Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
 
[x]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
 
OR
 
[  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
 
Commission File Number 001-34912
CELGENE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
22-2711928
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
86 Morris Avenue, Summit, NJ
 
07901
(Address of principal executive offices)
 
(Zip Code)
 
 
(908) 673-9000
 
 
 
 
(Registrant’s telephone number, including area code)
 
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes
X
 
No
 
 
  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes
X
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
X
 
Accelerated filer
 
 
 
 
 
 
Non-accelerated filer (Do not check if a
smaller reporting company)
 
 
Smaller reporting company
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes
 
 
No
X
 
 
At July 22, 2014, 799,510,100 shares of Common Stock, par value $.01 per share, were outstanding, reflecting the two-for-one Common Stock split effected in June 2014.



Table of Contents

CELGENE CORPORATION
 
FORM 10-Q TABLE OF CONTENTS
 
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited).
 
CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share amounts)
 
 
Three-Month Periods Ended June 30,
 
Six-Month Periods Ended June 30,
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 
 
 
 
 
 
Net product sales
$
1,844.6

 
$
1,564.1

 
$
3,552.1

 
$
2,993.4

Collaborative agreements and other revenue
2.7

 
3.1

 
4.6

 
10.2

Royalty revenue
25.4

 
31.8

 
46.0

 
60.0

Total revenue
1,872.7

 
1,599.0

 
3,602.7

 
3,063.6

Expenses:
 

 
 

 
 

 
 

Cost of goods sold (excluding amortization of acquired intangible assets)
98.9

 
80.9

 
185.0

 
161.4

Research and development
456.9

 
458.1

 
1,170.6

 
910.5

Selling, general and administrative
491.8

 
418.1

 
985.9

 
787.1

Amortization of acquired intangible assets
65.3

 
65.7

 
131.0

 
131.4

Acquisition related charges, net
0.9

 
12.5

 
9.5

 
45.7

Total costs and expenses
1,113.8

 
1,035.3

 
2,482.0

 
2,036.1

Operating income
758.9

 
563.7

 
1,120.7

 
1,027.5

Other income and (expense):
 

 
 

 
 

 
 

Interest and investment income, net
7.3

 
4.5

 
13.7

 
9.3

Interest (expense)
(41.6
)
 
(19.6
)
 
(70.9
)
 
(37.5
)
Other income (expense), net
(17.8
)
 
9.2

 
(24.4
)
 
6.9

Income before income taxes
706.8

 
557.8

 
1,039.1

 
1,006.2

Income tax provision
109.0

 
79.7

 
161.6

 
143.2

Net income
$
597.8

 
$
478.1

 
$
877.5

 
$
863.0

Net income per common share (Note1):
 

 
 

 
 

 
 

Basic
$
0.75

 
$
0.58

 
$
1.09

 
$
1.04

Diluted
$
0.72

 
$
0.56

 
$
1.05

 
$
1.00

Weighted average shares (Note 1):
 

 
 

 
 

 
 

Basic
799.6

 
828.2

 
805.5

 
832.0

Diluted
831.0

 
858.5

 
838.0

 
861.9

 
See accompanying Notes to Unaudited Consolidated Financial Statements

3

Table of Contents

CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in millions)
 
 
 
Three-Month Periods Ended June 30,
 
Six-Month Periods Ended June 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
597.8

 
$
478.1

 
$
877.5

 
$
863.0

Other comprehensive income (loss):
 

 
 

 
 
 
 
Foreign currency translation adjustments
1.1

 
10.0

 
4.1

 
4.1

Net unrealized gains (losses) related to cash flow hedges:
 

 
 
 
 
 
 
Unrealized holding gains (losses), net of tax expense (benefit) of ($8.9) and $0 for the three-months ended June 30, 2014, and 2013, respectively, and ($12.6) and $0.2 for the six-months ended June 30, 2014, and 2013, respectively.
(12.8
)
 
11.5

 
(27.7
)
 
86.4

Reclassification adjustment for (gains) losses included in net income, net of tax (expense) benefit of $0.4 and $2.8 for the three-months ended June 30, 2014 and 2013, respectively, and $0.7 and $6.2 for the six-months ended June 30, 2014 and 2013, respectively.
2.6

 
(4.0
)
 
4.2

 
(0.2
)
Net unrealized gains (losses) on marketable securities available for sale:
 

 

 
 
 
 
Unrealized holding gains (losses), net of tax expense (benefit) of $16.1 and $19.9 for the three-months ended June 30, 2014 and 2013, respectively, and $45.1 and $19.9 for the six-months ended June 30, 2014 and 2013, respectively.
31.9

 
34.9

 
87.2

 
33.0

Reclassification adjustment for (gains) losses included in net income, net of tax (expense) benefit of $0.6 and $1.0 for the three-months ended June 30, 2014 and 2013, respectively, and $1.1 and $1.0 for the six-months ended June 30, 2014 and 2013.
1.0

 
1.4

 
1.9

 
2.2

Total other comprehensive income (loss)
23.8

 
53.8

 
69.7

 
125.5

Comprehensive income
$
621.6

 
$
531.9

 
$
947.2

 
$
988.5

 
See accompanying Notes to Unaudited Consolidated Financial Statements

4

Table of Contents

CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share amounts)
 
 
June 30,
2014
 
December 31,
2013
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
3,219.5

 
$
3,234.4

Marketable securities available for sale
2,993.5

 
2,452.6

Accounts receivable, net of allowances of $37.1 and $40.0 at June 30, 2014 and December 31, 2013, respectively
1,124.4

 
1,061.4

Inventory
360.0

 
340.4

Deferred income taxes
27.0

 
25.3

Other current assets
382.6

 
436.4

Total current assets
8,107.0

 
7,550.5

Property, plant and equipment, net
605.1

 
593.4

Intangible assets, net
4,325.8

 
2,839.7

Goodwill
2,191.2

 
2,041.2

Other assets
372.8

 
353.4

Total assets
$
15,601.9

 
$
13,378.2

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Short-term borrowings
$
192.3

 
$
544.8

Accounts payable
184.5

 
156.2

Accrued expenses
848.8

 
1,001.1

Income taxes payable
15.6

 
16.0

Current portion of deferred revenue
33.5

 
27.7

Other current liabilities
216.9

 
199.7

Total current liabilities
1,491.6

 
1,945.5

Deferred revenue, net of current portion
27.7

 
23.7

Income taxes payable
259.2

 
235.0

Deferred income taxes
659.5

 
804.9

Other non-current liabilities
1,569.3

 
582.7

Long-term debt, net of discount
6,743.3

 
4,196.5

Total liabilities
10,750.6

 
7,788.3

Commitments and Contingencies (Note 15)


 


Stockholders’ Equity:
 

 
 

Preferred stock, $.01 par value per share, 5.0 million shares authorized; none outstanding at June 30, 2014 and December 31, 2013, respectively

 

Common stock, $.01 par value per share, 1,150.0 million shares authorized; issued 915.1 million and 906.5 million shares at June 30, 2014 and December 31, 2013, respectively (Note 1)
9.2

 
9.1

Common stock in treasury, at cost; 115.9 million and 101.5 million shares at June 30, 2014 and December 31, 2013, respectively (Note 1)
(9,837.1
)
 
(7,662.1
)
Additional paid-in capital (Note 1)
9,165.5

 
8,676.4

Retained earnings
5,350.0

 
4,472.5

Accumulated other comprehensive income
163.7

 
94.0

Total stockholders’ equity
4,851.3

 
5,589.9

Total liabilities and stockholders’ equity
$
15,601.9

 
$
13,378.2

 
See accompanying Notes to Unaudited Consolidated Financial Statements

5

Table of Contents

CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
 
Six-Month Periods Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 

 
 

Net income
$
877.5

 
$
863.0

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
52.1

 
47.4

Amortization
136.4

 
135.8

Deferred income taxes
(181.1
)
 
(94.9
)
Impairment charges
2.0

 
18.8

Change in value of contingent consideration
9.5

 
45.7

Share-based compensation expense
207.8

 
135.4

Share-based employee benefit plan expense
17.6

 
14.0

Reclassification adjustment for cash flow hedges included in net income
4.9

 
6.0

Unrealized change in value of derivative instruments
(16.5
)
 
(21.0
)
Other, net
(1.2
)
 
6.9

Change in current assets and liabilities, excluding the effect of acquisitions:
 

 
 

Accounts receivable
(61.8
)
 
(74.8
)
Inventory
(19.1
)
 
(45.2
)
Other operating assets
36.7

 
(53.7
)
Accounts payable and other operating liabilities
(20.1
)
 
97.5

Income tax payable
24.8

 
10.7

Payment of contingent consideration
(5.0
)
 

Deferred revenue
8.3

 
12.5

Net cash provided by operating activities
1,072.8

 
1,104.1

Cash flows from investing activities:
 

 
 

Proceeds from sales of marketable securities available for sale
1,144.0

 
1,329.1

Purchases of marketable securities available for sale
(1,556.3
)
 
(1,773.4
)
Payments for acquisition of business
(710.0
)
 

Purchases of intellectual property and other assets
(2.0
)
 
(9.4
)
Capital expenditures
(61.4
)
 
(61.3
)
Purchases of investment securities
(22.5
)
 
(10.4
)
Other investing activities
2.3

 
(1.5
)
Net cash used in investing activities
(1,205.9
)
 
(526.9
)
Cash flows from financing activities:
 

 
 

Payment for treasury shares
(2,182.2
)
 
