergone, and are expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical advances in each field are made and become more widely known. The development of products or processes with significant advantages over those that we are seeking to develop could have a material adverse effect on our business, financial condition and results of operations.
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 targeted in this effort. We cannot assure you that our products will be considered cost effective by payors, that reimbursement will be available or, if available, that the level of reimbursement will be sufficient to allow us to sell our products on a profitable basis.
THE PRICE OF OUR COMMON STOCK HAS EXPERIENCED SUBSTANTIAL VOLATILITY AND
MAY CONTINUE TO DO SO IN THE FUTURE.
There has been significant volatility in the market prices for publicly traded shares of pharmaceutical companies, including ours. In 2000, the price of our common stock fluctuated from a high of $74.75 to a low of $18.92 (as adjusted for a three-for-one stock split in April 2000). On March 14, 2001, our common stock closed at a price of $21.8125. The price of our common stock may not remain at or exceed current levels. The following factors may have an adverse impact on the market price of our common stock:
-- announcements of technical or product developments by us or our competitors;
-- market conditions for pharmaceutical and biotechnology stocks;
-- market conditions generally;
-- governmental regulation;
-- healthcare legislation;
-- public announcements regarding medical advances in the treatment of the disease states that we are targeting;
-- patent or proprietary rights developments;
-- changes in third-party reimbursement policies for our products; or
-- fluctuations in our operating results.
THE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE 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 February 15, 2001, there were outstanding stock options for 7,821,206 shares of common stock, of which 3,446,261 were currently exercisable, and warrants outstanding that are exercisable for 1,076,680 shares of common stock. These amounts include outstanding options and warrants of Signal Pharmaceuticals, Inc. ("Signal") which we assumed as part of a merger (the "Merger") with Signal on August 31, 2000 and which were converted into outstanding options and warrants of our common stock pursuant to an exchange ratio. In addition, as of February 15, 2001, the remaining outstanding 9.0% convertible notes issued on January 20, 1999 can be converted into 285,801 shares of common stock and the remaining outstanding 9.0% convertible notes issued on July 6, 1999 can be converted into 1,578,876 shares of common stock. Upon issuance or conversion, all of these shares of common stock will be freely tradable.
WE MAY NOT REALIZE THE BENEFITS OF THE COMBINED BUSINESSES, OPERATIONS AND PERSONNEL AS A RESULT OF THE MERGER, WHICH COULD DIMINISH THE EXPECTED BENEFITS OF THE MERGER.
Achieving the expected benefits of the Merger will depend in large part on the successful integration of the combined businesses, operations and personnel in a timely and efficient manner. We must integrate the information systems, product development, administration and other operations of the combined company and the geographical distance between our facilities in Warren, New Jersey, and Signal's facilities in San Diego, California. This may be difficult and unpredictable because of possible cultural conflicts and different opinions on technical, operational and other integration decisions. We must also integrate the employees of the combined company. The operations, management and personnel of the combined company may not be compatible, and we may also experience the loss of key personnel for that reason.
The diversion of management attention and any difficulties or delays encountered in the transition and integration process following the Merger could have a material adverse effect on the combined company's business, financial condition and operating results.
We expect to incur costs from integrating Signal's operations and personnel. These costs may be substantial and may include costs for:
-- employee redeployment or severance; and
-- conversion of information systems.
We cannot assure you that we will be successful in these integration efforts or that we will realize the expected benefits of the Merger.
OUR SHAREHOLDER RIGHTS PLAN AND CERTAIN CHARTER AND BY-LAW PROVISIONS MAY
DETER A THIRD PARTY FROM ACQUIRING US.
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. Any 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.
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 inquiror of our common stock.
ITEM 2. PROPERTIES
We lease a 44,500-square foot laboratory and office facility in Warren, New Jersey, under a lease with an unaffiliated party, which has a term ending in May 2002 with one five-year renewal option, and a 29,000-square foot facility which has a term ending in July 2010 with two five-year renewal options. We also lease an 18,000-square foot laboratory and office facility in North Brunswick, New Jersey, under a lease with an unaffiliated party which has a term ending in December 2009 with two five-year renewal options.
We also lease 45,500 square feet of laboratory and office space in San Diego, California, under three operating lease agreements for our Signal Research operations which have terms ending on December 31, 2003. The minimum annual rents are subject to specified annual rental increases. Signal also reimburses the lessor for taxes, insurance and operating costs associated with the leases. Under the terms of the lease, we have an outstanding letter of credit for $150,000 in favor of the lessor, which is fully collateralized by cash.
We believe that our laboratory facilities are adequate for our research and development activities for at least the next 12 months.
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 sale prices per share of common stock on the Nasdaq National Market (as adjusted for the three-for-one stock split effected in April 2000):
HIGH LOW
------------ ------------
2000
Fourth Quarter ............... $ 74.875 $ 26.875
Third Quarter ................ 76.00 41.75
Second Quarter ............... 68.50 25.00
First Quarter ................ 62.33 18.92
1999
Fourth Quarter ............... $ 24.21 $ 8.65
Third Quarter ................ 9.67 4.875
Second Quarter ............... 6.69 5.13
First Quarter ................ 6.21 3.83
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The last reported sales price per share of common stock on the Nasdaq National Market on March 2, 2001 was $26.563. As of March 2, 2001, there were approximately 812 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.
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 Statements of Operations for the years ended December 31, 2000, 1999 and 1998 and the Balance Sheet as of December 31, 2000 and 1999 are derived from our Consolidated Financial Statements which are included elsewhere in this Annual Report and are qualified by reference to such Consolidated Financial Statements and related Notes thereto. Our historical results are not necessarily indicative of future results of operations.
On August 31, 2000, we completed our merger with Signal Pharmaceuticals, Inc. (Signal) which was accounted for as a pooling-of-interests. All prior period consolidated financial statements of Celgene have been restated to include the results of operations, financial position, and cash flows of Signal.
YEAR ENDED DECEMBER 31,
2000 1999 1998 1997 1996
IN THOUSANDS, EXCEPT PER SHARE DATA ------------ -------------- -------------- -------------- ------------
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenue .............................. $ 84,249 $ 37,958 $ 19,215 $ 8,701 $ 4,815
Costs and operating expenses ............... 118,558 68,623 56,644 39,654 29,119
Interest income/(expense), net ............. 15,496 (1,990) 1,050 193 1,037
Tax benefit ................................ 1,810 3,018 -- -- --
--------- ---------- ---------- ---------- ---------
Loss from continuing operations ............ (17,003) (29,637) (36,379) (30,760) (23,267)
Preferred stock dividend (including
accretion and imputed dividends) ......... -- 818 25 1,474 3,791
--------- ---------- ---------- ---------- ---------
Loss from continuing operations applicable
to common stockholders ................... $ (17,003) $ (30,455) $ (36,404) $ (32,234) $ (27,058)
========= ========== ========== ========== =========
Per share of common stock--basic and diluted:
Loss from continuing operations applicable
to common stockholders (1) ............... $ (0.25) $ (0.59) $ (0.75) $ (0.87) $ (0.95)
========= ========== ========== ========== =========
Weighted average number of shares of
common stock outstanding (1) ............. 66,598 51,449 48,811 36,900 28,561
========= ========== ========== ========== =========
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DECEMBER 31,
2000 1999 1998 1997 1996
IN THOUSANDS ------------ ------------- ------------- ------------- -------------
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents, and marketable
securities ................................ $ 306,162 $ 28,947 $ 18,076 $ 34,449 $ 23,275
Total assets ................................ 346,726 46,873 31,486 42,055 29,985
Long-term obligations under capital leases
and equipment notes payable ............... 633 1,828 2,656 1,899 2,746
Convertible debentures ...................... -- -- -- -- 2,026
Convertible notes ........................... 11,714 38,495 8,349 -- --
Accumulated deficit ......................... (220,455) (204,170) (173,715) (144,266) (111,604)
Stockholders' equity (deficit) .............. 295,533 (9,727) 8,393 30,589 17,577
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(1) Amounts are adjusted for the three-for-one stock split effected in April 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We were organized in 1980 as a unit of Celanese Corporation, a chemical company. Our initial mandate was to apply biotechnology to the production of fine and specialty chemicals. Following the 1986 merger of Celanese Corporation with American Hoechst Corporation, we were spun off as an independent biopharmaceutical company. In July 1987, we completed an initial public offering of our common stock and commenced the research and development of chemical and biotreatment processes for the chemical and pharmaceutical industries. We discontinued the biotreatment operations in 1994 to focus on our targeted small molecule cancer and immunology compound development programs and our biocatalytic chiral chemistry program.
Between 1990 and 1998, our revenue had been generated primarily through the development and supply of chirally pure intermediates to pharmaceutical companies for use in new drug development and, to a lesser degree, from agrochemical research and development contracts. However, as revenue from THALOMID sales, license agreements and milestone payments related to our cancer and immunology programs increased, sales of chirally pure intermediates became a less integral part of our strategic focus. Accordingly, on January 9, 1998, we completed the sale of our chiral intermediates business to Cambrex Corporation for $15.0 million. Terms of the sale provided for a payment to Celgene of $7.5 million at closing and future royalties on product sales not to exceed the net present value on the initial date of the sale of $7.5 million, with a guarantee of certain minimum payments to Celgene beginning in the third year following the close of the agreement.
In July 1998, we received approval from the FDA to market THALOMID (thalidomide) for use in ENL, a side effect of leprosy, and in late September 1998, we commenced sales of THALOMID in the United States. Sales have grown rapidly each year since the launch and in 2000, we recorded net sales of THALOMID of $62.0 million.
On February 16, 2000, we completed a follow-on public offering to sell 10,350,000 shares of our common stock at a price of $33.67 per share. 8,802,000 shares were for our account and 1,548,000 were for the account of a selling shareholder pursuant to the conversion of $9,288,000 of the 9%, January 1999 convertible notes held by that shareholder. Proceeds to the Company, net of offering expenses, were approximately $278.0 million.
On April 19, 2000, we signed a license and development agreement with Novartis Pharma AG in which we granted to Novartis a world wide license for d-methylphenidate, our chirally pure version of Ritalin. The agreement provides for up to $100 million in up front and milestone payments based on achieving various regulatory approvals and royalties on the entire family of Ritalin products upon approval of d-MPH by the FDA. We have retained the rights for the use of d-MPH in oncology indications.
On August 31, 2000, we completed a merger, accounted for as a pooling-of-interests, with Signal Pharmaceuticals, Inc., ("Signal"), a privately held biopharmaceutical company focused on the discovery and development of drugs that regulate genes associated with disease.
We have sustained losses in each year since our inception as an independent biopharmaceutical company in 1986. In 2000, we had a net loss applicable to common stockholders of $16.3 million and at December 31, 2000, had an accumulated deficit of $220.5 million. We expect to make substantial expenditures to further develop and commercialize THALOMID, develop our other oncology and immunological disease programs, and advance the drug discovery and development programs at Signal. We also expect increased sales of THALOMID, revenues from various research collaborations and license agreements with other pharmaceutical and biopharmaceutical companies, and continued investment income.
Subject to the risks described elsewhere in this Annual Report on Form 10-K, we believe there are significant market opportunities for the pharmaceutical products and processes under development by us. To address these and potential future opportunities in a timely and competitive manner, we intend to
seek out drug discovery and development collaborations and licensing arrangements with third parties. We have entered into agreements covering the manufacture and distribution for us of certain compounds, such as THALOMID, and the development by us of processes for producing chirally pure crop protection agents for license to agrochemical manufacturers. The latter development activities are performed through Celgro Corporation, our wholly owned agrochemical subsidiary.
We have established a commercial sales, marketing and customer service organization to sell and support THALOMID and as of February 15, 2001, we employ 98 persons in this capacity. We intend to develop and market our own pharmaceuticals for indications with economically accessible patient populations in our disease franchises. For drugs with indications outside the oncology and immunological disease fields and for larger patient populations, we anticipate partnering with other pharmaceutical companies. We currently partner with companies such as Novartis for the development and commercialization of our chirally pure pharmaceutical and agrochemical products. We expect these arrangements typically will include some combination of license fees, milestone payments, reimbursement of research and development expenses and royalty arrangements. We also may acquire products or companies to expand our product portfolio and to augment our development and commercialization resources.
Future operating results will depend on many factors, including demand for our products, regulatory approvals of our products, the timing of the introduction and market acceptance of new products by us or competing companies, the timing of research and development milestones and our ability to control costs.
RESULTS OF OPERATIONS
Fiscal Years Ended December 31, 2000, 1999 and 1998
Total revenues. Our total revenue for the year ended December 31, 2000 increased 122% to $84.2 million compared with $38.0 million for the same period in 1999. Revenue in 2000 consisted of net THALOMID sales of $62.0 million, research contract revenue of $15.9 million and related party collaborative agreement revenue of $6.3 million compared with net THALOMID sales of $24.1 million, research contract revenue of $9.4 million and revenue from related party collaborative agreements of $4.5 million in 1999. The growth in THALOMID sales primarily is related to increased use in oncology. Research contract revenue increased in 2000 primarily as a result of the recognition of $4.6 million of the $10.0 million nonrefundable upfront license fee payment received in connection with a collaborative agreement entered into with Novartis Pharma AG in April 2000, and a $5.0 million milestone payment related to the same agreement with Novartis. Total revenue in 1999 increased significantly to approximately $38.0 million from $19.2 million in 1998. The increase primarily was the result of our first full year of product sales of THALOMID in 1999 of approximately $24.1 million compared with $3.3 million of THALOMID sales in 1998 following FDA marketing approval in July 1998. Revenue from research contracts decreased to $9.4 million in 1999 from $12.9 million in 1998, while related party collaborative agreements increased to $4.5 million in 1999 from $3.0 million in 1998. The decrease in research contract revenue was primarily due to the termination of the Tanabe Agreement in 1998.
Cost of goods sold. Cost of goods sold in the year ended December 31, 2000, was approximately $9.3 million compared with approximately $3.0 million in 1999. The increase in cost of goods sold reflects the higher volume of THALOMID sales in 2000. In addition, the cost of goods sold during the first quarter of 2000 and the full year of 1999 does not reflect raw material or formulation and encapsulation costs of THALOMID, as these costs were incurred and charged as research and development expenses prior to receiving FDA marketing approval. Increase in cost of goods sold for 1999 compared to 1998 is primarily the result of increased sales volume.
Research and development expenses. Research and development expenses increased by 45% for the year ended December 31, 2000 to approximately $52.7 million compared to $36.4 million in 1999. The increase was primarily due to spending for preclinical toxicology and pharmacology studies and phase I and phase II clinical trials for our SelCIDs and IMiDs, completion of the pivotal clinical trials and preparation for filing the NDA for d-methylphenidate (d-MPH), our chirally pure version of Ritalin, and preclinical product development for our SERM (selective estrogen receptor modulators) cancer program.
Additionally, there was an increase in the recognition of compensation expense recorded for stock options granted by Signal during the first quarter of 2000. Research and development expenses for 1999 increased approximately 3% to $36.4 million from $35.3 million in 1998. Increased spending for clinical trials, primarily for d-MPH, and research and preclinical development of drug leads in our kinase and SERM programs was offset by a decrease in regulatory consulting fees, university research program spending, and production of THALOMID capsules which was charged as research and development expense prior to receiving FDA marketing approval in July of 1998.
Selling, general and administrative expenses. Selling, general and administrative expenses for 2000 increased 70% to $49.9 million from $29.2 million in 1999. The increase was due primarily to the expansion of our sales and marketing organization and related expenses, and spending for customer service, warehousing and distribution, all to support the growth in THALOMID sales. Selling, general and administrative expenses for 1999 increased by 39% over 1998, from approximately $21.0 million to approximately $29.2 million. The increase was primarily in sales and marketing expenses, warehousing and distribution expenses and expenditures relating to medical affairs and drug safety costs, all to support the commercialization and distribution of THALOMID.
Merger-related costs. We incurred one-time costs of $6.7 million associated with the merger with Signal Pharmaceuticals, Inc. in 2000. These costs were primarily related to fees for financial advisors, accountants, lawyers and financial printers.
Interest income and interest expense. Interest income in 2000 increased significantly to $17.6 million from $1.3 million in 1999. The increase was due to the investment of the net proceeds of approximately $278.0 million from the follow-on public offering in February 2000, and $10.0 million received from Novartis Pharma AG in July 2000 related to the license and development agreement entered into in the second quarter of 2000. Interest income for 1999 of $1.3 million was slightly lower than the $1.8 million in 1998 as average cash balances were lower in 1999.
Interest expense decreased significantly in 2000 to $2.1 million from $3.3 million in 1999. The decrease was primarily the result of the conversion to equity of a significant portion of the outstanding long-term convertible notes throughout 2000. Also, in September 2000, we entered into an agreement with the remaining convertible noteholders which allows the noteholders to take a "short position" in our common stock. In return the noteholders waive the right to the receipt of any interest after the effective date of August 24, 2000. Interest expense in 1999 was significantly higher than 1998, at approximately $3.3 million compared with approximately $0.7 million in 1998. The higher interest expense resulted from the interest incurred on the three convertible notes issued in September 1998, January 1999 and July 1999.
Loss from continuing operations. The loss from continuing operations decreased 43% to $17.0 million in 2000 from $29.6 million in 1999. The decreased loss was primarily the result of higher THALOMID sales and increased revenues from research contracts and collaborative agreements partially offset by higher cost of goods sold, research and development expenses, selling, general and administrative expenses and one-time merger-related costs. The loss from continuing operations decreased 19% in 1999 compared with 1998, to approximately $29.6 million from approximately $36.4 million. The decreased loss resulted from the higher gross profit on THALOMID sales and an income tax benefit of $3.0 million from the sale of a portion of our New Jersey state net operating loss carryforwards, offset in part by increased selling, general and administrative costs and higher interest expense.
Loss from discontinued operations. The loss from discontinued operations of $60,000 in 1998 resulted from the sale of the chiral intermediates business in January of 1998. The Company recorded a gain on the sale of the chiral intermediate business of approximately $7.0 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in 1986, we have financed our working capital requirements primarily through private and public sales of our debt and equity securities, income earned on the investment of the proceeds from the sale of such securities and revenues from research contracts and product sales. In February 2000, we raised approximately $278.0 million in a follow-on public offering of our common stock. We also received
$20.0 million in two separate research and license agreements during 2000. Prior to 2000, we had raised approximately $100.0 million in net proceeds from three public and three private offerings, including our initial public offering in July 1987. We also issued convertible notes in September 1998, January 1999, and July 1999 with net proceeds aggregating approximately $38.0 million.
Our net working capital at December 31, 2000 increased significantly to approximately $298.2 million (primarily cash and cash equivalents and marketable securities available for sale) from approximately $22.5 million at December 31, 1999. The increase in working capital was primarily due to the cash received from the proceeds of the follow-on offering in February 2000, funds received from research and collaborative agreements, as well as collection of receivables on sales of THALOMID.
Cash and cash equivalents increased to $161.4 million in 2000 from $21.9 million in 1999 while investments in marketable debt securities increased to $144.8 million in 2000 from $7.1 million in 1999. This reflects the receipt of funds from the follow-on offering, revenue received from research contracts and collection of receivables from sales of THALOMID.
We expect that our rate of spending will increase as the result of research and product development spending at Signal, increased clinical trial costs, increased expenses associated with the regulatory approval process and commercialization of products currently in development, increased costs related to the commercialization of THALOMID and increased capital investments. On February 16, 2000, we completed a public offering of 10,350,000 shares of our common stock. Proceeds from the transaction net of expenses, were approximately $278.0 million. These funds, combined with the increasing revenue from sales of THALOMID and various research agreements and collaborations are expected to provide sufficient capital for our operations for the foreseeable future.
RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 2001, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an amendment of SFAS No. 133 and SFAS No. 133, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. SFAS No. 133 requires a company to recognize all derivative instruments as assets or liabilities in its balance sheet and measure them at fair value. We do not expect the adoption of these statements to have a material impact on our consolidated financial position, results of operations or cash flows, as we are currently not party to any derivative instruments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Our holdings of financial instruments comprise a mix of securities that may include U.S. corporate debt, U.S. government debt, and commercial paper. All such instruments are classified as securities available for sale. Generally, we do not invest in portfolio equity securities or commodities or use financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in investment grade fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We invest in securities that have a range of maturity dates. Typically, those with a short-term maturity are fixed-rate, highly liquid, debt instruments and those with longer-term maturities are highly liquid debt instruments with fixed interest rates or with periodic interest
rate adjustments. Due to the limited number of foreign currency transactions, our foreign exchange currency risk is minimal. The table below presents the principal amounts and related weighted average interest rates by year of maturity for our investment portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 TOTAL FAIR VALUE
------------ ------------ ------------ ------ ----------- ----------- ------------- -----------
(in Thousands $)...............
Fixed Rate .................... $ 88,235 $ 25,550 $ 15,400 -- $ 8,000 $ 6,557 $ 143,742 $144,768
Average Interest Rate ......... 6.56% 6.73% 6.84% -- 6.875% 7.125% 6.66% --
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At December 31, 2000, our 9% January 1999 and July 1999 convertible notes with outstanding principal amounts of $1,713,600 and $10,000,000, respectively no longer accrue interest, as disclosed in Note 8 of the Consolidated Financial Statements included elsewhere in this annual report. These convertible notes are convertible into the Company's common stock at a conversion price $6.00 and $6.33 per share, respectively. The fair value of fixed interest rate instruments are affected by changes in interest rates and in the case of the convertible notes by changes in the price of the Company's common stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
--------------------------------------- ----- ---------------------------------------------
John W. Jackson* ...................... 56 Chairman of the Board and Chief Executive
Officer
Sol J. Barer, Ph.D.* .................. 53 President, Chief Operating Officer, Director
Robert J. Hugin* ...................... 46 Chief Financial Officer and Senior Vice
President
Jack L. Bowman ........................ 68 Director
Frank T. Cary ......................... 80 Director
Arthur Hull Hayes, Jr., M.D. .......... 67 Director
Gilla Kaplan, Ph.D. ................... 53 Director
Richard C. E. Morgan .................. 56 Director
Walter L. Robb, Ph.D. ................. 72 Director
Lee J. Schroeder ...................... 72 Director
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JOHN W. JACKSON has been our Chairman of the Board and Chief Executive Officer since January 1996. From February 1991 to January 1996, Mr. Jackson was President of Gemini Medical, a consulting firm that he founded and which specialized in services and investment advice to start-up medical device and biotechnology companies. Previously, Mr. Jackson had been President of the worldwide Medical Device Division of American Cyanamid, a major pharmaceutical company, from February 1986 to January 1991, and served in various international positions, including Vice President -- International for American Cyanamid from 1978 to 1986. Mr. Jackson served in several human health marketing positions at Merck & Company, a major pharmaceutical company, from 1971 to 1978. Mr. Jackson received a B.A. degree from Yale University and an M.B.A. from INSEAD, France.
SOL J. BARER, PH.D. has been our President of the Company since October 1993 and our Chief Operating Officer and one of our directors since March 1994. Dr. Barer was Senior Vice President -- Science and Technology and Vice President/General Manager -- Chiral Products from October 1990 to October 1993 and our Vice President -- Technology from September 1987 to October 1990. Dr. Barer received a Ph.D. in organic and physical chemistry from Rutgers University.
ROBERT J. HUGIN has been our Senior Vice President and Chief Financial Officer since June 1999. Previously, Mr. Hugin had been a Managing Director at J.P. Morgan & Co. Inc., which he joined in 1985. Mr. Hugin received an A.B. degree from Princeton University and an M.B.A. from the University of Virginia.
JACK L. BOWMAN, one of our directors since April 1998, served as Company Group Chairman of Johnson & Johnson from 1987 to 1994. From 1983 to 1987, Mr. Bowman served as Executive Vice President of American Cyanamid. Mr. Bowman is also a director of NeoRx Corporation, Cell Therapeutics, Inc., CytRx Corporation, Cellegy Pharmaceuticals, Targeted Genetics and Osiris Pharmaceuticals.
FRANK T. CARY has been Chairman of the Executive Committee of our Board of Directors since July 1990 and has been one of our directors since 1987. From 1973 to 1981, Mr. Cary was Chairman of the Board and Chief Executive Officer of International Business Machines Corporation. Mr. Cary also is a director of Cygnus Therapeutic Systems Inc., ICOS Corporation, Lincare Inc., Lexmark International Inc. and Vion Pharmaceuticals Inc.
ARTHUR HULL HAYES, JR., M.D., one of our directors since 1995, has been President and Chief Operating Officer of MediScience Associates, a consulting organization that works with pharmaceutical firms, biomedical companies and foreign governments, since July 1991, and clinical professor of medicine and pharmacology at the Pennsylvania State University College of Medicine. From 1986 to 1990,
Dr. Hayes was President and Chief Executive Officer of E.M. Pharmaceuticals, a unit of E. Merck AG and from 1981 to 1983 was Commissioner of the United States Food and Drug Administration. Dr. Hayes also is a director of Myriad Genetics, Inc., NaPro BioTherapeutics, Inc. and Premier Research Worldwide.
GILLA KAPLAN, PH.D., one of our directors since April 1998, is an immunologist in the Laboratory of Cellular Physiology and Immunology at The Rockefeller University in New York where she was appointed Assistant Professor in 1985 and Associate Professor in 1990. Dr. Kaplan is a member of numerous professional societies and has been the organizer of several major symposia on tuberculosis. Dr. Kaplan has served as an advisor to the Global Program for Vaccines and Immunization of the World Health Organization, has participated in several NIH peer review panels and is on the Editorial Board of Microbial Drug Resistances and Tubercle and Lung Disease. Dr. Kaplan is the author of more than 100 scientific publications and has received international recognition for her work. In 1995, she gave the Special Honorary Lecture at the American Society for Microbiology and in 1997 was appointed a Fellow of the American Academy of Microbiology.
RICHARD C. E. MORGAN, one of our directors since 1987, is the Chairman and Chief Executive Officer of incuVest LLC and a Managing Partner of Amphion Capital Management LLC, formerly Wolfensohn Partners, L.P. Mr. Morgan serves on the Board of Directors of Indigo, N.V., ChromaVision Medical Systems, Inc., Axcess Inc. and Orbisi International, Inc.
WALTER L. ROBB, PH.D., one of our directors since 1992, has been a private consultant and President of Vantage Management Inc., a consulting and investor services company, since January 1993. Mr. Robb was Senior Vice President for Corporate Research and Development of General Electric Company, and a member of its Corporate Executive Council from 1986 to December 1992. Mr. Robb is Chairman of the Board of Directors of Capital District Sports. He is also a director of Cree, Inc., Mechanical Technology, Inc., Plug Power, Inc., Molecular OptoElectronics, Nextec, R2 Technology and X-Ray Optical Systems.
LEE J. SCHROEDER, one of our directors since 1995, has been President of Lee Schroeder & Associates, Inc., pharmaceutical business consultants, since 1985. Mr. Schroeder was President of Fox Meyer Lincoln from 1983 to 1985, and was an Executive Vice President of Sandoz, Inc. from 1981 to 1983. Mr. Schroeder also is a director of MGI Pharmaceutical, Inc., Ascent Pediatrics, Inc. and Interneuron Pharmaceuticals, Inc.
ELECTION OF DIRECTORS
Each director holds office (subject to our By-Laws) until the next annual meeting of stockholders and until such director's successor has been elected and qualified. There are no family relationships between any of the directors and executive officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation paid, or payable, by the Company for services rendered in all capacities to the Chief Executive Officer of the Company and each of the most highly paid executive officers of the Company who earned more than $100,000, for each of the last three fiscal years in which such officers were executive officers for all or part of the year.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------ ----------------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) AWARD(S) ($) OPTIONS (#) ($)
------------------------ ------ ------------ ----------- ----------------- -------------- ------------- -----------------
John W. Jackson 2000 372,500 338,975 14,280 (1) 0 450,000 13,390 (2)
Chairman and 1999 300,000 390,000 19,200 (1) 0 660,000 13,390 (2)
Chief Executive 1998 285,000 79,800 19,200 (1) 0 300,000 13,390 (2)
Officer
Sol J. Barer, Ph.D. 2000 308,550 194,387 14,280 (1) 0 255,000 0
President and 1999 255,833 230,250 19,200 (1) 0 210,000 0
Chief Operating 1998 243,333 51,100 19,200 (1) 0 150,000 0
Officer
Robert J. Hugin (3) 2000 270,500 132,545 14,280 (1) 0 180,000 0
Senior Vice President 1999 127,385 168,000 7,200 (1) 0 450,000 0
and Chief Financial
Officer
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EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
John W. Jackson, Sol J. Barer and Robert J. Hugin (each an "Executive") are employed pursuant to substantially similar employment agreements (the "Employment Agreements") providing for their continued employment until January 1, 2003 (the period during which Executive is employed is referred to as the "Employment Period"). The Employment Period shall be automatically renewed for successive one-year terms unless the Company or Executive gives written notice to the other at least six months prior to the expiration of the Employment Period. The Employment Agreements provide Messrs. Jackson, Barer and Hugin with a base salary (which may be increased by the Board of Directors, or a committee thereof) of $300,000, $258,000 and $240,000, respectively, per annum. In addition, each of the Employment Agreements provides for an annual target bonus in an amount equal to 65%, 45% and 35%, respectively, of Executive's base salary measured against objective criteria to be determined by the Board of Directors, or a committee thereof. The Employment Agreements also provide that Messrs. Jackson, Barer and Hugin are entitled to continue to participate in all group health and insurance programs and all other fringe benefit or retirement plans which are generally available to the Company's employees. Each of the Employment Agreements provides that if the Executive is terminated by the Company without cause or due to Executive's disability, he shall be entitled to receive a lump-sum payment in an amount equal to Executive's annual base salary and a pro rata share of Executive's annual target bonus. Upon the occurrence of a change in control (as defined in the Employment Agreements) and thereafter, each Employment Agreement provides that if, (a) at any time within one year of a change in control Executive's employment is terminated by the Company without cause or for disability or by Executive for good reason (as defined in the Employment Agreement) or (b) at any time within 90 days prior to a change in control, Executive's employment is terminated by the Company without cause or by Executive for good reason, Executive shall be entitled to receive: (i) a lump sum payment in an amount equal to three times Executive's base salary and three times Executive's highest annual bonus within the three years prior to the change in control; (ii) any accrued benefits; (iii) payment of health and
welfare premiums for Executive and his dependants; and (iv) full and immediate vesting of all stock options and equity awards; provided, however, that such payment shall be reduced by any payments made to Executive prior to the change in control pursuant to Sections 10(a)(iv) and (v) of the Employment Agreements. Each Employment Agreement also provides that Executive shall be entitled to receive a gross-up payment on any payments made to Executive that are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, except that a gross-up will not be made if the payments made to Executive do not exceed 105% of the greatest amount that could be paid to Executive such that the receipt of payments would not give rise to the excise tax. Each Executive is subject to a non-compete which applies during the period the Executive is employed and until the first anniversary of the date Executive's employment terminates (the non-compete applies to the second anniversary of the date Executive's employment terminates if the Executive receives change in control payments and benefits).
STOCK OPTIONS
The following table provides information concerning grants of stock options to the following named executive officers in fiscal 2000.
OPTION GRANTS DURING FISCAL 2000
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
DATE OF OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANT GRANTED (1) IN 2000(2) PER SHARE DATE 5% 10%
---------------------------- --------- ------------- ------------ ------------- ----------- ------------- -------------
John W. Jackson ............ 2/03/00 300,000 9.2% $ 25.7917 2/03/10 $3,868,755 $7,737,510
9/19/00 150,000 4.6% $ 65.3750 9/19/10 $4,903,125 $9,806,250
Sol J. Barer, Ph.D ......... 2/03/00 150,000 4.6% $ 25.7917 2/03/10 $1,934,378 $3,868,755
9/19/00 105,000 3.2% $ 65.3750 9/19/10 $3,432,188 $6,864,375
Robert J. Hugin ............ 2/03/00 105,000 3.2% $ 25.7917 2/03/10 $1,354,065 $2,708,129
9/19/00 75,000 2.3% $ 65.3750 9/19/10 $2,451,563 $4,903,125
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The following table sets forth information for each of the named executive officers with respect to the value of options exercised during the year ended December 31, 2000 and the value of outstanding and unexercised options held as of December 31, 2000. There were no SARs exercised during 2000 and none were outstanding as of December 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED REALIZED ----------------------------- ----------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- ----------------- -------------- ------------- --------------- ------------- --------------
John W. Jackson ..... 580,400 $26,454,173 508,869 840,001 $10,639,547 $16,036,257
Sol J. Barer, Ph.D .. 338,764 $12,876,982 398,579 354,899 $ 8,980,377 $ 6,746,513
Robert J. Hugin ..... 100,700 $ 4,945,930 109,300 420,000 $ 1,580,271 $ 8,657,091
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(2) Represents the difference between the closing market price of the Common Stock as reported by the Nasdaq National Market on December 29, 2000 of $32.50 per share and the exercise price per share of in-the-money options multiplied by the number of shares underlying the in-the-money options.
COMPENSATION COMMITTEE REPORT
The Compensation Committee determines our executive compensation policies. The Compensation Committee determines the compensation of our executive officers and approves and oversees the administration of incentive compensation programs for all employees including executive officers. The Compensation Committee is composed solely of outside directors.
EXECUTIVE COMPENSATION POLICIES AND PROGRAMS
Our executive compensation program is part of a company-wide program covering all employees. The program's goals are to attract, retain, and motivate employees, and it utilizes incentives such that employees and stockholders share the same risks. The compensation program is designed to link compensation to performance.
A portion of each employee's compensation relates to the grant of stock options, and such grants are based on the successful attainment of strategic corporate, commercial, and individual goals.
We do not have a pension plan or other capital accumulation program. Grants of stock options are therefore of great importance to executives as well as all employees. Any long-term value to be derived from such grants will be consistent with stockholder gains.
Executive and employee compensation includes salary, employment-related benefits, and long-term incentive compensation:
Salary. Salaries are set competitively relative to the biotechnology and pharmaceutical industries--industries with which we compete for our highly skilled personnel. Individual experience and performance is considered when setting salaries within the range for each position. Annual reviews are held and adjustments are made based on attainment of individual goals.
Benefits. All employees are eligible for similar benefits, such as health, disability, and life insurance.
Long-Term Incentive Compensation. An incentive compensation program is established annually. The purpose of this program is to provide financial incentives to executives and employees to achieve annual corporate, business unit, and individual goals. The incentive program also aligns executive and employee interests with those of stockholders by using grants of stock options. Such grants vest over time thereby encouraging continued employment with the Company. The size of grants is tied to comparative biotechnology industry practices. To determine such comparative data, the Company relies on outside compensation consultants and third party industry surveys.
Under our 1998 incentive program, it was agreed that each year, subject to the achievement of certain goals by the Company, we would grant at certain dates pursuant to approval of the compensation committee of the Board of Directors, options to purchase shares of common stock. A similar incentive program has been designed for 2000 based on attainment of corporate, business unit, and individual goals. The program is open to all regular full-time employees, other than the executive officers of the Company.
Chief Executive Officer Compensation. Pursuant to Mr. Jackson's contract with the Company entered into on January 1, 2000, Mr. Jackson received base salary of $372,500 for 2000. Mr. Jackson also received a bonus of $338,975 for 2000. Factors considered in determining Mr. Jackson's bonus included the successful attainment of several important milestones in the development of our products, as well as comparisons to total compensation packages of chief executive officers at corporations within our industry that are of comparable size.
Members of the Compensation Committee
Richard C. E. Morgan, Chairman
Frank T. Cary
Jack L. Bowman
Lee J. Schroeder
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Richard C. E. Morgan, Chairman, Frank T. Cary, Jack L. Bowman, and Lee J. Schroeder. Each is an outside director of the Company.
DIRECTOR COMPENSATION
Directors do not receive salaries for serving as directors nor do they receive any cash compensation for serving on committees; however, all members of the Board of Directors who are not employees of the Company ("Non-Employee Directors") receive $1,500 for each Board Meeting attended and are reimbursed for their expenses for each meeting attended and are eligible to receive stock options pursuant to the 1995 Non-Employee Directors' Plan (the "Directors' Option Plan").