(1,877.9
)
Proceeds from short-term borrowing
2,235.4

 
3,211.0

Principal repayments on short-term borrowing
(2,588.0
)
 
(2,633.8
)
Proceeds from issuance of long-term debt
2,470.6

 

Proceeds from sale of common equity put options
5.2

 

Payment of contingent consideration
(15.0
)
 

Net proceeds from share-based compensation arrangements
94.0

 
320.5

Excess tax benefit from share-based compensation arrangements
90.0

 
81.2

Net cash provided by (used in) financing activities
110.0

 
(899.0
)
Effect of currency rate changes on cash and cash equivalents
8.2

 
(26.3
)
Net decrease in cash and cash equivalents
(14.9
)
 
(348.1
)
Cash and cash equivalents at beginning of period
3,234.4

 
2,090.4

Cash and cash equivalents at end of period
$
3,219.5

 
$
1,742.3


 See accompanying Notes to Unaudited Consolidated Financial Statements

6

Table of Contents

CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(Dollars in millions)
 
 
Six-Month Periods Ended June 30,
 
2014
 
2013
Supplemental schedule of non-cash investing and financing activity:
 

 
 

Fair value of contingent consideration issued in business combinations
$
1,060.0

 
$

Change in net unrealized (gain) loss on marketable securities available for sale
$
(132.3
)
 
$
(52.9
)
Investment in NantBioScience, Inc. preferred equity
$
90.0

 
$

Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
75.9

 
$
45.8

Income taxes paid
$
193.4

 
$
154.8

  
See accompanying Notes to Unaudited Consolidated Financial Statements

7

Table of Contents

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In all accompanying tables, amounts of dollars expressed in millions,
except per share amounts, unless otherwise indicated)
 
1. Nature of Business and Basis of Presentation
 
Celgene Corporation, together with its subsidiaries (collectively “we,” “our,” “us,” “Celgene” or the “Company”) is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. We are dedicated to innovative research and development designed to bring new therapies to market and are involved in research in several scientific areas designed to deliver proprietary next-generation therapies, targeting areas such as intracellular signaling pathways in cancer and immune cells, immunomodulation in cancer and autoimmune diseases and therapeutic application of cell therapies.
 
Our primary commercial stage products include REVLIMID ® , ABRAXANE ® , VIDAZA ® , POMALYST ® /IMNOVID ® , THALOMID ®  (inclusive of Thalidomide Celgene TM ), azacitidine for injection (generic version of VIDAZA ® ), ISTODAX ® and OTEZLA ® . OTEZLA ® was approved by the U.S. Food and Drug Administration (FDA) in March 2014 for the treatment of adult patients with active psoriatic arthritis and we began recognizing revenue related to OTEZLA ® during the second quarter of 2014.

Additional sources of revenue include royalties from Novartis Pharma AG (Novartis) on their sales of FOCALIN XR ®  and the entire RITALIN ®  family of drugs, the sale of products and services through our Celgene Cellular Therapeutics (CCT) subsidiary and other licensing agreements.
 
The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. Investments in limited partnerships and interests where we have an equity interest of 50% or less and do not otherwise have a controlling financial interest are accounted for by either the equity or cost method. Certain prior year amounts have been reclassified to conform to the current year's presentation.

In June 2014, our stockholders voted to approve an amendment to our Certificate of Incorporation that increased the number of shares of common stock that we are authorized to issue and effected a  two -for-one stock split of outstanding shares (Stock Split). As a result, our total number of authorized shares of common stock increased from 575.0 million to 1.150 billion on June 18, 2014. Stockholders of record received one additional share of common stock for each share of common stock owned. All impacted share numbers and per share amounts presented in the accompanying consolidated financial statements and the accompanying notes to the financial statements have been restated to reflect the impact of the Stock Split. Common stock held in treasury was not adjusted for the Stock Split.

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. We are subject to certain risks and uncertainties related to, among other things, product development, regulatory approval, market acceptance, scope of patent and proprietary rights, competition, outcome of legal and governmental proceedings, European credit risk, technological change and product liability.
 
Interim results may not be indicative of the results that may be expected for the full year. In the opinion of management, these unaudited consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited consolidated financial statements.

2. Summary of Significant Accounting Policies
 
Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Annual Report on Form 10-K).

New Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance is effective for us beginning

8

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


in the first quarter of 2017 using one of two prescribed transition methods. Early adoption is not permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

3. Acquisition

Nogra Pharma Limited (Nogra): On April 23, 2014, we entered into a license agreement with Nogra, pursuant to which Nogra granted us an exclusive, royalty-bearing license in its intellectual property relating to GED-0301, an antisense oligonucleotide targeting Smad7, to develop and commercialize products containing GED-0301 for the treatment of Crohn’s disease and other indications. A phase II trial of GED-0301 in patients with active Crohn's disease has been completed and we plan to initiate a phase III trial before year-end 2014.
Under the terms of the agreement, which became effective on May 14, 2014 after receipt of certain governmental clearances and approvals, we made an upfront payment of $710.0 million and may make additional contingent developmental, regulatory and sales milestone payments as well as payments based on percentages of annual sales of licensed products. The maximum aggregate amount payable for development and regulatory milestones is approximately $815.0 million , which covers such milestones relating to Crohn’s disease and other indications. Starting from global annual net sales of $500.0 million , aggregate tiered sales milestone payments could total a maximum of $1.050 billion if global annual net sales reach $4.000 billion .
The development and application of the intellectual property covered under the license agreement will be managed by joint committees composed of members from each of Nogra and us. We have the tie-breaking vote on the joint steering committee and as such have ultimate decision-making authority for development, regulatory and commercialization decisions. The agreement also includes provisions for access to employees of Nogra, technical assistance, transfer of manufacturing agreements and transfer of Nogra know-how related to GED-0301. Based on the foregoing factors, for accounting purposes, we have concluded that the acquired assets meet the definition of a business and have accounted for the GED-0301 license as in-process research and development (IPR&D) acquired in a business combination. The acquisition method of accounting requires that (a) the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and (b) the fair value of IPR&D be classified as an indefinite-lived asset until the successful completion or abandonment of the associated research and development efforts. Pro-forma results of operations for this acquisition have not been presented because this acquisition is not material to our consolidated results of operations.
A preliminary purchase price allocation has been made and the recorded amounts are subject to change. Finalization of valuation efforts could result in changes in the amounts recorded for the fair value of contingent consideration, goodwill, IPR&D, and associated deferred tax assets and liabilities.

The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year from the acquisition date. Adjustments, if any, could require retrospective application if they materially impact our financial statements.
The fair value of consideration transferred to acquire the license amounted to:
 
Fair Value at the Acquisition Date
Cash
$
710.0

Contingent consideration
1,060.0

Total fair value of consideration transferred
$
1,770.0


Our potential contingent consideration payments are classified as liabilities, which were measured at fair value as of the acquisition date, with $5.0 million classified as current liabilities and $1.055 billion classified as non-current liabilities. We estimated the fair value of potential contingent consideration using a probability-weighted income approach, which reflects the probability and timing of future potential payments. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a level three liability within the fair value hierarchy. The resulting probability weighted cash flows were discounted using a discount rate based on a market participant assumption.

9

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


The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired at the acquisition date based on their respective fair values:
 
Fair Value at the Acquisition Date
In-process research and development product rights
$
1,620.0

Current deferred tax asset
1.3

Non-current deferred tax liability
(1.3
)
Total identifiable net assets
1,620.0

Goodwill
150.0

Total net assets acquired
$
1,770.0


The fair value of the acquired IPR&D asset was based on the present value of expected net cash flows from the GED-0301 product candidate. Net cash flows were determined by estimating future sales, net of the costs to complete development of GED-0301 into a commercially viable product. Estimated net cash flows were adjusted to reflect the probability of successfully developing a new drug from a product candidate that has completed a phase II trial. Additionally, the projections considered the relevant market sizes and growth factors and the nature and expected timing of a new product introduction. The resulting net cash flows from such potential products include our estimates of cost of sales, operating expenses, and income taxes. The rates utilized to discount the net cash flows to their present value were commensurate with the stage of development of the project and uncertainties in the economic estimates used in the projections described above. Acquired IPR&D assets are accounted for as an indefinite-lived intangible asset until regulatory approval in a major market or discontinuation.
The excess of purchase price over the fair value amounts assigned to the assets acquired represents the goodwill amount resulting from the acquisition. The goodwill recorded as part of the acquisition is largely attributable to intangible assets that do not qualify for separate recognition. We expect this goodwill to be deductible for tax purposes.
The license agreement may be terminated (i) at our discretion upon 180 days’ written notice to Nogra, provided that such termination will not become effective before May 14, 2017, and (ii) by either party upon material breach of the other party, subject to cure periods. Upon the expiration of our royalty payment obligations under the license agreement, on a country-by-country and licensed product-by-licensed product basis, the license granted under the license agreement will become fully paid-up, irrevocable, perpetual, and non-terminable with respect to such licensed product in such country.