The Directors' Option Plan was adopted by the Board of Directors on April 5, 1995, and approved by the Company's stockholders at the 1995 Annual Meeting of Stockholders. At the Annual Meeting of the Company held in 1997, the Director's Option Plan was amended to increase the number of shares of the Company's Common Stock that may be issued upon exercise of options granted thereunder from 750,000 shares to 1,050,000. At the Annual Meeting of the Company held in 1999, the Directors' Option Plan was amended to increase the number of shares of the Company's Common Stock that may be issued upon exercise of options granted thereunder from 1,050,000 shares to 1,800,000 shares. The Directors' Option Plan currently provides for the granting to Non-Employee Directors of non-qualified options to purchase an aggregate of not more than 1,800,000 shares (subject to adjustment in certain circumstances) of Common Stock.
Under the Directors' Option Plan, each Non-Employee Director as of April 5, 1995 was granted a non-qualified option to purchase 60,000 shares of Common Stock, and each new Non-Employee Director upon the date of his or her election or appointment will be granted a non-qualified option to purchase 20,000 shares of Common Stock. These initial options vest in four equal annual installments commencing on the first anniversary of the date of grant, assuming the Non-Employee Director remains a director.
Upon the date of each Annual Meeting of Stockholders, each Non-Employee Director is granted a non-qualified option to purchase 10,000 shares of Common Stock (or a pro rata portion thereof if the director did not serve the entire year since the date of the last annual meeting). These options vest in full on the date of the first Annual Meeting of Stockholders held following the date of the grant, assuming the Non-Employer Director is a director on that date.
All options granted pursuant to the Directors' Option Plan will expire no later than 10 years from the date of grant and no options may be granted after June 16, 2005. If a Non-Employee Director terminates his service on the Board of Directors for any reason, options which were exercisable on the date of termination and which have not expired may be exercised at any time until the date of expiration of such options. In addition, if there is a change of control and within two years thereafter a director is removed without cause (as defined) or is not nominated for election by the Company's stockholders, all unvested portions of a stock option will automatically vest.
In 2000, pursuant to the 1995 Directors' Option Plan, each of Messrs. Bowman, Cary, Hayes, Morgan, Robb, Schroeder and Dr. Kaplan received an option to purchase 15,000 shares of Common Stock at an exercise price of $59.6875 per share, the fair market value of the stock on the date of the grant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below sets forth the beneficial ownership of the Common Stock as of February 15, 2001 (i) by each director, (ii) by each of the named executive officers, (iii) by all directors and executive officers of Celgene as a group, and (iv) by all persons known by the Board of Directors to be beneficial owners of more than five percent of the outstanding shares of Common Stock.
AMOUNT AND
NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP CLASS
---------------------------------------------------------------- ------------------------------ -----------
John W. Jackson ................................................ 1,015,626 (1)(2) 1.4%
Sol J. Barer, Ph.D. ............................................ 630,171 (1)(2)(3) *
Robert J. Hugin ................................................ 163,831 (1)(2) *
Frank T. Cary .................................................. 323,340 (1)(4) *
Arthur Hull Hayes, Jr., M.D. ................................... 150,000 (1) *
Richard C.E. Morgan. ........................................... 267,270 (1)(5) *
Walter L. Robb, Ph.D. .......................................... 281,000 (1)(6) *
Lee J. Schroeder ............................................... 162,000 (1)(7) *
Gilla Kaplan ................................................... 30,000 (1) *
Jack L. Bowman ................................................. 58,100 (1) *
All directors and current executive officers of the Company as a
group (ten persons) ........................................... 3,081,338 (8) 4.0%
FMR Corp. ("FMR") .............................................. 10,904,170 (9) 14.1%
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(1) Includes shares of Common Stock which the directors and executive officers
have the right to acquire through the exercise of options within 60 days
of February 15, 2001, as follows: John W. Jackson -- 643,868; Sol J. Barer
-- 528,477; Robert J. Hugin -- 144,300; Frank T. Cary -- 30,000; Arthur
Hull Hayes, Jr. -- 150,000; Richard C.E. Morgan -- 0; Walter L. Robb --
198,000; Lee J. Schroeder -- 0; Gilla Kaplan -- 30,000; Jack Bowman
--55,100. Does not include shares of Common Stock which the directors and
executive officers have the right to acquire through the exercise of
options not exercisable within 60 days of February 15, 2001, as follows:
John W. Jackson -- 570,002; Sol J. Barer -- 225,000; Robert J. Hugin --
385,000; Frank T. Cary -- 15,000; Arthur Hull Hayes, Jr. -- 15,000;
Richard C.E. Morgan -- 15,000; Walter L. Robb -- 15,000; Lee J. Schroeder
-- 15,000; Gilla Kaplan -- 60,999; and Jack L. Bowman -- 45,000.
(2) Includes shares of Common Stock reflecting matching contributions under the
Company's 401(k) Plan in which the executive officers will vest within 60
days of February 15, 2001.
(3) Includes with respect to Dr. Barer, 45 shares owned by the daughter of Dr.
Barer, as to which shares Dr. Barer disclaims beneficial ownership.
(4) Includes with respect to Mr. Cary, 75,000 shares owned by a trust in which
Mr. Cary is one of the trustees and holds a pecuniary interest.
(5) Includes with respect to Mr. Morgan, 270 shares owned by the son of Mr.
Morgan, as to which shares Mr. Morgan disclaims beneficial ownership. In
addition, Mr. Morgan has entered into two "zero cost collars", one
involving 60,000 shares of Common Stock and one involving 102,000 shares
of Common Stock.
(6) Includes with respect to Mr. Robb, 30,000 shares owned by a trust in which
Mr. Robb is a trustee.
(7) Includes with respect to Mr. Schroeder, 16,500 shares owned by the spouse
of Mr. Schroeder, as to which shares Mr. Schroeder disclaims beneficial
ownership.
(8) Includes or excludes, as the case may be, shares of Common Stock as
indicated in the preceding footnotes.
(9) Information regarding FMR was obtained from a questionnaire and from a
Schedule 13G, filed by FMR with the Securities and Exchange Commission.
Such Schedule 13G states that, through two wholly owned subsidiaries
(Fidelity Management & Research Company and Fidelity Management Trust
Company) and a former indirect subsidiary (Fidelity International Limited)
FMR beneficially owns 10,904,170 shares of Common Stock, and has sole
dispositive power over all 10,904,170 shares and sole voting power over
284,340 of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND REPORTS ON FORM
8-K.
(a)(1),(1)(2) See Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule immediately following Exhibit Index.
(b) None
(c) Exhibits
The following exhibits are filed with this report:
EXHIBIT
NO. EXHIBIT DESCRIPTION
-------- ----------------------------------------------------------------------------------------------
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 the Company's Current Report on Form
8-K, dated September 16, 1996).
10.1 Lease Agreement, dated January 16, 1987, between the Company and Powder Horn Associates
(incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form
S-1, dated July 24, 1987).
10.2 1992 Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company's Proxy
Statement, dated May 30, 1997).
10.3 1995 Non-Employee Directors' Incentive Plan (incorporated by reference to Exhibit A to the
Company's Proxy Statement, dated May 24, 1999).
10.4 Rights Agreement, dated as of September 16, 1996, between Celgene Corporation and American
Stock Transfer & Trust Company (incorporated by reference to the Company's Registration
Statement on Form 8A, filed on September 16, 1996).
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 January 1, 2000 between the Company and John W. Jackson
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.7 Employment Agreement dated as of January 1, 2000 between the Company and Sol J. Barer
(incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.8 Manufacturing Agreement between Penn Pharmaceuticals Limited and the Company
(incorporated by reference to the Company's Registration Statement on Form S-3 dated
November 25, 1997 (No. 333-38891)).
10.9 Celgene Corporation Replacement Stock Option Plan (incorporated by reference to Exhibit 99.1
of 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 of the Company's
Registration Statement on Form S-3 dated May 18, 1998 (No. 333-52963)).
10.11 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company's Proxy
Statement, dated May 18, 1998).
10.12 Stock Purchase Agreement dated June 23, 1998 between the Company and Biovail Laboratories
Incorporated (incorporated by reference in the Company's Current Report on Form 8-K filed on
July 17, 1998.)
|
EXHIBIT
NO. EXHIBIT DESCRIPTION
---------- -----------------------------------------------------------------------------------------------
10.13 Agreement dated December 9, 1998 between the Company and EntreMed, Inc. (certain portions
of the agreement have been omitted and filed separately with the United States Securities and
Exchange Commission pursuant to a request for confidential treatment) (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.14 Employment Agreement dated as of January 1, 2000 between the Company and Robert J. Hugin
(incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.15 Note Purchase Agreement dated January 20, 1999 between the Company and the Purchasers
named on Schedule I to the agreement in connection with the purchase of $15,000,000 principal
amount of the Company's 9.00% Senior Convertible Note Due January 20, 2004 (incorporated
by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.16 Form of 9.00% Senior Convertible Note Due January 20, 2004 (incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31,
1999).
10.17 Registration Rights Agreement dated as of January 20, 1999 between the Company and the
Purchasers in connection with the issuance of the Company's 9.00% Senior Convertible Note
Due January 20, 2004 (incorporated by reference to Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999).
10.18 Note Purchase Agreement dated July 6, 1999 between the Company and the Purchasers named
in Schedule I to the agreement in connection with the purchase of $15,000,000 principal amount
of the Company's 9.00% Senior Convertible Note Due June 30, 2004 (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.19 Form of 9.00% Senior Convertible Note Due June 30, 2004 (incorporated by reference to Exhibit
10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.20 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).
10.21 Development and License Agreement between the Company and Novartis Pharma AG, dated
April 19, 2000.
10.22 Collaborative Research and License Agreement between the Company and Novartis Pharma
AG, dated December 20, 2000.
23.1 Consent of KPMG LLP
23.2 Consent of Ernst & Young LLP, Former Independent Auditors of Signal Pharmaceuticals, Inc.
24.1 Power of Attorney (included in Signature Page).
|
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 20, 2001
|
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 March 20, 2001
--------------------------- Chief Executive Officer
John W. Jackson
/s/ Sol J. Barer Director, President and Chief March 20, 2001
--------------------------- Operating Officer
Sol J. Barer
/s/ Robert J. Hugin Chief Financial Officer and Senior March 20, 2001
--------------------------- Vice President
Robert J. Hugin
/s/ Jack L. Bowman Director March 20, 2001
---------------------------
Jack L. Bowman
/s/ Frank T. Cary Director March 20, 2001
---------------------------
Frank T. Cary
/s/ Arthur Hull Hayes, Jr. Director March 20, 2001
---------------------------
Arthur Hull Hayes, Jr.
|
SIGNATURE TITLE DATE
------------------------------ --------------------------------------- ---------------
/s/ Gilla Kaplan Director March 20, 2001
---------------------------
Gilla Kaplan
/s/ Richard C.E. Morgan Director March 20, 2001
---------------------------
Richard C.E. Morgan
/s/ Walter L. Robb Director March 20, 2001
---------------------------
Walter L. Robb
/s/ Lee J. Schroeder Director March 20, 2001
---------------------------
Lee J. Schroeder
/s/ James R. Swenson Controller (Chief Accounting Officer) March 20, 2001
---------------------------
James R. Swenson
|
The foregoing constitutes a majority of the directors.
CELGENE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
Consolidated Financial Statements
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............................ F-4
Consolidated Statements of Operations - Years Ended December 31, 2000, 1999 and 1998 .... F-5
Consolidated Statements of Stockholders' Equity (Deficit) - Years Ended December 31,
2000,
1999 and 1998 ......................................................................... F-6
Consolidated Statements of Cash Flows - Years Ended December 31, 2000, 1999 and 1998 .... F-9
Notes to Consolidated Financial Statements .............................................. F-11
Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts ......................................... F-30
|
INDEPENDENT AUDITORS' REPORT
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 in 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.
The consolidated financial statements of Celgene Corporation and subsidiaries as of December 31, 1999 and for the years ended December 31, 1999 and 1998, have been restated to reflect the pooling-of-interests transaction with Signal Pharmaceuticals, Inc. as described in note 1 to the consolidated financial statements. We did not audit the 1999 and 1998 financial statements of Signal Pharmaceuticals, Inc., which statements reflect total assets constituting 31% in 1999 and total revenues constituting 31% and 80%, in 1999 and 1998, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Signal Pharmaceuticals, Inc. as of December 31, 1999 and for the years ended December 31, 1999 and 1998, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Celgene Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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.
/s/ KPMG LLP
Short Hills, New Jersey
February 1, 2001
|
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Signal Pharmaceuticals, Inc.
We have audited the balance sheets of Signal Pharmaceuticals, Inc. as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the 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 financial statements referred to above present fairly, in all material respects, the financial position of Signal Pharmaceuticals, Inc. at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 1999, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
February 4, 2000
|
CELGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------------
2000 1999*
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 161,393,835 $ 21,869,256
Marketable securities available for sale ................................... 144,767,777 7,077,314
Accounts receivable, net of allowance of $382,577 and $121,437 at
December 31, 2000 and 1999, respectively .................................. 9,846,000 5,037,431
Inventory .................................................................. 4,266,257 2,456,059
Other current assets ....................................................... 11,747,727 1,322,996
-------------- --------------
Total current assets .................................................... 332,021,596 37,763,056
Plant and equipment, net ................................................... 8,395,902 5,741,389
Other assets ............................................................... 6,308,417 3,368,090
-------------- --------------
Total assets ............................................................ $ 346,725,915 $ 46,872,535
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................................... $ 10,868,473 $ 3,254,823
Accrued expenses ........................................................... 9,511,507 7,284,343
Current portion of capital leases and note obligation ...................... 929,258 1,307,467
Current portion of deferred revenue ........................................ 12,473,574 3,449,790
-------------- --------------
Total current liabilities ............................................... 33,782,812 15,296,423
Long term convertible notes ................................................ 11,713,600 38,494,795
Capitalized leases and note obligation, net of current portion ............. 632,946 1,828,221
Deferred revenue, net of current portion ................................... 4,866,000 650,002
Other non-current liabilities .............................................. 197,685 329,918
-------------- --------------
Total liabilities ....................................................... 51,193,043 56,599,359
-------------- --------------
Stockholders' equity (deficit):
Preferred stock, $.01 par value per share 5,000,000 authorized; none
outstanding at December 31, 2000 and 1999 ................................. -- --
Signal convertible preferred stock, 24,742,639 shares authorized; issued
and outstanding none and 24,492,639 shares at December 31, 2000 and
1999, respectively. ....................................................... -- 41,330,800
Common stock, $.01 par value per share 120,000,000 shares authorized;
issued and outstanding 73,999,889 and 17,858,476 shares at
December 31, 2000 and 1999, respectively. ................................. 739,999 178,584
Additional paid-in capital .................................................... 519,290,323 154,393,662
Accumulated deficit ........................................................... (220,454,722) (204,170,352)
Deferred compensation ......................................................... (4,890,607) (1,272,014)
Notes receivable from stockholders ............................................ (62,000) (95,600)
Accumulated other comprehensive income (loss) ................................. 909,879 (91,904)
-------------- --------------
Total stockholders' equity (deficit) .................................... 295,532,872 (9,726,824)
-------------- --------------
Total liabilities and stockholders' equity (deficit) .................... $ 346,725,915 $ 46,872,535
============== ==============
|
* Restated-see note 1 See accompanying notes to consolidated financial statements.
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999* 1998*
----------------- ----------------- ----------------
Revenue:
Product sales ............................... $ 62,017,411 $ 24,052,124 $ 3,265,490
Research contracts .......................... 15,882,112 9,380,825 12,949,242
Related-party collaborative agreement
revenue ................................... 6,349,996 4,525,000 3,000,000
------------- ------------- -------------
Total revenue ............................ 84,249,519 37,957,949 19,214,732
------------- ------------- -------------
Expenses:
Cost of goods sold .......................... 9,328,275 2,982,713 282,307
Research and development .................... 52,711,609 36,393,756 35,344,580
Selling, general and administrative ......... 49,850,550 29,246,777 21,016,748
Merger-related costs ........................ 6,668,110 --
------------- -------------
Total expenses ........................... 118,558,544 68,623,246 56,643,635
------------- ------------- -------------
Operating loss ............................... (34,309,025) (30,665,297) (37,428,903)
Other income and expense:
Interest income ............................. 17,576,856 1,301,803 1,758,069
Interest expense ............................ 2,080,981 3,291,364 708,441
------------- ------------- -------------
Loss before tax benefit ...................... (18,813,150) (32,654,858) (36,379,275)
Tax benefit .................................. 1,809,677 3,017,910 --
------------- ------------- -------------
Loss from continuing operations .............. (17,003,473) (29,636,948) (36,379,275)
Discontinued operations:
Loss from operations ........................ -- -- (59,837)
Gain on sale of chiral assets ............... 719,103 -- 7,014,830
------------- ------------- -------------
Net loss ..................................... (16,284,370) (29,636,948) (29,424,282)
Accretion of premium payable on
preferred stock and warrants ................ -- -- 24,648
Deemed dividend for preferred stock
conversion discount ......................... -- 818,487 --
------------- ------------- -------------
Net loss applicable to common
stockholders ................................ $ (16,284,370) $ (30,455,435) $ (29,448,930)
============= ============= =============
Per share of common stock - basic and
diluted:
Loss from continuing operations ............. $ (0.25) $ (0.59) $ (0.75)
Discontinued operations:
Loss from operations ...................... -- -- (0.00)
Gain on sale of chiral assets ............. 0.01 -- 0.14
------------- ------------- -------------
Net loss applicable to common
stockholders .............................. $ (0.24) $ (0.59) $ (0.60)
============= ============= =============
Weighted average number of shares of
common stock outstanding .................... 66,598,000 51,449,000 48,811,000
============= ============= =============
|
* Restated-see note 1
See accompanying notes to consolidated financial statements.
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2000, 1999* AND 1998*
SIGNAL CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------------ --------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- --------------- ------------ -------------- ------------ ------------
Balances at January 1, 1998 ............. 74 $ 4,029,455 24,203,931 $39,519,431 15,539,270 $ 155,392
Exercise of stock options and
warrants ............................... 426,982 4,270
Issuance of common stock for
technology ............................. 11,103 111
Deferred compensation ...................
Amortization of deferred
compensation ...........................
Costs related to secondary offering .....
Conversion of preferred stock ........... (74) (4,054,103) 575,669 5,757
Accretion of premium on preferred
stock .................................. 24,648
Issuance of common stock for
employee benefit plans ................. 8,317 83
Sale of common stock .................... 199,688 1,997
Comprehensive loss:
Net loss ...............................
Net change in unrealized gain
(loss) on available for sale
securities .............................
Total comprehensive loss ...............
Balances at December 31, 1998 .......... -- $ -- 24,203,931 $39,519,431 16,761,029 $ 167,610
=== ============= ========== =========== ========== =========
TREASURY STOCK ADDITIONAL
-------------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
------------ ------------- --------------- ------------------ --------------
Balances at January 1, 1998 ............. (22,888) $ (76,535) $131,690,219 $ (144,265,987) $ (511,510)
Exercise of stock options and
warrants ............................... 3,136,394
Issuance of common stock for
technology ............................. 726,889
Deferred compensation ................... 1,019,170 (1,019,170)
Amortization of deferred
compensation ........................... 607,788
Costs related to secondary offering ..... (73,136)
Conversion of preferred stock ........... 4,048,346
Accretion of premium on preferred
stock .................................. (24,648)
Issuance of common stock for
employee benefit plans ................. 22,888 76,535 387,070
Sale of common stock .................... 2,498,003
Comprehensive loss:
Net loss ............................... (29,424,282)
Net change in unrealized gain
(loss) on available for sale
securities .............................
Total comprehensive loss ...............
Balances at December 31, 1998 .......... -- $ -- $143,432,955 $ (173,714,917) $ (922,892)
======= ========= ============ ============== ============
|
ACCUMULATED
NOTES OTHER
RECEIVABLE COMPREHENSIVE
FROM INCOME
STOCKHOLDERS (LOSS) TOTAL
-------------- -------------- ---------------
Balances at January 1, 1998 ............. $ -- $ 48,341 $ 30,588,806
Exercise of stock options and
warrants ............................... (95,600) 3,045,064
Issuance of common stock for
technology ............................. 727,000
Deferred compensation ................... --
Amortization of deferred
compensation ........................... 607,788
Costs related to secondary offering ..... (73,136)
Conversion of preferred stock ........... --
Accretion of premium on preferred
stock .................................. --
Issuance of common stock for
employee benefit plans ................. 463,688
Sale of common stock .................... 2,500,000
Comprehensive loss:
Net loss ............................... (29,424,282)
Net change in unrealized gain
(loss) on available for sale
securities ............................. (42,115) (42,115)
-------------
Total comprehensive loss ............... (29,466,397)
-------------
Balances at December 31, 1998 .......... $ (95,600) $ 6,226 $ 8,392,813
========== ========= =============
|
* Restated-see note 1
See accompanying notes to consolidated financial statements.
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2000, 1999* AND 1998* -- (CONTINUED)
SIGNAL CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
----------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- ------------ --------------
Balances at January 1, 1999 .............................. -- $ -- 24,203,931 $39,519,431
Exercise of stock options and warrants ...................
Issuance of Series F-1 preferred stock ................... 288,708 992,882
Imputed dividend on Series F-1 preferred stock ........... 818,487
Issuance of common stock and options for services ........
Deferred compensation ....................................
Amortization of deferred compensation ....................
Expense related to non-employee stock options ............
Issuance of common stock for employee benefit plans.
Issuance of options related to license agreement .........
Comprehensive loss:
Net loss ................................................
Net change in unrealized gain (loss) on available for
sale securities .........................................
Total comprehensive loss ................................
Balances at December 31, 1999 ........................... -- $ -- 24,492,639 $41,330,800
== ==== ========== ===========
COMMON STOCK TREASURY STOCK ADDITIONAL
------------------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ -------- -------- ----------------
Balances at January 1, 1999 .............................. 16,761,029 $ 167,610 -- $ -- $ 143,432,955
Exercise of stock options and warrants ................... 1,015,471 10,154 8,415,647
Issuance of Series F-1 preferred stock ...................
Imputed dividend on Series F-1 preferred stock ...........
Issuance of common stock and options for services ........ 60 1 4,271
Deferred compensation .................................... 1,024,244
Amortization of deferred compensation ....................
Expense related to non-employee stock options ............ 20,646
Issuance of common stock for employee benefit plans. 81,916 819 799,004
Issuance of options related to license agreement ......... 696,895
Comprehensive loss:
Net loss ................................................
Net change in unrealized gain (loss) on available for
sale securities .........................................
Total comprehensive loss ................................
Balances at December 31, 1999 ........................... 17,858,476 $ 178,584 -- $ -- $ 154,393,662
========== ========= == ==== =============
|
ACCUMULATED
NOTES OTHER
RECEIVABLE COMPREHENSIVE
ACCUMULATED DEFERRED FROM INCOME
DEFICIT COMPENSATION STOCKHOLDERS (LOSS)
------------------ ----------------- -------------- --------------
Balances at January 1, 1999 .............................. $ (173,714,917) $ (922,892) $ (95,600) $ 6,226
Exercise of stock options and warrants ...................
Issuance of Series F-1 preferred stock ...................
Imputed dividend on Series F-1 preferred stock ........... (818,487)
Issuance of common stock and options for services ........
Deferred compensation .................................... (1,024,244)
Amortization of deferred compensation .................... 675,122
Expense related to non-employee stock options ............
Issuance of common stock for employee benefit plans.
Issuance of options related to license agreement .........
Comprehensive loss:
Net loss ................................................ (29,636,948)
Net change in unrealized gain (loss) on available for
sale securities ......................................... (98,130)
Total comprehensive loss ................................
Balances at December 31, 1999 ........................... $ (204,170,352) $ (1,272,014) $ (95,600) $ (91,904)
============== ============= ========== ==========
TOTAL
----------------
Balances at January 1, 1999 .............................. $ 8,392,813
Exercise of stock options and warrants ................... 8,425,801
Issuance of Series F-1 preferred stock ................... 992,882
Imputed dividend on Series F-1 preferred stock ........... --
Issuance of common stock and options for services ........ 4,272
Deferred compensation .................................... --
Amortization of deferred compensation .................... 675,122
Expense related to non-employee stock options ............ 20,646
Issuance of common stock for employee benefit plans. 799,823
Issuance of options related to license agreement ......... 696,895
Comprehensive loss:
Net loss ................................................ (29,636,948)
Net change in unrealized gain (loss) on available for
sale securities ......................................... (98,130)
-------------
Total comprehensive loss ................................ (29,735,078)
-------------
Balances at December 31, 1999 ........................... $ (9,726,824)
=============
|
* Restated-see note 1
See accompanying notes to consolidated financial statements.
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2000, 1999* AND 1998* -- (CONTINUED)
SIGNAL CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
----------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- ---------------- ----------------
Balances at January 1, 2000 .............................. -- $ -- 24,492,639 $ 41,330,800
Exercise of stock options and warrants ...................
Issuance of common stock for employee benefit plans .
Issuance of common stock in follow-on offering ...........
Costs related to follow-on offering ......................
Conversion of long term convertible notes ................
Shares issued for stock split ............................
Conversion of Signal preferred stock ..................... (24,492,639) (41,330,800)
Deferred compensation ....................................
Amortization of deferred compensation ....................
Expense related to non-employee stock options ............
Collection of notes receivable from stockholders .........
Issuance of Signal preferred stock warrants for
promissory note .........................................
Comprehensive loss:
Net loss ................................................
Net change in unrealized gain (loss) on -- available
for sale securities .....................................
Total comprehensive loss ................................
Balances at December 31, 2000 ........................... -- $ -- -- $ --
== ==== =========== ==============
COMMON STOCK TREASURY STOCK ADDITIONAL
------------------------ ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ----------- -------- -------- ---------------
Balances at January 1, 2000 .............................. 17,858,476 $178,584 -- $ -- $154,393,662
Exercise of stock options and warrants ................... 2,424,930 24,250 10,433,512
Issuance of common stock for employee benefit plans . 40,394 404 1,047,351
Issuance of common stock in follow-on offering ........... 2,934,000 29,340 278,524,620
Costs related to follow-on offering ...................... (885,160)
Conversion of long term convertible notes ................ 4,358,260 43,583 26,780,983
Shares issued for stock split ............................ 43,305,104 433,051 (433,051)
Conversion of Signal preferred stock ..................... 3,078,725 30,787 41,301,823
Deferred compensation .................................... 6,706,274
Amortization of deferred compensation ....................
Expense related to non-employee stock options ............ 970,309
Collection of notes receivable from stockholders .........
Issuance of Signal preferred stock warrants for
promissory note ......................................... 450,000
Comprehensive loss:
Net loss ................................................
Net change in unrealized gain (loss) on -- available
for sale securities .....................................
Total comprehensive loss ................................
Balances at December 31, 2000 ........................... 73,999,889 $739,999 -- $ -- $519,290,323
========== ======== == ==== ============
|
ACCUMULATED
NOTES OTHER
RECEIVABLE COMPREHENSIVE
ACCUMULATED DEFERRED FROM INCOME
DEFICIT COMPENSATION STOCKHOLDERS (LOSS)
------------------ ----------------- -------------- --------------
Balances at January 1, 2000 .............................. $ (204,170,352) $ (1,272,014) $ (95,600) $ (91,904)
Exercise of stock options and warrants ...................
Issuance of common stock for employee benefit plans .
Issuance of common stock in follow-on offering ...........
Costs related to follow-on offering ......................
Conversion of long term convertible notes ................
Shares issued for stock split ............................
Conversion of Signal preferred stock .....................
Deferred compensation .................................... (6,706,274)
Amortization of deferred compensation .................... 3,087,681
Expense related to non-employee stock options ............
Collection of notes receivable from stockholders ......... 33,600
Issuance of Signal preferred stock warrants for
promissory note .........................................
Comprehensive loss:
Net loss ................................................ (16,284,370)
Net change in unrealized gain (loss) on -- available
for sale securities ..................................... 1,001,783
Total comprehensive loss ................................
Balances at December 31, 2000 ........................... $ (220,454,722) $ (4,890,607) $ (62,000) $ 909,879
============== ============= ========== ==========
TOTAL
-----------------
Balances at January 1, 2000 .............................. $ (9,726,824)
Exercise of stock options and warrants ................... 10,457,762
Issuance of common stock for employee benefit plans . 1,047,755
Issuance of common stock in follow-on offering ........... 278,553,960
Costs related to follow-on offering ...................... (885,160)
Conversion of long term convertible notes ................ 26,824,566
Shares issued for stock split ............................ --
Conversion of Signal preferred stock ..................... 1,810
Deferred compensation .................................... --
Amortization of deferred compensation .................... 3,087,681
Expense related to non-employee stock options ............ 970,309
Collection of notes receivable from stockholders ......... 33,600
Issuance of Signal preferred stock warrants for
promissory note ......................................... 450,000
Comprehensive loss: --
Net loss ................................................ (16,284,370)
Net change in unrealized gain (loss) on -- available
for sale securities ..................................... 1,001,783
-------------
Total comprehensive loss ................................ (15,282,587)
-------------
Balances at December 31, 2000 ........................... $ 295,532,872
=============
|
*Restated-see note 1
See accompanying notes to consolidated financial statements.
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2000 1999* 1998*
----------------- ----------------- -----------------
Cash flows from operating activities:
Loss from continuing operations ............................... $ (17,003,473) $ (29,636,948) $ (36,379,275)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities:
Depreciation and amortization of long-term assets ............ 3,722,467 3,038,222 2,394,197
Provision for accounts receivable allowances ................. 130,000 58,051 43,386
Non-cash stock-based compensation ............................ 4,057,990 700,040 614,788
Amortization of debt issuance and warrant costs .............. 700,000 250,000 --
Amortization of discount on note obligations ................. 274,848 192,978 47,142
Shares issued for employee benefit plans ..................... 1,047,755 799,823 463,688
Change in current assets and liabilities:
Increase in accounts receivable .............................. (4,938,569) (2,285,845) (1,332,190)
Increase in inventory ........................................ (1,810,198) (884,651) (1,571,408)
Increase in other operating assets ........................... (10,649,979) (393,863) (291,164)
Increase in accounts payable and accrued expenses ............ 9,793,831 2,469,216 4,614,073
Increase(decrease) in deferred revenue ....................... 13,239,782 2,068,693 (2,334,111)
-------------- ------------- -------------
Net cash used in continuing operations ........................ (1,435,546) (23,624,284) (33,730,874)
Net cash used in discontinued operations ...................... -- -- (59,837)
-------------- ------------- -------------
Net cash used in operating activities ......................... (1,435,546) (23,624,284) (33,790,711)
-------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures .......................................... (9,637,333) (1,875,072) (2,188,910)
Proceeds from sales and maturities of marketable
securities available for sale ................................ 139,575,925 17,781,948 29,776,137
Purchases of marketable securities available for sale ......... (276,264,605) (16,444,276) (26,201,862)
Proceeds from sale of chiral intermediate assets .............. 719,103 -- 7,500,000
Purchase of license rights .................................... -- (450,000) (280,000)
-------------- ------------- -------------
Net cash provided by (used in) investing activities ........... (145,606,910) (987,400) 8,605,365
-------------- ------------- -------------
Cash flows from financing activities:
Net proceeds from follow-on public offering ................... 277,668,800 -- (73,136)
Proceeds from sale of stock ................................... -- -- 2,500,000
Proceeds from notes receivable from stockholders .............. 33,600 -- --
Proceeds from exercise of common stock options and
warrants ..................................................... 10,457,762 8,425,801 3,045,064
Net proceeds from issuance of preferred stock ................. -- 992,882 --
Repayment of capital lease and note obligations ............... (1,593,127) (1,751,059) (1,652,334)
Capital lease funding ......................................... -- -- 260,195
Debt issuance costs ........................................... -- (750,000) --
Net proceeds from issuance of convertible notes ............... -- 30,000,000 8,348,959
-------------- ------------- -------------
Net cash provided by financing activities ..................... 286,567,035 36,917,624 12,428,748
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .......... 139,524,579 12,305,940 (12,756,598)
Cash and cash equivalents at beginning of year ................ 21,869,256 9,563,316 22,319,914
-------------- ------------- -------------
Cash and cash equivalents at end of year ...................... $ 161,393,835 $ 21,869,256 $ 9,563,316
============== ============= =============
|
* Restated-see note 1
See accompanying notes to consolidated financial statements.
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED )
YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999* 1998*
-------------- -------------- --------------
Supplemental schedule of non-cash investing and
financing activity:
Change in net unrealized gain (loss) on marketable
securities available for sale ............................... $ 1,001,783 $ (98,130) $ (42,115)
=========== =========== ==========
Issuance of options related to license agreement ............. $ -- $ 696,895 $ 720,000
=========== =========== ==========
Capital lease obligations entered into for equipment ......... $ -- $ 526,128 $2,343,033
=========== =========== ==========
Issuance of common stock for promissory notes from
stockholders ................................................ $ -- $ -- $ 95,600
=========== =========== ==========
Issuance of common stock upon the conversion of
convertible notes and accrued interest thereon, net ......... $26,737,824 $ -- $ --
=========== =========== ==========
Accretion of premium payable on preferred stock and
warrants .................................................... $ -- $ -- $ 24,648
=========== =========== ==========
Deemed dividend for preferred stock conversion discount $ -- $ 818,487 $ --
=========== =========== ==========
Issuance of common stock upon the conversion of
convertible preferred stock and Signal preferred stock . $41,330,800 $ -- $4,054,103
=========== =========== ==========
Deferred compensation relating to stock options .............. $ 6,706,274 $ 1,024,244 $1,019,170
=========== =========== ==========
Supplemental disclosure of cash flow information:
Interest paid ................................................ $ 3,114,144 $ 1,957,325 $ 415,228
=========== =========== ==========
Cash received related to tax benefit ......................... $ 1,089,677 $ 3,017,910 $ --
=========== =========== ==========
|
* Restated-see note 1
See accompanying notes to consolidated financial statements.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998
(1) NATURE OF BUSINESS AND BASIS OF PRESENTATION
Celgene Corporation and its subsidiaries (collectively "Celgene" or the "Company") is an independent biopharmaceutical company engaged in the discovery, development and commercialization of novel human pharmaceuticals for the treatment of cancer and immunological diseases. The Company's primary therapeutic focus is on the development of orally administered, small molecule pharmaceuticals that regulate tumor necrosis factor alpha, or TNF-(alpha), and are anti-angiogenic. TNF-(alpha) has been linked to the cause and symptoms of many chronic inflammatory and immunological diseases. Anti-angiogenic drugs inhibit the growth of undesirable blood vessels, including those that promote tumor growth. The Company's lead product, THALOMID(TM) (thalidomide), was approved for sale in the United States by the U.S. Food and Drug Administration, ("FDA"), on July 16, 1998. THALOMID is approved for the treatment of erythema nodosum leprosum, ("ENL"), an inflammatory complication of leprosy. The Company's cancer and immunology pharmaceutical pipeline is highlighted by two classes of novel and proprietary oral therapeutic agents, IMiDs, or ImmunoModulatory Drugs, and SelCIDs, or Selective Cytokine Inhibitory Drugs. Both classes are being developed for the treatment of cancer, chronic inflammatory diseases, such as inflammatory bowel disease and rheumatoid arthritis, and other diseases of the immune system.
On August 31, 2000, the Company completed its merger with Signal Pharmaceuticals, Inc. ("Signal"), a privately held San Diego-based biopharmaceutical company focused on the discovery and development of drugs that regulate genes associated with disease. The Company issued 3,710,144 shares of its common stock for all the outstanding common shares of Signal at an exchange ratio of .1257 of a share of Celgene common stock for each share of Signal common stock. Immediately prior to the consummation of the merger, all Signal preferred shares were converted into Signal common shares on a one-for-one basis. In addition, Celgene issued 380,607 options for all the Signal options outstanding at the closing date.
The merger was accounted for as a pooling-of-interests. All prior period consolidated financial statements of Celgene have been restated to include the results of operations, financial position and cash flows of Signal.