4. Earnings Per Share (Note 1)
 
 
Three-Month Periods Ended June 30,
 
Six-Month Periods Ended June 30,
(Amounts in millions, except per share)
2014
 
2013
 
2014
 
2013
Net income
$
597.8

 
$
478.1

 
$
877.5

 
$
863.0

Weighted-average shares:
 
 
 
 
 
 
 
Basic
799.6

 
828.2

 
805.5

 
832.0

Effect of dilutive securities:
 
 
 
 
 
 
 
Options, restricted stock units and other incentives
31.4

 
30.3

 
32.5

 
29.9

Diluted
831.0

 
858.5

 
838.0

 
861.9

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.75

 
$
0.58

 
$
1.09

 
$
1.04

Diluted
$
0.72

 
$
0.56

 
$
1.05

 
$
1.00

 
The total number of potential shares of common stock excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 13.5 million and 7.5 million shares for the three-month periods ended June 30, 2014 and 2013 , respectively. The total number of potential shares of common stock excluded was 14.2 million and 8.2 million shares for the six-month periods ended June 30, 2014 and 2013 , respectively.


10

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


Share Repurchase Program: In April 2014, our Board of Directors approved an increase of $4.000 billion to our authorized share repurchase program, bringing the total amount authorized since April 2009 to an aggregate of up to $13.500 billion of our common stock.

As part of the management of our share repurchase program, we may, from time to time, sell put options on our common stock with strike prices that we believe represent an attractive price to repurchase our shares. If the trading price of our shares exceeds the strike price of the put option at the time the option expires, we will have economically reduced the cost of our share repurchase program by the amount of the premium we received from the sale of the put option. If the trading price of our stock is below the strike price of the put option at the time the option expires, we would repurchase the shares covered by the option at the strike price of the put option. During the three-month period ended June 30, 2014 , we sold a put option on $200.0 million notional amount of shares of our common stock, which expired unexercised in June 2014, and recorded a gain from the premium of $4.0 million , which was recorded on the Consolidated Statements of Income in other income (expense), net. During the six-month period ended June 30, 2014, we recorded a net gain of $6.4 million from selling put options on our common stock. At June 30, 2014 , we had no outstanding put options.  In July 2014, we sold a put option on  $100.0 million  notional amount of shares of our common stock with a strike price of  $87.24  maturing in September 2014 for a premium of  $2.2 million .

We have repurchased 3.2 million and 13.9 million shares of common stock under the share repurchase program from all sources at a total cost of $475.2 million and $2.137 billion during the three- and six-month periods ended June 30, 2014 , respectively. As of June 30, 2014 , we had a remaining share repurchase authorization of $3.932 billion .

5. Accumulated Other Comprehensive Income (Loss)
 
The components of other comprehensive income (loss) consist of changes in pension liability, changes in net unrealized gains (losses) on marketable securities classified as available-for-sale, net unrealized gains (losses) related to cash flow hedges and changes in foreign currency translation adjustments.
 
The accumulated balances related to each component of other comprehensive income (loss), net of tax, are summarized as follows:
 
Pension
Liability
 
Net Unrealized
Gains (Losses) From
Marketable Securities
 
Net Unrealized
Gains (Losses)
From Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
Balance December 31, 2013
$
(6.9
)
 
$
137.3

 
$
(36.0
)
 
$
(0.4
)
 
$
94.0

Other comprehensive income (loss) before reclassifications

 
87.2

 
(27.7
)
 
4.1

 
63.6

Amounts reclassified from accumulated other comprehensive income

 
1.9

 
4.2

 

 
6.1

Net current-period other comprehensive income (loss)

 
89.1


(23.5
)

4.1


69.7

Balance June 30, 2014
$
(6.9
)
 
$
226.4


$
(59.5
)

$
3.7


$
163.7

 
 
 
 
 
 
 
 
 


Balance December 31, 2012
$
(10.1
)
 
$
4.2

 
$
(16.0
)
 
$
(27.8
)
 
$
(49.7
)
Other comprehensive income (loss) before reclassifications

 
33.0

 
86.4

 
4.1

 
123.5

Amounts reclassified from accumulated other comprehensive income

 
2.2

 
(0.2
)
 

 
2.0

Net current-period other comprehensive income (loss)

 
35.2


86.2


4.1

 
125.5

Balance June 30, 2013
$
(10.1
)
 
$
39.4


$
70.2


$
(23.7
)
 
$
75.8

 

11

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


 
 
 
 
Gains (Losses) Reclassified Out of Accumulated
Other Comprehensive Income
Accumulated Other Comprehensive Income Components
 
Affected Line Item in the Consolidated Statements of Income
 
Three-Month Periods Ended June 30,
 
Six-Month Periods Ended June 30
 
 
2014
 
2013
 
2014
 
2013
Gains (losses) from cash-flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Net product sales
 
$
(2.0
)
 
$
2.1

 
$
(3.0
)
 
$
(4.3
)
Treasury rate lock agreements
 
Interest (expense)
 
(0.8
)
 
(0.9
)
 
(1.7
)
 
(1.7
)
Interest rate swap agreements
 
Interest (expense)
 
(0.2
)
 

 
(0.2
)
 

 
 
Income tax benefit (expense)
 
0.4

 
2.8

 
0.7

 
6.2

 
 
 
 
 
 
 
 
 
 
 
Gains (losses) from available-for-sale marketable securities:
 
 
 
 
 
 
 
 
 
 
Realized income (loss) on sales of marketable securities
 
Interest and investment income, net
 
(1.6
)
 
(2.4
)
 
(3.0
)
 
(3.2
)
 
 
Income tax benefit (expense)
 
0.6

 
1.0

 
1.1

 
1.0

Total reclassification, net of tax
 
 
 
$
(3.6
)
 
$
2.6

 
$
(6.1
)
 
$
(2.0
)


6. Financial Instruments and Fair Value Measurement
 
The table below presents information about assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2014 and the valuation techniques we utilized to determine such fair value. Fair values determined based on Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Our Level 1 assets consist of marketable equity securities. Fair values determined based on Level 2 inputs utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or similar assets in markets that are not very active. Our Level 2 assets consist primarily of U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities (MBS), non-U.S. government, agency and Supranational securities, global corporate debt securities, asset backed securities, foreign currency forward contracts, purchased foreign currency options and interest rate swap contracts. Fair values determined based on Level 3 inputs utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity. We do not have any Level 3 assets. Our Level 1 liability relates to our publicly traded contingent value rights (CVRs). See Note 18 of Notes to Consolidated Financial Statements included in our 2013 Annual Report on Form 10-K for a description of the CVRs. Our Level 2 liabilities relate to foreign currency forward contracts and interest rate swap contracts, including forward starting interest rate swap contracts. Our Level 3 liabilities consist of contingent consideration related to undeveloped product rights resulting from the acquisition of Gloucester Pharmaceuticals, Inc. (Gloucester), contingent consideration related to the undeveloped product rights and the technology platform acquired from the Avila Therapeutics, Inc. (Avila) acquisition, and contingent consideration related to undeveloped product rights, regulatory and sales milestones as well as tiered royalties on sales of licensed products resulting from the acquisition of Nogra. The maximum remaining potential payments related to the contingent consideration from the acquisitions of Gloucester and Avila are estimated to be $120.0 million and $575.0 million , respectively, and $1.865 billion plus amounts based on sales pursuant to the license agreement with Nogra.

12

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


 
Balance at
June 30, 2014
 
Quoted Price in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
2,993.5

 
$
647.1

 
$
2,346.4

 
$

Total assets
$
2,993.5

 
$
647.1

 
$
2,346.4

 
$

Liabilities:
 

 
 

 
 

 
 

Forward currency contracts
$
(26.4
)
 
$

 
$
(26.4
)
 
$

Contingent value rights
(112.5
)
 
(112.5
)
 

 

Interest rate swaps
(4.0
)
 

 
(4.0
)
 

Other acquisition related contingent consideration
(1,283.6
)
 

 

 
(1,283.6
)
Total liabilities
$
(1,426.5
)
 
$
(112.5
)
 
$
(30.4
)
 
$
(1,283.6
)
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2013
 
Quoted Price in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 

 
 

 
 

 
 

Available-for-sale securities
$
2,452.6

 
$
433.1

 
$
2,019.5

 
$

Cash equivalents
20.0

 

 
20.0

 

Total assets
$
2,472.6

 
$
433.1

 
$
2,039.5

 
$

Liabilities:
 

 
 

 
 

 
 

Forward currency contracts
$
(9.2
)
 
$

 
$
(9.2
)
 
$

Contingent value rights
(118.1
)
 
(118.1
)
 

 

Interest rate swaps
(49.6
)
 

 
(49.6
)
 

Other acquisition related contingent consideration
(228.5
)
 

 

 
(228.5
)
Total liabilities
$
(405.4
)
 
$
(118.1
)
 
$
(58.8
)
 
$
(228.5
)

There were no security transfers between Levels 1 and 2 during the six-month periods ended June 30, 2014 and 2013 . The following table represents a roll-forward of the fair value of Level 3 instruments: 
 
Six-Month Periods Ended June 30,
 
2014
 
2013
Liabilities:
 

 
 

Balance at beginning of period
$
(228.5
)
 
$
(198.1
)
Amounts acquired or issued
(1,060.0
)
 

Net change in fair value
(15.1
)
 
(6.8
)
Settlements
20.0

 

Transfers in and/or out of Level 3

 

Balance at end of period
$
(1,283.6
)
 
$
(204.9
)
 
Level 3 liabilities outstanding as of June 30, 2014 primarily consisted of contingent consideration related to the acquisitions of Avila and Nogra. The $1.055 billion net increase in the fair value of Level 3 liabilities in 2014 included $1.060 billion from the May 2014 acquisition of Nogra, offset slightly by a $20.0 million milestone payment related to our acquisition of Avila. As of June 30, 2013 this balance consisted of contingent consideration related to the acquisition of Avila.

7. Derivative Instruments and Hedging Activities

Our revenue and earnings, cash flows and fair values of assets and liabilities can be impacted by fluctuations in foreign exchange rates and interest rates. We actively manage the impact of foreign exchange rate and interest rate movements through operational means and through the use of various financial instruments, including derivative instruments such as foreign currency option contracts, foreign currency forward contracts, treasury rate lock agreements and interest rate swap contracts. 

13

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


Foreign Currency Risk Management

We maintain a foreign exchange exposure management program to mitigate the impact of volatility in foreign exchange rates on future foreign currency cash flows, translation of foreign earnings and changes in the fair value of assets and liabilities denominated in foreign currencies.

Through our revenue hedging program, we endeavor to reduce the impact of possible unfavorable changes in foreign exchange rates on our future U.S. dollar cash flows that are derived from foreign currency denominated sales. To achieve this objective, we hedge a portion of our forecasted foreign currency denominated sales that are expected to occur in the foreseeable future, typically within the next three years. We manage our anticipated transaction exposure principally with foreign currency forward contracts and occasionally foreign currency put and call options.
 
Foreign Currency Forward Contracts:   We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and to reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
 
We manage a portfolio of foreign currency forward contracts to protect against changes in anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with non-functional currency denominated revenues and expenses of foreign subsidiaries. The foreign currency forward hedging contracts outstanding at June 30, 2014 and December 31, 2013 had settlement dates within 37 months . These foreign currency forward contracts are designated as cash flow hedges and, to the extent effective, any unrealized gains or losses on them are reported in other comprehensive income (loss) (OCI) and reclassified to operations in the same periods during which the underlying hedged transactions affect earnings. Any ineffectiveness on these foreign currency forward contracts is reported on the Consolidated Statements of Income in other income (expense), net. Foreign currency forward contracts entered into to hedge forecasted revenue and expenses were as follows at June 30, 2014 and December 31, 2013 :

 
 
Notional Amount
Foreign Currency
 
June 30, 2014
 
December 31, 2013
Australian Dollar
 
$
50.5

 
$

British Pound
 
437.8

 
279.4

Canadian Dollar
 
122.0

 

Euro
 
3,870.6

 
3,318.2

Japanese Yen
 
618.8

 
559.1

Total
 
$
5,099.7

 
$
4,156.7

 
 
We consider the impact of our own and the counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its obligations under the contract on an ongoing basis. As of June 30, 2014 , credit risk did not materially change the fair value of our foreign currency forward contracts.
 
We also manage a portfolio of foreign currency contracts to reduce exposures to foreign currency fluctuations of certain recognized assets and liabilities denominated in foreign currencies and, from time to time, we enter into foreign currency contracts to manage exposure related to translation of foreign earnings. These foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Income in other income (expense), net in the current period. The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding at June 30, 2014 and December 31, 2013 were $796.5 million and $878.5 million , respectively.
 
Interest Rate Risk Management
 
In anticipation of issuing fixed-rate debt, we may use forward starting interest rate swaps (forward starting swaps) or treasury rate lock agreements (treasury rate locks) that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. To the extent these hedges of cash flows related to anticipated debt are effective, any realized or unrealized gains or losses on the treasury rate locks or forward starting swaps are reported in OCI and are recognized in income over the life of the anticipated fixed-rate notes.

14

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


Forward Starting Interest Rate Swaps: In anticipation of issuing debt in 2014, we entered into an aggregate notional value of $1.500 billion in forward starting swaps that were designated as cash flow hedges. In April 2014 we accelerated our planned debt issuance date, which resulted in hedge ineffectiveness in the forward starting swaps and a $3.6 million charge to other income (expense), net due to differences between the effective date of the swaps and the accelerated debt issuance date. In addition, all forward starting swaps were settled upon the issuance of debt in May 2014 when the net fair value of the forward starting swaps in accumulated OCI was a loss position of $25.9 million . The net loss of $25.9 million will be recognized as interest expense over the life of the associated senior notes. There were no forward starting swaps outstanding as of June 30, 2014.

Interest Rate Swap Contracts:   From time to time we hedge the fair value of certain debt obligations through the use of interest rate swap contracts. The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in interest rates. Since the specific terms and notional amount of the swap are intended to match those of the debt being hedged, it is assumed to be a highly effective hedge and all changes in fair value of the swap are recorded on the Consolidated Balance Sheets with no net impact recorded in income. Any net interest payments made or received on interest rate swap contracts are recognized as interest expense. We may terminate the hedging relationship of certain swap contracts by settling the contracts or by entering into offsetting contracts. At the time a hedging relationship is terminated, accumulated gains or losses associated with the swap contract are measured and recorded as a reduction or increase of current and future interest expense associated with the previously hedged debt obligations.
 
We have entered into swap contracts that were designated as hedges of certain of our fixed rate notes and also terminated the hedging relationship by settling certain of those swap contracts during 2013 and 2014. The settlement of swap contracts resulted in the receipt of net proceeds of $12.4 million and $16.2 million during the six-month periods ended June 30, 2014 and 2013, respectively, which are accounted for as a reduction of current and future interest expense associated with these notes. See Note 11 for additional details related to reductions of current and future interest expense.

The following table summarizes the notional amounts of our outstanding swap contracts at June 30, 2014 and December 31, 2013

 
 
 
Notional Amount
 
 
June 30, 2014
 
December 31, 2013
Interest rate swap contracts entered into as fair value hedges of the following fixed-rate senior notes:
 
 

 
 

2.450% senior notes due 2015
 
$
300.0

 
$
300.0

1.900% senior notes due 2017
 
300.0

 
300.0

2.300% senior notes due 2018
 
200.0

 
200.0

3.950% senior notes due 2020
 
500.0

 
500.0

3.250% senior notes due 2022
 
800.0

 
850.0

4.000% senior notes due 2023
 

 
150.0

Total
 
$
2,100.0

 
$
2,300.0

 


15

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


The following tables summarize the fair value and presentation in the Consolidated Balance Sheets for derivative instruments as of June 30, 2014 and December 31, 2013 :
 
 
 
June 30, 2014
 
 
Asset Derivatives
 
Liability Derivatives
Instrument
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 

 
 
 
 

 
Foreign exchange contracts*
 
Other current assets
 
$
29.4

 
Other current assets
 
$
16.7

 
Other current liabilities
 
21.9

 
Other current liabilities
 
44.6

 
Other non-current assets
 
18.7

 
Other non-current assets
 
12.5

 
Other non-current liabilities
 
12.6

 
Other non-current liabilities
 
28.2

 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
Other current assets
 
17.3

 
Other current assets
 

 
Other non-current liabilities
 

 
Other non-current liabilities
 
22.7

Derivatives not designated as hedging instruments:
 
 
 


 
 
 


Foreign exchange contracts*
 
Other current assets
 
3.4

 
Other current assets
 

 
Other current liabilities
 
1.4

 
Other current liabilities
 
11.8

 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
Other current assets
 
0.1

 
Other current assets
 
0.1

 
 
Other non-current assets
 
1.4

 
Other non-current assets
 

Total
 
 
 
$
106.2

 
 
 
$
136.6

     
 
 
December 31, 2013
 
 
Asset Derivatives
 
Liability Derivatives
Instrument
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 

 
 
 
 

 
Foreign exchange contracts*
 
Other current assets
 
$
63.6

 
Other current assets
 
$
24.9

 
Other current liabilities
 
41.5

 
Other current liabilities
 
84.7

 
Other non-current assets
 
60.6

 
Other non-current assets
 
41.9

 
Other non-current liabilities
 
4.3

 
Other non-current liabilities
 
25.6

 
Interest rate swap agreements
 
Other current assets
 
17.1

 
Other current assets
 

 
Other non-current liabilities
 

 
Other non-current liabilities
 
68.3

Derivatives not designated as hedging instruments:
 
 
 
 

 
 
 
 

Foreign exchange contracts*
 
Other current assets
 
11.3

 
Other current assets
 
0.7

 
Other current liabilities
 
6.0

 
Other current liabilities
 
18.7

Interest rate swap agreements
 
Other current assets
 
0.1

 
Other current assets
 

 
Other non-current assets
 
1.5

 
Other non-current assets
 

Total
 
 
 
$
206.0

 
 
 
$
264.8

 
* Derivative instruments in this category are subject to master netting arrangements and are presented on a net basis in the Consolidated Balance Sheets in accordance with ASC 210-20.








16

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


The following tables summarize the effect of derivative instruments designated as cash-flow hedging instruments on the Consolidated Statements of Income for the three- and six-month periods ended June 30, 2014 and 2013 :
 
 
Three-Month Period Ended June 30, 2014
 
 
 
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative (1)
 
Location of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Location of
Gain/(Loss)
Recognized in
Income on
Derivative
 
Amount of
Gain/(Loss)
Recognized in
Income on
Derivative
 
 
Instrument
(Effective Portion)
 
(Effective Portion)
 
(Effective Portion)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
 
Foreign exchange contracts
$
1.0

 
Net product sales
 
$
(2.0
)
 
Other income, net
 
$
0.7

 
(2
)
Treasury rate lock agreements
$

 
Interest expense
 
$
(0.8
)
 
 
 
 

 
 
Interest rate swap agreements
$
(22.7
)
 
Interest expense
 
$
(0.2
)
 
Other income, net
 
$
(3.6
)
 
(3)

 
(1) Net losses of $17.3 million are expected to be reclassified from Accumulated OCI into income in the next 12 months.
(2) The amount of net gains recognized in income represents $1.0 million in gains related to the ineffective portion of the hedging relationships and $0.3 million of losses related to amounts excluded from the assessment of hedge effectiveness.
(3) The amount of net loss recognized in income relates to the ineffective portion of the hedging relationships.
 