The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. All inter-company transactions have been eliminated. 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. THALOMID is the Company's only FDA approved product for sale. Currently, the Company obtains all of its bulk drug substance for THALOMID from a single supplier and relies on a single manufacturer to formulate and encapsulate THALOMID.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH EQUIVALENTS
At December 31, 2000 and 1999, cash equivalents consisted principally of highly liquid funds invested in commercial paper, money market funds, and United States government securities such as treasury bills and notes. These instruments are stated at cost, which approximates market because of the short maturity of these investments.
(B) MARKETABLE SECURITIES
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
All of the Company's marketable securities are 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 the 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.
(C) 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 securities and marketable debt securities of financial institutions and corporations with strong credit ratings. The Company also 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. Pursuant to Company practice, the Company has historically held the investments to maturity. However, 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.
(D) INVENTORY
Inventories are carried at the lower of cost or market using the first-in, first-out (FIFO) method.
(E) LONG-LIVED ASSETS
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:
Laboratory equipment and machinery ......... 5 years Furniture and fixtures ..................... 5 years Computer equipment ......................... 3 years |
Amortization of leasehold improvements is calculated using the straight-line method over the remaining term of the lease or the life of the asset, whichever is shorter. Maintenance and repairs are charged to operations as incurred, while renewals and improvements are capitalized.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company reviews long-lived assets for impairment whenever events or changes in business circumstances occur that indicate the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of long-lived assets held and to be used based on undiscounted cash flows and measures the impairment, if any, using discounted cash flows.
(F) OTHER ASSETS
Other assets include capitalized costs associated with a new customer service system, certain patent rights and licensed technology. Costs associated with the customer service system, which was primarily developed and implemented during 2000, were capitalized in accordance with Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed and Obtained for Internal Use, and is amortized over its estimated useful life of three years from the date the system was ready for its intended use. At December 31, 2000, computer software costs totaled approximately $4.4 million which is net of $0.5 million in accumulated amortization. The cost of patent rights is amortized using the straight-line method over the life of the patents. The weighted average remaining patent life at December 31, 2000 is
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
11 years. Licensed technology is stated at cost and depreciated over the estimated useful life of three years using the straight-line method. At December 31, 2000 and 1999, patent rights and licensed technology totaled $1.3 million and $1.7 million, respectively, which is net of $1.2 million and $0.4 million in accumulated amortization, respectively.
(G) RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred.
(H) 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.
Research and development tax credits will be recognized as a reduction of the provision for income taxes when realized.
(I) REVENUE RECOGNITION
Revenue from the sale of products is recognized upon product shipment. Revenue under research contracts is recorded as earned under the contracts, generally as services are provided. In accordance with SEC Staff Accounting Bulletin No. 101, up-front nonrefundable fees associated with license and development agreements where the Company has continuing involvement in the agreement, 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 up-front fee is recognized is modified accordingly on a prospective basis. Revenues from the achievement of research and development milestones are recognized when and if the milestones are 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.
Axys Pharmaceutical ("Axys") is a related party, as the previous Chief Executive Officer of Axys served on the Signal Board of Directors at the time Signal and Axys entered into a collaboration agreement prior to the merger with Celgene. Accordingly, related party revenues of $2.5 million and $625,000 were recorded in 2000 and 1999, respectively.
Serono S.A. ("Serono") is a related party, based on its ownership interest in Signal at the time Signal and Serono entered into a collaboration agreement. Therefore, revenues from Serono of $3.8 million, $3.9 million and $3.0 million were recognized in 2000, 1999, and 1998, respectively, as related party revenue.
As a result of the merger, revenues from these companies will cease being classified as related party upon the expiration of the initial term of the respective agreements.
(J) STOCK OPTION PLANS
The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its fixed plan stock options. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 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.
When 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 records deferred compensation for the difference and amortizes this amount to expense over the vesting period of the options. Options or stock awards issued to non-employees and consultants are recorded at their fair value as determined in accordance with SFAS No. 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 recognized over the related vesting period.
(K) EARNINGS PER SHARE
"Basic" earnings (loss) per common share equals net income (loss) applicable to common stockholders divided by weighted average common shares outstanding during the period. "Diluted" earnings per common share would equal net income applicable to common stockholders divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents if dilutive. The Company's basic and diluted per share amounts are the same since the assumed exercise of stock options, and warrants, and the conversion of convertible debentures and preferred stock are all anti-dilutive. The amount of common stock equivalents excluded from the calculation were 11,034,130 in 2000, 19,373,823 in 1999 and 15,074,727 in 1998.
(L) COMPREHENSIVE INCOME
Comprehensive income (loss) consists of net losses and the change in net unrealized gains (losses) on securities classified as available for sale and is presented in the consolidated statements of stockholders' equity (deficit).
(M) PRESENTATION
In connection with the disposition of the Company's chiral intermediate operation in January 1998 (see Note 15), the financial results applicable to continuing operations exclude amounts from this discontinued operation.
(N) FINANCIAL INSTRUMENTS AND DERIVATIVES
The fair value, which equals carrying value, of marketable securities available for sale is based on quoted market prices. For all other financial instruments, excluding convertible notes (see Note 8), their carrying value approximates fair value due to the short maturity of these instruments.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities was issued and, as amended, is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 standardizes the accounting for derivative instruments including certain derivative instruments embedded in other contracts and requires derivative instruments to be recognized as assets and liabilities and recorded at fair value. The Company currently is not party to any derivative instruments. Any future transactions involving derivative instruments will be evaluated based on SFAS No. 133.
(O) WAREHOUSING AND DISTRIBUTION EXPENSES
Warehousing and distribution expenses are included in selling, general and administrative expenses. Warehousing and distribution expenses totaled approximately $4.5 million, $3.9 million and $0.4 million in 2000, 1999 and 1998, respectively.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
(3) MERGER OF CELGENE AND SIGNAL
As discussed in Note 1, on August 31, 2000, Celgene completed the merger with Signal in a transaction accounted for as a pooling-of-interests. Accordingly, the consolidated financial statements reflect the combined results of Celgene and Signal as if the merger had been in effect for all periods presented. The results of operations for the separate companies and the combined amounts presented in the consolidated financial statements for the periods prior to the merger follow:
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2000 1999 1998
---------------- ----------------- -----------------
(UNAUDITED)
Revenue:
Celgene .......... $ 28,884,836 $ 26,209,624 $ 3,800,490
Signal ........... 5,337,008 11,748,325 15,414,242
------------- ------------- -------------
Combined ......... $ 34,221,844 $ 37,957,949 $ 19,214,732
============= ============= =============
Net loss:
Celgene .......... $ (3,971,178) $ (21,781,200) $ (25,067,880)
Signal ........... (8,085,818) (7,855,748) (4,356,402)
------------- ------------- -------------
Combined ......... $ (12,056,996) $ (29,636,948) $ (29,424,282)
============= ============= =============
|
Celgene and Signal incurred direct transaction expenses of approximately $6.7 million which were recognized upon consummation of the merger. The merger-related costs consisted of transaction fees for financial advisors, attorneys, accountants, financial printing and other related charges.
(4) MARKETABLE SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of available for sale securities by major security type at December 31, 2000 and 1999, were as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
DECEMBER 31, 2000 ---------------- ------------ ------------ ----------------
Government agencies ............... $ 113,811,071 $ 411,117 $ (776) $ 114,221,412
Government bonds & notes .......... 301,758 -- (822) 300,936
Corporate debt securities ......... 29,745,069 500,360 -- 30,245,429
------------- --------- --------- -------------
$ 143,857,898 $ 911,477 $ (1,598) $ 144,767,777
============= ========= ========= =============
|
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
DECEMBER 31, 1999 -------------- ------------ -------------- --------------
Government agencies ............... $ 2,050,000 $ -- $ (66,325) $ 1,983,675
Government bonds & notes .......... 2,313,125 -- (25,579) 2,287,546
Corporate debt securities ......... 2,806,093 -- -- 2,806,093
----------- ---- ---------- -----------
$ 7,169,218 $ -- $ (91,904) $ 7,077,314
=========== ==== ========== ===========
|
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
Maturities of debt securities classified as available for sale were as follows at December 31, 2000:
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------------- ---------------
Due within one year ............................ $ 88,275,189 $ 88,395,791
Due after one year through five years .......... 48,946,682 49,735,959
Due after five years through six years ......... 6,636,027 6,636,027
------------- -------------
$ 143,857,898 $ 144,767,777
============= =============
|
(5) INVENTORY
Inventory consists of the following:
DECEMBER 31,
-------------------------------
2000 1999
-------------- --------------
Raw materials ........... $ 985,556 $ 1,411,663
Work in process ......... 1,869,104 647,841
Finished goods .......... 1,411,597 396,555
----------- -----------
$ 4,266,257 $ 2,456,059
=========== ===========
|
(6) PLANT AND EQUIPMENT
Plant and equipment consists of the following:
DECEMBER 31,
-------------------------------
2000 1999
-------------- --------------
Laboratory equipment and machinery ......... $ 7,896,666 $ 6,206,768
Leasehold improvements ..................... 7,434,963 6,122,955
Computer equipment ......................... 2,747,181 2,173,784
Furniture and fixtures ..................... 1,224,976 1,074,137
Leased equipment ........................... 3,547,378 4,133,963
Construction in progress ................... 2,527,955 219,441
----------- -----------
25,379,119 19,931,048
Less: accumulated depreciation ............. 16,983,217 14,189,659
----------- -----------
$ 8,395,902 $ 5,741,389
=========== ===========
|
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
-------------------------------
2000 1999
-------------- --------------
Professional and consulting fees .......... $ 1,685,679 $ 940,953
Accrued compensation ...................... 4,651,488 3,485,397
Accrued interest, royalties and license
fees ..................................... 1,530,703 2,214,394
Accrued sales returns and rebates ......... 668,680 128,468
Other ..................................... 974,957 515,131
----------- -----------
$ 9,511,507 $ 7,284,343
=========== ===========
|
(8) CONVERTIBLE DEBT
On September 16, 1998, the Company issued convertible notes to an institutional investor in the amount of $8,750,000. The notes had a five-year term and a coupon rate of 9.25% with interest payable
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
on a semi-annual basis. The notes contained a conversion feature that allowed the note holders to convert the notes into common shares at $3.67 per share. These notes were issued at a discount of $437,500 which was being amortized over three years. On October 16, 2000, all of the notes were converted into 2,386,387 common shares.
On January 20, 1999, the Company issued to an institutional investor convertible notes in the amount of $15,000,000. The notes have a five year term and a coupon rate of 9% with interest payable on a semi-annual basis. The notes contain a conversion feature that allows the note holders to convert the notes into common shares after one year at $6.00 per share. The Company can redeem the notes after three years at 103% of the principal amount (two years under certain conditions). Issuance costs of $750,000 incurred in connection with these notes are being amortized over three years. Just prior to the Company's follow-on offering on February 16, 2000, a portion of the notes totaling $9,288,000 were converted into 1,548,000 common shares and included in the public offering. On May 17, 2000, an additional $3,998,400 of the notes were converted into 666,399 common shares and issued to the noteholder. At December 31, 2000, the remaining notes have a carrying value of $1,713,600 and are convertible into 285,801 common shares.
On July 6, 1999, the Company issued to a third institutional investor convertible notes in the amount of $15,000,000. The notes have a five year term and a coupon rate of 9% with interest payable on a semi-annual basis. The notes contain a conversion feature that allows the note holders to convert the notes into common shares after one year at $6.33 per share. The Company can redeem the notes after three years at 103% of the principal amount (two years under certain conditions). There was no fee or discount associated with these notes. On July 6, 2000, $5,000,000 of the notes were converted into 789,474 common shares. At December 31, 2000, the remaining notes have a carrying value of $10,000,000 and are convertible into 1,578,876 common shares.
On September 26, 2000, the Company entered into an agreement with the note holders of the January 1999 and the July 1999 notes that allows the note holders to take a "short position" in the common stock (as defined in the respective Note Purchase Agreements) of the Company with certain limitations on transactions resulting in a "short position" based upon the level of the stock price. In exchange for the Company consenting to waive the provisions that prohibit short sales, the note holders waive the right to the receipt of any interest after the effective date of August 24, 2000.
At December 31, 2000 and 1999, the fair value of the Company's convertible notes exceeded their carrying value reflecting the increase to $32.50 and $23.33 per share, respectively, in the market value of the Company's common stock.
(9) SECURED PROMISSORY NOTES
In June 2000, the Company issued a secured promissory note for up to $5 million that could be borrowed against through December 21, 2000, as needed. The proceeds of the note were to be used for general corporate purposes and working capital. The interest rate floats with the Treasury rate until the proceeds are drawn down and then are fixed for the term, maintaining the spread. The promissory note expired on December 21, 2000 and the Company did not draw down any proceeds from the note. In conjunction with the issuance of the promissory note, the Company issued the creditor a warrant to purchase 150,000 shares of Signal C-2 Preferred Stock.
In November 1996, the Company issued a secured promissory note for $3,000,000. The proceeds of the note payable were used for general corporate purposes and working capital. The note payable accrued interest at a rate of 14% and was secured by certain assets of the Company. The outstanding obligation at December 31, 1999 of approximately $396,000 was repaid upon its due date during May 2000. In conjunction with the issuance of the promissory note, the Company issued the creditor a warrant to purchase 250,000 shares of Signal Series C-1 Preferred Stock.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
(10) STOCKHOLDERS' EQUITY
PREFERRED STOCK
The 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.
SERIES A CONVERTIBLE PREFERRED STOCK
In a private stock placement during 1996, the Company completed the sale of 503 shares of Series A Convertible Preferred Stock, par value $.01 per share, at an issue price of $50,000 per share. All of the shares of the Series A Convertible Preferred Stock with their respective accrued accretion, had been converted or redeemed into 10,026,606 shares of common stock at December 31, 1998.
During 1996, the Company issued warrants valued at $138,156, that entitle certain holders of the Series A Convertible Preferred Stock to purchase 460,521 shares of common stock at an exercise price of $3.83 per share. The warrants were issued in exchange for the deferral of conversion for 90 days. All these warrants either expired or were exercised for 10,254 shares of common stock at December 31, 1998. In connection with the private placement, the Company also granted to certain executives and affiliates of the placement agent warrants, valued at $60,168, to purchase an aggregate of 200,559 shares of common stock at an exercise price of $6.84 per share, subject to proportional adjustment in the event that the Company undertakes a stock split, stock dividend, recapitalization or similar event. These warrants are exercisable for a period of five years from the date of issuance. As of December 31, 2000, 105,117 warrants were exercised to purchase 69,966 shares of common stock.
SERIES B CONVERTIBLE PREFERRED STOCK
During 1997, in a private placement, the Company completed the sale of 5,000 shares of Series B Convertible Preferred Stock (the "Series B Preferred"), par value $.01 per share, at an issue price of $1,000 per share. The Company received net proceeds, after offering costs of $4,840,748. Shares could be converted at an initial conversion price of $2.17 per share. All shares of the Series B Preferred had been converted into 2,365,407 shares of common stock at December 31, 1998.
Under the terms of the private placement, the Company was obligated to issue 1,557,690 warrants to the investor, with a term of four years from the issuance date of the warrants, to acquire a number of shares of common stock. As of December 31, 2000, there were a total of 1,207,693 warrants outstanding. All such warrants have an exercise price of $2.50 per share and expire on June 1, 2002.
SIGNAL CONVERTIBLE PREFERRED STOCK
Immediately prior to the consummation of the merger, all Signal preferred shares were converted into Signal common shares on a one-for-one basis and exchanged into Celgene common shares on a .1257-for-1 basis upon consummation of the merger.
A summary of the Signal convertible preferred stock at December 31, 1999 is as follows:
SHARES ISSUED PREFERENCE IN
AND OUTSTANDING LIQUIDATION
----------------- --------------
Series A ................ 2,626,892 $ 2,626,892
Series B ................ 2,875,000 3,450,000
Series C ................ 8,791,432 12,308,005
Series D ................ 732,601 2,000,000
Series E ................ 6,455,493 12,329,929
Series F ................ 2,722,513 8,194,761
Series F-1 .............. 288,708 1,000,000
--------- ------------
24,492,639 $ 41,909,587
========== ============
|
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
Each of the shares of Series A, B, C, D, E, F and F-1 preferred stock were convertible on a one-for-one basis, at the option of the holder, into shares of Signal's common stock.
Annual dividends of $.08, $.10, $.11, $.32, $.15, $.24 and $.28 per share of Series A, B, C, D, E, F and F-1 preferred stock, respectively, were payable whenever funds were legally available and when declared by the Board of Directors. No dividends were paid.
COMMON STOCK
On February 16, 2000, the Company completed an offering to sell 10,350,000 shares of its common stock at a price of $33.67 per share. Of the total shares offered, 8,802,000 shares were for the account of the Company and 1,548,000 shares were for the account of a selling shareholder pursuant to the conversion of $9,288,000 of the 9%, January 1999 convertible notes held by that shareholder. Proceeds of the Company, net of expenses, were approximately $278,000,000.
On April 14, 2000, the Company effected a three-for-one stock split for stockholders of record as of April 11, 2000. On April 10, 2000, the Company's stockholders approved an increase in the number of authorized shares of common stock from 30,000,000 to 120,000,000. All share and per share amounts in the consolidated statements of operations and share and per share amounts disclosed in the accompanying notes to the consolidated financial statements have been retroactively restated to reflect the three-for-one stock split. Share and per share amounts in the consolidated balance sheets and statements of stockholders' equity (deficit) have not been retroactively restated to reflect the stock split. During the second quarter 2000, the Company recorded a reclassification of approximately $433,000 to decrease additional paid-in-capital and to increase common stock in order to reflect the three-for-one stock split.
RIGHTS PLAN
During 1996, the Company adopted a shareholder rights plan ("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 our 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.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
(11) STOCK BASED COMPENSATION
(A) STOCK OPTIONS
The Company has two equity incentive plans ("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 4,200,000 shares of common stock under the 1992 plan and 6,500,000 shares of common stock under the 1998 plan, as amended, subject to adjustment under certain circumstances. As a result of the merger with Signal, the Company also assumed the former Signal stock option plans. The options issued pursuant to the former Signal plans converted into Celgene options upon consummation of the merger at a .1257-for-1 exchange ratio. No additional options will be granted from the former Signal plans. The Management Compensation and Development Committee of the Board of Directors (the "Committee") determines the type, amount and terms, including vesting, of any awards made under the Incentive Plans. The Plans terminate in 2002 and 2008, respectively.
With respect to options granted under the Incentive Plans, the exercise price may not be less than the fair market value of the common stock on the date of grant. In general, each option granted under the Plans vests evenly over a three or four year period and expires 10 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.
On June 16, 1995, the stockholders of the Company approved the 1995 Non-Employee Directors' Incentive Plan, which provides for the granting of non-qualified stock options to purchase an aggregate of not more than 1,050,000 shares of common stock (subject to adjustment under certain circumstances) to directors of the Company who are not officers or employees of the Company ("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. 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). The shares subject to each non-employee director's option grant of 20,000 shares vest in four equal annual installments commencing on the first anniversary of the date of grant. The shares subject to an annual meeting option grant vest in full on the date of the first annual meeting of stockholders held following the date of grant. On June 22, 1999, the stockholders of the Company approved an amendment to the 1995 Non-Employee Directors' Incentive Plan that a.) increased the number of shares authorized to 1,800,000 and b.) provided 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 10 years after the date of grant. This plan terminates in 2005.
The weighted-average fair value per share for stock options granted was $16.44, $3.06 and $1.31 for stock options granted in 2000, 1999 and 1998, respectively. The Company estimated the fair values using the Black-Scholes option pricing model and used the following assumptions:
2000 1999 1998
---------- ---------- ----------
Risk-free interest rate ....................... 4.84% 6.37% 5.68%
Expected stock price volatility ............... 57% 46% 63%
Expected term until exercise (years) .......... 2.81 4.94 2.89
Expected dividend yield ....................... 0% 0% 0%
|
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
The following table summarizes results as if compensation expense was recorded for the annual option grants under the fair value method:
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 2000 1999 1998 ---------------------------------------------------- -------------- -------------- -------------- Net loss applicable to common stockholders: As reported ....................................... $ (16,284) $ (30,455) $ (29,449) Pro forma ......................................... (38,011) (34,248) (31,181) Net loss per share applicable to common stockholders basic and diluted: As reported ....................................... $ (0.24) $ (0.59) $ (0.60) Pro forma ......................................... ( 0.57) ( 0.67) ( 0.64) |
The pro forma effects on net loss applicable to common stockholders and net loss per share applicable to common stockholders (basic and diluted) for 2000, 1999 and 1998 may not be representative of the pro forma effects in future years since compensation cost is allocated on a straight-line basis over the vesting periods of the grants, which extends beyond the reported years.
The following table summarizes the stock option activity for the aforementioned Plans:
OPTIONS OUTSTANDING
-----------------------------------
SHARES
AVAILABLE WEIGHTED AVERAGE
FOR GRANT SHARES PRICE PER SHARE
--------------- --------------- -----------------
Balance January 1, 1998 ........... 1,591,896 7,322,463 $ 3.14
Authorized ....................... 5,111,400 -- --
Expired .......................... (255,288) -- --
Granted .......................... (1,929,741) 1,929,741 3.01
Exercised ........................ -- (939,017) 2.31
Cancelled ........................ 618,608 (618,608) 3.54
Repurchases ...................... 13,394 -- --
---------- --------- --------
Balance December 31, 1998 ......... 5,150,269 7,694,579 3.18
Authorized ....................... 870,000 -- --
Expired .......................... (210,141) -- --
Granted .......................... (2,715,591) 2,715,591 6.38
Exercised ........................ -- (2,870,021) 2.81
Cancelled ........................ 184,618 (184,618) 3.38
Repurchases ...................... 219 -- --
---------- ---------- --------
Balance December 31, 1999 ......... 3,279,374 7,355,531 4.50
Authorized ....................... 2,417,100 -- --
Expired .......................... -- -- --
Granted .......................... (3,266,281) 3,266,281 42.19
Exercised ........................ -- (2,569,569) 3.66
Cancelled ........................ 99,555 (99,555) 19.62
Repurchases ...................... 2,197 -- --
---------- ---------- --------
Balance December 31, 2000 ......... 2,531,945 7,952,688 $ 20.06
========== ========== ========
|
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
The following table summarizes information concerning options outstanding under the Incentive Plans at December 31, 2000:
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING EXERCISE REMAINING EXERCISABLE EXERCISE
EXERCISE PRICE AT 12/31/00 PRICE TERM (YRS.) AT 12/31/00 PRICE
------------------------ ------------- ---------- ------------- ------------- -----------
1.11 -- 5.00 ........... 2,218,575 $ 3.27 6.4 1,416,186 $ 3.36
5.01 -- 15.00 .......... 2,508,423 5.96 8.1 990,444 6.28
15.01 -- 25.00 ......... 250,125 17.92 8.9 13,875 17.95
25.01 -- 35.00 ......... 1,405,650 25.97 9.1 185,000 25.79
35.01 -- 45.00 ......... 134,000 38.34 9.3 -- --
45.01+ ................. 1,435,915 63.52 9.6 129,474 62.58
--------- -------- --- --------- --------
7,952,688 $ 20.06 8.1 2,734,979 $ 8.81
========= ======== === ========= ========
|
The Company recorded $6,706,274, $1,024,244 and $1,019,170 of deferred compensation for options granted under the former Signal plans during the 2000, 1999 and 1998, respectively, representing the difference between the option exercise price and the estimated fair value of the underlying stock for financial statement presentation purposes. The Company is amortizing the deferred compensation over the vesting period of the options and recorded $3,087,681, $675,122 and $607,788 of compensation expense during the years ended December 31, 2000, 1999 and 1998, respectively.
Former non-employee directors of Signal, who entered into consulting agreements with Celgene effective August 31, 2000, held unvested stock options to purchase 36,457 shares of the Company's common stock. As a result, the Company is required to record compensation expense relative to the fair value of such options which is being recognized over the remaining vesting period for such options. During 2000, 1999 and 1998, the Company recorded $970,309, $20,646 and $0, respectively in compensation expense relating to stock options or warrants issued to consultants, advisors or financial institutions.
(B) WARRANTS
In connection with the retention of an investment firm to assist in the sale and issuance of the Series A Convertible Preferred Stock, the Company, in 1996, granted to such firm warrants to purchase until March 10, 2001, 200,559 shares of common stock at a price of $6.84. There were 9,000 warrants outstanding as of December 31, 2000.
In connection with the placement of the Series B Convertible Preferred Stock in June 1997, the Company issued warrants to purchase 1,557,690 shares of common stock until June 1, 2002, at a price of $2.50 per share. There were 1,207,693 warrants outstanding as of December 31, 2000.
In conjunction with the issuance of the promissory note in June 2000, the Company issued the creditor a warrant to purchase 150,000 shares of Signal C-2 Preferred Stock at a price of $4.00 per share. The warrant was fair valued at $450,000 which was recorded as interest expense during 2000. None of these warrants outstanding as of December 31, 2000.
In conjunction with the issuance of a promissory note in November 1996, the Company issued the creditor a warrant to purchase 250,000 shares of Signal Series C-1 Preferred Stock at a price of $2.10 per share. The warrant was valued at $165,000, which was recorded as a discount on the related debt. The value of the warrant was amortized as interest expense over the term of the debt which ended during May 2000. The warrant was not outstanding as of December 31, 2000.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
(12) EMPLOYEE BENEFIT PLANS
The Company has an investment savings plan and a deferred compensation plan for certain employees, of which the investment savings plan qualifies under Section 401(k) of the Internal Revenue Code. 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 $1.2 million in 2000 and $1 million in both 1999 and 1998.
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. 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, 2000, the Company had a deferred compensation liability included in other non-current liabilities in the consolidated balance sheet of approximately $122,000, which included the participant's elected deferral of salaries only, the Company's matching contribution and earnings on deferred amounts as of that date.
(13) SPONSORED RESEARCH AND LICENSE AGREEMENT
NOVARTIS PHARMA AG
On April 19, 2000, the Company entered into an agreement with Novartis Pharma AG ("Novartis") wherein the Company granted to Novartis an exclusive worldwide license for the development and marketing of d-methylphenidate ("d-MPH"), its chirally pure version of Ritalin. The Company also granted rights to all of its related intellectual property and patents, including new formulations of the currently marketed Ritalin. Celgene received a $10,000,000, nonrefundable, upfront license fee payment in July 2000 and is entitled to receive substantial milestone payments in addition to royalties on the entire family of Ritalin drugs. The upfront license fee of $10,000,000 is being recognized as revenue over a 14 month period commencing June 2000 which is management's estimate of the period of time required to fulfill its obligations related to obtaining FDA approval of the immediate release form of d-MPH. This estimate is subject to change due to uncertainties inherent in the regulatory approval process, which change could have a material impact on the timing of the recognition of revenue. Accordingly, the Company recognized approximately $4,600,000 of research contract revenue for the year ended December 31, 2000. The Company also achieved a milestone of $5,000,000 in December 2000 upon acceptance of the New Drug Application ("NDA") by the FDA for d-MPH. The milestone payment was recognized as research contract revenue in December 2000.
In December 2000, the Company signed a collaborative research agreement with Novartis for joint research of selective estrogen receptor modulator compounds ("SERMs") for the treatment and prevention of osteoporosis. The Company received a nonrefundable, upfront payment of $10,000,000 and is entitled to receive milestone payments for specific preclinical, clinical and regulatory endpoints, as well as royalties upon commercialization of products receiving FDA marketing approval. The upfront payment is being amortized over the estimated two year research period.
AXYS
On October 15, 1999, the Company entered into a two-year collaborative research and license agreement with Axys to develop and commercialize certain compounds for use in the prevention and/or treatment of certain human diseases. The Company received an initial non-refundable license fee of
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
$2,000,000 and will receive additional payments based on the achievement of certain program milestones, as well as royalties upon commercial sales of certain products, if any. The Company may exercise a profit share option in the United States and possibly other territories at a predetermined point during development in lieu of royalties on product sales. In addition, Axys has agreed to pay the Company certain amounts for the full time equivalent personnel working on the research.
NIPPON KAYAKU
In February 1998, the Company entered into a two-year collaborative research and license agreement with Nippon Kayaku to develop and commercialize products based on or derived from a compound supplied by Nippon Kayaku for the treatment and prevention of diseases and disorders of the CNS and PNS. Nippon Kayaku has agreed to pay the Company certain amounts for the full-time equivalent personnel working on the research. Each party is obligated to pay the other royalties on future product sales arising from the collaboration.
In February 2000, following the initial research phase of the collaboration, the Company executed an interim agreement with Nippon Kayaku under which the Company agreed to enter into a joint agreement to develop and commercialize neuroprotectant drugs for PNS and CNS disorders.
In July 2000, the Company and Nippon Kayaku mutually agreed to conclude their collaboration. Nippon Kayaku was granted a worldwide, royalty-free license to certain compounds involved in the collaboration.
DUPONT
On December 1997, the Company entered into a three-year collaborative research and license agreement with DuPont Pharmaceuticals ("DuPont") to develop and commercialize novel products for the treatment and prevention of human immunodeficiency virus and hepatitis C virus infection. The Company received an initial non-refundable license fee of $1,000,000 and will receive additional payments based on the achievement of certain program milestones, as well as royalties upon commercial sales of certain products, if any. In addition, DuPont has agreed to pay the Company certain amounts for the full time equivalent personnel working on the research. Due to the Company's achievement of a certain milestone in 1999, DuPont purchased 288,708 shares of Signal Series F-1 Preferred Stock for total cash proceeds of $1,000,000. In accordance with EITF Issue No. 98-5 the Company recognized an imputed dividend of $818,487 to reflect a beneficial conversion feature on these preferred shares.
SERONO
On November 1997, the Company entered into a three-year collaborative research, development and license agreement with Serono to perform research within the field of the modulation of NF-kB. The agreement was extended for one year at the end of the initial three-year term. The Company will receive payments based on the achievement of certain program milestones, as well as royalties upon commercial sales of certain products, if any. In addition, Serono makes quarterly payments to the Company to fund research efforts. Serono purchased shares of Signal Series F Preferred Stock in conjunction with the license agreement.
TANABE
From March 1996 to March 1998 the Company and Tanabe were engaged in a collaborative program under which Tanabe funded certain research by the Company in target and drug discovery in the fields of inflammatory disease and osteoporosis. In March 1998, the Company and Tanabe mutually agreed to conclude their collaboration and Tanabe licensed from the Company a lead compound that was discovered during the collaboration. Signal retained all other intellectual property rights. Tanabe paid a nonrefundable fee of $1,800,000 to the Company for the exclusive worldwide license to the lead
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
compound and is obligated to make payments to the Company based on the achievement of certain research and development milestones and royalties on any future product sales. The Company has no future performance obligations under this collaboration.
(14) INCOME TAXES
At December 31, 2000 and 1999, the tax effects of temporary differences that give rise to deferred tax assets are as follows:
2000 1999
----------------- ----------------
Deferred assets:
Federal and state net operating loss carryforwards ..... $ 125,087,000 $ 84,536,000
Capitalized research expenses .......................... 6,788,000 921,000
Research and experimentation tax credit
carryforwards ........................................ 6,111,000 5,861,000
Plant and equipment, principally due to differences
in depreciation ...................................... 2,168,000 2,027,000
Patents, principally due to differences in
amortization ......................................... 111,000 58,000
Accrued and other expenses ............................. 4,470,000 711,000
-------------- -------------
Total deferred tax assets ............................ 144,735,000 94,114,000
Valuation allowance ..................................... (144,735,000) (94,114,000)
-------------- -------------
Net deferred tax assets ................................ $ -- $ --
============== =============
|
During 2000 and 1999, the Company recognized a tax benefit of $1,809,677 and $3,017,910, respectively, from the sale of certain State net operating loss carryforwards.
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, 2000, the Company had Federal net operating loss carryforwards of approximately $312,307,000 and combined State net operating loss carryforwards of approximately $228,225,000 that will expire in the years 2001 through 2010. State net operating loss carryforwards differ from Federal net operating loss carryforwards primarily due to the fact that the Company sold approximately $60,082,000 of its State net operating loss carryforwards during 2000 and 1999 and approximately $24,000,000 has expired. The Company also has research and experimentation credit carryforwards of approximately $6,111,000 that expire in the years 2001 through 2015. Ultimate utilization/availability of such net operating losses and credits may be curtailed if a significant change in ownership occurs. Signal experienced an ownership change, as that term is defined in section 382 of the Internal Revenue Code, when it was merged with Celgene. As such, there is an annual limitation on the use of this Net Operating Loss in the amount of approximately $11,580,000. Of the deferred tax asset related to the Federal and State net operating loss carryforwards, approximately $56,000,000 relates to a tax deduction for non qualified stock options. The Company will increase additional paid in capital when those benefits are realized for tax purposes.
(15) DISCONTINUED OPERATION
On January 9, 1998, the Company concluded an agreement with Cambrex Corporation ("Cambrex") for Cambrex to acquire Celgene's chiral intermediate business for approximately $15,000,000. The Company received $7,500,000 upon the closing of the transaction, and will receive future royalties with a present value not exceeding $7,500,000, with certain minimum royalty payments in the third through
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
sixth year following the closing of the transaction. Included in the transaction are the rights to Celgene's enzymatic technology for the production of chirally pure intermediates for the pharmaceutical industry, including the current pipeline of third party products and the equipment and personnel associated with the business. During the fourth quarter 2000, the Company received $719,103 pursuant to the minimum royalty provision of the agreement.
(16) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases its offices and research facilities under several operating lease agreements. The minimum annual rents may be subject to specified annual rental increases. The non-cancelable lease terms for the operating leases expire at various dates between 2002 and 2011 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. The Company received approximately $450,000 per year from 1998 through 2000 from Cambrex Corporation under a facilities sub-lease agreement. The fees were for rent, utilities and other services.
In July 1997, the Company entered into an equipment leasing agreement; under the agreement, the Company can lease up to $1,000,000 of equipment for a three year term after which the Company can purchase the equipment for a nominal value. Through December 31, 2000, the Company has leased $675,000 of laboratory equipment under this agreement. In addition, the Company leases certain laboratory equipment and machinery and office furniture under other capital lease arrangements with three year terms and options to extend the lease term to five years. Assets held under capital leases are included in plant and equipment and the amortization of these assets is included with 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, 2000 are:
OPERATING CAPITAL
YEAR ENDING DECEMBER 31 LEASES LEASES
-------------------------------------------------------------------------- -------------- ------------
2001 ..................................................................... $ 1,990,452 $ 996,444
2002 ..................................................................... 2,062,221 602,705
2003 ..................................................................... 2,098,221 46,801
2004 ..................................................................... 1,131,000 --
2005 ..................................................................... 1,131,000 --
Later years, through 2010 ................................................ 3,772,000 --
------------ ----------
Total minimum lease payments ............................................ $ 12,184,894 1,645,950
------------
Less amount representing interest ....................................... 83,746
----------
Present value of net minimum capital lease payments ..................... 1,562,204
Less current installments of obligations under capital leases ........... 929,258
----------
Obligations under capital leases, excluding current installments ........ $ 632,946
==========
|
Total rental expense under operating leases amounted to $2,142,937, $1,815,792 and $1,930,670 in 2000, 1999 and 1998, respectively.
(B) EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain officers and employees. The related outstanding annual commitment through 2002 is approximately $2.3 million (excluding any change in control provisions). Employment contracts provide for an increase in compensation reflecting annual reviews and related salary adjustments.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
(C) CONTRACTS
Pursuant to the terms of a research and development agreement with The Rockefeller University ("Rockefeller"), the Company has purchased for cash and stock options the world-wide exclusive license to manufacture and market any drugs, including THALOMID, which may result from the research performed at Rockefeller and funded by the Company. The portion of the agreement that provides for research services to be performed by Rockefeller is renewable for one year terms upon agreement of both parties. Under terms of the current research agreement extension, the Company is committed to pay Rockefeller $504,000 annually for research.
The Company has an agreement with Penn Pharmaceutical, Ltd. of Great Britain ("Penn") for the production of THALOMID. Penn manufactures THALOMID and sells it exclusively to the Company. The agreement is renewable for one year terms and has been renewed for 2001, for facility payments totaling approximately $540,000.
In October 1997, the Company entered into a contract with Boston University to manage the surveillance registry which is intended to monitor compliance to the requirements of the Company's S.T.E.P.S. (System for THALOMID Education and Prescribing Safety) program for all THALOMID patients. The contract is renewable for one year terms upon agreement of both parties and has been renewed for 2001. Under the terms of the agreement, the Company is required to make quarterly payments of approximately $404,000.
In September 1999, the Company entered into a Master Clinical Service agreement with Premier Research Worldwide, Ltd. ("PRWW") under which work orders may be executed from time to time for PRWW to provide services in support of clinical development projects. In 2001, the Company anticipates payments to PRWW of approximately $2,200,000 under three such work orders.
In December 1998, the Company entered into an exclusive license agreement with EntreMed, Inc. ("EntreMed") whereby EntreMed granted to the Company an exclusive license to its patent and technology rights for thalidomide. In return, EntreMed will receive royalties on all sales of THALOMID.
In December 1997, the Company entered into a research agreement with the University of Glasgow for clinical testing and evaluation of certain of Celgene's patented compounds. Under terms of the agreement, the Company agreed to pay the University approximately $200,000 in two annual installments. The term of the original agreement was for two years and has been extended through 2001.
In 1998, the Company paid $280,000 in cash and issued 30,168 shares of common stock related to a license agreement with the University of Massachusetts and capitalized the total value of $1,000,000 as purchased technology. The Company has future commitments to pay up to an additional $4,100,000 to licensees based on the achievement of certain milestones, as well as royalties upon commercial sales, if any, of certain products. Such fees or milestone payments may also involve the issuance of up to 7,542 shares of common stock, which would be recorded at the fair value at the date of issuance.
(D) 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 operation and modifies its operations as appropriate. The Company believes it is in substantial compliance with all applicable environmental laws and regulations.
(17) SEGMENTS
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, requires the use of the management approach in identifying and disclosing financial information about segments of an enterprise. The Company is engaged in the discovery, development and commercialization of orally
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 - (CONTINUED)
administered, small molecule drugs for the treatment of cancer and immunological diseases. Additionally, the Company's chiral chemistry program develops chirally pure versions of existing compounds for both pharmaceutical and agrochemical markets. The Company markets and sells its product in the United States and the Company is managed and operates as one business segment.
All of the Company's customers are located in the United States. In 2000, five customers accounted for 54.5% of total product sales revenue. At December 31, 2000, these customers had an aggregate outstanding accounts receivable balance that represented 78.1% of the total balance. The Company estimates an allowance for doubtful accounts based on the creditworthiness of its customers as well as general economic conditions. Consequently, an adverse change in those factors could affect the Company's estimate of its bad debts.
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998 -- (CONTINUED)
(18) QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED,
---------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30,
2000 2000 2000
-------------- --------------- --------------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE
AMOUNTS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA (1):
Total revenue .......................... $ 27,323 $ 22,705 $ 19,685
Gross profit(2) ........................ 13,892 15,144 13,652
Merger-related costs ................... (500) 7,168 --
Tax benefit ............................ 1,810 -- --
Net income(loss) ....................... $ 3,693 $ (7,471) $ (5,882)
Net income (loss) per share
applicable to stockholders:(3)
Basic .................................. $ 0.05 $ (0.11) $ (0.09)
Diluted ................................ $ 0.05 $ (0.11) $ (0.09)
Weighted average number of shares of
common stock outstanding--basic (3) ... 73,314,000 68,301,000 65,349,000
Weighted average number of shares of
common stock outstanding--diluted (3) . 81,662,000 68,301,000 65,349,000
THREE MONTHS ENDED,
---------------------------------------------------------------------------
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
2000 1999 1999 1999 1999
-------------- -------------- --------------- -------------- --------------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA (1):
Total revenue .......................... $ 14,537 $ 12,347 $ 9,286 $ 9,097 $ 7,228
Gross profit(2) ........................ 10,002 8,082 5,614 4,537 2,836
Merger-related costs ................... -- -- -- -- --
Tax benefit ............................ -- 3,018 -- -- --
Net income(loss) ....................... $ (6,625) $ (4,808) $ (8,234) $ (7,789) $ (8,805)
Net income (loss) per share
applicable to stockholders:(3)
Basic .................................. $ (0.11) $ (0.11) $ (0.16) $ (0.15) $ (0.17)
Diluted ................................ $ (0.11) $ (0.11) $ (0.16) $ (0.15) $ (0.17)
Weighted average number of shares of
common stock outstanding--basic (3) ... 59,151,000 52,404,000 51,478,000 51,147,000 50,656,000
Weighted average number of shares of
common stock outstanding--diluted (3) . 59,151,000 52,404,000 51,478,000 51,147,000 50,656,000
|
(1) Amounts are restated to reflect the merger with Signal Pharmaceuticals,
Inc. on August 31, 2000 which was accounted for as a pooling-of-interests.
(2) Gross profit is calculated as product sales less cost of goods sold.
(3) These amounts are adjusted for the three-for-one stock split effected April
2000.
CELGENE CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF CHARGED TO END OF
YEAR EXPENSE OR SALES DEDUCTIONS YEAR
-------------- -------------------- ------------ -----------
Year ended December 31, 2000
Allowance for doubtful accounts .......... $ 101,437 $ 130,000 $ -- $231,437
Allowance for sales returns .............. 75,327 2,522,000 (1) 2,216,239 381,088
Allowance for customer discounts ......... 20,000 1,304,000 (1) 1,172,860 151,140
--------- ------------ ---------- --------
$ 196,764 $ 3,956,000 $3,389,099 $763,665
========= ============ ========== ========
Year ended December 31, 1999
Allowance for doubtful accounts .......... $ 43,386 $ 58,051 $ -- $101,437
Allowance for sales returns .............. -- 1,131,572 (1) 1,056,245 75,327
Allowance for customer discounts ......... -- 453,208 (1) 433,208 20,000
--------- ------------ ---------- --------
$ 43,386 $ 1,642,831 $1,489,453 $196,764
========= ============ ========== ========
Year ended December 31, 1998
Allowance for doubtful accounts .......... -- $ 43,386 -- $ 43,386
========= ============ ========== ========
|
(1) Amounts are a reduction from gross sales
Exhibit 10.21
DEVELOPMENT AND LICENSE AGREEMENT
DEVELOPMENT AND LICENSE AGREEMENT, dated April 19, 2000 (the "Agreement"), is made between Celgene Corporation, a Delaware corporation ("Celgene"), and Novartis Pharma AG, a Swiss corporation ("Novartis").
WHEREAS, Celgene, a pharmaceutical company, has developed the d-MPH Products (as defined herein).
WHEREAS, Novartis wishes to establish a collaboration with Celgene for the marketing and distribution in the Territory (as defined herein), and Celgene is willing to enter into a collaboration with Novartis for the development of the d-MPH Products for their marketing and distribution in the Territory on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and of the covenants herein contained, Celgene and Novartis mutually agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the following capitalized terms shall have the meanings specified below.
"ADD" shall mean Attention Deficit Disorder.
"ADHD" shall mean Attention Deficit Hyperactivity Disorder.
"Adjusted Oncology Net Sales" shall have the meaning ascribed thereto in Section 4.6(c) hereof.
"Affiliate" shall mean any corporation or other entity which controls, is controlled by, or is under common control with a party. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls at least fifty percent (50%) of the voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint fifty percent (50%) or more of the members of the governing body of the corporation or other entity.
"Celgene Patent Rights" shall mean the patents and patent applications listed on Exhibit A hereto, including all continuations, divisionals and equivalents or counterparts thereof and all supplemental protection certificates, extensions and reissues thereof.
"Celgene Technology" shall mean all patents, know-how, registration data exclusivity, trademarks, copyrights, and other forms of intellectual property, in the Territory, that are owned by, controlled by or licensed to Celgene, relating to the Field, including but not limited to the patents listed on Exhibit A and all continuations, divisionals and equivalents or counterparts thereof and all supplemental protection certificates, extensions, and reissues thereof.
"cGMP requirements" shall mean current Good Manufacturing Practices of the FDA.
"COGS" shall mean, with respect to a product, the Fully Allocated Cost of goods manufactured for sale (as determined in accordance with generally accepted accounting principles).
"Customer" shall mean any person or entity.
"d-MPH Products" shall mean d-MPH IR and d-MPH PR.
"d-MPH IR" shall mean d-methylphenidate immediate release form.
"d-MPH PR" shall mean d-methylphenidate pulsed release form.
"Effective Date" shall have the meaning ascribed thereto in Section 3.5 hereof.
"Excluded Countries" shall have the meaning ascribed thereto in Section 7.2 hereof.
"FDA" shall mean the United States Food and Drug Administration.
"FDA Approval" shall mean approval of the FDA to market a product.
"Field" shall mean administration of methylphenidate for the treatment of ADD and ADHD, and all other human disease indications other than disease indications in the field of oncology.
"First Commercial Sale" of a product in the Territory shall mean the first sale to a Third Party in the Territory based on FDA Approval or approval of an equivalent non-US regulatory authority.
"Fixed Commercial Multiple" shall mean 0.95.
"Fully Allocated Cost" shall have the meaning ascribed thereto in Exhibit B hereto.
"Gross Profit" shall mean Net Sales less COGS.
"Gross Profit Margin" shall mean Net Sales less COGS, expressed as a percentage of Net Sales.
"Gross Profit Margin Not Including Active Substance" shall mean Net Sales less COGS, expressed as a percentage of Net Sales, not including the cost of active substance.
"Launch Date" shall have the meaning ascribed thereto in Section 4.4(b) hereof.
"Methylphenidate Product" shall have the meaning ascribed thereto in Exhibit C hereto.
"NDA" shall mean a New Drug Application submitted to the FDA.
"Net Sales" shall have the meaning ascribed thereto in Exhibit D hereto.
"Novartis Technology" shall mean all patents, know-how, registration data exclusivity and other forms of intellectual property (other than trademarks and copyrights) which are developed after the Effective Date and which are owned or controlled by, or licensed (with the right to sublicense) to, Novartis that are necessary or useful for the manufacture, registration, marketing, distribution, use or sale of the d-MPH Products.
"Oncologists" shall have the meaning ascribed thereto in Section 4.6(c) hereof.
"Oncology Base Sales" shall mean the value of Total Oncology Prescriptions for d-MPH Products existing at the time Celgene commences clinical development of Oncology Indications, determined from data provided by IMS or other provider that the parties hereto from time to time agree to use.
"Oncology Fraction" shall have the meaning ascribed thereto in Section 4.6(c) hereof.
"Oncology Indication" shall have the meaning ascribed thereto in Section 2.4(b) hereof.
"Oncology Indication Purchase Price Increment" shall have the meaning ascribed thereto in Section 4.6(c) hereof.
"Oncology Royalty Increment" shall have the meaning ascribed thereto in Section 5.3(b) hereof.
"Patented Sale" shall have the meaning ascribed thereto in Section 5.3(c) hereof.
"Pro Forma Net Selling Price" shall have the meaning ascribed thereto in Section 4.6(a) hereof.
"Purchase Price" shall have the meaning ascribed thereto in Section 4.6(b) hereof.
"Quarterly Net Sales Report" shall have the meaning ascribed thereto in Section 4.6(b) hereof.
"Quarterly Net Sales Prescription Report" shall have the meaning ascribed thereto in Section 4.6(c) hereof.
"Ritalin(R)Line" shall mean Novartis' three dl-methylphenidate immediate release products presently marketed in 5 mg., 10 mg., and 20 mg. strengths under the mark "Ritalin," as well as the 20mg. sustained release strength branded as Ritalin-SR(R).
"Ritalin(R) QD" shall mean Novartis' dl-methylphenidate pulsed release form.
"Royalty Percentage" shall have the meanings as ascribed thereto in Section 5.3(a)(i) through 5.3(a)(iv) hereof.
"Termination Date" shall have the meaning ascribed thereto in Section 3.5 hereof.
"Territory" shall mean worldwide, excluding Canada and, from time to time, the Excluded Countries.
"Third Party" shall mean any entity other than Celgene or Novartis or their respective Affiliates.
"Total Prescriptions" shall have the meaning ascribed thereto in Section 4.6(c) hereof.
"Total Oncology Prescriptions" shall have the meaning ascribed thereto in Section 4.6(c) hereof.
ARTICLE II.
SCOPE AND STRUCTURE OF THE COLLABORATION
2.1. GENERAL. Celgene and Novartis wish to establish a collaborative alliance to develop the d-MPH Products and to market and distribute the d-MPH Products in the Field in the Territory. During the course of this collaboration, Celgene and Novartis shall communicate regularly and shall assume the respective rights and responsibilities for the development, marketing and manufacture of the d-MPH Products described below.
2.2. MANUFACTURING. Except as hereinafter provided, Celgene shall manufacture or cause to be manufactured, d-MPH IR and the active substance for d-MPH PR for Novartis. Novartis may, by 12 months prior written notice to Celgene, elect to manufacture or cause to be manufactured and market d-MPH IR and the active substance for d-MPH PR pursuant to the license provisions of Article V hereof (i) at any time after Celgene fails to ship Novartis its requirements of the d-MPH Products pursuant to Section 4.4 hereof for a period of at least two months, (ii) in the event of insolvency or bankruptcy of Celgene or (iii) in any event, at any time after the fifth anniversary of the Effective Date of the Agreement. Celgene shall provide Novartis all know-how and information necessary to enable Novartis to manufacture and to obtain the necessary regulatory approvals to manufacture the d-MPH Products. Alternatively, at such time as either (i), (ii) or (iii) above is implemented, Celgene (x) agrees to permit Novartis to take over manufacture of the d-MPH Products at facilities operated by Celgene and (y) will use commercially reasonable efforts to permit Novartis to take over manufacture of the d-MPH Products at facilities operated by contract manufacturers for Celgene.
In addition, Celgene may, at its sole discretion, transfer responsibility for the manufacture of d-MPH IR and the active substance for d-MPH PR to Novartis in return for the Royalty Percentage upon at least 24 months prior written notice to Novartis and shall provide Novartis with all such know-how, information and reasonable assistance necessary and available to Celgene to enable Novartis to manufacture and to obtain the necessary regulatory approvals to manufacture the d-MPH Products.
Notwithstanding anything to the contrary contained in the preceding sentences, Novartis' election to manufacture pursuant thereto shall not be effective until either of the following are satisfied: (i) the expiration or early termination (without cost to Celgene) of any and all agreements Celgene may have with Third Parties with respect to the manufacture of d-MPH IR and active substance for d-MPH PR, (ii) Novartis' assumption of all obligations of Celgene with respect to any such agreements or (iii) until Novartis and Celgene enter into a new contract to purchase the d-MPH IR and active substance for d-MPH PR from Celgene based upon terms and conditions mutually acceptable to both parties, Novartis negotiates in good faith with Celgene concerning the terms and conditions of the new contract and continues to purchase the d-MPH IR and active substance for d-MPH PR from Celgene under the terms and conditions of the existing contract, or (iv) the date of termination is 12 months after such written notice.
2.3. CELGENE RESERVED RIGHTS.
(a) Except for the licenses expressly granted by Celgene to Novartis pursuant to Section 5.1 hereof, Celgene reserves all rights under the Celgene Patent Rights and the Celgene Technology. The foregoing reserved rights shall include, but not be limited to, the rights to develop and file one or more SNDAs for d-MPH Products for oncology indications and to promote to oncologists in accordance with FDA regulations and all applicable laws, regulations and approvals governing the distribution and sale of the d-MPH Products.
(b) Without limiting the generality of the foregoing Section 2.3(a), Celgene shall have the exclusive right to develop the d-MPH Products for any and all indications in the field of oncology (each, an "Oncology Indication"). If Celgene determines to pursue development of the d-MPH Products for an Oncology Indication, it shall give Novartis notice thereof, Celgene shall have sole responsibility for all costs associated with such development and Celgene and Novartis shall form a joint committee to coordinate promotional efforts. Celgene shall promote the d-MPH Products for Oncology Indications under the same trademark as is used in the promotion of the d-MPH Products by Novartis, and Novartis shall establish the pricing and record all sales therefor. Notwithstanding the foregoing, through the Development Committee referenced in Article 7.4, Novartis shall have the right to review and provide input to Celgene in advance with respect to (i) all protocols for studies relating to the d-MPH Products for Oncology, (ii) all promotional materials for d-MPH Products to Oncology, and (iii) any plans for new indications or plans which might otherwise affect the package insert for the Ritalin Line, Ritalin QD or the d-MPH Products. If Novartis notifies Celgene that it believes that any of Celgene's planned or ongoing activities relating to the d-MPH Products in Oncology might adversely affect the Ritalin branded products, Celgene agrees that it will develop and promote the d-MPH Products in Oncology under a different, mutually acceptable brand name. Furthermore, Celgene shall have the option to elect to develop and promote the d-MPH Products in Oncology under a different, mutually acceptable brand name. In the event Celgene wishes to promote Ritalin(R) QD to Oncologists, Celgene may raise the issue at the Development Committee for discussion with the Novartis committee members.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES; COVENANTS
3.1. REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each party represents and warrants to the other that it has the legal right and power to enter into this Agreement, to extend the rights and licenses granted to the other in this Agreement, and that the performance of such obligations will not conflict with its charter documents or any agreements, contracts or other arrangements to which it is a party.
3.2. REPRESENTATIONS OF NOVARTIS. Novartis represents and warrants to, and covenants with, Celgene that:
(a) Novartis is a corporation duly organized, validly existing and in good standing under the laws of Switzerland and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and
(b) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of Novartis enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
3.3. REPRESENTATIONS OF CELGENE. Celgene represents and warrants to, and covenants with, Novartis that:
(a) Celgene is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;
(b) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of Celgene enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and
(c) Celgene has the right, power and authority to grant the worldwide exclusive licenses to the Celgene Technology, subject to Celgene's pre-existing obligations to Biovail Laboratories, Inc. in Canada.
3.4. DISCLAIMER OF WARRANTIES. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE, OR WARRANTY GIVEN, BY CELGENE (A) THAT ANY PATENT WILL ISSUE BASED UPON ANY PENDING PATENT APPLICATION, (B) THAT ANY PATENT WHICH ISSUES WILL BE VALID, OR (C) THAT THE USE OF ANY LICENSE GRANTED HEREUNDER OR THE USE OF ANY PATENT RIGHTS WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY OTHER PERSON. FURTHERMORE, CELGENE MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO PATENT RIGHTS EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT.
3.5. HART-SCOTT-RODINO FILINGS. Each of Celgene and Novartis covenants and agrees to prepare and make appropriate filings under Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules promulgated thereunder as soon as reasonably practicable. The parties agree to co-operate in the antitrust clearance process and to furnish promptly to the FTC and the Antitrust Division of the Department of Justice any additional information reasonably requested by them in connection with such filings. The Agreement shall bind Celgene and Novartis upon execution until the earlier of the Termination Date and the termination or expiration of the Agreement by its terms, but the provisions of the Agreement relating to the grant of the exclusive license by Celgene to Novartis shall not become effective until the waiting period provided by the Act shall have terminated or expired without any action by any government agency or challenge to the termination (the date of such termination or expiration, the "Effective Date"). In the event that antitrust clearance from the FTC and the Antitrust Division of
the Department of Justice is not obtained by October 10, 2000 or such other date
as the parties may agree, the Agreement may be terminated in accordance with
Section 11.3(f) (the date of such termination, the "Termination Date"). In the
event a provision of the Agreement needs to be deleted or substantially revised
in order to obtain regulatory clearance of this transaction, the parties will
negotiate in good faith in accordance with Section 14.3 hereof for example, by
substituting, by mutual consent, a new provision which in its economic effect is
sufficiently similar to the old provision that it can reasonably be assumed that
the parties would have entered into the Agreement with such new provision.
3.6 COMPLIANCE WITH LAWS. Each of Celgene and Novartis shall, in the performance of its material obligations under this Agreement comply in all material respects with all laws and regulations applicable to such performance.
ARTICLE IV.
SALES, MARKETING AND SUPPLY
4.1. SALES AND MARKETING DUTIES OF THE PARTIES. In connection with the sales and marketing of the d-MPH Products in the Territory, Novartis shall:
(a) upon receipt of FDA Approval (or approval of the
applicable regulatory bodies) of any formulation of a d-MPH Product, at its sole
expense, use such efforts to market such d-MPH Product in the Field in the
Territory as it would use to market a product it had developed itself; provided,
however, that in no event shall such efforts be less than those that are
standard in the industry. Without limiting the generality of the preceding
sentence and subject to Section 7.2, (i) Novartis shall launch the d-MPH Product
in the United States and in the Five Major Markets (as defined in Article VI)
and not later than three months after (x) such d-MPH Product is approved for
commercial use by the applicable regulatory authorities, (y) there are adequate
launch supplies on hand and (z) any required pricing approvals are obtained and
(ii) make such marketing efforts as are at least as diligent as efforts made by
Novartis with respect to other Novartis products with similar commercial
potential and, in any event, not less than the industry standard;
(b) maintain the d-MPH Product, pending sale to Customer, in a facility that is properly secured and equipped (including temperature and humidity control) to store the d- MPH Product and which is under the contractual or direct control of Novartis or its contract manufacturer. Celgene will have the right to inspect, from time to time, such facility and all government inspection reports and certificates relating thereto;
(c) provide Celgene with representative samples of its sales and promotional materials as requested by Celgene pertaining to the d-MPH Products and Ritalin(R)QD;
(d) conduct itself in a professional manner in accordance with industry standards;
(e) maintain a technically competent and experienced sales force (including a product or market specialist) itself or though a contract sales organization assigned to promote the d-MPH Products to the appropriate target audience, and create and disseminate to the sales personnel appropriate sales aids and literature developed by Novartis relating to the d-MPH Product;
(f) meet with Celgene on a quarterly basis to review relevant secondary marketing data (and Novartis' analysis thereof) and any primary marketing research data, in each case relating to Methylphenidate Products, and concurrently provide such data to Celgene to the extent Novartis is permitted to do so by the provider of such data.
4.2. DUTY NOT TO COMPETE. In the event that Novartis or any Affiliate of Novartis sells, markets or distributes any branded competitive product for the treatment of ADD/ADHD (other than the d-MPH Products) not either currently marketed or in development by Novartis or an Affiliate of Novartis as of the date of execution of this Agreement, Celgene and Novartis will negotiate in good faith to reach an equitable business resolution. Novartis is prohibited from making sales of the d-MPH Products and Ritalin(R) QD to Customers outside the Territory. Notwithstanding the preceding sentence, with respect to countries within the European Union that are from time to time excluded from the Territory, Novartis shall be prohibited from making active sales of the d- MPH Products or Ritalin(R) QD to Customers in such country or countries, as the case may be.
4.3. MARKETING SUPPORT DUTIES OF CELGENE. In connection with the marketing of the d-MPH Products, Celgene shall:
(a) refer all inquiries to Novartis which are received by Celgene from Customers in the Territory; and
(b) make available to Novartis at its request all data on hand and available to Celgene that are necessary or useful to the marketing of the d-MPH Products, including but not limited to, all quality control, technical, manufacturing, pre-clinical and clinical data.
4.4. ORDERS AND SUPPLY
(a) Until such time as Novartis has assumed responsibility for the manufacture of d-MPH IR and the active substance for d-MPH PR pursuant to Section 2.2 hereof, Novartis or its contract manufacturer may order specific quantities of the d-MPH Products (in the form and supply as described in Section 4.5) by transmitting a firm purchase order pursuant to Section 4.4(b) to Celgene to the location set forth in Section 14.4 hereof or such other location as Celgene may hereafter designate in writing. The purchase order shall be binding on Celgene unless rejected in writing by Celgene pursuant to the terms of this Agreement within ten days after receipt thereof. Celgene agrees that it will inform Novartis of its rejection of any order and the basis for such rejection no later than 10 days after Celgene's receipt thereof.
(b) Novartis shall deliver to Celgene, (i) at least 180 days prior to the anticipated date of First Commercial Sale of the d-MPH Product (the "Launch Date"), a good faith forecast of the quantity of d-MPH Product that Novartis anticipates ordering from Celgene (in the form and supply as described in Section 4.5) for the period ending one full calendar quarter after the Launch Date, and (ii) at least one full calendar quarter prior to the Launch Date, a firm purchase order for the d-MPH Product for the first calendar quarter after the Launch Date and a good faith forecast of its quantity requirements for the three successive calendar quarters thereafter. Thereafter, Novartis shall deliver to Celgene, at least 90 days before any calendar quarter, Novartis' firm order for the d-MPH Product for such calendar quarter and a forecast of Novartis' quantity requirements for the d-MPH Product (in the form and supply as described in Section 4.5) for the following three calendar quarters. All of such forecasted and firm ordered quantities are subject to agreement by Celgene, which agreement shall not be unreasonably withheld or delayed.
(c) The total amount of d-MPH Product ordered by Novartis in any calendar quarter may not be less than 75% of Novartis' most recent forecasted quantity for such calendar quarter. Additionally, Celgene's obligation to supply d-MPH Product to Novartis will not extend to more than 125% of Novartis' most recent forecasted quantity for such calendar quarter. If Novartis' ordered quantity exceeds 125% of Novartis' most recent forecast for such quarter, Celgene will in good faith attempt to fill the order, but is under no obligation to do so. Novartis shall indemnify Celgene and reimburse Celgene promptly upon request for all reasonable out-of-pocket costs and expenses, including costs of carrying increased inventory, to the extent caused by any deviation in order quantities from the limits imposed by the preceding sentence, and Celgene will act reasonably to mitigate any such costs and expenses.
(d) If, due to any of the events described in Section 14.1 hereof, Celgene experiences a shortage of d-MPH Product thereby rendering Celgene's performance hereunder impracticable, then Celgene shall have the right to allocate deliveries of the d-MPH Product among all of its customers on a pro-rata basis determined by prior sales, sales forecasts and purchase orders, and subject to Section 2.2, Celgene shall bear no liability whatsoever for the reduction or suspension of deliveries to Novartis and this Agreement shall otherwise remain in full force and effect.
(e) Celgene shall manufacture or have manufactured the d-MPH
Products in compliance with applicable law, including, without limitation, any
cGMP requirements. For purposes of verifying Celgene's compliance with this
Section 4.4(e), (i) Novartis shall be permitted access to Celgene's
manufacturing facilities and related records and personnel during normal
business hours, on reasonable prior notice and not more than once in any
calendar year and (ii) Celgene shall use commercially reasonable efforts to
cause, by means of contractual provisions or otherwise, its current and any
future contract manufacturers to permit Novartis to have access to such contract
manufacturer's manufacturing facilities and related records and personnel during
normal business hours, on reasonable prior notice and not more than once in any
calendar year. Further, Celgene shall supply Novartis with d-MPH Product which
conforms in all material respects to the specifications upon which FDA Approval
was received or such other specifications as the parties may hereafter agree
upon, and cause such d-MPH Product to be quality control tested to assure such
conformity. Novartis may reject any shipment of d-MPH Product which does not
conform in all material respects to the specifications upon which FDA Approval
was received. In order to reject a shipment, Novartis must within thirty (30)
days after receipt of such shipment, give notice to Celgene of Novartis'
rejection of the shipment, (the "Notice") and the full basis therefor. If
Novartis fails to timely give Notice, Novartis shall be deemed to have accepted
delivery of the shipment; provided, however, in the case of products having
latent defects, which upon diligent examination in accordance with the quality
control testing procedures set out in the FDA Approval by Novartis upon receipt
could not have been discovered, Novartis must give notice of Novartis' intent to
reject within twenty (20) days after discovery of such defect, provided such
notice may in no event be given later than 180 days after receipt of the
shipment. After the Notice is given, Novartis shall confer with Celgene and
assist Celgene in determining whether rejection is warranted. If, after so
conferring, Celgene and Novartis are unable to agree whether the shipment is
nonconforming, Novartis and Celgene shall jointly engage an independent
laboratory (the "Independent Laboratory") to determine the conformity of the
shipment to specifications and the fees and expenses of the Independent
Laboratory shall be borne by Celgene if the shipment is determined to be
non-conforming and by Novartis if determined to be conforming. Whether or not
Celgene agrees that a shipment is nonconforming, Celgene shall use its
reasonable best efforts, if requested by Novartis to provide replacement d-MPH
Product which shall be purchased by Novartis as provided in this Agreement.
Unless Celgene requests the return to it of a rejected shipment within sixty
(60) days of either (i) the date Celgene agrees the shipment is nonconforming or
(ii) the Independent Laboratory determines the shipment to be nonconforming,
Novartis shall destroy the shipment and provide Celgene with certification of
such destruction. Novartis shall promptly ship the shipment to Celgene, at
Celgene's cost, if timely requested by Celgene to do so.
4.5. FORM OF PRODUCT SOLD; DELIVERY AND SHIPPING. Celgene will use commercially reasonable efforts to manufacture, package and supply d-MPH IR to Novartis at a Purchase Price as set forth in Section 4.6. Celgene will use commercially reasonable efforts to manufacture and supply the d-MPH active substance to Novartis for d-MPH PR formulations at a Purchase Price as set forth in Section 4.6. All d-MPH IR will be shipped F.O.B. Celgene's facility or a facility designated by Celgene. Novartis will be responsible, at its own cost and expense, for insuring d-MPH IR against damage after d-MPH IR leaves Celgene's facility or a facility designated by Celgene. Novartis shall take title to, but not possession of, d-MPH IR at Celgene's facility.
4.6. PRICE OF AND PAYMENT FOR PRODUCT. The purchase price for the d-MPH Products sold by Celgene to Novartis shall be payable and calculated as follows:
(a) Celgene shall invoice Novartis on shipment of d-MPH IR in
finished packaged form, which invoiced amount shall be an amount equal to 35% of
the Pro Forma Net Selling Price for d-MPH IR. Such amount includes any royalty
otherwise due under 5.3(a)(i). Notwithstanding the foregoing, with respect to
sales of d-MPH IR which are not Patented Sales, the Royalty Percentage shall be
reduced by 50%. Celgene shall supply the d-MPH active substance for d-MPH PR
formulations at no charge in return for a Royalty Percentage as set forth in
Section 5.3(a)(ii). For purposes of this Section 4.6, the term "Pro Forma Net
Selling Price" shall mean (i) with respect to the initial shipments of product,
an estimate of the price to be charged by Novartis to Third Parties, less the
estimated amounts permitted to be deducted pursuant to the definition of
"Net Sales" in Article I hereof, and (ii) with respect to shipments made from and after any Quarterly Net Sales Report (as hereinafter defined), the price actually charged by Novartis to Third Parties during the calendar quarter covered by the latest Quarterly Net Sales Report, less the actual amounts deducted therefrom in accordance with the definition of "Net Sales" in Article I hereof. Payment of the amount invoiced pursuant to this Section 4.6(a) shall be payable within thirty (30) days after receipt of the invoice. Payment of such amount, in whole or in part, may be made in advance of such due date. Any payments owing to Celgene pursuant to this Section 4.6 not made on or before the due date shall bear interest from the due date to the date paid at the prime rate announced from time to time by Citibank, N.A., plus 2%.
(b) With respect to each calendar quarter during which Celgene ships d- MPH Product to Novartis, Novartis shall, promptly following the end of such quarter, prepare and furnish Celgene a report (the "Quarterly Net Sales Report") setting forth with respect to such quarter the aggregate Net Sales (including gross sales and the specific deductions permitted by the definition of "Net Sales" taken in connection with the calculation of such Net Sales). If the invoiced amounts (pursuant to Section 4.6(a) hereof) with respect to any quarter exceed the Purchase Price (as hereinafter defined) with respect to such quarter, such excess shall be a credit against any outstanding or future invoice issued to Novartis pursuant to Section 4.6(a) hereof. If the invoiced amounts (pursuant to Section 4.6(a) hereof) with respect to any quarter are less than the Purchase Price, Novartis shall remit such shortfall to Celgene with the relevant Quarterly Net Sales Report. For purposes hereof, "Purchase Price" shall mean 35% of aggregate Net Sales, in the case of d-MPH Product supplied in finished packaged form for such quarter. Celgene shall supply the d-MPH active substance for d-MPH PR formulations at no charge in return for a Royalty Percentage as set forth in Section 5.3(a)(ii).
(c) From and after the date that Celgene advises Novartis that it commenced promoting a d-MPH Product for any Oncology Indication pursuant to Section 2.3(b) hereof, Novartis shall, promptly following the availability of prescription data with respect to any calendar quarter, prepare and furnish Celgene a report (the "Quarterly Net Sales Prescription Report") setting forth with respect to such quarter and with all supporting data appended (i) total prescriptions for d-MPH Products ("Total Prescriptions"), and (ii) total prescriptions for d-MPH Products from hematologists, hematologist/oncologists, oncologists, neuro- oncologists/neurosurgeons and urologists ("Oncologists") ("Total Oncology Prescriptions"). For purposes of the preceding sentence, total prescriptions and the value thereof shall be determined from data provided by IMS or other provider that the parties hereto from time to time agree to use. If the parties cannot agree on a provider or determine that such data is not available from any provider with sufficient accuracy, the parties shall jointly determine and implement the most expedient and economic means to obtain such data on an ongoing basis. With respect to the cost of any such data subscribed for by Novartis other than in the ordinary course of its business, Celgene shall bear 50% of the cost of such information.
Notwithstanding anything to the contrary contained in Sections 4.6(a) and (b) hereof, for d-MPH IR, Celgene shall be entitled to an incremental purchase price (the "Oncology Indication Purchase Price Increment") equal to 65% of Adjusted Oncology Net Sales (as hereinafter
defined), and, for d-MPH PR, Celgene shall be entitled to an Oncology Indication
Purchase Price Increment equal to 100% of Adjusted Oncology Net Sales multiplied
by Novartis' Gross Profit Margin Not Including Active Substance, less Adjusted
Oncology Net Sales multiplied by the Royalty Percentage as set forth in Section
5.3(a)(ii). For purposes hereof, "Adjusted Oncology Net Sales" shall mean the
product of (x) Net Sales for any calendar quarter which includes or follows the
date Celgene commences marketing any d-MPH Product for an Oncology Indication,
and (y) a fraction, the denominator of which is the value of Total Prescriptions
for such quarter and the numerator of which is the value of Total Oncology
Prescriptions for d-MPH IR or the d-MPH PR, as the case may be, for such quarter
or such other period as the parties may agree (the "Oncology Fraction"), less
Oncology Base Sales, the algebraic sum of which is multiplied by the Fixed
Commercial Multiple. An example of the Oncology Purchase Price Increment
calculation for d-MPH IR and d-MPH PR is described in Schedule 4.6(c). The
Oncology Indication Purchase Price Increment shall be payable to Celgene with
the delivery of the Quarterly Net Sales Prescription Report.
(d) Novartis shall pay Celgene, in addition to the Purchase Price (and any applicable Oncology Indication Purchase Price Increment) for each d-MPH Product purchased by Novartis, the amount of any and all sales, withholding or similar taxes, if any, imposed on Celgene in connection with the sale, production and delivery of any d-MPH Product by Celgene to or for Novartis, except to the extent that Celgene receives a foreign tax credit or other offsetting economic benefit.
(e) Novartis shall assume all credit risk in reselling the d-MPH Product.
(f) For purposes of verifying the accuracy of the Purchase Price (and any applicable Oncology Indication Purchase Price Increment), Celgene shall be entitled, from time to time, to have its independent accountants (who shall be bound by the confidentiality provisions of this Agreement) review, on Celgene's behalf, the books and records of Novartis, and Novartis shall give such accountants access to such books and records during reasonable business hours and upon reasonable prior notice from Celgene. If a calculation of Purchase Price (and any applicable Oncology Indication Purchase Price Increment) with respect to any quarter was erroneous and as a result thereof, Celgene is entitled to an additional amount which exceeds 5% of the Purchase Price (and any applicable Oncology Indication Purchase Price Increment) with respect to such quarter as originally determined by Novartis, then Celgene shall be entitled, in addition to such deficiency, to an amount equal to its reasonable costs, out-of-pocket or otherwise, in conducting such review of Novartis' books and records and its reasonable costs, including attorneys' fees and expenses, incurred in collecting such additional amount.