 
Three-Month Period Ended June 30, 2013
 
 
 
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative
 
Location of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Location of
Gain/(Loss)
Recognized in
Income on
Derivative
 
Amount of
Gain/(Loss)
Recognized in
Income on
Derivative
 
 
Instrument
(Effective Portion)
 
(Effective Portion)
 
(Effective Portion)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
 
Foreign exchange contracts
$
11.5

 
Net product sales
 
$
2.1

 
Other income, net
 
$
0.5

 
(1)
Treasury rate lock agreements
$

 
Interest expense
 
$
(0.9
)
 
 
 
 
 
 
 
(1) The amount of net gains recognized in income represents $0.5 million of gains related to amounts excluded from the assessment of hedge effectiveness. 
 
 
Six-Month Period Ended June 30, 2014
 
 
 
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative (1)
 
Location of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Location of
Gain/(Loss)
Recognized in
Income on
Derivative
 
Amount of
Gain/(Loss)
Recognized in
Income on
Derivative
 
 
Instrument
(Effective Portion)
 
(Effective Portion)
 
(Effective Portion)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
 
Foreign exchange contracts
$
(7.9
)
 
Net product sales
 
$
(3.0
)
 
Other income, net
 
$
(2.8
)
 
(2
)
Treasury rate lock agreements
$

 
Interest expense
 
$
(1.7
)
 
 
 
 

 
 
Interest rate swap agreements
$
(32.4
)
 
Interest expense
 
$
(0.2
)
 
Other income, net
 
$
(3.6
)
 
(3)


17

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


 
(1) Net losses of $17.3 million are expected to be reclassified from Accumulated OCI into income in the next 12 months.
(2) The amount of net losses recognized in income represents $3.5 million of losses related to amounts excluded from the assessment of hedge effectiveness and $0.7 million in gains related to the ineffective portion of the hedging relationships.
(3) The amount of net loss recognized in income relates to the ineffective portion of the hedging relationships.

 
Six-Month Period Ended June 30, 2013
 
 
 
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative
 
Location of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
 
Location of
Gain/(Loss)
Recognized in
Income on
Derivative
 
Amount of
Gain/(Loss)
Recognized in
Income on
Derivative
 
 
Instrument
(Effective Portion)
 
(Effective Portion)
 
(Effective Portion)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)
 
 
Foreign exchange contracts
$
86.6

 
Net product sales
 
$
(4.3
)
 
Other income, net
 
$
3.9

 
(1
)
Treasury rate lock agreements
$

 
Interest expense
 
$
(1.7
)
 
 
 
 

 
 
 
(1) The amount of net gains recognized in income represents $2.0 million of gains related to amounts excluded from the assessment of hedge effectiveness and $1.9 million in gains related to the ineffective portion of the hedging relationships.

The following table summarizes the effect of derivative instruments designated as fair value hedging instruments on the Consolidated Statements of Income for the three- and six-month periods ended June 30, 2014 and 2013 :
 
 
 
 
Amount of Gain (Loss) Recognized in
Income on Derivative
 
 
Location of Gain (Loss) Recognized in Income on Derivative
 
Three-Month Periods Ended June 30,
 
Six-Month Periods Ended June 30,
Instrument
 
 
2014
 
2013
 
2014
 
2013
Interest rate swap agreements
 
Interest expense
 
$
10.4

 
$
5.2

 
$
20.9

 
$
12.0

 
The following table summarizes the effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Income for the three-month periods ended June 30, 2014 and 2013 :
 
 
 
 
 
Amount of Gain (Loss) Recognized in
Income on Derivative
 
 
Location of Gain (Loss) Recognized in Income on Derivative
 
Three-Month Periods Ended June 30,
 
Six-Month Periods Ended June 30,
Instrument
 
 
2014
 
2013
 
2014
 
2013
Foreign exchange contracts
 
Other income (expense), net
 
$
(7.7
)
 
$
30.6

 
$
(11.1
)
 
$
69.2

Put options on our common stock
 
Other income (expense), net
 
$
4.0

 
$

 
$
6.4

 
$

 
The impact of gains and losses on foreign exchange contracts not designated as hedging instruments related to changes in the fair value of assets and liabilities denominated in foreign currencies are generally offset by net foreign exchange gains and losses, which are also included on the Consolidated Statements of Income in other income (expense), net for all periods presented. When we enter into foreign exchange contracts not designated as hedging instruments to mitigate the impact of exchange rate volatility in the translation of foreign earnings, gains and losses will generally be offset by fluctuations in the U.S. Dollar translated amounts of each Income Statement account in current and/or future periods.  





18

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


8. Cash, Cash Equivalents and Marketable Securities Available-for-Sale
 
Money market funds of $1.314 billion and $1.697 billion at June 30, 2014 and December 31, 2013 , respectively, were recorded at cost, which approximates fair value and are included in cash and cash equivalents. The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated fair value of available-for-sale securities by major security type and class of security at June 30, 2014 and December 31, 2013 were as follows:
June 30, 2014
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
U.S. Treasury securities
 
$
948.8

 
$
0.7

 
$
(0.2
)
 
$
949.3

U.S. government-sponsored agency securities
 
175.0

 
0.2

 
(0.1
)
 
175.1

U.S. government-sponsored agency MBS
 
590.5

 
0.8

 
(3.3
)
 
588.0

Non-U.S. government, agency and Supranational securities
 
19.9

 

 

 
19.9

Corporate debt - global
 
418.3

 
1.6

 
(0.1
)
 
419.8

Asset backed securities
 
194.2

 
0.1

 

 
194.3

Marketable equity securities
 
297.9

 
350.6

 
(1.4
)
 
647.1

Total available-for-sale marketable securities
 
$
2,644.6

 
$
354.0

 
$
(5.1
)

$
2,993.5

 
December 31, 2013
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
U.S. Treasury securities
 
$
795.2

 
$
0.3

 
$
(0.4
)
 
$
795.1

U.S. government-sponsored agency securities
 
208.9

 
0.2

 
(0.2
)
 
208.9

U.S. government-sponsored agency MBS
 
450.8

 
0.1

 
(6.9
)
 
444.0

Non-U.S. government, agency and Supranational securities
 
10.4

 

 

 
10.4

Corporate debt - global
 
379.2

 
1.1

 
(0.6
)
 
379.7

Asset backed securities
 
181.6

 

 
(0.2
)
 
181.4

Marketable equity securities
 
212.9

 
220.2

 

 
433.1

Total available-for-sale marketable securities
 
$
2,239.0

 
$
221.9


$
(8.3
)

$
2,452.6

 
U.S. government-sponsored agency securities include general unsecured obligations either issued directly by or guaranteed by U.S. Government Sponsored Enterprises. U.S. government-sponsored agency MBS include mortgage-backed securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. Non-U.S. government, agency and Supranational securities consist of direct obligations of highly rated governments of nations other than the United States and obligations of sponsored agencies and other entities that are guaranteed or supported by highly rated governments of nations other than the United States. Corporate debt-global includes obligations issued by investment-grade corporations, including some issues that have been guaranteed by governments and government agencies. Asset backed securities consist of triple-A rated securities with cash flows collateralized by credit card receivables and auto loans. Marketable equity securities consist of investments in equity securities that have become publicly traded. The increase in net unrealized gains in marketable equity securities during the six-month period ended June 30, 2014 primarily reflects the increase in market value for certain equity investments subsequent to December 31, 2013 .

Duration periods of available-for-sale debt securities at June 30, 2014 were as follows:
 
 
 
Amortized
Cost
 
Fair
Value
Duration of one year or less
 
$
391.7

 
$
391.5

Duration of one through three years
 
1,744.9

 
1,745.9

Duration of three through five years
 
210.1

 
209.0

Total
 
$
2,346.7

 
$
2,346.4

 
 




19

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


9. Inventory
 
A summary of inventories by major category at June 30, 2014 and December 31, 2013 follows:
 
June 30, 2014
 
December 31, 2013
Raw materials
$
173.9

 
$
147.4

Work in process
111.0

 
99.6

Finished goods
75.1

 
93.4

Total
$
360.0

 
$
340.4

 
10. Intangible Assets and Goodwill
 
Intangible Assets:   Our finite lived intangible assets primarily consist of developed product rights and technology obtained from the Pharmion Corp. (Pharmion), Gloucester, Abraxis BioScience, Inc. (Abraxis) and Avila acquisitions. Our indefinite lived intangible assets consist of acquired IPR&D product rights from the Nogra, Gloucester and Avila acquisitions. The remaining weighted-average amortization period for finite-lived intangible assets not fully amortized is approximately 11.5 years .