4.7. SUPPLY OF CLINICAL MATERIAL AT COST.
(a) In the event that Celgene is supplying d-MPH IR and Novartis requires such d-MPH IR for clinical development, Celgene must supply such d-MPH IR to Novartis at its Fully Allocated Cost.
(b) In the event that Celgene is conducting clinical development for oncology and after Novartis has elected to manufacture pursuant to Section 2.2 hereof, Novartis must either supply or must cause to be supplied d-MPH IR to Celgene at its Fully Allocated Cost. In the event that Celgene is conducting clinical development for oncology, Novartis must either supply or must cause to be supplied d-MPH PR to Celgene at its Fully Allocated Cost.
(c) In the event Novartis has elected to perform manufacturing of both the d-MPH Products pursuant to Section 2.2 hereof, Novartis must supply such d-MPH Product to Celgene for clinical development for oncology at its Fully Allocated Cost.
ARTICLE V.
LICENSE GRANTS; RESERVED RIGHTS
5.1. GRANT OF LICENSE RIGHTS BY CELGENE TO NOVARTIS. Celgene hereby grants to Novartis, and Novartis hereby accepts, an exclusive royalty-bearing license (with the right to sublicense with the consent of Celgene, which consent shall not be unreasonably withheld or delayed), to make, have made, use, import, sell and offer to sell the Methylphenidate Products in the Field in the Territory under the Celgene Technology. In the event that Novartis manufactures the d-MPH Products, (i) Celgene will provide to Novartis all such know-how and information that is available on hand to Celgene and that is necessary to enable Novartis to manufacture and to obtain the necessary regulatory approvals to manufacture the d-MPH Products; (ii) Celgene will assist Novartis in securing an appropriate contract for supply of active d-methylphenidate and other raw materials from Celgene or its designated suppliers; and (iii) Novartis shall be solely responsible for all costs and expenses associated with such manufacturing, including any costs of technology transfer and/or compliance with associated regulatory requirements.
5.2. PRESERVATION OF LICENSES IN BANKRUPTCY.
(a) If Celgene should file a petition under bankruptcy laws, or if any involuntary petition shall be filed against Celgene, Novartis shall be protected in the continued enjoyment of Novartis' rights as licensee hereunder to the maximum feasible extent including, without limitation, if it so elects, the protection conferred upon licensees under Section 365(n) of Title 11 of the U.S. Code, or any similar provision of any applicable law. Celgene shall give Novartis reasonable prior notice of the filing of any voluntary petition, and prompt notice of the filing of any involuntary petition, under any bankruptcy laws. If Novartis should file a petition under the bankruptcy laws, or if any involuntary petition shall be filed against Novartis, Celgene shall be protected in the continued enjoyment of Celgene's rights as licensee hereunder to the maximum feasible extent, including, without limitation, if it so elects, the protection conferred upon licensees under Section 365(n) of Title 11 of the U.S. Code, or any similar provision of any applicable law. Novartis shall give Celgene reasonable prior notice of the filing of any voluntary petition, and prompt notice of the filing of any involuntary petition, under any bankruptcy laws. If the bankruptcy trustee of either Celgene or Novartis rejects this Agreement under Section 365(a) of Title 11 of the U.S. Code, the other party may elect to retain its rights licensed hereunder (and any other supplementary agreements hereto) pursuant to Section 365(n) of Title 11 of the U.S. Code for the duration of this Agreement.
(b) Each party recognizes that the Celgene Technology, the Celgene Patent Rights and the Novartis Technology are "intellectual property" as that term is defined in 11 U.S.C. Section 101(35(A)) or any successor provision.
5.3. ROYALTIES.
(a) In consideration of the licenses and rights granted by Celgene to Novartis pursuant to this Article V, Novartis shall pay to Celgene, on a quarterly basis, the following royalties:
(i) With respect to d-MPH IR, a royalty equal to the
Royalty Percentage (as hereinafter defined) multiplied by the aggregate Net
Sales for such quarter. For purposes of this Section 5.3(a)(i) hereof, the
"Royalty Percentage" shall be 35%, less the percentage of Net Sales that
represented Celgene's COGS at the time Novartis gave notice to Celgene of its
election pursuant to Section 2.2 hereof, but in no event shall the Royalty
Percentage be less than 25%. Further, at such time as either Section 2.2 (i) or
(ii) is implemented, in either case as described in Section 2.2 (x) or (y), the
Royalty Percentage shall be adjusted to compensate Novartis for any reasonable
direct out of pocket expenses incurred by Novartis in exercising its rights
under that paragraph. Notwithstanding the foregoing, with respect to sales of
d-MPH IR which are not Patented Sales, the Royalty Percentage shall be reduced
by 50%.
(ii) With respect to d-MPH PR, a royalty equal to the
Royalty Percentage multiplied by the aggregate Net Sales for such quarter. For
purposes of this Section 5.3(a)(ii) hereof, the "Royalty Percentage" shall be,
in the case where Celgene is manufacturing the active substance for d-MPH PR
formulations, 30%, and, in the case where Novartis has elected to manufacture
the active substance for d-MPH PR formulations pursuant to Section 2.2 hereof,
30% less the percentage of Net Sales that represented Celgene's COGS for active
substance at the time Novartis gave notice to Celgene of its election, but in no
event shall the Royalty Percentage be less than 25%. Further, at such time as
either Section 2.2 (i) or (ii) is implemented, in either case as described in
Section 2.2 (x) or (y), the Royalty Percentage shall be adjusted to compensate
Novartis fully for any reasonable direct out of pocket expenses incurred by
Novartis in exercising its rights under that paragraph. Notwithstanding the
foregoing, with respect to sales of d-MPH PR which are not Patented Sales, the
Royalty Percentage shall be reduced by 50%.
(iii) With respect to the Ritalin(R)Line on a country by
country basis, a royalty equal to the Royalty Percentage. For purposes of this
Section 5.3(a)(iii), the Royalty Percentage shall be 7.5% of Net Sales for the
first 12 months commencing after the earlier of commercial launch or three
months after approval of d-MPH IR and with respect to sales outside the United
States, regulatory pricing approval; 15% of Net Sales for the following 12
months; and 22.5% of Net Sales until d-MPH PR is launched and 30% of Net Sales
thereafter.
(iv) With respect to Ritalin(R)QD, a royalty equal to the Royalty Percentage. For purposes of this Section 5.3(a)(iv), the Royalty Percentage shall be 10% of Net Sales for the first 12 months after commercial launch; 20% of Net Sales for the following 12 months; and 30% of Net Sales for the following third 12 months and thereafter. Notwithstanding the foregoing, with respect to sales of Ritalin(R) QD which are not Patented Sales, the Royalty Percentage shall be reduced by 50%.
During the term of this Agreement, following the First Commercial Sale of any product manufactured by Novartis pursuant to this Agreement, Novartis shall within thirty (30) days after each calendar quarter furnish to Celgene a written quarterly report showing: (i) the gross sales of the product sold by Novartis and its Affiliates during the reporting period and the calculation of Net Sales from such gross sales; and (ii) the specific deductions permitted by the definition of "Net Sales" taken in connection with the calculation of Net Sales. If no royalty is due for any royalty period hereunder, Novartis shall so report. Novartis shall keep complete and accurate records in sufficient detail to properly reflect all gross sales and Net Sales and to enable the royalties payable hereunder to be determined.
(b) Reference is made to Novartis' obligation pursuant to
Section 4.6(c) hereof to prepare and furnish Celgene the Quarterly Net Sales
Prescription Report. Notwithstanding anything to the contrary contained in
Section 5.3(a) hereof, Celgene shall be entitled to (A) for d- MPH IR, an
incremental royalty (the "Oncology Royalty Increment") equal to (i) 100% of
Adjusted Oncology Net Sales as set forth in Section 4.6(c), multiplied by
Novartis' Gross Profit Margin for d-MPH IR for the relevant quarter, less (ii)
the Royalty Percentage set forth in Section 5.3(a)(i) multiplied by Adjusted
Oncology Net Sales; and (B) for d-MPH PR, an additional royalty (the "Oncology
Royalty Increment") equal to (i) 100% of Adjusted Oncology Net Sales multiplied
by Novartis' Gross Profit Margin for d-MPH PR for the relevant quarter, less
(ii) the Royalty Percentage set forth in Section 5.3(a)(ii) multiplied by
Adjusted Oncology Net Sales. An example of the calculation of the Oncology
Royalty Increment for d-MPH IR and d-MPH PR is described in Schedule 5.3(b). The
Oncology Royalty Increment shall be payable to Celgene with the delivery of the
Quarterly Net Sales Prescription Report.
(c) Royalties payable pursuant to this Section 5.3 shall be paid to Celgene on Net Sales from the date of the First Commercial Sale of any product pursuant to this Agreement until the termination of this Agreement and shall be net of any and all sales, withholding or similar taxes, if any, imposed in connection with the sale, production and delivery of any product, except to the extent Celgene receives a foreign tax benefit or other offsetting economic benefit. Under no circumstances will sales of generic methylphenidate by Geneva Pharmaceuticals, Inc. or its successor or another Affiliate of Novartis outside the United States be subject to any royalties hereunder. After ten years, there shall be no obligation to pay any royalty except with respect to sales of a Methylphenidate Product covered by a Valid Claim of a Celgene issued patent or supplemental protection certificate in force in the country where the sale is made (a "Patented Sale"). A "Valid Claim" is a claim in a patent in force which has not been held invalid, revoked, or unenforceable by any patent office or court of competent jurisdiction in the relevant country.
5.4. AUDITS. Upon the written request of Celgene, Novartis shall
permit an independent public accountant selected by Celgene and acceptable to
Novartis, which acceptance shall not be unreasonably withheld, to have access
during normal business hours to such records of Novartis as may be reasonably
necessary to verify the accuracy of the royalty reports described herein, in
respect of any fiscal year ending not more than thirty-six (36) months prior to
the date of such request. All such verifications shall be conducted upon
reasonable prior notice and not more than once in each calendar year. In the
event such Celgene representative concludes that additional royalties were owed
to Celgene during such period, the additional royalty shall be paid by Novartis
within thirty (30) days of the date Celgene delivers to Novartis such
representative's written report so concluding. The fees charged by such
representative shall be paid by Celgene unless the audit discloses that the
royalties payable by Novartis for the audited period are understated by more
than five percent (5%), in which case Novartis shall pay the reasonable fees and
expenses charged by such representative. Novartis shall include in each Third
Party sublicense granted by it pursuant to this Agreement a provision requiring
the sublicensee to make reports to Novartis, to keep and maintain records of
sales made pursuant to such sublicense and to grant access to such records by
Celgene's representatives to the same extent required by Novartis under this
Agreement. Celgene agrees that all information subject to review under this
Section 5.4 is confidential and that Celgene shall cause its representatives to
retain all such information in confidence in accordance with Article IX hereof.
5.5. ROYALTY PAYMENT TERMS. Royalties shown to have accrued by each royalty report provided for under Section 5.3(a) hereof shall be due thirty (30) days after the end of such quarter. Payment of royalties in whole or in part may be made in advance of such due date. Royalties determined to be owing with respect to any prior quarter shall be added, together with interest thereon accruing (at the prime rate announced from time to time by Citibank, N.A., plus 2%) from the date originally due, to the next quarterly payment hereunder.
5.6. STANDARDS. Novartis shall manufacture or have manufactured the d-MPH Products pursuant to this Article V in accordance with specifications upon which FDA Approval was received or such other specifications as the parties may hereafter agree upon and applicable law, including, without lmitation, any cGMP requirements. For purposes of verifying Novartis' compliance with this Section 5.6, (i) Celgene shall be permitted access to Novartis' manufacturing facilities and related records and personnel during normal business hours, on reasonable prior notice and not more than once in any calendar year and (ii) Novartis shall use commercially reasonable efforts to cause, by means of contractual provisions or otherwise, its contract manufacturers to permit Celgene to have access to such contract manufacturers' manufacturing facilities and related records and personnel during normal business hours, on reasonable prior notice and not more than once in any calendar year.
5.7. SUPPLY OF PRODUCT TO CELGENE. When Novartis manufactures or has manufactured d-MPH PR and in the event that Novartis manufactures or has manufactured d-MPH IR, Novartis shall provide such quantities of d-MPH PR and d-MPH IR in bulk finished formulation F.O.B. Novartis' facility as Celgene and Celgene's designated licensees may require at a price equal to Novartis' COGS plus 5% for markets outside the Territory. Celgene shall pay all sales and similar taxes, import duties in connection with such purchases.
5.8. SUBLICENSING. Notwithstanding any sublicense by Novartis hereunder, Novartis shall remain fully responsible to Celgene with respect to Novartis' obligations hereunder.
5.9. SUPPLY OF ACTIVE SUBSTANCE TO NOVARTIS. Celgene shall supply the d-MPH active substance to Novartis at Celgene's COGS for the development of d-MPH PR and d-MPH IR if additional studies are performed by Novartis.
ARTICLE VI.
LICENSE FEES
6.1 LICENSE FEES. Novartis shall make a total of up to U.S.$100,000,000 of licensee fee payments to Celgene pursuant to the following schedule:
(a) On the Effective Date, a payment of U.S.$10,000,000 plus interest accrued at the rate of 8% per annum from the date of execution of this Agreement to the Effective Date; provided, however, that if antitrust clearance from the FTC and the Antitrust Division of the Department of Justice is not received by the parties with respect to this Agreement and notwithstanding any termination of this Agreement pursuant to Section 11.3(f) hereof, Novartis shall pay Celgene a payment of U.S. $5,000,000 plus interest accrued at the rate of 8% per annum from the date of execution of this Agreement to the Termination Date.
(b) Upon the acceptance by the FDA of an NDA for d-MPH IR, a payment of U.S.$5,000,000.
(c) Upon FDA Approval of d-MPH IR, a payment of U.S.$12,500,000.
(d) Upon the submission to FDA of an NDA for the d-MPH PR, a payment of U.S.$7,500,000.
(e) Upon FDA Approval of the d-MPH PR, a payment of U.S.$20,000,000.
(f) If either of the d-MPH Products is transferred from its current status of C-II under the Controlled Substances Act of 1970 (the "Act") to a status of either C-IV or C-V under the Act, or if either of the d-MPH Products is determined not to be a controlled substance under the Act, Novartis will pay to Celgene, upon the happening of either event, a payment of U.S.$15,000,000 (said milestone payable only once).
(g) Upon the submission of regulatory dossier in Europe
for d-MPH IR:
(i) Centralized (EMEA), US$5,000,000; or
(ii) Mutual Recognition for each of France, Germany,
Italy, Spain and the United Kingdom (collectively, the "Five Major Markets"),
US$1,000,000 per market.
(h) Upon approval in Europe for d-MPH IR:
(i) Centralized (EMEA), US$10,000,000; or
(ii) Mutual Recognition for each of the Five Major
Markets, US$2,000,000 per market.
(i) Upon the submission of regulatory dossier in Europe
for d-MPH PR:
(i) Centralized (EMEA), US$5,000,000; or
(ii) Mutual Recognition for each of the Five Major
Markets, US$1,000,000 per market.
(j) Upon approval in Europe for d-MPH PR:
(i) Centralized (EMEA), US$10,000,000; or
(ii) Mutual Recognition for each of the Five Major
Markets, US$2,000,000 per market.
6.2 NOTIFICATION OF MILESTONE ACHIEVEMENT AND INVOICE PROCEDURE. Novartis shall notify Celgene in writing within ten business days of the achievement of each milestone event described in Section 6.1 Upon the achievement of a milestone event, Celgene shall send Novartis an invoice substantially in the form contained in Schedule 6.2 for the milestone payment due as a result thereof in accordance with Section 6.1. Novartis shall make each milestone payment within 15 days of its receipt of the invoice from Celgene.
ARTICLE VII.
DEVELOPMENT; REGULATORY MATTERS
7.1. APPROVAL OF D-MPH IR. Celgene shall continue its development of d-MPH IR to obtain FDA Approval and will conduct required additional studies until such approval is obtained; provided, however, that Novartis shall promptly reimburse Celgene for the cost of all studies described in Schedule 7.1 conducted from the date of execution of the Agreement until the Effective Date or Termination Date, such expenses not to exceed those listed in Schedule 7.1 with respect to d-MPH IR without the approval of the Development Committee. After the Effective Date, Novartis shall pay for all such studies directly. Celgene will make any additional or supplemental submissions required by the FDA; provided, however, that Novartis shall pay for the cost of any such submissions.
7.2. OTHER DEVELOPMENT EFFORTS AND FUNDING.
(a) (i) Subject to Section 2.3 hereof, Novartis will use commercially reasonable efforts to develop and seek FDA Approval of d-MPH PR for ADD and ADHD indications commencing on the date of execution of this Agreement. Should Novartis choose to
develop additional formulations or indications for the d-MPH Products, Novartis
will fully fund such development work. (ii) In addition, Novartis will, subject
to Section 7.1 (A) fully fund all remaining expenses related to NDA approval of
the d-MPH Products for the ADD/ADHD indications commencing on the date of
execution of this Agreement, (B) be responsible for payment of any Phase IV
commitments required by FDA as a condition of NDA approval of the d-MPH Products
and (C) fully fund all remaining expenses relating to studies that have
commenced or under contract as of the date of execution of this Agreement as
described in Schedule 7.2(a)(ii)(C), such expenses not to exceed those listed in
Schedule 7.2(a)(ii)(C) with respect to d-MPH IR without the approval of the
Development Committee. Provided, however, that with respect to clauses (i) and
(ii) above, that Novartis shall promptly reimburse Celgene for the cost of all
such studies conducted from the date of execution of the Agreement until the
Effective Date or Termination Date. After the Effective Date, Novartis shall pay
for all such studies directly.
(b) For countries outside of the United States, Novartis shall make a decision (on a country-by-country, product-by-product basis) whether to file for regulatory approval for d-MPH IR or PR based on its commercial assessment of the market potential for such d-MPH Product. Novartis shall notify Celgene of its decision in writing, as follows:
(i) for European Union countries, within three months of FDA Approval for such d-MPH Product;
(ii) for Australia, within six months of receipt of FDA Approval for such d-MPH Product; and
(iii) for all other non-U.S. countries (including Japan) in the Territory, within 12 months of FDA Approval.
If Novartis elects to file for regulatory approval for d-MPH IR or d-MPH PR in a country, Novartis shall use commercially reasonable efforts to develop and seek regulatory approval for such d-MPH Product in such country and, following receipt of such regulatory approval, shall act in accordance with Section 4.1 in connection with the sales and marketing of such d-MPH Product in the country.
(c) Upon Novartis' notification to Celgene of its decision not to file for regulatory approval for a d-MPH Product for a non- U.S. country in the Territory (each, an "Excluded Country" and collectively, the "Excluded Countries"), Celgene shall have the option (exercisable within one year of Novartis' notice) to either: (i) renegotiate terms with Novartis for the sale by Novartis or a sublicensee of such d-MPH Product in such Excluded Country or (ii) terminate Novartis' license for such d-MPH Product in such Excluded Country and pursue such regulatory approval and commercialization of such d-MPH Product in such Excluded Country at its own expense; provided, however, that nothing herein shall be deemed to convey any license to the Ritalin trademark or any other trademark of Novartis.
7.3. DISTRIBUTION AND LICENSE RIGHTS. Any formulations and indications developed pursuant to Section 7.1 or 7.2 hereof shall be deemed included in d-MPH IR and d-MPH PR for purposes of this Agreement, except that Celgene shall have the exclusive right to promote any such formulations to Oncologists.
7.4. DEVELOPMENT COMMITTEE. Celgene and Novartis shall establish, as soon as practicable after the Effective Date, a Development Committee comprised of no more than three (3) senior representatives of each of Celgene and Novartis. The Development Committee shall be chaired by a member thereof designated, from time to time by Novartis. The Development Committee shall discuss development and registration issues and shall coordinate the development and registration efforts described in this Article VII. Meetings of the Development Committee shall be at such times and places and in such form (e.g., in person, telephonic or video conference) as the members of the Development Committee shall determine. Representatives of both Parties shall be present at any meeting of the Development Committee. Decisions of the Development Committee shall be made by unanimous vote or by a written consent signed by all members thereof. The Development Committee shall keep minutes of its deliberations setting forth, among other matters, all proposed actions and all votes thereon. All records of the Development Committee shall at all times be available to both Parties. The Development Committee may delegate to one Party or to a specific representative the authority to make certain decisions. All disagreements within the Development Committee shall be subject to the following:
(a) The members of the committee will endeavor in good faith for a period of not less than thirty (30) days to attempt to resolve the dispute; and
(b) If the members of the committee are unable to resolve the dispute by the end of such period, the committee shall promptly present the disagreement to the Chief Operating Officer of Celgene and the Chief Operating Officer of Novartis or their respective designees, and such executives shall endeavor to resolve the dispute.
7.5. REGISTRATIONS. Celgene shall be responsible for the NDA and supplemental submissions related to d-MPH IR in the U.S. but Novartis shall have the right, through the Development Committee, to provide input into the preparation of such submission materials. Notwithstanding the foregoing, after submission of the NDA and supplemental submissions with respect to d-MPH IR in the U.S. and after the Effective Date, Celgene shall notify the FDA in writing that ownership of the Investigational New Drug and New Drug Application has been transferred to Novartis and that Novartis is the responsible party for purposes of the related Investigational New Drug and New Drug Application submission and other regulatory issues. Novartis, in turn, shall notify the FDA in writing that it has accepted ownership of the Investigational New Drug Application and New Drug Application. Novartis shall be responsible for the NDA and supplemental submissions related to d-MPH IR in the U.S. as well as any submissions made outside the U.S., but Celgene shall have the right, through the Development Committee, to provide input into the preparation of such submission materials.
7.6. ADVERSE EVENT REPORTING. Each of Novartis and Celgene shall promptly report any serious or unexpected event (as that term is used by the FDA) to the other (after first reporting such event to the FDA) of which it becomes aware during the clinical development or commercialization of the d-MPH Products, and shall reasonably cooperate with the other in providing related information. The parties shall negotiate in good faith concerning a detailed adverse event reporting procedure as soon as practicable after the date of execution of this Agreement.
ARTICLE VIII.
INTELLECTUAL PROPERTY RIGHTS
8.1. NO OTHER TECHNOLOGY RIGHTS. Except as otherwise expressly provided in this Agreement, under no circumstances shall a party hereto, as a result of this Agreement, obtain any ownership interest in or other right to any technology, trade secrets, know-how, patents, pending patent applications, products, or biological materials of the other party, including items owned, controlled or developed by the other party, or transferred by the other party to said party, at any time pursuant to this Agreement.
8.2. ENFORCEMENT OF PATENT RIGHTS. Celgene and Novartis shall each promptly notify the other in writing of any actual, alleged or threatened infringement of patents or patent applications of either party of which they become aware.
Celgene may enforce any of the Celgene Patent Rights against a third party and may defend any declaratory judgment action brought in relation to such patents, all at its own expense. In the event that a third party sells a product that infringes any patent included in the Celgene Patent Rights or brings a declaratory judgment action regarding any such patent(s) and Celgene elects not to enforce or defend such patent(s), the royalty due to Celgene with respect to the relevant country for sales of the d-MPH Products, Ritalin(R) QD and the Ritalin(R) Line covered by such patent(s) shall be reduced by 50%.
8.3. MAINTENANCE OF PATENTS. Celgene shall be responsible for paying the maintenance fees and annuities with respect to the Celgene Patent Rights and Novartis shall, at all times during the term of this Agreement fund the cost of such maintenance fees and annuities.
ARTICLE IX.
CONFIDENTIALITY
9.1. NONDISCLOSURE OBLIGATIONS.
(a) Except as otherwise provided in this Agreement, during the term of this Agreement and for a period of ten (10) years thereafter, both Parties shall maintain in confidence and not use for any purpose other than those contemplated by this Agreement (a) information and data received from the other party resulting from or related to the d-MPH Products, Ritalin(R) QD and the Ritalin(R) Line and (b) all information and data not described in clause (a) but supplied by the other party under this Agreement marked "Confidential." For purposes of this Article IX, information and data described in clause (a) or (b) shall be referred to as "Information."
(b) To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement, a party may disclose Information it is otherwise obligated under this Section not to disclose to its Affiliates, consultants, outside contractors and clinical investigators, on a need-to-know basis on condition that such entities or persons agree to keep the Information confidential for the same time periods and to the same extent as such party is required to keep the Information confidential; and a party may disclose such Information to government or other regulatory authorities to the extent that such disclosure is reasonably necessary to obtain patents or authorizations to conduct clinical trials of, and to commercially market, the d-MPH Products, Ritalin(R) QD or the Ritalin(R) Line. The obligation not to disclose Information shall not apply to any part of such Information that: (a) is or becomes part of the public domain other than by unauthorized acts of the party obligated not to disclose such Information or its Affiliates; (b) can be shown by written documents to have been disclosed to the receiving party or its Affiliates by a Third Party, provided such Information was not obtained by such Third Party directly or indirectly from the other party pursuant to a confidentiality agreement; (c) prior to disclosure under this Agreement, was already in the possession of the receiving party or its Affiliates, provided such Information was not obtained directly or indirectly from the other party pursuant to a confidentiality agreement; (d) can be shown by written documents to have been independently developed by the receiving party or its Affiliates without breach of any of the provisions of this Agreement; (e) is disclosed by the receiving party pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by law; provided that the receiving party notifies the other party immediately upon receipt thereof (and provided that the disclosing party furnishes only that portion of the Information which it is advised by counsel is legally required); or (f) pharmacological and clinical data used for marketing purposes following receipt of FDA Approval.
9.2. TERMS OF THIS AGREEMENT. Celgene and Novartis each agree not to disclose any terms or conditions of this Agreement to any Third Party without the prior consent of the other party, except as required by applicable law. If Celgene determines that it is required to file with the Securities and Exchange Commission or other governmental agency this Agreement for any reason, Celgene shall request confidential treatment of such portions of this Agreement as it and Novartis shall together determine. Notwithstanding the foregoing, Celgene and Novartis may use, as a routine reference in the usual course of business to describe the terms of this transaction, any statement containing information not materially different from the information set forth on Schedule 9.2 hereof, as such Schedule may be amended from time to time.
ARTICLE X.
INDEMNITY
10.1. NOVARTIS INDEMNITY OBLIGATIONS. Novartis agrees to defend, indemnify and hold Celgene, its Affiliates and their respective employees, officers, directors, counsel and agents harmless from all claims, losses, damages or expenses (including, without limitation, reasonable attorneys' fees and expenses and costs of investigation) arising as a result of: (a) the breach by Novartis of any covenant, representation or warranty contained in this Agreement; (b) actual or asserted violations of any applicable law or regulation by Novartis or its Affiliates by virtue of
which the d-MPH Product, Ritalin(R) QD or the Ritalin(R) Line manufactured, distributed or sold shall be alleged or determined to be adulterated, misbranded, mislabeled or otherwise not in compliance with any applicable law or regulation; (c) claims for bodily injury, death or property damage attributable to the manufacture, distribution or sale of the d-MPH Product, Ritalin(R) QD or the Ritalin(R) Line by Novartis or its Affiliates; (d) any negligent act or omission of Novartis (or any Affiliate or sublicensee thereof) in the manufacture, promotion, marketing and sale of any d-MPH Product, Ritalin(R) QD or the Ritalin(R) Line or any other activity conducted by Novartis or its Affiliates under this Agreement which is the proximate cause of injury, death or property damage to a third party; or (e) any failure of Novartis to comply with any recall of a d-MPH Product, Ritalin(R) QD or the Ritalin(R) Line manufactured, distributed or sold by Novartis or its Affiliates that is ordered by a governmental agency or required by a confirmed failure of such d-MPH Product, Ritalin(R) QD or the Ritalin(R) Line.
10.2. CELGENE INDEMNITY OBLIGATIONS. Celgene agrees to defend, indemnify and hold Novartis, its Affiliates and their respective employees, officers, directors, counsel and agents harmless from all claims, losses, damages or expenses (including, without limitation, reasonable attorneys' fees and expenses, and costs of investigation) arising as a result of: (a) the breach by Celgene of any covenant, representation or warranty contained in this Agreement; (b) actual or asserted violations of any applicable law or regulation by Celgene or its Affiliates by virtue of which d-MPH IR and the active substance for d-MPH PR manufactured, distributed or sold shall be alleged or determined to be adulterated, misbranded, mislabeled or otherwise not in compliance with any applicable law or regulation; (c) claims for bodily injury, death or property damage attributable to the manufacture, distribution, sale or use of the d-MPH Products by Celgene or its Affiliates; (d) any negligent act or omission of Celgene (or any Affiliate or sublicensee thereof) in the manufacture, promotion, marketing and sale of any d-MPH Product or any other activity conducted by Celgene or its Affiliates under this Agreement which is the proximate cause of injury, death or property damage to a third party; or (e) any failure of Celgene to comply with any recall of a d-MPH Product manufactured, distributed or sold by Celgene or its Affiliates that is ordered by a governmental agency or required by a confirmed failure of such d-MPH Product.
10.3. PROCEDURE. A party or any of its Affiliates or their respective employees or agents (the "Indemnitee") that intends to claim indemnification under this Article X shall promptly notify the other party (the "Indemnitor") of any loss, claim, damage, liability or action in respect of which the Indemnitee intends to claim such indemnification, and the Indemnitor shall assume the defense thereof with counsel mutually satisfactory to the Parties; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. The indemnity agreement in this Article X shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The Indemnitor may not settle, or otherwise consent to an adverse judgment with respect to, any loss, claim, liability or action without the consent of the Indemnitee, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within
a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article X to the extent of such prejudice, but the omission so to deliver notice to the Indemnitor will not relieve it of any liability that it may have to any Indemnitee otherwise than under this Article X. The Indemnitee, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. In the event that each party claims indemnity from the other and one party is finally held liable to indemnify the other, the Indemnitor shall additionally be liable to pay the reasonable legal costs and attorneys' fees incurred by the Indemnitee in establishing its claim for indemnity.
10.4. INSURANCE. Novartis and Celgene shall each maintain appropriate product liability insurance with respect to development, manufacture and sales of the d-MPH Products, Ritalin(R) QD or the Ritalin(R) Line by Novartis or Celgene, as the case may be, in such amount as Novartis or Celgene, respectively, customarily maintains with respect to sales of its other products. Novartis and Celgene, as applicable, shall each maintain such insurance for so long as it continues to manufacture or sell the d-MPH Products, Ritalin(R) QD or the Ritalin(R) Line, as the case may be, and thereafter for so long as Novartis or Celgene, as applicable, maintains insurance for itself covering such manufacture or sales.
ARTICLE XI.
TERM AND TERMINATION
11.1. TERM. Unless sooner terminated pursuant to this Article XI,
the term of this Agreement is for the period beginning on the date of execution
of the Agreement and ending on the later of the tenth anniversary of First
Commercial Launch or, on a country by country basis, the last d-MPH patent
listed in Exhibit A (and all continuations, divisionals and equivalents or
counterparts thereof and all supplemental protection certificates, extensions
and reissues thereof) to expire (the "Expiration Date") with respect to that
country. At the request of Novartis made not later than the date that is twelve
(12) months prior to the Expiration Date, Celgene and Novartis shall endeavor in
good faith to reach agreement with respect to any extension or modification on
commercially reasonable terms, of all or any of the rights and obligations
provided for in this Agreement. If despite such good faith endeavor, such
agreement is not reached, the parties hereto shall have no further obligation
pursuant to the preceding sentence from and after the Expiration Date. At the
Expiration Date, Celgene shall grant Novartis a perpetual, non-exclusive,
royalty-free license to make, have made, use, import, sell and offer to sell the
d-MPH Products and Ritalin(R) QD under the Celgene Technology.
11.2. EXISTING OBLIGATIONS. Termination pursuant to Section 11.1 of this Agreement for any reason shall not relieve the Parties of any obligation accruing prior to such expiration or termination.
11.3. TERMINATION BY EITHER PARTY. Celgene or Novartis, as applicable, may terminate this Agreement on 60 days prior written notice to the other party upon the occurrence of any of the following:
(a) by either party in the event of a material breach by the other party of any covenant, duty or undertaking herein, which breach is not cured within 30 days after receipt of notice thereof;
(b) by Celgene if, on more than two occasions in any twelve month period, Novartis shall have failed to pay any amount hereunder when due, which failure shall have continued for at least ten (10) business days following Celgene's delivery of notice thereof to Novartis;
(c) by Celgene in the event of Novartis' discontinuance of the active conduct of its business for a period in excess of 30 days;
(d) by either party, on a product by product and country by country basis, in the event of the withdrawal of the d-MPH Product or Ritalin(R)QD from the marketplace due to any regulatory mandate;
(e) by either party in the event the other party or any person controlling such party shall become insolvent or shall file or have filed by its creditors a petition in bankruptcy or similar proceeding, or a court of competent jurisdiction appoints a receiver over the business or assets of such other party, or such other party makes a general assignment for the benefit of creditors; or
(f) by either party in the event that antitrust clearance is not received from the FTC and the Antitrust Division of the Department of Justice with respect to the Agreement.
11.4. TERMINATION OF EXCLUSIVITY BY CELGENE. In the event Novartis fails to meet its Minimum Sales (as hereinafter defined), Novartis may, at its option, pay Celgene an amount equal to thirty percent (30%) of any shortfall under that minimum net sales target that is not due to an event of force majeure described in Section 14.1 hereof or Celgene's failure to meet its supply obligations to Novartis under Section 4.5 hereof. In the event that Novartis does not elect to pay such amount, Celgene shall have the right, at its option, to terminate the exclusive nature of the rights of Novartis under this Agreement and Novartis shall provide Celgene with access to all necessary data and otherwise cooperate with Celgene to enable Celgene to obtain parallel registrations. The term "Minimum Sales" shall mean the minimum sales listed on Schedule 11.4 hereto.
11.5. TERMINATION BY CELGENE. Notwithstanding anything to the contrary contained herein, with respect to the d-MPH Products, in event that Novartis has not made all required filings with the Japanese Ministry of Health and Welfare within five years of the date of execution of this Agreement, all licenses and rights granted to Novartis with respect to the d-MPH Products in Japan shall terminate.
11.6. TERMINATION BY NOVARTIS. Notwithstanding anything to the contrary contained herein, Novartis shall have the right to terminate this Agreement, effective twelve (12) months after written notice to Celgene.
11.7. EFFECTS OF TERMINATION BY CELGENE. If this Agreement is terminated by Celgene,
(a) all licenses and rights granted to Novartis hereunder shall terminate and Novartis will immediately cease to manufacture and sell the d-MPH Products and Ritalin(R) QD if such products are covered by a Valid Claim of a Celgene issued patent or supplemental protection certificate; provided, however, that Novartis and Celgene shall negotiate in good faith with respect to a mutually acceptable agreement to commercialize Ritalin(R) QD;
(b) Novartis shall transfer and assign to Celgene any and all registrations for the d-MPH Products;
(c) if such termination is pursuant to Section 11.3(a) or
(b) hereof, Celgene shall be entitled to claim from Novartis all damages which
would be due to Celgene under law and equity. If such termination is pursuant to
Section 11.3(c), (d), (e) or (f) or Section 11.5 hereof, neither party shall
have any liability to the other, except as otherwise specifically provided for
herein;
(d) Novartis may dispose of its inventory of the d-MPH Products and Ritalin(R) QD on hand as of the effective date of termination, and may fill any orders for the d-MPH Products and Ritalin(R) QD accepted prior to the effective date of termination, for a period of twelve (12) months after the effective date of termination;
(e) within thirty (30) days after disposition of such inventory and fulfillment of such orders Novartis will forward to Celgene a final report and pay Celgene all amounts due for Net Sales in such period;
(f) Novartis shall grant Celgene a worldwide, perpetual, non-exclusive, fully-paid and royalty free right and license to use in the manufacture of the d-MPH Products the Novartis Technology that is necessary or useful in the manufacture of the d-MPH Products and until such time as Celgene can establish regulatory approval of an alternate manufacturer, supply Celgene with the d-MPH Products on commercially reasonable terms;
11.8. SURVIVAL OF TERMINATION. The termination of this Agreement
shall not affect (i) Novartis' obligation to pay Celgene any amounts due Celgene
for d-MPH Product, Ritalin(R) QD or the Ritalin(R) Line sold prior to
termination or pursuant to Section 11.4 hereof; (ii) Sections 2.4 and 7.6; and
(iii) Articles III, VIII, IX, X, XI, XII, XIII, and XIV.
11.9. EFFECTS OF TERMINATION BY NOVARTIS. If this Agreement is terminated by Novartis,
(a) all licenses and rights granted to Novartis shall terminate and Novartis will immediately cease to manufacture and sell the d-MPH Product and Ritalin(R) QD if such products are covered by a Valid Claim of a Celgene issued patent or supplemental protection certificate;
(b) if such termination is pursuant to Section 11.3(a) hereof, Novartis shall be entitled to claim from Celgene all damages which would be due to Novartis under law and equity. If such termination by Novartis is pursuant to any other provision of this Agreement, neither party shall have any liability to the other, except as other wise specifically provided for herein;
(c) Novartis may dispose of its inventory of the d-MPH Products and Ritalin(R) QD on hand as of the effective date of termination, and may fill any orders for d-MPH Product and Ritalin(R) QD accepted prior to the effective date of termination, for a period of twelve (12) months after the effective date of termination; and
(d) within thirty (30) days after disposition of such inventory and fulfillment of such orders Novartis will forward to Celgene a final report and pay all amounts due Celgene for Net Sales in such period; and
(e) if such termination is pursuant to Section 11.3(a) hereof or upon the Expiration Date, Celgene shall grant Novartis a perpetual, non-exclusive, royalty-free license to make, have made, use, import, sell and offer to sell the d-MPH Products and Ritalin(R) QD under the Celgene Technology.
ARTICLE XII.
INTELLECTUAL PROPERTY RIGHTS
12.1. OWNERSHIP. All right, title and interest in and to the Celgene Technology shall be owned by Celgene.
12.2. DEFENSE OF INDIVIDUAL INFRINGEMENT ACTIONS. If Celgene or Novartis, or any of their Affiliates or sublicensees, shall be individually named as a defendant in a legal proceeding by a Third Party for infringement of a patent because of the manufacture, use or sale of the d-MPH Product or Ritalin(R)QD, the party which has been sued (or whose Affiliate or sublicensee has been sued) shall promptly notify the other party hereto in writing of the institution of such suit. The party which has been sued may, at its option and at its sole expense, control and defend such suit. The controlling party may not settle such suit or otherwise consent to an adverse judgment in such suit that diminishes the rights or interests of the non-controlling party without the express written consent of the non-controlling party (which consent shall not be unreasonably withheld or delayed).
The party which has been sued shall keep the other party at all times reasonably informed as to the status of the suit. The party which is not controlling such legal proceedings shall have the right to be represented by advisory counsel of its own selection (and such counsel's opinion shall be reasonably considered by the controlling party), at its own expense, and shall cooperate fully in the defense of such suit and furnish to the party controlling such legal proceedings all evidence and assistance in its control.
12.3. DEFENSE OF JOINT INFRINGEMENT ACTIONS. If Celgene and Novartis, or any of their Affiliates or sublicensees, shall be jointly named as defendants for infringement of a patent for making using, selling, offering to sell or importing the d-MPH Product or Ritalin(R) QD, Novartis shall be entitled to control the defense of such suit, and all expenses including costs and attorney fees, shall be paid by Novartis. Celgene shall have the right to be represented by counsel of its own selection, but at its sole expense. Novartis will consult in good faith with Celgene regarding the litigation. Celgene shall cooperate fully in the defense of such suit and furnish to Novartis all evidence and assistance in its control.
12.4. CONTRIBUTION. With respect to any judgments, settlements or
damages payable with respect to the defense of joint infringement actions,
Celgene and Novartis shall contribute to the amount owed in the same ratio as
the ratio of the Gross Profit received by Novartis in connection with sales of
the d-MPH Product or Ritalin(R) QD to the (a) Purchase Price less COGS and/or
(b) Royalties received by Celgene in connection with the sale of the d-MPH
Product or Ritalin(R) QD. In the event a license from a third party is required,
the parties shall share the cost of such license equitably. Notwithstanding the
foregoing, Celgene shall not be obligated to contribute to any settlement costs
described above unless it has given its express written consent (which consent
shall not be unreasonably withheld) to such settlement.
ARTICLE XIII.
STANDSTILL AND NO RAID
13.1. STANDSTILL. Both parties agree that, except as expressly provided in this Agreement, for a period of four years from the date of this Agreement unless such action shall have been specifically invited in writing by the Board of Directors of the other party (it being understood that execution of this Agreement does not constitute such an invitation), neither party nor any of their officers, directors, employees, agents, consultants, advisors, partners, affiliates and other representatives (the "Representatives") on its behalf will in any manner, including but not limited to entering into communications or discussions with, the record or beneficial shareholders of the other party, directly or indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise) to effect, participate in or cause or in any way assist any other person to effect or seek, offer or propose (whether publicly or otherwise) to effect or participate in, (i) any acquisition of any securities (or beneficial ownership thereof) or assets of the other party or any of its subsidiaries, (ii) any tender or exchange offer or merger or other business combination involving the other party or any of their subsidiaries, or (iii) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to the other party or any of its subsidiaries, (b) make, or
become a "participant" in, any "solicitation" of "proxies" (as such terms are defined in Regulation 14A promulgated by the Securities and Exchange Commission) or consents to vote any voting securities of the other party, (c) form, join or in any way participate in a "group" (as defined under the Securities Exchange Act of 1934, as amended) with respect to the securities of the other party, (d) otherwise act alone or in concert with others, to seek to control or influence the management, Board of Directors, shareholders or policies of the other party or its subsidiaries, (e) take any action which might force the other party to make a public announcement, or make or permit the Representatives to take any action that is likely to result in any public disclosure, regarding any of the types of matters set forth in (a), (b), (c), (d) or (e) above, or (f) enter into any discussions or arrangements with any third party with respect to any of the foregoing prohibited conduct, except in the event that a third party (1) acquires or makes a tender offer or exchange offer to acquire over twenty percent (20%) of the outstanding voting securities of Celgene, (2) publicly announces that it is seeking to acquire all or substantially all of Celgene's assets or (3) enters into discussions with Celgene that would require them to issue a press release. Notwithstanding the foregoing, Novartis' acquisition of no more than five percent (5%) of the outstanding registered voting securities of Celgene shall not constitute a violation of this Section 13.1. Both parties also agree during any such period not to request the other party (or its directors, officers, employees or other Representatives), directly or indirectly, to amend or waive any provision of this Section 13.1 (including this sentence).
13.2. NO RAID. Both parties agree that, without prior written consent, it will not for a period of five years from the date of this Agreement, directly or indirectly, solicit for employment or employ any person who is now or hereafter is employed by the other party or any of their Affiliates and who is identified by the party as a result of its evaluation or otherwise in connection with this Agreement or the transactions contemplated hereby; provided, however, that neither party shall be prohibited from employing any such person who is solicited by advertising in periodicals of general circulation to the public generally and not specifically directed to solicit such employees.
ARTICLE XIV.
MISCELLANEOUS
14.1. FORCE MAJEURE. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including but not limited to fire, floods, embargoes, war, acts of war (whether war is declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party; provided, however, that the party so affected shall use reasonable commercial efforts to avoid or remove such causes of nonperformance, and shall continue performance hereunder with reasonable dispatch whenever such causes are removed. Either party shall provide the other party with prompt written notice of any delay or failure to perform that occurs by reason of force majeure. The Parties shall mutually seek a resolution of the delay or the failure to perform as noted above.
14.2. ASSIGNMENT. Except as otherwise provided herein, neither the rights nor the obligations hereunder of any party hereto may be assigned without the prior written consent of the other party hereto. Either party may assign its rights and obligations hereunder to any Afffiliate, subsidiary or successor to its business. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assignees.
14.3. SEVERABILITY. Each party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such valid provisions. In case such valid provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions.
14.4. NOTICES. All notices and other communications under this
Agreement shall be in writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c) registered or certified
mail, postage prepaid, return receipt requested; or (d) overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given under this Section 14.4):
Celgene Corporation
7 Powder Horn Drive
Warren, New Jersey 07059
Attention: President
Tel: (732) 271-1001
Fax: (732) 271-4184
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attn: Robert A. Cantone, Esq.
Tel: (212) 969-3235
Fax: (212) 969-2900
Novartis Pharma AG
Lichtstrasse 35
CH 4002 Basel
Switzerland
Attn: Head, Business Development and Licensing
Tel: 41.61.324.5618
Fax: 41.61.324.2100
Herbert Gut
General Counsel
Lichtstrasse 35
CH 4002 Basel
Switzerland
Tel: 41.61.324.6877
Fax: 41.61.324.6859
All such notices and communications shall be deemed received upon (a) actual receipt by the addressee, (b) actual delivery to the appropriate address or (c) in the case of a facsimile transmission, upon transmission by the sender and issuance by the transmitting machine of a confirmation slip confirming that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the addressee at the address provided for above. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received.
14.5. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the choice of laws provisions thereof.
14.6. DISPUTE RESOLUTION, CHOICE OF FORUM. Any disputes arising between the Parties relating to, arising out of or in any way connected with this Agreement or any term or condition hereof, or the performance by either party of its obligations hereunder, whether before or after the expiration pursuant to Section 11.1 or termination pursuant to any other section of Article XI of this Agreement, shall be promptly presented to the Chief Executive Officer of Celgene and the Chief Operating Officer of Novartis for resolution and if they or their designees cannot promptly resolve such disputes, then either party shall have the right to bring an action to resolve such dispute before a court of competent jurisdiction. The parties hereby submit to the jurisdiction of the federal or state courts located within the State of New York for the conduct of any suit, action or proceeding arising out of or relating to this Agreement.
14.7. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of the Parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties.
14.8. HEADINGS. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof.
14.9. INDEPENDENT CONTRACTORS. Novartis and Celgene shall each act as independent contractors. Celgene shall not exercise control over the activities and operations of Novartis; accordingly, Novartis shall be responsible for paying all applicable social security, withholding, other employment and income taxes for itself and its employees. Novartis shall bear all expenses incurred in its sales endeavors, except those for which Celgene agrees in writing to pay. Novartis and Celgene shall each conduct all of its business in its own name and as it deems fit, provided it is not in derogation of the other's interests. Neither party shall engage in any conduct inconsistent with its status as an independent contractor, have authority to bind the other with respect to any agreement or other commitment with any third party, nor enter into any commitment on behalf of the other.
14.10. WAIVER. The waiver by either party hereto of any right hereunder or of the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise.
14.11. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[END OF TEXT]
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.
CELGENE CORPORATION
NOVARTIS PHARMA AG
EXHIBIT A
TO LICENSE AND DISTRIBUTION AGREEMENT
o U.S. PATENT: 5,733,756 PROCESS FOR BIOCATALYTIC RESOLUTION
o U.S. PATENT: 5,936,091 PROCESS FOR OPTICAL RESOLUTION OF AMIDE (THREO) INTERMEDIATE
o U.S. PATENT: 5,837,284 DELIVERY OF MULTIPLE DOSES OF METHYLPHENIDATE
o U.S. PATENT: 5,908,850 METHOD OF TREATING ATTENTION DEFICIT DISORDERS WITH D-THREO- METHYLPHENIDATE
o U.S. PATENT: 5,922,736 CHRONIC BOLUS ADMINISTRATION OF D-THREO-METHYLPHENIDATE
o U.S. PATENT: 5,965,734 PROCESS FOR OPTICAL RESOLUTION OF AMIDE (ERYTHRO) INTERMEDIATES
o U.S. DIVISIONAL APPLICATION (CELG-0085, the Divisional from CELG-0008); Serial No. 038470, filed March 11,1998.
EXHIBIT B
TO LICENSE AND DISTRIBUTION AGREEMENT
"Fully Allocated Cost" shall mean:
1. Direct Materials;
2. Salaries and wages of personnel directly engaged in manufacturing the
product;
3. Employee benefits associated with the above salaries and wages;
4. Depreciation, repairs and maintenance, and other operating costs of
production machinery;
5. Quality Control;
6. Package Development;
7. Import Department;
8. Building operating costs assigned to production areas;
NOTE: Each building is a cost center. Operating costs such as building depreciation (assigned on a straight line basis), property taxes, fire insurance, light, heat, and power are charged to this building cost center. The total building operating costs are then charged to the cost centers occupying the building as "rent."
9. Administration costs incurred in the manufacturing process including:
a. Manufacturing Administration
b. Manufacturing Personnel Department
c. Material Management
d. Industrial Engineering (Incl. Mandated Environmental Costs)
e. Manufacturing Employee Training
f. Cost Accounting; and
10. Inventory losses due to regulatory revisions. Costs associated with inventory maintenance, such as revaluation, damaged and obsolete material, physical inventory readjustments, etc.
Fully allocated costs shall not include:
a. Inventory Carrying Costs;
b. Regulatory Affairs;
c. Start-up costs of new facilities;
d. Other production/manufacturing costs, such as rework expenses,
unrelated to this product, returned goods and repackaging; and
e. Manufacturing Technology.
EXHIBIT C
TO LICENSE AND DISTRIBUTION AGREEMENT
"Methylphenidate Product" shall mean d-threo-methylphenidate, l-threo- methylhphenidate, d-erythro-methylphenidate and l-erythro-methylphenidate and any salts thereof.
EXHIBIT D
TO LICENSE AND DISTRIBUTION AGREEMENT
"Net Sales" shall mean the gross invoice price of product sold to independent,
third party customers in bona fide, arms-length transactions, less (i) quantity
and/or cash discounts actually allowed or taken; (ii) freight, postage and
shipping insurance (allocated in accordance with NOVARTIS' standard allocation
procedure); (iii) custom duties and taxes, if any, directly related to the sale;
(iv) amounts repaid or credited by reason of rejections, return of goods,
retroactive price reductions specifically identifiable as relating to product;
(v) amounts incurred resulting from governmental (or agency thereof) mandated
rebate programs; (vi) third party rebates and chargebacks related to the sale of
product to the extent actually allowed; and (vii) as agreed by the parties, any
other specifically identifiable amounts included in product's gross sales that
were or ultimately will be credited and that are substantially similar to those
listed above.
SCHEDULE 4.6(C)
D-MPH IR
Example: d-MPH IR Net Sales $100.00
X 0.10 (Oncology Fraction)
----------
= $10.00
Less: Oncology Base Sales $(2.00)
----------
= $ 8.00
X 0.95 (Fixed Commercial Multiple)
----------
= $ 7.60 (Adjusted Oncology Net Sales)
X 0.65
----------
= $ 4.94 (Oncology Indication Purchase
Price Increment)
|
SCHEDULE 4.6(C)
D-MPH PR
Example: d-MPH PR Net Sales $100.00
X 0.09 (Oncology Fraction)
--------
= $ 9.00
Less: Oncology Base Sales $(0.09)
--------
= $ 8.10
X 0.95 (Fixed Commercial Multiple)
--------
= $ 7.70 (Adjusted Oncology Net Sales)
X 0.87 (Novartis' Gross Profit Margin
-------- Not Including Cost of Active)
= $ 6.70
Less: $ 7.70 (Adjusted Oncology Net Sales)
X 0.30 (Royalty Percentage)
--------
= (2.31)
= $ 4.40 (Oncology Indication Purchase
Price Increment)
|
SCHEDULE 5.3(B)
D-MPH IR
Example: d-MPH IR Net Sales $100.00
X 0.10 (Oncology Fraction)
--------------------
= $ 10.00
Less: Oncology Base Sales $ (2.00)
-----------------------
= $ 8.00
X 0.95 (Fixed Commercial Multiple)
----------------------
= $ 7.60 (Adjusted Oncology Net Sales)
X 0.90 (Novartis' Gross Profit Margin
-----------------------
= $ 6.84
Less: $ 7.60 (Adjusted Oncology Net Sales)
X 0.25 (Royalty Percentage)
------------------------
= (1.90)
= $ 4.94 (Oncology Royalty Increment)
|
SCHEDULE 5.3(B)
D-MPH PR
Example: d-MPH PR Net Sales $100.00
X 0.09 (Oncology Fraction)
----------
= $ 9.00
Less: Oncology Base Sales $ (0.90)
----------
= $ 8.10
X 0.95 (Fixed Commercial Multiple)
----------
= $ 7.70 (Adjusted Oncology Net Sales)
X 0.83 (Novartis' Gross Profit Margin
----------
= $ 6.39
Less: $ 7.70 (Adjusted Oncology Net Sales)
X 0.25 (Royalty Percentage)
----------
= (1.92)
= $ 4.46 (Oncology Royalty Increment)
|
SCHEDULE 6.2
Sample Invoice
Celgene Corporation Letterhead
[Date]
Novartis Pharma AG
Zentraler Faktureneingang
Attn: Ms. M. Gnehm
Contract Administration
Lichtstrasse 35
CH 4002 Basel
Switzerland
Dear Ms. Gnehm:
Re: CELGENE CORPORATION/NOVARTIS PHARMA AG/License Agreement for
[PRODUCT]
To Whom It May Concern:
This is an invoice requesting payment in connection with the above-captioned agreement between CELGENE and Novartis Pharma AG.
Novartis Contract Code No.: [will be assigned by Novartis following execution]
Novartis Creditor No.: [will be assigned by Novartis following execution]
Reason for Payment: [please cite specific article in the agreement]
Amount and Currency: [self-explanatory]
Bank Address and Account No.: [insert name and address of the bank to which
payment should be sent and account number to which
it should be credited]
Sincerely yours,
CELGENE CORPORATION
|
SCHEDULE 7.1
Study Budget A. PK 1. PK 00-001 $180,000 (-$162,000) 2. PK 99-001 $255,000 (-$ 50,780) 3. 97- M - 01 $ 80,000 4. Salamandra (Consultant) $125,000 (-$ 50,000) B. CMC 1. Stability - Current $60,000 |
2. Post submission (12 mos., 18 mos., 24 mos.) 3 X $30,000
C. Clinical
1. 97- M - 02 CRO: Three (3) months remain @ $150,000/month
2. 97 - M - 03 + extension + Contract Amendment cost
3. 97 - M - 04 @ $355,000
4. 97 - 05 + Acceleration costs $225,000 D. NDA Preparation Hoyle & Assoc. or Salamandra $300,000 E. Regulatory Consultants - General 1. Hoyle & Assoc. $120,000 2. Salamandra $ 60,000 |
SCHEDULE 7.2(A)(II)(C)
Study Budget
A. Clinical
6. d-methylphenidate in adults with $145,000 (-$38,819)
Attention Deficit/Hyperactivity Disorder
Lenard Adler, M.D.
NYU School of Medicine
7. d-methylphenidate (once-a-day dosing) in $146,000 (-$38,006)
children and adolescents with
Attention Deficit Disorder
B. Preclinical
1. Proconvulsant Activity - Mice $ 50,000
A test (or the ability of d-
methylphenidate and l-methylphenidate
to lower the seizure threshold in mice
NIH
2. Ninety-Day Repeated Dose Toxicity $230,000 (-$89,160)
Study (with thirty day recovery period)
of l-methylphenidate administered BiD
via Oral Gavage to Sprague-Dawley
Rats.
Redfield
|
SCHEDULE 9.2
o Parties: Celgene and Novartis
o Products: Methylphenidate products including all Ritalin(R)and
chirally pure formulations
o Territory: Worldwide (except for Canada)
o Rights: Exclusive to Novartis except for oncology
o Royalties: - Ascending royalties each year for Ritalin(R)QD.
- Fixed royalties on the d-MPH IR (including supply of
finished, packaged goods).
- Fixed royalties on the d-MPH PR (including supply of
bulk material).
- Ascending royalties on the existing Ritalin line
following approval of d-MPH IR.
o Milestones: Substantial upfront and milestone payments upon
submission and approval of products.
o R& D costs: Novartis to reimburse Celgene
|
SCHEDULE 11.4
Minimum Sales
d-MPH Products and Ritalin(R)QD Net Sales
(excluding Adjusted Oncology Net Sales)
Twelve-month period ending:
24 months after Launch $60 Million
36 months after Launch $90 Million
48 months after Launch $120 Million
60 months after Launch $150 Million
|
EXHIBIT 10.22
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
EXECUTION COPY
THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "AGREEMENT"), effective the 20 day of December, 2000 (the "EFFECTIVE DATE"), is by and between NOVARTIS PHARMA AG, a corporation organized under the laws of SWITZERLAND ("NOVARTIS"), having its principal place of business at Lichtstrasse 35, CH-4000 Basel, Switzerland, and CELGENE CORPORATION, a Delaware corporation ("CELGENE"), having its principal place of business at 7 Powder Horn Drive, Warren, NJ 07059, U.S.A. (each, a "PARTY" and, collectively, the "PARTIES").
RECITALS
WHEREAS, Celgene and its Affiliates (as defined below) developed expertise and acquired proprietary rights related to selective estrogen receptor modulator compounds ("SERMS") which are selective for Estrogen Receptor ("ER")(alpha) ("ER(alpha)") in U2OS cells (the "ER(alpha)SELECTIVITY" as defined in Section 1.16);
WHEREAS, Novartis and its affiliates engaged in the research, development, marketing, manufacture and distribution of pharmaceutical compounds useful in treating or preventing human diseases and conditions; and
WHEREAS, the Parties desire to engage in a joint research effort to identify or discover, on the basis of Celgene's lead and library compounds, SERMs which are Er(alpha)Selective in U2OS cells (including, without limitation, compounds in the SP500263 Series (as defined below), as well as analogs thereof made by Celgene prior to the Effective Date as part of its internal research program in the Oncology Fild (as defined below) to develop pharmaceutical products from such compounds for the treatment, prevention and diagnosis of osteoporosis and for other indications as described herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, Novartis and Celgene agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms, whether used in their singular or plural form, shall have the respective meanings set forth below:
1.1 "Active Compound" shall mean a Research Compound which has been identified or confirmed as meeting those criteria for Er(alpha) potency and selectivity set forth in Exhibit A hereto in the Primary Field. Active Compounds shall include, without limitation, Celgene's proprietary compounds known as SP500263, SPC0001422 (formerly SP500290)and SPC0001426. Active Compounds shall specifically exclude Celgene's proprietary compound known as SPC0008490.
1.2 "Additional Field" shall mean the treatment, prevention and diagnosis of a disease or disorder, other than a disease or disorder within the Primary Field or the Oncology Field.
1.3 "Affiliate" shall mean, with respect to a Party to this Agreement, any other entity, whether de jure or de facto, which directly or indirectly controls, is controlled by, or is under common control with, such Party. A business entity or Party shall be regarded as in control of another business entity if it owns, or directly or indirectly controls, at least fifty percent (50%) (or such lesser percentage which is the maximum allowed to be owned by a foreign entity in a particular jurisdiction) of the voting stock or other ownership interest of the other entity, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other entity by any lawful means whatsoever.
1.4 "Back-Up Compound" shall mean an Active Compound which Novartis designates as a possible replacement for a Final Selected Compound in the event Novartis abandons its development and/or commercialization efforts with respect to such Final Selected Compound.
1.5 "Candidate Compound" shall mean an Active Compound which (a) following the provisions set forth in Sections 4 and 5 hereof, has been selected as a potential FSC Compound or a Back-Up Compound candidate but has not yet been designated an FSC Compound or a Back-Up Compound by Novartis, and (b) has been tested in a pharmacokinetic study or other primary in vivo study (e.g., determination of plasma cholesterol).
1.6 "Celgene Approach" shall mean primary screening in any U2OS cells to identify compounds that inhibit the IL-6 promoter in an ER-dependent fashion.
1.7 "Celgene Invention" shall have the meaning set forth in
Section 9.1.
1.8 "Celgene Patent Rights" shall mean all United States and foreign patents (including, without limitation, all reissues, extensions, substitutions, confirmations, re-registrations, re-examinations, revalidations and patents of addition) and patent applications (including, without limitation, all continuations, continuations-in-part and divisions thereof) which are Controlled by Celgene on the Effective Date or during the Research Term, or which cover any Celgene Inventions. Celgene Patent Rights shall exclude, without limitation, Patent Rights covering the CV Assay or the use thereof.
1.9 "Celgene Products" shall have the meaning set forth in Section 5.4(a).
1.10 "Collaboration" shall mean the Research Program and each Party's activities with respect to compounds in the Primary Pool, the Oncology Pool and the Remaining Pool.
1.11 "Confidential Information" shall the meaning set forth in
Section 10.1.
1.12 "Control" shall mean possession of the ability, whether by ownership or license, to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangements with any Third Party.
1.13 "CV Assay" shall mean Celgene's proprietary novel gene profile assay for identifying cardiovascular-specific SERMs.
1.14 "CV Field" shall mean the treatment, prevention or diagnosis of diseases and disorders of the cardiovascular system.
1.15 "Er(alpha)-Selectivity" or "Er(alpha)-Selective" shall mean the
selectivity in Celgene's IL-6 release assay in U2OS Cells of greater than fifty
(50)-fold for ER(alpha) versus ER(beta).
1.16 "FDA" shall mean the United States Food and Drug Administration.
1.17 "Field of Cooperation" shall mean research with respect to Research Compounds for the discovery, development and/or identification of Active Compounds in the Primary Field.
1.18 "Field of Use" shall mean, as applicable:
(a) the Primary Field; and/or
(b) any Additional Field; and/or
(c) the Oncology Field.
1.19 "Final Selected Compound" shall mean an Active Compound which, following Novartis' standard compound development procedures, is declared an "FSC Compound" or granted equivalent status by Novartis' Research Management Board or some other similar body, which declaration authorizes the initiation of preclinical development programs aimed, inter alia, at the detailed investigation of those toxicological, bioavailability, pharmacokinetic and formulation parameters whose successful completion will allow progression of the Active Compound to Phase I Clinical Trials.
1.20 "First Commercial Sale" shall mean, with respect to a Product, the first sale, for payment in cash or in kind (but excluding sales or transfers of a Product that is used in a clinical trial) to a Third Party in a country or jurisdiction after Regulatory Approval has been granted by the governing health authority of such country or jurisdiction.
1.21 "FTE" shall mean the equivalent of a full-time twelve (12) months' (including normal vacations, sick days and holidays) work of a person, carried out by one or more employees of Celgene, who devotes a portion of his or her time to the Research Program; provided, however, that Novartis understands and agrees that Celgene retains complete discretion to change the identity, the frequency and the time which any individual employee devotes to the Research Program so long as such changes shall not have a negative impact on the progress of the Research Program.
1.22 "IND" shall mean an investigational new drug application filed with the FDA (pursuant to 21 CFR ss.312.3) necessary to commence human clinical trials of a pharmaceutical product, or the equivalent application filed with any equivalent agency or governmental authority outside the United States (including any supra-national agency such as in the European Union) necessary to commence human clinical trials of a pharmaceutical product.
1.23 "Independent Research" shall have the meaning set forth in
Section 4.2(a).
1.24 "Invention" shall have the meaning set forth in Section 9.1.
1.25 "Information" shall mean all tangible and intangible (i) techniques, technology, practices, trade secrets, inventions (whether or not patentable), methods, knowledge, know-how, skill, experience, test data and results (including pharmacological,
toxicological and clinical test data and results), analytical and quality control data, results or descriptions and software and (ii) compounds, compositions of matter, cells, cell lines, assays, and physical, biological or chemical material.
1.26 "Joint Invention" shall have the meaning set forth in Section 9.1.
1.27 Joint Patent Rights" shall mean all United States and foreign patents (including, without limitation, all reissues, extensions, substitutions, confirmations, re-registrations, re-examinations, revalidations and patents of addition) and patent applications (including, without limitation, all continuations, continuations-in-part and divisions thereof) claiming a Joint Invention.
1.28 "Know-How" shall mean all Information Controlled by a Party on the Effective Date or during the Research Term that is necessary or useful for the discovery, identification, synthesis, development, manufacture or use of Active Compounds and/or Products or, in the case of Know-How of Celgene, after the Research Term insofar and to the extent that it is necessary or useful for the development or manufacture by Novartis of Products pursuant to Section 6.2(a) hereof.
1.29 "Major Market" shall mean the United States, the United Kingdom, Germany, France, Italy, Spain, Switzerland, or Japan.
1.30 "Materials" shall have the meaning set forth in Section 3.7.
1.31 "NDA" shall mean a new Drug Application and all amendments and supplements thereto filed with the FDA (as more fully defined in 21 C.F.R. 314.5 et seq.), or the equivalent application filed with any equivalent agency or governmental authority outside the United States (including any supra-national agency such as in the European Union) requiring such filing, including all documents, data, and other information concerning a pharmaceutical product which are necessary for gaining Regulatory Approval to market and sell such pharmaceutical product.
1.32 "Net Sales" shall mean, with respect to any Product, the amount
billed by Novartis or its Affiliate or sublicensee to a Third Party which is not
an Affiliate r sublicensee of the selling party (unless such Affiliate or
sublicensee is the end user of such product, in which case the amount billed
therefore shall be deemed to be the amount that would be billed to a Third Party
in an arm's-length transaction) for sales of such Product, less the following
items, as allocable to such Product: (i) trade discounts, credits or allowances,
(ii) credits or allowances additionally granted upon returns, rejections or
recalls (except where any such recall arises out of Novartis' or its Affiliate's
or sublicensee's gross negligence, willful misconduct or fraud), (iii) freight,
shipping and insurance charges, (iv) taxes, duties or other governmental tariffs
(other than income taxes) and (v) government mandated rebates, if any; all in
accordance with Novartis' standard accounting methods, which methods are in
accordance with generally accepted accounting principles.
In the event that the Product is sold as a multi-component product and is not separately invoiced, then Net Sales shall be based on that portion of the total amount billed for the multi-component product which is fairly allocatable to the Product in comparison with the other components. Such portion shall be set in good faith negotiations between the Parties at such time as the filing of applications for Regulatory Approval for the multi-component product are being seriously considered by Novartis and will take into account all relevant
factors including relative cost and therapeutic and diagnostic contributions of the components and the relative contributions of the Parties to the development of the components.
1.33 "Novartis Invention" shall have the meaning set forth in
Section 9.1.
1.34 "Novartis Patent Rights" shall mean all United States and foreign patents (including, without limitation, all reissues, extensions, substitutions, confirmations, re-registrations, re-examinations, revalidations and patents of addition) and patent applications (including, without limitation, all continuations, continuations-in-part and divisions thereof) which are Controlled by Novartis on the Effective Date or during the Research Term, or which cover any Novartis Inventions.
1.35 "Novartis Review Period" shall have the meaning set forth in
Section 4.2(b).
1.36 "Oncology Data" shall have the meaning set forth in section 4.2(a).
1.37 "Oncology Field" shall mean the treatment, prevention and diagnosis of cancers and, unless Novartis provides Celgene with written notice during the ninety (90) day period following the Effective Date that is in good faith intends to pursue research and/or development in such area, the treatment, prevention and diagnosis of ocular diseases and disorders.
1.38 "OVX Study" shall have the meaning set forth in Section 4.2(c).
1.39 "Patent Rights" shall mean Celgene Patent Rights, Novartis Patent Rights or Joint Patent Rights, as applicable.
1.40 "Phase I Clinical Trials" shall mean that portion of the clinical development program which generally provides for the first introduction into humans of a pharmaceutical properties and clinical pharmacology of the pharmaceutical product A
1.41 "Phase II Clinical Trials" shall mean that portion of the clinical development program which provides for the initial trials of a pharmaceutical product on a limited number of patients for the primary purpose of evaluating safety, dose ranging and efficacy in the proposed indication.
1.42 "Phase III Clinical Trials" shall mean that portion of the clinical development program which provides for the continued trials of a pharmaceutical product on sufficient numbers of patients to establish the safety and efficacy of a pharmaceutical product for the desired claims and indications.
1.43 "Pool" shall mean the Primary Pool, the Oncology Pool or the Remaining Pool, as applicable, each as defined below:
(a) "Primary Pool" shall have the meaning set forth in
Section 4.1(b);
(b) "Oncology Pool" shall mean the pool of Research Compounds and Active Compounds not selected by Novartis for the further profiling, development and commercialization in the Primary Field, as more fully described in Sections 4.1 and 5.1.
(c) "Remaining Pool" shall mean the pool of Research Compounds and Active Compounds not selected by Novartis for further profiling, development and commercialization in the Primary Field, as more fully described in Sections 4.1 and 5.1, and not selected by Celgene for further profiling, development and commercialization in the Oncology Field, as more fully described in Section 5.2(a).
1.44 "Primary Field" shall mean the treatment, prevention and diagnosis of osteoporosis.
1.45 "Product" shall mean a product, whether in development or commercialized, containing any formulation or dosage of (a) a Candidate Compound or a Final Selected Compound or a Back-Up Compound substituted for any such final Selected Compound or (b) a compound (i) which is a derivative of any Research Compound discovered by Novartis after the Research Term, or (ii) identified, discovered or developed at any time using Confidential Information of Celgene, in each of the cases described in Section 3.8 hereof; and shall mean a Primary Product or an Additional Product, each as defined below:
(a) "Primary Product" shall mean a product selected pursuant to the provisions of Sections 4.1 and 5.1 hereof for development primarily in the Primary Field and secondarily in Additional Fields.
(b) "Additional Product" shall mean (a) a Product selected pursuant to the provisions of Section 5.3 hereof for development in one or more Additional Fields and (b) a Product that was initially developed as a Primary Product but whose development in the Primary Field, but not in the Additional Field(s) for which it is also being developed, had to be discontinued by Novartis for scientific or commercial or strategic reasons.
A Primary Product and an Additional Product may also be used in combination with any other pharmaceutical product or as a component of a multi-component product.
1.46 "Project Contact Persons" shall have the meaning set forth in
Section 2.6.
1.47 "Regulatory Approval" shall mean any approval (including price and reimbursement approvals), licenses, registrations or authorizations of any supra-national, federal, state or local regulatory agency, department, bureau or other government entity, necessary for the manufacture, use, storage, import, transport or sale of a pharmaceutical product in a regulatory jurisdiction.
1.48 "Research Compound" shall mean (a) any SERM that is Er(alpha)Selective that is Controlled by Celgene as of the Effective Date or during the Research Term and (b) any derivative or isomer thereof which is Controlled by a Party whether during or after the Research Term, and (c) any other compound discovered, identified or developed by a Party in the course and as a result of the Research Program. Research Compounds shall specifically exclude Celgene's proprietary compound known as SPC0008490.
1.49 "Research Management Committee" or "RMC" shall mean the research management committee composed of representatives of Celgene and Novartis described more fully in Section 2.1 hereof.
1.50 "Research Plan" shall mean the detailed description of the research activities to be performed by the Parties in the Field of Cooperation set forth in Exhibit B hereto, as revised from time to time by the RMC pursuant to Section 2.5.
1.51 "Research Program" shall mean the program of research in the Field of Cooperation in which Celgene and Novartis will participate under this Agreement during the Research Term and which is described generally in the Research Plan.
1.52 "Research Term" shall mean the period of two (2) years from the Effective Date, unless terminated earlier pursuant to Article 12, subject to extension in accordance with Section 3.3.
1.53 "Royalty Term" shall have the meaning set forth in section 7.3.
1.54 "SP500263 Series" shall mean Celgene's proprietary compounds claimed in U.S. Patent Application Serial No. 09/475,776, filed December 1999 (or any continuation, continuation-in-part or division thereof), including, without limitation, SP500263, SPC0001422 and SPC0001426. The SP500263 Series shall specifically exclude Celgene's proprietary compound known as SPC0008490.
1.55 "Territory" shall mean the entire world.
1.56 "Third Party" shall mean a party other than a Party and its Affiliates.
1.57 "U2OS Cells" shall mean (a) Celgene's patent U2OS cell line,
(b) Celgene's ER(alpha)-transfected U2OS cell line (clone #: B-11), or (c)
Celgene's ER(beta)-transfected U2OS cell line (clone#: 10).