The following summary of intangible assets by category includes intangibles currently being amortized and intangibles not yet subject to amortization:
June 30, 2014
 
Gross Carrying Value
 
Accumulated Amortization
 
Intangible Assets, Net
Amortizable intangible assets:
 
 

 
 

 
 

Acquired developed product rights
 
$
3,405.9

 
$
(1,132.2
)
 
$
2,273.7

Technology
 
333.7

 
(111.2
)
 
222.5

Licenses
 
66.2

 
(16.0
)
 
50.2

Other
 
42.5

 
(21.0
)
 
21.5

 
 
3,848.3

 
(1,280.4
)

2,567.9

Non-amortized intangible assets:
 


 
 

 
 

Acquired IPR&D product rights
 
1,757.9

 

 
1,757.9

Total intangible assets
 
$
5,606.2

 
$
(1,280.4
)

$
4,325.8

 
 
 
 
 
 
 
December 31, 2013
 
Gross Carrying Value
 
Accumulated Amortization
 
Intangible Assets, Net
Amortizable intangible assets:
 
 

 
 

 
 

Acquired developed product rights
 
$
3,405.9

 
$
(1,026.4
)
 
$
2,379.5

Technology
 
333.7

 
(87.4
)
 
246.3

Licenses
 
66.2

 
(13.9
)
 
52.3

Other
 
42.5

 
(18.8
)
 
23.7

 
 
3,848.3

 
(1,146.5
)
 
2,701.8

Non-amortized intangible assets:
 
 

 
 

 
 

Acquired IPR&D product rights
 
137.9

 

 
137.9

Total intangible assets
 
$
3,986.2

 
$
(1,146.5
)
 
$
2,839.7

 
The $1.620 billion increase in the gross carrying value of intangible assets during the six-month period ended June 30, 2014 was due to the acquisition of the GED-0301 license from Nogra.

Amortization expense related to intangible assets was $66.7 million and $67.2 million for the three-month periods ended June 30, 2014 and 2013 , respectively, and $133.8 million and $134.1 million for the six-month periods ended June 30, 2014 and 2013 , respectively. Assuming no changes in the gross carrying amount of intangible assets, the amortization of intangible assets for years 2014 through 2018 is estimated to be in the range of approximately $255.0 million to $265.0 million annually.  
 

20

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


Goodwill:  At June 30, 2014 , our goodwill related to the April 2014 licensing agreement with Nogra (see Note 3), the 2012 acquisition of Avila, the 2010 acquisitions of Abraxis and Gloucester, the 2008 acquisition of Pharmion and the 2004 acquisition of Penn T Limited.

The carrying value of goodwill increased by $150.0 million to $2.191 billion as of June 30, 2014 compared to December 31, 2013 due to the Nogra acquisition.

11. Debt
 
Senior Notes: Summarized below are the carrying values of our senior notes at June 30, 2014 and December 31, 2013 :
 
 
June 30, 2014
 
December 31, 2013
2.450% senior notes due 2015
$
510.2

 
$
513.9

1.900% senior notes due 2017
501.9

 
499.9

2.300% senior notes due 2018
401.4

 
399.0

2.250% senior notes due 2019
498.8

 

3.950% senior notes due 2020
497.6

 
484.6

3.250% senior notes due 2022
990.5

 
956.6

4.000% senior notes due 2023
703.6

 
696.3

3.625% senior notes due 2024
996.6

 

5.700% senior notes due 2040
249.6

 
249.6

5.250% senior notes due 2043
396.6

 
396.6

4.625% senior notes due 2044
996.5

 

Total long-term debt
$
6,743.3

 
$
4,196.5

 
At June 30, 2014 , the fair value of our outstanding Senior Notes was $6.921 billion and represented a Level 2 measurement within the fair value measurement hierarchy.

In May 2014, we issued an additional  $2.500 billion  principal amount of senior notes consisting of  $500.0 million  aggregate principal amount of  2.250%  Senior Notes due 2019 (the 2019 notes),  $1.000 billion  aggregate principal amount of  3.625%  Senior Notes due 2024 (the 2024 notes) and  $1.000 billion  aggregate principal amount of  4.625%  Senior Notes due 2044 (the 2044 notes and together with the 2019 notes and 2024 notes, referred to herein as the “2014 issued notes”). The 2014 issued notes were issued at  99.751% , 99.659%  and  99.646%  of par, respectively, and the discount is being amortized as additional interest expense over the period from issuance through maturity. Offering costs of approximately  $21.2 million  have been recorded as debt issuance costs on our Consolidated Balance Sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the 2014 issued notes is payable semi-annually in arrears on May 15 and November 15 each year beginning November 15, 2014 and the principal on each 2014 issued note is due in full at their respective maturity dates. The 2014 issued notes may be redeemed at our option, in whole or in part, at any time at a redemption price equaling accrued and unpaid interest plus the greater of 100% of the principal amount of the 2014 issued notes to be redeemed or the sum of the present values of the remaining scheduled payments of interest and principal discounted to the date of redemption on a semi-annual basis plus  10  basis points in the case of the 2019 notes,  15  basis points in the case of the 2024 notes and  20  basis points in the case of the 2044 notes. If we experience a change of control accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the 2014 issued notes at a purchase price equal to  101%  of their principal amount plus accrued and unpaid interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property.

From time to time, we have used treasury rate locks and forward starting interest rate swap contracts to hedge against changes in interest rates in anticipation of issuing fixed-rate notes. As of June 30, 2014 , a balance of $54.5 million in losses remained in OCI related to these derivative instruments and will be recognized as interest expense over the life of the notes.
 
At June 30, 2014 , we were party to pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes as described in Note 7. Our swap contracts outstanding at June 30, 2014 effectively convert the hedged portion of our fixed-rate notes to floating rates. From time to time we terminate the hedging relationship on certain of our swap contracts by settling the contracts or by entering into offsetting contracts. Any net proceeds received or paid in these settlements are accounted

21

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


for as a reduction or increase of current and future interest expense associated with the previously hedged notes. As of June 30, 2014 , we had a balance of $34.3 million of unamortized gains recorded as a component of our debt as a result of past swap contract settlements, including $7.6 million related to the settlement of swap contracts during the six months ended June 30, 2014 . As of December 31, 2013, we had a balance of $32.1 million of unamortized gains recorded as a component of our debt as a result of past swap contract settlements.
 
Commercial Paper:  The carrying value of Commercial Paper as of June 30, 2014 and December 31, 2013 was $192.3 million and $544.8 million , respectively, and approximated its fair value. The effective interest rate on our outstanding Commercial Paper at June 30, 2014 was 0.3% .
 
Senior Unsecured Credit Facility:  In September 2011, we entered into a senior unsecured revolving credit facility (Credit Facility) providing for revolving credit. The Credit Facility is currently at an aggregate maximum amount of $1.500 billion with an expiration date of April 18, 2018. Subject to certain conditions, we have the right to increase the amount of the Credit Facility (but in no event more than one time per annum), up to a maximum aggregate amount of $1.750 billion .
 
Amounts may be borrowed under the Credit Facility for working capital, capital expenditures and other corporate purposes. The Credit Facility serves as backup liquidity for our Commercial Paper borrowings. As of June 30, 2014 and December 31, 2013 there were no outstanding borrowings under the Credit Facility.

The Credit Facility contains affirmative and negative covenants, including certain customary financial covenants. We were in compliance with all financial covenants as of June 30, 2014

12. Share-Based Compensation
 
We have a stockholder-approved stock incentive plan, the 2008 Stock Incentive Plan (amended and restated as of April 17, 2013 and as further amended on April 17, 2014) (Plan) which provides for the granting of options, restricted stock awards (RSUs), stock appreciation rights, performance awards (PSUs) and other share-based awards to our employees and officers. The Management Compensation and Development Committee of the Board of Directors (Compensation Committee) may determine the type, amount and terms, including vesting, of any awards made under the Plan.

On June 18, 2014, our stockholders approved an amendment of the Plan, which included the following key modifications: adoption of an aggregate share reserve of 114.0 million shares of Common Stock (before giving effect to the Stock Split), which includes 9.0 million new pre-split shares of Common Stock; and an extension of the term of the Plan through April 16, 2024.

The following table summarizes the components of share-based compensation expense in the Consolidated Statements of Income for the three- and six-month periods ended June 30, 2014 and 2013 :
 
 
Three-Month Periods Ended June 30,
 
Six-Month Periods Ended June 30,
 
2014
 
2013
 
2014
 
2013
Cost of goods sold (excluding amortization of acquired intangible assets)
$
5.9

 
$
3.7

 
$
12.0

 
$
6.5

Research and development
45.8

 
31.8

 
92.8

 
58.8

Selling, general and administrative
51.7

 
34.3

 
103.0

 
70.1

Total share-based compensation expense
103.4

 
69.8

 
207.8

 
135.4

Tax benefit related to share-based compensation expense
31.0

 
18.3

 
61.0

 
36.2

Reduction in income
$
72.4

 
$
51.5

 
$
146.8

 
$
99.2

 









22

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


We utilize share-based compensation in the form of stock options, RSUs and PSUs. The following table summarizes the activity for stock options, RSUs and PSUs for the six-month period ended June 30, 2014 (in millions unless otherwise noted):
 
Stock
Options
 
Restricted Stock
Units
 
Performance-
Based Restricted
Stock Units
(in thousands)
Outstanding at December 31, 2013
79.2

 
10.2

 
115

Changes during the Year:
 

 
 

 
 

Granted
5.0

 
0.3

 
1

Exercised / Released
(5.9
)
 
(2.0
)
 
(24
)
Forfeited
(0.8
)
 
(0.2
)
 
(1
)
Outstanding at June 30, 2014
77.5

 
8.3


91

 
Total compensation cost related to unvested awards not yet recognized and the weighted-average periods over which the awards are expected to be recognized at June 30, 2014 were as follows (dollars in millions):
 
Stock
Options
 
Restricted Stock
Units
 
Performance-
Based Restricted
Stock Units
Unrecognized compensation cost
$
427.8

 
$
189.8

 
$
2.8

Expected weighted-average period in years of compensation cost to be recognized
2.1

 
1.3

 
1.7

 
 
13. Income Taxes
 
We regularly evaluate the likelihood of the realization of our deferred tax assets and reduce the carrying amount of those deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods available to us for tax reporting purposes and other relevant factors. Significant judgment is required in making this assessment.