1.58 "Valid Claim" shall mean either (a) a claim of an issued and unexpired patent included within the Celgene Patent Rights or the Joint Patent Rights, which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise or (b) a claim of a pending patent application included within the Celgene Patent Rights or the Joint Patent Rights, which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of said application.
2. RESEARCH PROGRAM GOVERNANCE.
2.1 RESEARCH MANAGEMENT COMMITTEE. The Research Program
established by this Agreement shall be overseen by a committee composed of three
(3) representatives of Novartis and three (3) representatives of Celgene (the
"RESEARCH MANAGEMENT COMMITTEE" or "RMC"). The Parties shall designate their
representatives on the RMC within ten business (10) days after the Effective
Date. A Party may change one or more of its representatives to the RMC at any
time. An alternate member designated by a Party may serve temporarily in the
absence of a permanent member of the RMC for such Party. Each Party shall
designate one of its representatives as a Co-Chair of the RMC. Each Co-Chair of
the RMC will be responsible for the agenda and the minutes of alternating RMC
meetings.
2.2 MEETINGS OF THE RMC. The RMC shall hold meetings at such times and places as shall be determined by the RMC, and may conduct meetings in person or by video conference or telephone conference. Face-to-face meetings shall alternate between the research offices of each Party, and shall be held not less frequently than once every three (3) months during the Research Term. Either party may permit additional employees and consultants to attend and participate (on a non-voting basis) in the RMC meetings, subject to the confidentiality provisions of Article 10.
2.3 MINUTES. Promptly after each meeting (whether held in person or by telecommunication), the responsible Co-Chair shall prepare or have prepared the minutes reporting in reasonable detail the actions taken by the RMC, the status of the Research Program, issues requiring resolution and resolutions of previously reported issues, which minutes are to be signed by each Co-Chair of the RMC.
2.4 RMC ACTIONS. Actions by the RMC pursuant to this Agreement shall be taken, in person or by proxy, only with unanimous consent of all of the representatives of the RMC. Any disagreement among members of the RMC will be resolved within the RMC based on the efficient achievement of the objectives of this Agreement. In the event that the RMC cannot reach agreement as to any matter that is subject to its decision-making authority, the matter shall be referred to the Chief Executive Officer of Celgene and the Head of Global Research of Novartis for resolution.
2.5 RMC FUNCTIONS AND POWERS. The RMC shall be responsible for the overall supervision and management of the Research Program and the regular and prompt determination of whether an Active Compound shall be, or continue to be (as applicable), included in the Primarily Pool. The principal functions of the RMC will be to foster the collaborative relationship between the Parties, and the RMC shall in particular:
(a) develop and approve the Research Plan for each year of the Research Term determining in detail the activities to be performed by the Parties under the Research Program;
(b) periodically review the Research Plan and approve amendments thereto as necessary;
(c) facilitate and monitor the technology transfer between the Parties;
(d) monitor the progress of the Research Program;
(e) create and maintain records of (i) Research Compounds
studied and Active Compounds identified in the course of the Research Program,
(ii) Candidate Compounds, Final Selected Compounds and Back-Up Compounds
selected by Novartis from the Primary Pool or the Remaining Pool for further
research and development, (iii) Research Compounds and Active Compounds selected
by Celgene from the Oncology Pool or the Remaining Pool for further research and
development, (iv) the Field(s) of Use being pursued by Novartis for each
Candidate Compound, Final Selected Compound and Back-Up Compound and (v) any
Additional Field(s) with respect to which Celgene has obtained rights under
Section 5.4;
(f) encourage and facilitate ongoing cooperation and information exchange between the Parties; and
(g) review patent issues related to Inventions.
2.6 PROJECT CONTACT PERSONS. Each Party shall appoint a "PROJECT CONTACT PERSON" to perform the day-to-day interactions with the other Party's Project Contact Person and to manage the day-to-day conduct of the Research Program.
2.7 OBLIGATIONS OF PARTIES. Novartis and Celgene shall provide the RMC and its authorized representatives with reasonable access during regular business hours to all records and documents of the respective Parties specific to the Research Program that the RMC may reasonably require in order to perform its obligations hereunder, subject to any bona fide obligations of confidentiality to a Third Party.
3. CONDUCT OF THE RESEARCH PROGRAM
3.1 OBJECTIVES. Subject to the terms and conditions of this Agreement, Celgene and Novartis shall conduct collaborative research activities in the Field of Cooperation in accordance with the Research Plan with the goals of (a) developing and commercializing one or more Active Compounds in the SPS00263 Series, and (b) identifying, through a chemical derivatisation program conducted by Celgene with Novartis' participation, one or more Back-Up Compounds with optimized properties and continuing to profile the effect of such compounds biologically.
3.2. CONDUCT OF THE RESEARCH. Promptly after the Effective Date and from time to time as necessary during the course of the Research Program, each Party will disclose to the other the Know-How and Patent Rights of such Party as the other Party reasonably needs to conduct its obligations and assigned tasks assigned in the Research Plan. Each Party shall conduct its activities assigned in the Research Plan in a good scientific manner, and in compliance in all material respects with the requirements of applicable laws and regulations and with applicable good laboratory practices and good manufacturing practices, to attempt to achieve its objectives efficiently and expeditiously. Each Party shall maintain laboratories, offices and all other facilities reasonably necessary to carry out the activities to be performed by such Party pursuant to the Research Plan. In conformity with standard pharmaceutical and biotechnology industry practices and the terms and conditions of this Agreement, each Party shall prepare and maintain, or shall cause to be prepared and maintained, complete and accurate written records, accounts, notes, reports and data with respect to activities conducted pursuant to the Research Program and, upon the other Party's written request, shall send legible copies of the aforesaid to the other Party. Upon reasonable advance notice, each Party agrees to make its employees and non-employee consultants reasonably available at their respective places of employment to consult with the other Party on issues arising during the Research Program and in connection with any request from any regulatory agency, including, without limitation, regulatory, scientific, technical and clinical testing issues.
3.3. RESEARCH TERM EXTENSION. Novartis shall have the option, but not the obligation, in its sole discretion, to extend the Research Team for an additional one (1) year period subject to its payment of the funding provided for in Section 3.4. Novartis shall exercise such option, if at all, by giving Celgene written notice not less than ninety (90) days prior to the second (2nd) anniversary of the Effective Date.
3.4. RESEARCH COMMITMENT AND PRIMARY DATA ACCESS. During the Research Term, the Parties shall diligently conduct the Research Program in accordance with the Research Plan as revised from time to time by the RMC. Without limiting the generality of
the foregoing, Celgene shall devote to the Research Program eight (8) FTEs during each year of the Research Term; provided, however, that Celgene may, in its sole discretion, devote such additional number of FTEs to the Research Program as it deems appropriate; and provided, further, that if Novartis elects to extend the Research Term in accordance with Section 3.3, Novartis shall provide, unless otherwise agreed by the Parties in writing, funding for such eight (8) Celgene FTEs for such third (3rd) year of the Research Team at the rate to be agreed by the Parties, which rate shall in no event be less than $250,000 per FTE. The amounts due to Celgene under the preceding sentence shall be payable in advance in equal quarterly installments for the third (3rd) year of the Research Term, within twenty (20) business days of receipt of an invoice from Celgene.
Celgene shall grant Novartis access to all primary data generated by or on behalf of Celgene in the course of the Research Program. Novartis shall have the right, at reasonable intervals (but not more frequently than once per quarter), at Novartis' own expense and subject to the confidentiality provisions of this Agreement, to make copies of Celgene's primary data for archiving and regulatory purposes.
3.5 RESEARCH REPORTS. Each Party each shall keep the other Party fully informed as to all discoveries and technical developments (including, without limitation, any Inventions) made under the Research Program. In particular, Celgene and Novartis each shall prepare, and distribute to all members of the RMC, no later than ten (10) business days prior to the next RMC meeting, a reasonably detailed written summary report, in such form and format and setting forth such information regarding the Research Program as determined from time to time by the RMC. Nothing herein shall require either Party to disclose information received from a Third Party which remains subject to bona fide confidentiality obligations to such Third Party.
3.6 SUBCONTRACTS. Novartis and Celgene may perform some of their obligations under the Research Plan through one or more subcontractors, provided that (i) none of the rights of either Party hereunder are diminished or otherwise adversely affected as a result of such subcontracting, and (ii) the subcontractor undertakes in writing obligations of confidentiality and non-use regarding Confidential Information which are substantially the same as those undertaken by the Parties pursuant to Article 10 hereof. In the event either Party performs one or more of its obligations under the Research Plan through a subcontractor, then such Party will at all times be responsible for the performance and payment of such subcontractor.
3.7 MATERIALS TRANSFER. In order to facilitate the Research Program, either Party may provide to the other Party certain biological materials or chemical compounds including, but not limited to, Research Compounds, receptors, reagents and screens (collectively, "MATERIALS") Controlled by the supplying Party (other than under this Agreement) for use by the other Party in furtherance of the Research Program. Except as otherwise provided under this Agreement, all such Materials delivered to the other Party will remain the sole property of the supplying Party, will be used only in furtherance of the Research Program and solely under the control of the other Party, will not be used or delivered to or for the benefit of any Third Party without the prior written consent of the supplying Party, and will not be used in research or testing involving human subject unless specifically agreed to by the supplying Party in writing. The Materials supplied under this Section 3.7 must be used with prudence and appropriate caution in any experimental work, because not all of their characteristics may be known. THE MATERIALS ARE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.
3.8 RESTRICTED ACTIVITIES.
(A) Each Party shall be free to conduct research, development and commercialization in any field with respect to compounds other than ER(alpha)-Selective SERMs.
(B) Celgene Provisions during Research Term: During the Research Term, Celgene shall collaborate exclusively with Novartis to identify ER(alpha)-SERMs in the Primary Field.
(C) Novaris Provisions during Research Term: During the Research Term, neither Novartis nor any of its Affiliates shall (i) identify or conduct research with respect to any ER(alpha)-Selective SERM in the Primary Field using the Celgene Approach except as part of the Research Program or (ii) develop or commercialize any ER(alpha)-Selective SERM in the Primary Field except as part of the Research Program. Novartis is free, however, to identify and develop ER(alpha)-Selective SERMs covered by the terms of this Agreement in any other indication (including oncology); provided that Novartis does not use the Celgene Approach, provided further that to the extent such compounds are derivatives of the SP500263 Series or derivatives of Research Compounds, or discovered, identified or developed using any Confidential Information of Celgene, such compounds shall be subject to the provisions of Sections 7.2, 7.3 and 7.4 and Article 8 hereof.
During the Research Term, Novartis shall not be allowed to enter into research alliances with any Third Parties aimed at identifying ER(alpha)-Selective SERMs in the Primary Field using the Celgene Approach.
(D) Novartis Provisions after Research Term: Following expiration of the Research Term and subject to Section 3.8(e) below, Novartis shall have the right to conduct, internally or in collaboration with Third Parties, research, development or commercialization with respect to SERMs that are ER(alpha)-Selective, provided that (a) Novartis and/or its Third Party collaborators, as applicable, do not use the Celgene Approach, and (b) to the extent such compounds are derivatives of the SP500263 Series or derivatives of Research Compounds, or discovered, identified or developed using Confidential Information of Celgene, such compounds shall be subject to the provisions of Sections 7.2, 7.3 and 7.4 and Article 8 hereof. If, following the Research Term, Novartis pursues, internally or in collaboration with Third Parties, any such research, development or commercialization of SERMS that are ER(alpha)-Selective, then Novartis shall keep Celgene informed on important pre-clinical and clinical milestones for ER(alpha)-Selective SERM development compounds not covered by this Agreement, both internally developed by Novartis or licensed in by Novartis (such as initiation of toxicology and safety studies, IND filing, commencement of Phase I, Phase II and Phase III Clinical Trials, NDA filing and Regulatory Approval), in order to permit Celgene to ascertain: (x) Novartis' diligence in pursuing development and commercialization of Products hereunder relative to such other compounds; and (y) whether any payments are due to Celgene under Sections 7.2, 7.3 and/or 7.4 hereof with respect to such compounds.
(E) Development Compounds Licensed-In by Novartis: In the event that Novartis, during the term of this Agreement, licenses from a Third Party any ER(alpha)-Selective SERM that is at the same or at a more advanced developmental stage in an indication for which also a Product is being developed by Novartis (unless such licensed compound is at a development stage so significantly ahead of such Product that it can be reasonably assumed in both Parties' opinion that it will not negatively affect the commercial potential of a Product) then all rights to such Product with respect to such indication shall revert back to Celgene.
4. ACTIVE COMPOUNDS
4.1 IDENTIFICATION OF ACTIVE COMPOUNDS IN THE PRIMARY FIELD.
(A) Celgene, with such participation of Novartis personnel as determined by the RMC, shall perform chemical derivatisation activities with respect to the SP500263 Series and other Research Compounds in the Field of Cooperation in accordance with the Research Plan. Research Compounds shall, as promptly as practicable, be tested as provided in the Research Plan in order to identify compounds which meet the criteria for Active Compounds. Each Party shall promptly disclose the results of such activities to the RMC in accordance with Section 3.5 hereof.
(B) Upon the determination that a Research Compound satisfies the criteria for an Active Compound, then such Active Compound shall become part of a pool of Active Compounds for potential further development and commercialization by Novartis in the Primary Field in accordance with the terms of this Agreement (the "PRIMARY POOL").
(i) Any Research Compound which is determined by the RMC (which determination shall be noted in the minutes of the applicable RMC meeting) not to meet the criteria for Active Compounds shall, upon such determination, automatically be excluded from the Primary Pool and included in the Oncology Pool, subject to Section 5.2(a) and 5.2(b).
(ii) On a regular and prompt basis during the Research Term, the RMC shall determine in good faith which of the Active Compounds in the Primary Pool are no longer viable candidates for further profiling, development and commercialization for use in the Primary Field (which determination shall be noted in the minutes of the applicable RMC meeting), and, upon such determination, such Active Compounds shall automatically be excluded from the Primary Pool and included in the Oncology Pool, subject to Section 5.2(a); provided, however, that Novartis shall have the continued right to study all Oncology Pool compounds for their potential in the Primary Field and in any Additional Field (it being understood that Novartis may only obtain a license to develop or commercialize any such compound after such compound becomes part of the Remaining Pool).
4.2 CELGENE ACTIVITIES.
(A) Celgene shall have the right, in its discretion and at its sole expense, to perform chemical derivatisation activities outside the Research Program with respect to compounds in the SP500263 Series in addition to Celgene's proprietary compounds known as SP500263, SPC0001422, and SPC0001426 and other Research Compounds (including, without limitation, Active Compounds within the Primary Pool) in the Oncology Field (the
"INDEPENDENT RESEARCH"). Novartis hereby acknowledges that Celgene has, prior to the Effective Date, made analogs of the compounds in the SP500263 Series as part of Celgene's internal research program and that such analogs shall be subject to the provisions of this Section 4.2. Celgene shall promptly disclose to Novartis any Active Compounds identified or discovered by Celgene in the course of such activities. Without limiting the generality of the foregoing, Celgene shall disclose to Novartis in writing, with respect to each Active Compound identified or discovered by Celgene in the course of the Independent Research information regarding the potency of such Active Compound for inhibition of II-6 release from ER(alpha) or ER(beta)-transferred U2OS cells, and the chemical structure and MCF7 cell and, optionally, other selected tumor cell line profile of such Active Compound (collectively, the "ONCOLOGY DATA"). Upon Celgene's disclosure to Novartis of, the Oncology Data with respect to an Active Compound, such Active Compound shall become part of the Primary Pool, subject to the provisions of this Section 4.2.
(B) As soon as practicable (and in any event within thirty (30) days
or such longer period as noted in the RMC minutes) following Novartis' receipt
of Oncology Data regarding any Active Compound pursuant to Section 4.2(a) (the
"NOVARTIS REVIEW PERIOD"), Novartis shall in good faith either (i) inform
Celgene of its intention to enter such Active Compound into a pharmacokinetic
study or (ii) inform Celgene of its intention to enter such Active Compound into
another primary in vivo study (e.g., determination of plasma cholesterol) or
(iii) notify Celgene in writing that Novartis declines to conduct further
research and development thereon. Novartis shall, within two (2) months
following any such notice under either (i) or (iii) above with respect to any
Active Compound, enter such Active Compound into a pharmacokinetic study or
other primary in vivo study, as applicable. Any Active Compound of which
Novartis does not inform Celgene during the Novartis Review Period of its
intention to enter into either (i) or (ii) above in the Primary Field shall,
upon the earlier of Novartis' notice to Celgene pursuant to the preceding clause
(iii) or the expiration of the Novartis' Review Period, automatically be
excluded from the Primary Pool and included in the Oncology Pool, subject to the
provisions of Section 5.2(b).
(C) With respect to each Active Compound with respect to which
Novartis informs Celgene during the Novartis Review Period of its intention to
enter into a pharmakinetic study or another primary in vivo study pursuant to
Section 4.2(b), Novartis shall have twenty (20) business days after completion
of such study to notify Celgene in writing either (i) that Novartis in good
faith intends to enter such Active Compound into a 28-day ovariectomized rat
model in the Primary Field (each, an "OVX STUDY") or (ii) that Novartis declines
to conduct further research and development thereon. Upon the earlier of
Novartis' notice to Celgene pursuant to the preceding clause (ii) or Novartis'
failure to provide Celgene with any notice pursuant to the preceding clause (i)
or (ii) prior to the expiration of such twenty (20) business day period with
respect to such Active Compound, such Active Compound shall automatically be
excluded from the Primary Pool and included in the Oncology Pool, subject to the
provisions of Section 5.2(b).
(D) With respect to each Active Compound that Novartis elects to enter into an OVX Study pursuant to Section 4.2(c), Novartis shall as soon as practicable (and in any event with three (3) months after the date of notice pursuant to Section 4.2(c)(i)) complete such OVX Study and review the results thereof. On or prior to the end of such three (3) month period. Novartis shall disclose to the RMC the results of such OVX Study. The RMC shall then promptly and in good faith determine whether such Active Compound (x) shall become a Candidate Compound in the Primary Field or (y) may be pursued by
Celgene in the Oncology Field, in which case such Active Compound shall automatically be excluded from the Primary Pool and included in the Oncology Pool, subject to the provisions of Section 5.2(b).
(E) Notwithstanding the conditions in Sections 4.2(b) through (d)
above, in the event that the number of Active Compounds exceeds the capacity of
the in vivo resources assigned by Novaris to meet the timelines determined in
Section 4.2(b), 4.2(c) and 4.2(d), Celgene and Novartis shall agree such other
timelines as both parties feel are appropriate, such amended timelines to be
subsequently confirmed in writing by the Parties.
5. SELECTION AND DEVELOPMENT OF COMPOUNDS
5.1 SELECTION AND DEVELOPMENT OF CANDIDATE COMPOUNDS, FINAL SELECTED COMPOUNDS AND BACK-UP COMPOUNDS BY NOVARTIS IN THE PRIMARY FIELD.
(A) Novartis shall use its commercially reasonable efforts to conduct development on Active Compounds within the Primary Pool in the Primary Field to determine whether one or more of such compounds meet the criteria Novartis applies to compounds to qualify for selection as Candidate Compounds or Back-Up Compounds or for development as Final Selected Compounds in the Primary Field. Novartis shall keep Celgene informed as to the progress of the profiling activities of all such Active Compounds. Without limiting the generality of the foregoing, Novartis shall regularly, promptly and in good faith notify Celgene in writing of those Active Compounds as to which Novartis is no longer pursuing, or does not intend to pursue, development in the Primary Field. Upon such notification with respect to an Active Compound, such Active Compound shall automatically be excluded from the Primary Pool and included in the Oncology Pool, subject to the provisions of Section 5.2(b).
(B) Novartis shall select from the Primary Pool those Active Compounds which Novartis desires, and in good faith intends, to select as Candidate Compounds for development as Final Selected Compounds (or Back-Up Compounds therefor) in the Primary Field, and shall give prompt notice to Celgene of each Compound which has been selected as a Candidate Compound, Final Selected Compound or Back-Up Compound. Novartis hereby agrees that it shall not be permitted to file an IND for the Primary Field, or for any other Field of Use as to which Novartis has rights hereunder, with respect to any Active Compound hereunder without first designating such compound as a Candidate Compound, Final Selected Compound or Back-Up Compound. The Candidate Compounds, Final Selected Compounds and Back-Up Compounds identified by Novartis as such from the Primary Pool shall be noted in the minutes of the RMC meeting immediately succeeding such identification. Novartis shall use its commercially reasonable efforts to conduct such preclinical and human clinical trials of Final Selected Compounds as Novartis determines are necessary or desirable to obtain Regulatory Approvals to manufacture and market Products incorporating such Final Selected Compound in the Primary Field in the Territory. Novartis shall use its commercially reasonable efforts to seek all necessary Regulatory Approvals required for marketing a Product in the Primary Field in the Major Markets and such other countries where Novartis markets its own products of similar commercial potential.
(C) With respect to any Candidate Compounds or Final Selected Compound or Product that Novartis is diligently developing or commercializing in the Primary Field, Novartis may also develop and commercialize such Candidate Compound or Final Selected Compound or Product in one or more Additional Fields, subject to Section 5.4.
(D) Novartis shall keep Celgene informed as to the progress of the development of all Candidate Compounds and Final Selected Compounds and Products in the Primary Field (and any Additional Field also being pursued with respect thereto) by providing to Celgene reasonably detailed written six-monthly reports which shall describe the progress of the development and regulatory filings with respect to Candidate Compounds or Final Selected Compounds or Products, as applicable.
(E) Any Active Compounds remaining in the Primary Pool as of the expiration of the Research Term which have not been selected as Candidate Compounds or Final Selected Compounds or Back-Up Compounds shall, upon such expiration, automatically be excluded from the Primary Pool and included in the Oncology Pool, subject to Section 5.2(a).
5.2 SELECTION AND DEVELOPMENT OF COMPOUNDS BY CELGENE WITHIN THE ONCOLOGY POOL IN THE ONCOLOGY FIELD.
(A) Celgene may select from the Oncology Pool those Research Compounds and/or Active Compounds which Celgene desires, and in good faith intends, to develop as products in the Oncology Field, and shall give prompt notice to Novartis of each compound which has been so selected. The Research Compounds and Active Compounds selected by Celgene from the Oncology Pool for development as products in the Oncology Field shall be noted in the minutes of the RMC meeting immediately succeeding such selection. Celgene may in its sole discretion develop and commercialize products containing any such selected Research Compound or Active Compound in the Oncology Field. Celgene shall regularly, promptly and in good faith notify Novartis in writing of those Research Compounds and/or Active Compounds as to which Celgene is no longer pursuing, or does not intend to pursue, development in the Oncology Field. Upon such notification with respect to an Active Compound, such Active compound shall automatically be excluded from the Oncology Pool and included in the Remaining Pool, subject to the provisions of Sections 5.3 and 5.4. On a regular and prompt basis during the Research Term, Celgene shall determine in good faith which of the Research Compounds and/or Active Compounds in the Oncology Pool are no longer viable candidates for further development and commercialization for use in the Oncology Field (which determination shall be noted in the minutes of the applicable RMC meeting), and, upon such determination, such Research Compounds or Active Compounds shall automatically be excluded from the Oncology Pool and included in the Remaining Pool.
(B) Novartis shall have the right to conduct research outside the Oncology Field with respect to Research Compounds and Active Compounds in the Oncology Pool, provided that so long as such compounds remain in the Oncology Pool, they shall remain subject to the provisions of Section 5.2(a).
(C) Any Research Compounds and Active Compounds remaining in the on Oncology Pool as the expiration of the Research Term which have not been selected by Celgene for development and commercialization in the Oncology Field shall, upon such expiration, automatically be excluded from the Oncolgoy Pool and included in the Remaining Pool.
5.3 SELECTION AND DEVELOPMENT OF COMPOUNDS BY NOVARTIS WITHIN THE REMAINING POOL IN ADDITIONAL FIELDS (ADDITIONAL PRODUCTS).
(A) During the term of this Agreement, Novartis may conduct research and development on Research Compounds and Active Compounds within the Remaining Pool in one or more Additional Fields to determine whether one or more of such compounds meet the criteria Novartis applies to compounds to qualify for selection as Candidate Compounds for development as Final Selected Compounds or for designation as Back-Up Compounds therefor as Additional Products in such Additional Field(s). Novartis shall keep Celgene informed, in writing, as to the progress of the research and development of all such Research Compounds and Active Compounds, including, without limitation, the Additional Field(s) being pursued by Novartis with respect thereto.
(B) Novartis may select from the Remaining Pool those Research Compounds and/or Active Compounds which Novartis desires, and in good faith intends, to declare as Candidate Compounds for development as Final Selected Compounds (or Back-Up Compounds therefor) as Additional Products in one or more Additional Fields, and shall give prompt notice to Celgene of each compound which has been selected as a Candidate Compound or Final Selected Compound or Back-Up Compound, including, without limitation, the Additional Field(s) being pursued by Novartis with respect thereto. Novartis hereby agrees that it shall not be permitted to file an IND for the applicable Additional Field(s) with respect to any Research Compound or Active Compound hereunder without first designating such compound as a FInal Selected Compound or Back-Up Compound. The Candidate Compounds and Final Selected Compounds and Back-Up Compounds identified by Novartis as such from the Remaining Pool during the Research Term shall be noted in the minutes of the RMC meeting immediately succeeding such identification, together with the applicable Additional Field(s) for each such compounds. To the extent that Novartis identifies any Candidate Compound or Final Selected Compound or Back-Up Compound from the Remaining Pool after the expiration of the Research Term, Novartis shall provide Celgene with prompt written notice of such identification and the applicable Additional Field(s). Novartis shall use its commercially reasonable efforts to conduct such preclinical and human clinical trials of Final Selected Compounds in the applicable Additional Field(s) as Novartis determines are necessary or desirable to obtain Regulatory Approvals to manufacture and market Products incorporating such Final Selected Compound in such Additional field(s) in the Territory. Novartis shall use its commercially reasonable efforts to seek all necessary Regulatory Approvals required for marketing a Product in such Additional Field(s) in the Major Markets and such other countries where Novartis markets its own products of similar commercial potential.
(C) Novartis shall keep Celgene informed as to the progress of the development of all Final Selected Compounds and Primary and Additional Products in any Additional Field by providing to Celgene reasonably detailed written six-monthly reports which shall describe the progress of the development and regulatory filings with respect to Candidate Compounds or Final Selected Compounds or Products, as applicable.
5.4 SELECTION AND DEVELOPMENT OF COMPOUNDS WITHIN THE REMAINING POOL BY CELGENE IN ADDITIONAL FIELDS.
(A) Subject to the provisions of Sections 6.1(a) and 6.1(b) hereof, Celgene may, at any time during the term of this Agreement, notify Novartis of Celgene's interest in pursuing research and development of Research Compounds and/or Active Compounds
included in the Remaining Pool (to the extent that such compounds are not then Candidate Compounds or Final Selected Compounds or Back-Up Compounds of Novartis in one or more Additional Fields) in any Additional Field which is not then being pursued by Novartis, as reflected in Novartis' six-monthly reports under Sections 5.1(d) and 5.3(c). Promptly following such notice, the Parties shall discuss in good faith their respective interests in pursuing such compounds and such Additional Field and, if Novartis is neither pursuing, nor in good faith planning to commence, research and development of (x) any Research Compounds or Active Compounds in such Additional Field and (y) such Research Compound(s) or Active Compound(s), as the case may be, in any Additional Field, then (i) Celgene shall have the right to pursue research and development of such Research Compound(s) and/or Active Compound(s) within the Remaining Pool that are not being pursued by Novartis in such Additional Field and to commercialize any resulting products (''CELGENE PRODUCTS'') in such Additional Field, and (ii) for so long as Celgene is using commercially reasonable and diligent efforts to develop and commercialize Celgene Products in such Additional Field, the Research Compound(s) and/or Active Compound(s) contained in such Celgene Products shall be excluded from the license granted to Novartis under Section 6.2(a).
(B) In the event that during the term of this Agreement, subject to the provisions of Sections 6.1(a) and 6.1(b) hereof, Celgene desires to grant any development and commercialization license to a Third Party with respect to a Celgene Product in its applicable Additional Field, Celgene shall provide Novartis with written notice thereof and hereby grants Novartis the first right of negotiation with respect to such Celgene Product in the applicable Additional Field in accordance with this Section 5.4(b). With respect to each such Celgene Product that Celgene may offer pursuant to this Section 5.4(b), Novartis shall within thirty (30) business days after receipt of such notice notify Celgene in writing either that (i) Novartis is interested in negotiating for an exclusive commercialization license with respect to such Celgene Product in the applicable Additional Field or (ii) Novartis has no interest and therefore waives such right of first negotiation. If Novartis notifies Celgene within (30) business days that Novartis desires to negotiate for such license, the parties shall negotiate in good faith for up to ninety (90) days from such notification or such longer period as agreed between the Parties regarding the terms pursuant to which Novartis would obtain such license. Failure by Novartis to give notice of its interest or lack of interest in negotiating for such license with respect to a Celgene Product within thirty (30) business days after receipt of written notice from Celgene as described in the first sentence of this Section 5.4(b) shall be deemed to constitute a waiver by Novartis of its right of first negotiation with respect to such Celgene Product. In addition, failure of the Parties to agree within such ninety(90) day negotiation period (or such longer period as agreed between the Parties) shall be deemed to constitute a waiver by Novartis of such right of first negotiation. If Novartis waives or its deemed to waive its right of first negotiation with respect to any such Celgene Product, then Celgene shall be free to license such Celgene Product to a Third Party and Novartis shall have no further rights with respect to such Celgene Product.
(C) Any Research Compound, Active Compound and/or Additional Field to which a Party obtains rights under Sections 5.1 through 5.4 (whether by notice or by failure to provide notice within the allowed time period, if any) during the Research Term shall be noted in the minutes of the RMC meeting immediately succeeding such event. Any Research Compound. Active Compound and/or Additional Field to which a Party obtains rights under Sections 5.1 through 5.4 (whether by notice or by failure to provide notice within
the allowed time period, if any) after the Research Term shall be documented in a writing signed by each Party.
5.5 CV ASSAY.
(A) Novartis hereby acknowledges that Celgene has developed the CV Assay and agrees that, notwithstanding any other provision of this Agreement, Celgene shall have the right, in its sole discretion and at its expense, to use the CV Assay outside the Research Program to conduct optimization and related activities with respect to Research Compounds (excluding Research Compounds within the SP500263 Series). The foregoing right shall not affect Novartis' rights under this Agreement to optimize Research Compounds, whether or not within the SP500263 Series, for cardiovascuylar properties or indications using Novartis resources. Promptly following the Effective Date, Celgene shall disclose information regarding the CV Assay to Novartis, and the parties shall discuss in good faith a separate collaborative arrangement with respect to the CV Assay should Novartis have interest in such an arrangement. Except as expressly set forth in a written agreement memorializing such an arrangement, Novartis shall have no right or license to use, or to cause Celgene to use on its behalf, the CV Assay.
(B) In the event that the Parties do not enter into a separate
collaborative arrangement with respect to the CV Assay and, during the term of
this Agreement, Celgene desires to grant any commercialization license to a
Third Party with respect to a Research Compound discovered through the use of
the CV Assay in the CV Field, Celgene shall provide Novartis with written notice
thereof and hereby grants Novartis the first right of negotiation with respect
to such Research Compound in the CV Field in accordance with this Section
5.5(b). With respect to each such Research Compound that Celgene may offer
pursuant to this Section 5.5(b). Novartis shall within thirty (30) business days
after receipt of such notice notify Celgene in writing either that (i) Novartis
is interested in negotiating for an exclusive commercialization license with
respect to such Research Compound in the CV Field or (ii) Novartis has no
interest and therefore waives such right of first negotiation, if Novartis
notifies Celgene within thirty (30) business days that Novartis desires to
negotiate for such license, the parties shall negotiate in good faith for up to
ninety (90) days from such notification or such longer period as agreed between
the Parties regarding the terms pursuant to which Novartis would obtain such
license. Failure by Novartis to give notice of its interest or lack of interest
in negotiating for such license with respect to any such Research Compound
within thirty (30) business days after receipt of written notice from Celgene as
described in the first sentence of this Section 5.5(b) shall be deemed to
constitute a waiver by Novartis of its right of first negotiation with respect
to such Research Compound. In addition, failure of the Parties to agree within
such ninety (90) day negotiation period (or such longer period as agreed between
the Parties) shall be deemed to constitute a waiver by Novartis of such right of
first negotiation. If Novartis waives or is deemed to waive its right of first
negotiation with respect to any such Active Compound, then Celgene shall be free
to license such Research Compound to a Third Party in the CV Field and Novartis
shall have no further rights with respect to such Research Compound.
6. LICENSE GRANTS
6.1 RESEARCH TERM LICENSE GRANTS.
(A) GRANTS BY CELGENE. Subject to the terms and condition of this Agreement:
(i) Celgene hereby grants to Novartis and its Affiliates a worldwide, non-exclusive, non-transferable, royalty-free research license during the Research Term under Celgene Patent Rights, Celgene's interest in Joint Patent Rights and Know-How of Celgene solely for the purpose of carrying out Novartis' responsibilities under the Research Program.
(ii) Celgene hereby grants to Novartis and its Affiliates a worldwide non-exclusive, non-transferable, royalty-free research license during the Research Term under Celgene Patent Rights, Celgene's interest in Joint Patent Rights and Know-How of Celgene solely for the purpose of conducting research in one or more Additional Fields.
(B) GRANT BY NOVARTIS. Subject to the terms and conditions of this Agreement, Novartis hereby grants to Celgene and its Affiliates a worldwide, non-exclusive non-transferable, royalty-free research license during the Research Term under Novartis Patent Rights, Novartis' interest in Joint Patent Rights and Know-How of Novartis solely for the purpose of carrying out Celgene's responsibilities under the Research Program.
6.2 ADDITIONAL RESEARCH AND COMMERCIALIZATION LICENSE GRANTS.
(A) GRANT BY CELGENE. Subject to the terms and conditions of this Agreement (including, without limitation, the obligations under Sections 6.4(a) and (b)), Celgene hereby grants to Novartis and its Affiliates (x) an exclusive, royalty-bearing license in the Territory, with the right to sublicense, under Celgene Patent Rights, Celgene's interest in Joint Patent Rights and Know-How of Celgene to develop, make, have made, use, sell, offer for sale and import Products in all Fields of Use, and (y) non-exclusive, non-transferable, royalty-free research license in the Terriroty under Celgene Patent Rights, Celgene's interest in Joint Patent Rights and Know-How of Celgene solely for the purpose of conducting research on Research Compounds, Active Compounds, Candidate Compounds, Final Selected Compounds and Back-Up Compounds in all Fields of Use; provided, however, that:
(i) with respect to Additional Products, Novartis' license under this Section 6.2(a) to develop, make, have made, use, sell, offer for sale and import such Additional Products in any Additional Field shall be subject to the provisions of Sections 5.2, 5.3 and 5.4; and
(ii) with respect to Primary Products, Novartis shall be free to develop, make, have made, use, sell, offer for sale and import such Primary Products in any Additional Field, but Novartis' license under this Section 6.2(a) to develop, make, have made, use, sell, offer for sale and import a Primary Product in the Oncology Field shall become effective
(1) for the prevention of cancer, only upon start of the Phase III Clinical Studies with such Primary Product in the Primary Field; and
(2) for the therapy of cancer: only upon the First Commercial Sale of such Primary Product in a Major Market in the Primary Field.
(B) GRANT BY NOVARTIS. Subject to the terms and conditions of this Agreement, Novartis hereby grants to Celgene and its Affiliates an exclusive, fully-paid license in the Territory, with the right to sublicense, under Novartis Patent Rights, Novartis'
interest in Joint Patent Rights and Know-How of Novartis to develop, make, have made, use, sell, offer for sale and import:
(i) pharmaceutical products containing Research Compounds and Active Compounds selected by Celgene from the Oncology Pool pursuant to Section 5.2 in the Oncology Field; and
(ii) Celgene Products in each Additional Field to which Celgene obtains rights under Section 5.4.
6.3 SUBLICENSING. Novartis shall inform Celgene of each sublicense under the license granted in Section 6.2(a) above promptly after granting such sublicense. Celgene shall inform Novartis of each sublicense under the license granted in Section 6.2(b) above promptly after granting such sublicense. No sublicense shall relieve a Party of any obligations under this Agreement. Each Party shall ensure that the rights of the other Party are not adversely affected by any sublicense granted pursuant to this Section 6.3.
6.4 EXCLUSIVITY.
(A) As long as Novartis is using commercially reasonable efforts to diligently develop and/or commercialize at least one Primary Product in the Primary Field;
(i) the licenses granted to Novartis in Section 6.2(a) shall continue to be effective with respect to any Candidate Compounds, Final Selected Compound or Back-Up Compound licensed to Novartis in the Primary Field under this Agreement, subject to the milestone and royalty payment obligations of Novartis described in Article 7; and
(ii) Celgene shall not develop, make, have made, use and sell itself or through a Third Party and Er(alpha)-Selective compound for use within the Primary Field.
(B) As long as Novartis is using commercially reasonable efforts to diilgently develop and/or commercialize at least one Primary Product in the Primary Field (unless for such Product initially developed for use in the Primary Field, development in the Primary Field is subsequently discontinued for scientific, commercial or strategic reasons) and at least one Additional Product in a specific Additional Field;
(i) the licenses granted to Novartis in Section 6.2(a) shall continue to be effective with respect to any Candidate Compounds or Final Selected Compound or Back-Up Compound licensed to Novartis in such Additional Field under this Agreement, subject to the milestone and royalty payment obligations of Novartis described in Article 7; and
(ii) Celgene shall not develop, make, have made, use and sell itself or through a Third Party and Er(alpha)-Selective compound for use within such Additional Field; provided; however, that Celgene shall be permitted to pursue the development and commercialization in the CV Field of Research Compounds (excluding Research Compounds within the SP500263 Series) discovered through the use of the CV Assay in accordance with Section 5.5 hereof.
(C) Novartis shall be deemed to be using commercially reasonable efforts with respect to the provisions of Section 6.4(a) and (b) above if Novartis is actively
undertaking diligent, commercially reasonable efforts, similar to those used for other Novartis products of comparable commercial potential, for the continuing development and the commercialization of a Product in the applicable Field of Use, including, without limitation, the development and/or optimization and/or further characterization of Active Compounds within the Primary Pool, Candidate Compounds and/or Final Selected Compounds and/or Products to which it is licensed under Section 6.2(a), the performance of an active derivation and lead optimization program with respect to Active Compounds within the Primary Pool, the designation of Candidate Compounds and Final Selected Compounds and Back-Up Compounds, initiation of clinical trials, submission of regulatory filings and commercial launch of a Product.
(d) In the event Novartis fails to use commercially reasonable efforts as provided in Section 6.4(a) or (b) above, as such efforts are defined in Section 6.4(c), and provided that Novartis is not prevented in meeting its obligations to use commercially reasonable efforts by force majeure, government regulation or intervention or institution of a lawsuit by a Third Party), then Novartis' licenses to those indications in the Field of Use for which Novartis fails to use commercially reasonable efforts shall terminate and Celgene shall be free to research, develop and commercialize such Research Compound, Active Compound, Final Selected Compound, Back-Up Compound or Product alone or with a Third Party in the applicable Field of Use.
(e) During the Research Term, Novartis shall provide information regarding its commercially reasonable efforts under Sections 6.4(a) and (b) to the RMC on a quarterly basis. Thereafer, during the remainder of the term of this Agreement, Novartis shall on at least a quarterly basis provide documentation to the reasonable satisfaction of Celgene that Novartis is using commercially reasonable efforts with respect to all Final Selected Compounds, Back-Up Compounds and Products.
7. PAYMENTS
7.1 UPFRONT FEE. In partial consideration of the grant of the licenses set forth in Sections 6.1(a) and 6.2(a) above, Novartis agrees to pay to Celgene on the Effective Date (subject to Section 8.1(a)) a one-time, non-refundable fee of ten million U.S. dollars ($10,000,000).
7.2 MILESTONE PAYMENTS.
(a) PRECLINICAL MILESTONE. Novartis shall pay to Celgene the nonrefundable milestone payment set forth below in accordance with Section 8.1(a):
----------------------------------------------------------------------- MILESTONE EVENT MILESTONE PAYMENT Designation of the first Final Selected Compound $1.0 million in the Primary Field ----------------------------------------------------------------------- |
The foregoing milestone payment shall be payable only once.
(b) CLINICAL MILESTONES. With respect to each Product (irrespective of the Field of Use in which such event occurs), Novartis shall pay to Celgene the nonrefundable milestone payments set forth below in accordance with Section 8.1(a):
----------------------------------------------------------------------- MILESTONE EVENT MILESTONE PAYMENT ----------------------------------------------------------------------- Submission of IND for Product $3.0 million ----------------------------------------------------------------------- |
Submission of an NDA for Product $6.0 million ----------------------------------------------------------------------- Regulatory Approval of Product in the United States $8.0 million ----------------------------------------------------------------------- Regulatory Approval of Product in a Major Market $4.0 million other than the United States or Japan ----------------------------------------------------------------------- Regulatory Approval of Product in Japan $2.0 million ----------------------------------------------------------------------- |
provided, however, that if (i) a Product is abandoned during development after one or more of the milestone payments under this Section 7.2(b) has been made and (ii) a Product comprising or containing a Back-Up Compound is developed for the same indication as the abandoned Product to replace such abandoned Product, then only those milestone payments under this Section 7.2(b) that were not previously made with respect to such abandoned Product shall be payable with respect to the Product comprising or containing such Back-Up Compound. Payments made to Celgene pursuant to this Section 7.2 are non-refundable and may not be credited against any other payments payable by Novartis to Celgene under this Agreement.
7.3 ROYALTIES. Subject to the provisions of this Article 7, Novartis shall pay to Celgene royalties on Net Sales of Products in the Territory at the following rates:
(a) Ten percent (10%) of that portion of total annual Net Sales of Products that is less than $500 million;
(b) Eleven percent (11%) of that portion of total annual Net Sales of Products that is equal to or greater than $500 million but less than $1 billion; and
(c) Twelve percent (12%) of that portion of total annual Net Sales of Products that is equal to or greater than $1 billion.
provided, however, that royalties under this Section 7.3 shall be payable on a country-by-country basis for the longer of (i) the period that such Product or its manufacture, use or sale is covered by a Valid Claim in such country or (ii) ten (10) years from the date of First Commercial Sale of such Product in such country (the "ROYALTY TERM").
7.4 THIRD PARTY ROYALTIES. With respect to payment of royalties under Third Party licenses that are necessary for Novartis' practice of the license granted by Celgene under Section 6.2(a). Novartis may reduce the royalties otherwise owing to Celgene hereunder on Net Sales of Products by forty percent (40%) of the royalty payments made under such Third Party license; provided, however, that the royalties otherwise payable to Celgene under this Agreement shall not be reduced by more than thirty percent (30%).
8. PAYMENTS; REPORTS; AUDITS
8.1 PAYMENT; REPORTS.
(a) Upfront Fee and Milestone Payments: The payment to be made by Novartis to Celgene pursuant to Section 7.1 shall be made on or after the Effective Date within ten (10) days of receipt of an invoice from Celgene, which invoice may be delivered in advance of the Effective Date. All payments to be made by Novartis to Celgene pursuant to Sections 7.2 and 12.2(a) shall be made within twenty (20) business days of receipt of an invoice from Celgene. Novartis shall promptly (and in any event within (5) business days) following the occurrence of any event triggering a milestone payment under Section 7.2 above, notify Celgene in writing of such occurrence.
(b) Royalty Payments and Reports: Royalty payments and reports for the sale of Products shall be calculated and reported for each calendar quarter. All royalty payments due to Celgene under this Agreement shall be paid within sixty (60) days of the end of each calendar quarter, unless otherwise specifically provided herein. Each payment of royalties shall be accompanied by a report of Net Sales of Products in sufficient detail to permit confirmation of the accuracy of the royalty payment made, including, without limitation and on a country-by-country basis, the Net Sales of Products in Swiss Francs, the royalties, in U.S. dollars, payable, the method used to calculate the royalty and the exchange rates used.
8.2 EXCHANGE RATE; MANNER AND PLACE OF PAYMENT. All payments hereunder shall be payable in U.S. dollars. With respect to each quarter, for the countries other than the United States, whenever conversion of payments from any foreign currency shall be required, such conversion shall be made at the rate of exchange broadly applied by the Novartis Group to all foreign currency conversions into U.S. dollars, on the last business day of the applicable quarter. All payments owed under this Agreement shall be made by wire transfer to a bank and account designated in writing by Celgene, unless otherwise specified in writing by Celgene.
8.3 PROHIBITED PAYMENTS. Notwithstanding any other provision of this Agreement, if Novartis is prevented from paying any such royalty by virtue of the statutes, laws, codes or governmental regulations of the country from which the payment is to be made, then such royalty may be paid by depositing funds in the currency in which accrued to Celgene's account in a bank acceptable to Celgene in the country whose currency is involved.
8.4 LATE PAYMENTS. In the event that any payment, including royalty, milestone and research payments, due hereunder is not made when due, the payment shall accrue interest from the date due at the rate of one and one-half percent (1.5%) per month; provided, however, that in no event shall such rate exceed the maximum legal annual interest rate. The payment of such interest shall not limit a Party from exercising any other rights it may have as a consequence of the lateness of the payment; provided, however, that any late payment will not be considered a material breach of this Agreement unless such payment is more than three (3) months overdue.
8.5 TAXES. The party receiving royalties and other payments under this Agreement will pay any and all taxes levied on account of such payment. If any taxes are required to be withheld by the paying party, it will (a) deduct such taxes from the remitting payment, (b) timely pay the taxes to the proper taxing authority, and (c) send proof of payment to the other Party and certify its receipt by the taxing authority within sixty (60) days following such payment.
8.6 RECORDS AND AUDITS. During the Royalty Term and for a period of six
(6) years thereafter, Novartis shall keep complete and accurate records
pertaining to the development and sale or other disposition of Products in
sufficient detail to permit Celgene to confirm the accuracy of all payments due
hereunder. Celgene shall have the right to cause an independent, certified
public accountant reasonably acceptable to Novartis to audit such records to
confirm Net Sales and royalty and other payments for a period covering not more
than the preceding three (3) years. Such audits may be exercised during normal
business hours upon reasonable prior written notice to Novartis. Prompt
adjustments shall be made by the Parties to reflect the results of such audit.
Celgene shall bear the full cost of such audit unless such audit discloses a
variance of more than five percent (5%) from the amount of the Net Sales or
royalties or other payments due under this Agreement. In such case, Novartis
shall bear the full cost of such audit and shall promptly remit to Celgene the
amount of any underpayment.
9. INVENTIONS AND PATENTS.
9.1 OWNERSHIP OF INVENTIONS. Ownership of inventions conceived of or reduced to practice in the course of the Research Program ("INVENTIONS") shall be determined in accordance with the rules of inventorship under United States patent laws. Celgene shall own all Inventions conceived of and reduced to practice during the Research Term solely by its employees and agents ("CELGENE INVENTIONS"), and all patent applications and patents claiming Celgene Inventions ("Celgene Patent Rights"). Novartis shall own all Inventions conceived of and reduced to practice during the Research Term solely by its employees and agents ("NOVARTIS INVENTIONS"), and all patent applications and patents claiming Novartis Inventions ("Novartis Patent Rights"). All inventions conceived of and reduced to practice jointly by employees or agents of Celgene and employees or agents of Novartis ("JOINT INVENTIONS"), and all Joint Patents, shall be owned jointly by Celgene and Novartis ("Joint Patent Rights").
9.2 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS.
(a) Celgene shall be responsible, at its own expense, for the filing, prosecution and maintenance of all patent applications and patents within the Celgene Patent Rights. Novartis shall be responsible, at its own expense, for the filing, prosecution and maintenance of all patent applications and patents within the Novartis Patent Rights. Each Party shall consider in good faith the requests and suggestions of the other Party with respect to strategies for filing, prosecuting and maintaining such patent applications and patents. The responsible Party shall keep the other Party informed of progress with regard to the filing, prosecution, maintenance, enforcement and defense of patents applications and patents subject to this Section 9.2(a). In the event that Celgene desires to abandon any patent application or patent within the Celgene Patent Rights that claims a Celgene Invention, or if Celgene later declines responsibility for any such patent application or patent, Celgene shall provide reasonable prior written notice to Novartis of such intention to abandon or decline responsibility, and Novartis shall have the right, but not the obligation, as its own expense, to file, prosecute, and maintain such patent application or patent.
(b) The Parties shall determine by mutual agreement which Party shall be responsible for the filing, prosecution and maintenance of patent applications and patents
within the Joint Patent Rights on a case by case basis. In the event that a party responsible for the filing, prosecution and maintenance of any patent application or patent within the Joint Patent Rights desires to abandon such patent application or patent, or if such Party later declines responsibility for such patent application or patent, such Party shall provide reasonable prior written notice to the other Party of its intention to abandon or decline responsibility, and the other Party shall have the right, but not the obligation, to prepare, file, prosecute, and maintain any such patent application or patent within the Joint Patent Rights. The Parties shall share equally the costs of filing, prosecuting and maintaining patents or patent applications within the Joint Patent Rights.
9.3 COOPERATION OF THE PARTIES. Each Party agrees to cooperate fully in the preparation, filing, and prosecution of any Patent Rights under this Agreement. Such cooperation includes, but is not limited to:
(a) executing all papers and instruments, or requiring its employees or agents, to execute such papers and instruments, so as to effectuate the ownership of Patent Rights set forth in Section 9.1 and to enable the other Party to apply for and to prosecute patent applications in any country;
(b) promptly informing the other Party of any matters coming to such Party's attention that may affect the preparation, filing, or prosecution of any such patent applications; and
(c) in the event that applicable law in any country of the Territory provides for the extension of the term of any Celgene Patent Rights, Novartis Patent Rights or Joint Patent Rights, applying for and using reasonable efforts to obtain such an extention and cooperating in obtaining such extension.
9.4 INFRINGEMENT OF THIRD PARTY RIGHTS. Celgene and Novartis shall promptly notify the other in writing of any allegation by a Third Party that the exercise by either of the Parties of any license granted hereunder infringes or may infringe the intellectual property rights of such Third Party. Celgene shall have the right to control the defense of any claims with respect to the Celgene Patent Rights at its own expense and by counsel of its own choice. Novartis shall have the right to control the defense of any claims with respect to the Novartis Patent Rights at its own expense and by counsel of its own choice. In the event that such matter includes claims with respect to the Joint Patent Rights, the Party responsible for prosecution and maintenance of the applicable Joint Patent Rights under Section 9.2(b) shall have the right to control the defense of such claims by counsel of its own choice and the Parties shall share equally the costs with respect thereto. If Celgene fails to proceed in a timely fashion with regard to the defense of any claims with respect to the Celgene Patent Rights that are likely to have a material adverse effect on any Product being developed or commercialized by Novartis pursuant to a license granted hereunder, Novartis shall have the right to control any such defense of such claim at its own expense and by counsel of its own choice, and Celgene shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. If Novartis fails to proceed in a timely fashion with regard to the defense of any claims with respect to the Novartis Patent Rights that are likely to have a material adverse effect on any product being developed or commercialized by Celgene pursuant to a license granted hereunder, Celgene shall have the right to control any such defense of such claim at its own expense and by counsel of its own choice, and Novartis shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. If the responsible Party with respect to any Joint Patent Rights fails to proceed
in a timely fashion with regard to the defense of any claims with respect to the Joint Patent Rights, the other Party shall have the right to control any such defense of such claim at its own expense and by counsel of its own choice, and the first Party shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. Neither Party shall have the right to settle any patent infringement litigation under this Section 9.4 in a manner that diminishes the rights or interests of the other Party or obligates the other Party to make any payment or take any action without the prior written consent of such other Party.
9.5 INFRINGEMENT BY THIRD PARTIES. Celgene and Novartis shall promptly
notify the other in writing of any alleged or threatened infringement of any
patent included in the Celgene Patent Rights, Novartis Patent Rights or Joint
Patent Rights of which they become aware. Both Parties shall use their best
efforts in cooperating with each other to terminate such infringement without
litigation. Celgene shall have the right to bring and control any action or
proceeding with respect to infringement of any patent included in the Celgene
Patent Rights at its own expense and by counsel of its own choice. Novartis
shall have the right to bring and control any action or proceeding with respect
to infringement of any patent included in the Novartis Patent Rights at its own
expense and by counsel of its own choice. In the event any patent included in
the Joint Patent Rights is infringed by a Third Party, the Party responsible for
prosecution and maintenance of the applicable Joint Patent Rights under Section
9.2(b) shall have the right to bring and control any action or proceeding with
respect to such patent, and the Parties shall share equally in the expenses
thereof. With respect to infringement of any patent included in the Celgene
Patent Rights that is likely to have a material adverse effect on any Product
being developed or commercialized by Novartis pursuant to a license granted
hereunder, if Celgene fails to bring an action or proceeding within (a) sixty
(60) days following the notice of alleged infringement or (b) ten (10) days
before the time limit, if any, set forth in the appropriate laws and regulations
for the filing of such actions, whichever comes first, Novartis shall have the
right to bring and control any such action at its own expense and by counsel of
its own choice, and Celgene shall have the right, at its own expense, to be
represented in any such action by counsel of its own choice. With respect to
infringement of any patent included in the Novartis Patent Rights that is likely
to have a material adverse effect on any product being developed or
commercialized by Celgene pursuant to a license granted hereunder, if Novartis
fails to bring an action or proceeding within (a) sixty (60) days following the
notice of alleged infringement or (b) ten (10) days before the time limit, if
any, set forth in the appropriate laws and regulations for the filing of such
actions, whichever comes first, Celgene shall have the right to bring and
control any such action at its own expense and by counsel of its own choice, and
Novartis shall have the right, at its own expense, to be represented in any such
action by counsel of its own choice. With respect to infringement of any patent
included in the Joint Patent Rights, if the responsible Party fails to bring an
action or proceeding within (a) sixty (60) days following the notice of alleged
infringement or (b) ten (10) days before the time limit, if any, set forth in
the appropriate laws and regulations for the filing of such actions, whichever
comes first, the other Party shall have the right to bring and control any such
action at its own expense and by counsel of its own choice, and the first Party
shall have the right, at its own expense, to be represented in any such action
by counsel of its own choice. In the event a Party brings an infringement
action, the other Party shall cooperate fully, including if required to bring
such action, the furnishing of a power of attorney. Neither Party shall have the
right to settle any patent infringement litigation under this Section 9.5 in a
manner that diminishes the rights or interests of the other Party without prior
written consent of such other Party. Except as otherwise agreed to by the
Parties as part of a cost-sharing arrangement, any recovery realized as a result
of such litigation, after reimbursement of any litigation expenses of
Celgene and Novartis, shall belong to the Party who brought the action, provided that any such recovery realized by Novartis and representing damages for lost sales of Products shall be treated as Net Sales for purposes of this Agreement.
10. CONFIDENTIALITY; PUBLICATIONS
10.1 CONFIDENTIALITY. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, the Parties agree that, for the term of this Agreement and for five (5) years thereafter, the receiving Party (the "RECEIVING PARTY") shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement any Information furnished to it by the other Party (the "DISCLOSING PARTY") pursuant to this Agreement (the "CONFIDENTIAL INFORMATION") unless the Receiving Party can demonstrate by contemporaneous, competent written proof that such Confidential Information:
(a) was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the Disclosing Party;
(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;
(c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the Receiving Party in the breach of the Agreement;
(d) was disclosed to the Receiving Party, other than under an obligation of confidentiality to the Third Party, by a Third Party who had no obligation to the Disclosing Party or any Third Party not to disclose such information to others; or
(e) was independently discovered or developed by the Receiving Party without the use of Confidential Information belonging to the Disclosing Party.
10.2 AUTHORIZED DISCLOSURE. Each Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the following instances:
(a) filing or prosecuting patent applications under this Agreement;
(b) regulatory filings;
(c) prosecuting or defending litigation;
(d) complying with applicable governmental regulations;
(e) conducting preclinical or clinical trials of Products; and
(f) disclosure to Affiliates, sublicensees, employees, consultants or agents who are bound by similar terms of confidentiality and non-use at least equivalent in scope to those set forth in this Article 10.
Notwithstanding the foregoing, in the event a Party is required to make
a disclosure of the other Party's Confidential Information pursuant to this
Section 10.2 it will, except where
impracticable, give reasonable advance notice to the other Party of such disclosure and use best efforts to secure confidential treatment of such information. In any event, the Parties agree to take all reasonable action to avoid disclosure of Confidential Information hereunder. The Parties will consult with each other and agree on the provisions of this Agreement to be redacted in any filings made by the Parties with the Securities and Exchange Commission or as otherwise required by law.
10.3 PUBLICATIONS. Each Party recognizes that the publication of papers
regarding results of the research and development activities performed under the
Collaboration, including oral presentations and abstracts, may be beneficial to
both Parties provided such publications are subject to reasonable controls to
protect Confidential Information. In particular, it is the intent of the
Parties to maintain the confidentiality of any Confidential Information included
in any foreign patent application until such foreign patent application has been
published. Accordingly, each Party shall have the right to review and approve
any paper proposed for publication by the other Party, including oral
presentations and abstracts, which utilizes data generated from the
Collaboration and/or includes Confidential Information of the other Party.
Before any such paper is submitted for publication, the Party proposing
publication shall deliver a complete copy to the other Party at least forty-five
(45) days prior to submitting the paper to a publisher. The receiving Party
shall review any such paper and give its comments to the publishing Party within
thirty (30) days of the delivery of such paper to the receiving Party. With
respect to oral presentation materials and abstracts, the Parties shall make
reasonable efforts to expedite review of such materials and abstracts, and shall
return such items as soon as practicable to the publishing Party with
appropriate comments, if any, but in no event later than 30 days from the date
of delivery to the receiving Party. The publishing Party shall comply with the
other Party's request to delete references to such other Party's Confidential
Information in any such paper and agrees to withhold publication of same for an
additional one hundred eighty (180) days to permit the Parties to obtain patent
protection, if either of the Parties deem it necessary, in accordance with the
terms of this Agreement, provided however that the structure of Research
Compounds may in any case only be disclosed with the written agreement of both
Parties.
10.4 PUBLICITY. It is understood that the Parties intend to issue a joint press release announcing the execution of this Agreement and agree that each Party may desire or be required to issue subsequent press releases relating to the Agreement or activities thereunder. The Parties agree to consult with each other reasonably and in good faith with respect to the text and timing of such press releases prior to the issuance thereof, provided that a Party may not unreasonably withhold consent to such releases, and that either Party may issue such press releases as it determines, based on advice of counsel, are reasonably necessary to comply with laws or regulations or for appropriate market disclosure. In addition, following the initial joint press release announcing this Agreement, either Party shall be free to disclose, without the other Party's prior written consent, the existence of this Agreement, the identity of the other Party and those terms of the Agreement which have already been publicly disclosed in accordance herewith.
11. REPRESENTATIONS AND WARRANTIES
11.1 REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants to the other that:
(a) CORPORATE POWER. It is duly organized and validly existing under the laws of its state or country of incorporation, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof.
(b) DUE AUTHORIZATION. It is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and any person executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action.
(c) BINDING AGREEMENT. This Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.
(d) GRANT OF RIGHTS. It has not, and will not during the term of this Agreement, grant any right to any Third Party which would conflict with the rights granted to the other Party hereunder.
(e) EMPLOYEE OBLIGATIONS. All of its employees, officers and consultants participating in the Research Program have executed agreements requiring assignment to such Party of all inventions made during the course of and as a result of their association with such Party and obligating the individual to maintain as confidential the confidential information of the Party, as well as the confidential information of a Third Party which such Party may receive.
11.2 CELGENE REPRESENTATION. Celgene represents that to the best of its knowledge as of the Effective Date, the Celgene Patent Rights do not infringe any Third Party patents.
11.3 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Without
limiting the generality of the foregoing, each Party expressly does not warrant
(a) the success of any research commenced under the Research Program or (b) the
safety or usefulness for any purpose of the technology it provides hereunder.
11.4 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER.
11.5 INDEMNIFICATION.
(a) Novartis hereby agrees to save, defend, indemnify and hold harmless Celgene and its officers, directors, employees, consultants and agents from and against any
and all losses, damages, liabilities, expenses and costs, including reasonable legal expense and attorneys' fees ("LOSSES"), to which Celgene may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Losses arise directly or indirectly out of (a) the practice by Novartis of any license granted hereunder, or (b) the development, manufacture, use, handling, storage, sale or other disposition of any Product by Novartis, its Affiliates or sublicensees, except to the extent such Losses result from the gross negligence or willful misconduct of Celgene.
(b) Celgene hereby agrees to save, defend, indemnify and hold harmless Novartis and its officers, directors, employees, consultants and agents from and against any and all Losses to which Novartis may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Losses arise directly or indirectly out of (a) the practice by Celgene of any license granted hereunder, or (b) the development, manufacture, use, handling, storage, sale or other disposition of any product by Celgene, its Affiliates or sublicensees, except to the extent such Losses result from the gross negligence or willful misconduct of Novartis.
(c) In the event a Party seeks indemnification under this Section 11.5, it shall inform the other Party (the "INDEMNIFYING PARTY") of a claim as soon as reasonably practicable after it receives notice of the claim, shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim.
12. TERM AND TERMINATION
12.1 TERM. This Agreement shall commence as of the Effective Date and shall continue until the last day of the Royalty Term, unless terminated earlier as provided herein.
12.2 TERMINATION BY NOVARTIS.
(a) During the Research Term, Novartis may at any time without cause terminate this Agreement by giving ninety (90) days prior notice.
(b) After the Research Term and up to the submission of an NDA, Novartis may terminate this Agreement regarding any Compound/Field/Country or in its entirety at any time without cause with ninety (90) days prior written notice.
(c) Following NDA submission, Novartis may terminate this Agreement at any time partially or in its entirety without cause with one hundred eighty (180) days prior written notice.
(d) In addition Novartis may terminate this Agreement on a
Product-by-Product and country-by-country basis or in its entirety with ninety
(90) days prior written notice in the event that the Product cannot be
reasonably commercialized in such country or the major part of the Territory, as
the case may be. For the purpose of this Section 12.2(d), it will be deemed
that the Product cannot be reasonably commercialized in case of, but not limited
to one of the following events: safety issues, lack of efficacy, unacceptable
pharmaceutical properties, issues on Regulatory Approvals, infringement of Third
Party intellectual property rights.
(E) Celgene will provide written notice to Novartis of any of the following proposed events: (i) a merger, reorganization or consolidation of Celgene which results in the voting securities of Celgene outstanding immediately prior to such transaction ceasing to represent at least 50% of the combined voting power of the surviving entity immediately after such transaction; or (ii) any Third Party (other than any trustee or other fiduciary holding securities under an employee benefit plan of Celgene, or any corporation or other entity owned directly or indirectly by the stockholders of Celgene in substantially the same proportion as their ownership of stock of Celgene), together with its affiliates, becoming the beneficial owner of more than 50% of the combined voting power of the outstanding securities of Celgene. Novartis may, at any time during the forty-five (45) day period after the date of such notice from Celgene, terminate this Agreement with immediate effect upon written notice to Celgene.
12.3 TERMINATION FOR CAUSE. Either Party may terminate this Agreement prior to the expiration of the term of this Agreement upon the occurrence of any of the following:
(A) Upon or after the bankruptcy, insolvency, dissolution or winding up of the other Party (other than dissolution or winding up for the purposes of reconstruction or amalgamation); or
(B) Upon or after the breach of any material provision of this Agreement by the other Party if the breaching Party has not cured such beach within sixty (60) days after written notice thereof by the non-breaching Party.
12.4 EFFECT OF EXPIRATION OR TERMINATION
(A) Upon termination of this Agreement by Novartis pursuant to
Section 12.2 (with respect to that portion of the Agreement that is terminated)
or by Celgene pursuant to Section 12.3 (i) all rights under the licenses granted
by Celgene to Novartis hereunder shall automatically terminate and revert to
Celgene, (ii) any sublicenses granted hereunder by Novartis shall remain in
effect, but shall be assigned to Celgene and (iii) the licenses granted by
Novartis to Celgene hereunder shall survive in accordance with their terms.
(B) Upon termination of this Agreement by Novartis pursuant to
Section 12.3, (i) all rights under the licenses granted by Novartis to Celgene
hereunder shall automatically terminate and revert to Novartis, (ii) any
sublicenses granted hereunder by Celgene shall remain in effect, but shall be
assigned to Novartis and (iii) the license granted under Section 6.2(a) shall
remain in effect, subject to compliance by Novartis with all applicable
provisions of this Agreement (including, without limitation, the payment
obligations set forth in Article 7).
(C) Notwithstanding any other provision of this Agreement to
the contrary, in the event that Novartis terminates this Agreement with respect
to any Compound/Field/Country or in its entirety pursuant to Section 12.2(a),
(b), (c) or (d), Novartis shall remain obligated to make payments to Celgene in
accordance with Sections 7.3, 7.4 and 7.5 and Article 8 hereof to the extent
that Novartis continues to develop and/or commercialize any product included in
the definition of "Product" hereunder.
(D) Expiration or termination of this agreement shall not
relieve the Parties of any obligation accruing prior to such expiration or
termination. Except as set forth below or elsewhere in this Agreement, the
obligations and rights of the Parties under Sections 8.6, 9.1, 11.3, 11.4, 11.5
and 12.4 (including the provisions therein that are contemplated to continue
following termination) and Article 8, 10, 13 and 14 shall survive expiration or
termination of this Agreement.
31.
(E) Within thirty (30) days following the expiration or termination of this Agreement, except to the extent and for so long as a Party retains license rights under Sections 12.4(a) or (b), each Party shall deliver to the other Party any and all Confidential Information of the other Party in its possession.
(F) Upon expiration of this Agreement, Novartis shall have a perpetual, fully paid-up, royalty-free license to Product(s).
13. DISPUTE RESOLUTION
13.1 DISPUTES. The Parties recognize that disputes as to certain matters may from time to time arise which relate to either Party's rights and/or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in section 13.2 if and when such a dispute arises between the Parties.
13.2 PROCEDURES. If any dispute arises between the Parties relating to the interpretation, breach or performance of this Agreement or the grounds for the termination thereof, and the Parties cannot resolve the dispute within thirty (30) days of a written request by either Party to the other Party, the Parties agree to hold a meeting, attended by the Chief Executive Officer of Celgene and the CEO of Novartis or their assignees, to attempt in good faith to negotiate a resolution of the dispute prior to pursuing other available remedies. If, within sixty (60) days after such written request, the Parties have not succeeded in negotiating a resolution of the dispute, such dispute shall be submitted to final and binding arbitration under the then current commercial rules and regulations of the American Arbitration association ("AAA") relating to voluntary arbitrations. The arbitration proceedings shall be held in New York, New York. The arbitration shall be conducted by one arbitrator, who is knowledgeable in the subject matter at issue in the dispute and who shall be selected by mutual agreement of the Parties or, failing such agreement, shall be selected in accordance with the AAA rules. Each Party shall initially bear its own costs and legal fees associated with such arbitration. The prevailing Party in any such arbitration shall be entitled to recover from the other Party the reasonable attorneys' fees, cost and expenses incurred by such prevailing Party in connection with such arbitration. The decision of the arbitrator shall be final and binding on the Parties. The arbitrator shall prepare and deliver to the Parties a written, reasoned opinion conferring its decision. Judgment on the award so rendered may be entered in any court having competent jurisdiction thereof.
14. MISCELLANEOUS
14.1 ASSIGNMENT. Except as expressly provided hereunder, neither this Agreement nor any rights or obligations hereunder may be assigned or otherwise transferred by either Party without the prior written consent of the other Party (which consent shall not be unreasonably withheld); provided, however, that either Party may assign this Agreement and its rights and obligations hereunder without the other Party's consent (a) in connection with the transfer or sale of all or substantially all of the business of such Party to which this Agreement relates to another Party, whether by merger, sale of stock, sale of assets or otherwise, or (b) to any Affiliate. In the event of such transaction, however, intellectual property rights of a party to such transaction other than one of the Parties to this Agreement (the "ACQUIRING PARTY"), shall not be included in the technology licensed hereunder. Notwithstanding the foregoing, any such assignment to an Affiliate shall not relieve the assigning Party of its responsibilities for performance of its obligations under this Agreement. The rights and obligations of the Parties under this Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void. 32.
14.2 FORCE MAJEURE. Neither Party shall he held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement (other than non-payment) when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, including, but not limited to, fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party.
14.3 SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
14.4 NOTICES. All notices and other communications provided for hereunder shall be in writing and shall be mailed by first-class, registered or certified mail, postage paid, or delivered personally, by overnight delivery service or by facsimile, with confirmation of receipt, addressed as follows:
If to Novartis, addressed to:
Novartis Pharma AG
P.O. Box
CH-4002 Basel-Switzerland
Attn.: General Counsel
Fax: +41-61-6859
If to Celgene, addressed to:
Celgene Corporation 7 Powder Horn Drive Warren, New Jersey 07059, USA Attn.: Chief Executive Officer Fax: (732) 805 3931
Either Party may by like notice specify or change an address to which notices and communications shall thereafter be sent. Notices sent by facsimile shall be effective upon confirmation of receipt, notices sent by mail or overnight delivery service shall be effective upon receipt, and notices given personally shall be effective when delivered.
14.5 GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York without regard to conflicts-of-laws principles.
14.6 INDEPENDENT CONTRACTORS. It is expressly agreed that Celgene and Novartis shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership or agency of any kind. Neither Celgene nor Novartis shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party.
14.7 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the exhibits attached hereto) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and
33.
understandings between the Parties hereto with respect to the subject matter hereof and supersedes and terminates all prior agreements and understandings between the Parties. There are no covenants, promises, agreements, warranties, representations conditions or understandings, either oral or written, between the Parties other than as set forth herein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties.
14.8 HEADINGS. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof.
14.9 WAIVER. Except as specifically provided for herein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waive of same or of any other of such Party's rights or remedies provided in this Agreement.
14.10 COUNTERPARTS. This Agreement may be executed in multiple counterparts (which may be delivered by facsimile), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
34.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.
CELGENE CORPORATION NOVARTIS PHARMA AG
By: /s/ Sol J. Barer By: /s/ V. Hartmann
--------------------------------- ---------------
Name: Sol J. Barer Name: V. Hartmann
--------------------------------- -----------
Title: President/Chief Operating Officer Title: Head BDIL
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EXHIBITS
A Active Compound Criteria
B Research Plan
35.
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Celgene Corporation:
We consent to incorporation by reference in the registration statements (Nos. 333-70083, 33-21462, 33-38296, 33-62510, 333-91977 and 333-39716) on Form S-8 and (Nos. 333-02517, 333-32115, 333-38861, 333-52963, 333-87197, 333-93759 and 333-94915) on Form S-3 of Celgene Corporation of our report dated February 1, 2001, which report is based in part on a report of other auditors, relating to the consolidated balance sheets of Celgene Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2000, and the related schedule, which report appears in the December 31, 2000 Annual Report on Form 10-K of Celgene Corporation.
/s/ KPMG LLP
Short Hills, New Jersey
March 16, 2001
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Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-70083, 33-21462, 33-38296, 33-62510, 333-91977 and 333-39716) and Form S-3 (Nos. 333-02517, 333-32115, 333-38861, 333-52963, 333-87197, 333-93759 and 333-94915) of Celgene Corporation and in the related Prospectuses of our report dated February 4, 2000, with respect to the financial statements of Signal Pharmaceuticals, Inc. (not presented), included in this Annual Report (Form 10-K) of Celgene Corporation for the year ended December 31, 2000.
/s/ ERNST & YOUNG LLP
San Diego, California
March 16, 2001
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