Our tax returns are under routine examination in many taxing jurisdictions. The scope of these examinations includes, but is not limited to, the review of our taxable presence in a jurisdiction, our deduction of certain items, our claims for research and development credits, our compliance with transfer pricing rules and regulations and the inclusion or exclusion of amounts from our tax returns as filed. Our U.S. federal income tax returns have been audited by the Internal Revenue Service (IRS) through the year ended December 31, 2008. Tax returns for the years ended December 31, 2009, 2010 and 2011 are currently under examination by the IRS. We are also subject to audits by various state and foreign taxing authorities, including, but not limited to, most U.S. states and major European and Asian countries where we have operations.
 
We regularly reevaluate our tax positions and the associated interest and penalties, if applicable, resulting from audits of federal, state and foreign income tax filings, as well as changes in tax law (including regulations, administrative pronouncements, judicial precedents, etc.) that would reduce the technical merits of the position to below more likely than not. We believe that our accruals for tax liabilities are adequate for all open years. Many factors are considered in making these evaluations, including past history, recent interpretations of tax law and the specifics of each matter. Because tax regulations are subject to interpretation and tax litigation is inherently uncertain, these evaluations can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. We apply a variety of methodologies in making these estimates and assumptions, which include studies performed by independent economists, advice from industry and subject experts, evaluation of public actions taken by the IRS and other taxing authorities, as well as our industry experience. These evaluations are based on estimates and assumptions that have been deemed reasonable by management. However, if management’s estimates are not representative of actual outcomes, our results of operations could be materially impacted.
 
Unrecognized tax benefits, generally represented by liabilities on the consolidated balance sheet and all subject to tax examinations, arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Virtually all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. We account for interest and potential penalties related to uncertain tax positions as part of our provision for income taxes. For the six-month period ended June 30, 2014 gross unrecognized tax benefits increased by $24.2 million , primarily from

23

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


unrecognized tax benefits related to current year operations of $21.0 million and accrued interest of $4.4 million , partially offset by settlements of tax positions taken in prior years of $1.2 million . The liability for unrecognized tax benefits is expected to increase in the next 12 months relating to operations occurring in that period. Any settlements of examinations with taxing authorities or statute of limitations expirations would likely result in a decrease in our liability for unrecognized tax benefits and a corresponding increase in taxes paid or payable and/or a decrease in income tax expense . Our estimates of tax benefits and potential tax benefits may not be representative of actual outcomes and variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire.  

14. Collaboration Agreements

From time to time, we enter into collaborative arrangements for the research and development, license, manufacture and/or commercialization of products and/or product candidates. In addition, we also acquire product and research and development technology rights and establish research and development collaborations with third parties to enhance our strategic position within our industry by strengthening and diversifying our research and development capabilities, product pipeline and marketed product base. These arrangements may include non-refundable, upfront payments, option payments for the purchase or license of additional rights, development, regulatory and commercial performance milestone payments, cost sharing arrangements, royalty payments and profit sharing. Certain of these arrangements obligate us to make additional equity investments in the event of an initial public offering of equity by our partners. The activities under these collaboration agreements are performed with no guarantee of either technological or commercial success. We do not consider any of the following arrangements to be material. See Note 17 of Notes to Consolidated Financial Statements included in our 2013 Annual Report on Form 10-K for a description of certain other collaboration agreements entered into prior to January 1, 2014 . The following is a brief description of significant developments in the relationships between Celgene and our collaboration partners during the six months ended June 30, 2014 :
 
Agios Pharmaceuticals, Inc. (Agios): During 2010, we entered into a discovery and development collaboration and license agreement with Agios that focuses on cancer metabolism targets and the discovery, development and commercialization of associated therapeutics. We have an exclusive option through the end of phase I clinical trials to license any potential products that result from the Agios cancer metabolism research platform.

With respect to each product that we choose to license, Agios could receive up to approximately $120.0 million upon achievement of certain milestones and other payments plus royalties on sales, and Agios may also participate in the development and commercialization of certain products in the United States. Our option to license a product will terminate on April 14, 2015.

In June 2014, we exercised our option to license AG-221 from Agios on an exclusive worldwide basis, with Agios retaining the right to conduct a portion of commercialization activities for AG-221 in the United States. AG-221 is currently in a phase I study in patients that harbor an IDH2 mutation with advanced hematologic malignancies, including acute myeloid leukemia (AML).

FORMA Therapeutics Holdings, LLC (FORMA): On April 19, 2013, we entered into a collaboration agreement with FORMA under which the parties will discover, develop and commercialize drug candidates to regulate protein homeostasis targets. Protein homeostasis, which is important in oncology, neurodegenerative and other disorders, involves a tightly regulated network of pathways controlling the biogenesis, folding, transport and degradation of proteins.

The collaboration was launched with an upfront payment that enables us to evaluate selected targets and lead assets in protein homeostasis pathways during the pre-clinical phase. Based on such evaluation, we will have the right to obtain exclusive licenses with respect to the development and commercialization of multiple drug candidates outside of the United States, in exchange for research and early development payments of up to approximately $200.0 million to FORMA. Under the terms of the collaboration agreement, FORMA is incentivized to advance the full complement of drug candidates through Phase I, while Celgene will be responsible for all further global clinical development for each licensed candidate. FORMA is eligible to receive up to an additional $315.0 million in potential payments based upon development, regulatory and sales objectives for the first ex-U.S. license. FORMA is also eligible to receive potential payments for successive licenses, which escalate for productivity, increasing up to a maximum of an additional $430.0 million per program. In addition, FORMA will receive royalties on ex-U.S. sales and additional payments if multiple drug candidates reach defined cumulative sales objectives. The collaboration agreement includes provisions for Celgene to obtain rights with respect to development and commercialization of drug candidates inside the United States in exchange for additional payments.

Under the collaboration, the parties will perform initial research and development for a term of four years . If, during such research term, a drug candidate meets certain criteria, then the parties will enter into a pre-negotiated license agreement and the collaboration will continue until all license agreements have expired and all applicable royalty terms under the collaboration with respect to the

24

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


particular products have expired. Each license agreement, if not terminated sooner, would expire upon the expiration of all applicable royalty terms under such agreement. Upon the expiration of each license agreement, we will have an exclusive, fully-paid, royalty-free license to use the applicable FORMA intellectual property to manufacture, market, use and sell the product developed under such agreement outside of the United States. On October 7, 2013, we entered into the first ex-US license with FORMA and paid the applicable upfront payment under such license.

On March 21, 2014, we entered into a second collaboration arrangement with FORMA, pursuant to which FORMA granted us an option to license the rights to select current and future FORMA drug candidates during a term of three and one half years. We agreed to pay an upfront payment of $225.0 million . In addition, with respect to each licensed drug candidate, we have the obligation to pay designated amounts when certain development, regulatory and sales milestone events occur, with such amounts being variable and contingent on various factors. With respect to each licensed drug candidate, we will assume responsibility for all global development activities and costs after completion of phase I clinical trials. FORMA will retain U.S. rights to all such licensed assets, including responsibility for manufacturing and commercialization.

Under this collaboration arrangement, we also have an option to enter into up to two additional collaborations with terms of two years each for additional payments totaling approximately $375.0 million . If we exercise our option to enter into both of these additional collaborations, we will receive an exclusive option to acquire FORMA, including the U.S. rights to all licensed drug candidates, and worldwide rights to other wholly owned assets within FORMA at that time.
NantBioScience, Inc. (NantBioScience): In January 2014, we entered into a collaboration agreement with NantBioScience, an entity controlled by Dr. Patrick Soon-Shiong in which Celgene contributed $75 million of cash, the rights to the future royalty stream based on net sales of certain products of Active Biomaterials, LLC, another entity controlled by Dr. Patrick Soon-Shiong, and licenses to two nab ® product candidates. In return, Celgene received a 14 percent preferred equity ownership in NantBioScience, an option to license a certain number of product candidates developed by NantBioScience, including the two nab ® product candidates that Celgene is licensing to NantBioScience, and the parent company of NantBioScience assumed, and agreed to pay and satisfy when due, our obligation to pay The Chan Soon-Shiong Institute for Advanced Health (CSS Institute) $50.0 million in contingent, matching contributions. The transaction became effective in March 2014. Unless Celgene terminates the collaboration earlier, in Celgene’s sole discretion upon 30 days written notice, the collaboration will continue until the earliest to occur of: (a) Celgene licensing four NantBioScience product candidates; (b) NantBioScience presenting data packages for ten product candidates; and (c) the date which is ten years after the effective date. Regardless of any termination of the collaboration, the 14 percent preferred equity ownership in NantBioScience and the assumption of the $50.0 million in contingent, matching contributions by the parent company of NantBioScience remain in effect. We performed a valuation of the components of the transaction and allocated the consideration transferred as follows: $50.0 million for the collaboration agreement upfront expense; $25.0 million related to the settlement of contingent matching contributions, and; $90.0 million related to the equity ownership in NantBioScience.
In addition to the collaboration arrangements described above, we entered into new collaborative arrangements during the six months ended June 30, 2014 that include the potential for future milestone payments of up to an aggregate $52.5 million related to the attainment of specified developmental, regulatory and sales milestones over a period of several years. Our obligation to fund these efforts is contingent upon our continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the programs.











25

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


A financial summary of certain of the period activity related to our collaboration agreements is presented below 1,2 :
 
 
Three-Month Periods Ended June 30,
 
 
Research and Development Expense
 
Selling, General and Administrative Expense
 
 
 
 
Upfront Fees
 
Milestones
 
Amortization of Prepaid R&D and Intangibles
 
 
Equity Investments Made During Period
Acceleron (3)
2014
$—
 
$—
 
$—
 
$—
 
$37.4
 
2013
 
 
 
 
Agios
2014
 
 
 
 
13.0
 
2013
 
 
 
 
Epizyme
2014
 
 
 
 
 
2013
 
 
 
 
1.0
FORMA
2014
 
 
 
 
 
2013
23.8
 
 
 
 
NantBioScience
2014
 
 
 
 
Other Collaboration Arrangements
2014
14.0
 
0.5
 
10.0
 
 
2013
43.0
 
18.4
 
1.1
 
 
4.0

 
 
Six-Month Periods Ended June 30,
 
 
Research and Development Expense
 
Selling, General and Administrative Expense
 
 
 
 
Upfront Fees
 
Milestones
 
Amortization of Prepaid R&D and Intangibles
 
 
Equity Investments Made During Period
Acceleron (3)
2014
$—
 
$—
 
$—
 
$—
 
$52.4
 
2013
 
10.0
 
 
 
Agios
2014
 
 
 
 
13.0
 
2013
 
 
 
 
bluebird
2014
 
 
 
 
 
2013
74.7
 
 
 
 
Epizyme
2014
 
 
 
 
9.9
 
2013
 
 
 
 
1.0
FORMA
2014
225.0
 
 
0.1
 
 
 
2013
23.8
 
 
 
 
NantBioScience
2014
50.0
 
 
 
25.0
 
90.0
Other Collaboration Arrangements
2014
48.0
 
0.5
 
13.8
 
 
20.9
2013
64.0
 
18.4
 
1.9
 
 
8.0











26

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


A financial summary of the period-end balances related to our collaboration agreements is presented below:
 
Balances as of:
 
Intangible Asset Balance
 
Equity Investment Balance
 
Percentage of Outstanding Equity
Acceleron
June 30, 2014
 
$—
 
$156.7
 
15%
 
December 31, 2013
 
 
127.2
 
11%
Agios
June 30, 2014
 
 
229.7
 
15%
 
December 31, 2013
 
 
113.0
 
15%
bluebird
June 30, 2014
 
0.2
 
 
N/A
 
December 31, 2013
 
0.2
 
 
N/A
Epizyme
June 30, 2014
 
 
114.4
 
11%
 
December 31, 2013
 
 
69.4
 
12%
FORMA
June 30, 2014
 
0.1
 
 
N/A
 
December 31, 2013
 
0.2
 
 
N/A
NantBioScience
June 30, 2014
 
 
90.0
 
14%
Other Collaboration Arrangements
June 30, 2014
 
54.3
 
162.9
 
N/A
December 31, 2013
 
61.3
 
141.6
 
N/A
1 Activity and balances are presented specifically for notable new collaborations and for those collaborations which we have described in detail in our 2013 Annual Report on Form 10-K if there has been new activity during the periods presented. Amounts related to collaborations that are not specifically described are presented in the aggregate as Other Collaboration Arrangements.
2 In addition to the expenses noted in the tables above, we may also incur expenses for collaboration agreement related activities that are managed or funded by us.
3 Our additional equity investment in Acceleron made during the three-month period ended June 30, 2014 was transacted at a price per share that exceeded the market value of Acceleron publicly traded common stock on the transaction closing date, resulting in an expense for the premium of $9.7 million that was recorded in the Consolidated Statements of Income as other income (expense), net .
 
15. Commitments and Contingencies

Collaboration Arrangements:   We have entered into certain research and development collaboration agreements with third parties that include the funding of certain development, manufacturing and commercialization efforts with the potential for future milestone and royalty payments upon the achievement of pre-established developmental, regulatory and/or commercial targets. Our obligation to fund these efforts is contingent upon our continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the programs. Due to the nature and uncertainty of these arrangements and any future potential payments, no amounts have been recorded in our accompanying Consolidated Balance Sheets at June 30, 2014 and December 31, 2013 . See Note 14 for additional details related to collaboration arrangements.
 
Contingencies:   We believe we maintain insurance coverage adequate for our current needs. Our 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. We review the effects of such laws and regulations on our operations and modify our operations as appropriate. We believe we are in substantial compliance with all applicable environmental laws and regulations.

We have ongoing customs, duties and VAT examinations in various countries that have yet to be settled. Based on our knowledge of the claims and facts and circumstances to date, none of these matters, individually or in the aggregate, are deemed to be material to our financial condition. 

16. Legal Proceedings

Like many companies in our industry, we have from time to time received inquiries and subpoenas and other types of information requests from government authorities and others and we have been subject to claims and other actions related to our business

27

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


activities. While the ultimate outcome of investigations, inquires, information requests and legal proceedings is difficult to predict, adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, product recalls, costs and significant payments, which may have a material adverse effect on our results of operations, cash flows or financial condition.
 
Pending patent proceedings include challenges to the scope, validity and/or enforceability of our patents relating to certain of our products, uses of products or processes. Further, we are subject to claims of third parties that we infringe their patents covering products or processes. Although we believe we have substantial defenses to these challenges and claims, there can be no assurance as to the outcome of these matters and an adverse decision in these proceedings could result in one or more of the following: (i) a loss of patent protection, which could lead to a significant reduction of sales that could materially affect future results of operations, (ii) our inability to continue to engage in certain activities, and (iii) significant liabilities, including payment of damages, royalties and/or license fees to any such third party.
 
Among the principal matters pending are the following:

Patent Related Proceedings:

REVLIMID ® : We received Notice Letters, dated August 30, 2010 and June 12, 2012 from Natco Pharma Limited of India (Natco) notifying us of Natco’s Abbreviated New Drug Application (ANDA), which contain Paragraph IV certifications against certain of Celgene’s patents that are listed in the FDA Approved Drug Products With Therapeutic Equivalence Evaluations (the “Orange Book”) for REVLIMID ®  (lenalidomide). Natco’s Notice Letters were sent in connection with its filing of an ANDA seeking permission from the FDA to market a generic version of 25mg, 15mg, 10mg and 5mg REVLIMID ®  capsules. We filed separate infringement actions (which were subsequently consolidated) in the United States District Court for the District of New Jersey against Natco, Natco’s U.S. partner, Arrow International Limited (Arrow), and Arrow’s parent company, Watson Laboratories, Inc. (Watson, a wholly-owned subsidiary of Actavis, Inc. and formerly known as Watson Pharmaceuticals, Inc.) (Natco, Arrow and Watson are collectively referred to hereinafter as “Natco”). In its answer and counterclaim, Natco asserts that our patents are invalid, unenforceable and/or not infringed by Natco’s proposed generic products. As a result of the filing of our actions, the FDA cannot grant final approval of Natco’s ANDA until the earlier of (i) a decision of the court that each of the patents is not infringed, invalid or unenforceable, or (ii) December 12, 2014.

The patents in dispute include United States Patent Nos. 5,635,517; 6,045,501; 6,315,720; 6,555,554; 6,561,976; 6,561,977; 6,755,784; 7,119,106; 7,465,800; 6,281,230; 7,189,740; 7,968,569; 8,288,415; 8,315,886 and 8,404,717, plus three non-Orange Book listed patents, United States Patent Nos. 7,977,357; 8,193,219 and 8,431,598.

A claim construction decision was issued on May 27, 2014. Fact discovery is set to close on August 4, 2014 and expert discovery is set to close on February 20, 2015. No trial date has been set.

We believe that Natco’s defenses and counterclaims are unlikely to be sustained and we intend to vigorously assert our patent rights. Although there can be no assurance as to the ultimate outcome of this proceeding, we currently expect that it will not have a material adverse effect on our financial condition or results of operations. However, if Natco is successful in challenging all the patents in dispute or if the court rules that certain of our key patent claims are invalid or not infringed, such events could have a material adverse effect on our financial condition and results of operations.

We received a third Notice Letter from Natco dated April 3, 2014, notifying us of Natco’s Paragraph IV certifications against five patents, including United States Patent Nos. 8,404,717 (already in suit), 8,530,498; 8,589,188; 8,626,531; and 8,648,095. On May 15, 2014, we filed an infringement action in the United States District Court for the District of New Jersey against Natco, Arrow and Watson. A scheduling order has yet to be issued.

ABRAXANE ® :   On December 14, 2011, Cephalon, Inc. and Acusphere, Inc. filed a complaint against us in the United States District Court for the District of Massachusetts, alleging, among other things, that the making, using, selling, offering to sell and importing of ABRAXANE ®  brand drug infringes claims of United States Patent No. RE40,493. Plaintiffs are seeking damages and injunctive relief. On December 3, 2013, the court issued an order construing certain claim terms. Based on that order, on March 18, 2014, the parties agreed to a judgment of noninfringement in Celgene’s favor. On April 15, 2014, plaintiffs’ filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit seeking a review of the lower court’s construction of certain claim terms. On April 22, 2014 we filed a Notice of Cross-Appeal seeking review of certain terms defined in the lower court’s order.


28

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


On May 23, 2014, the plaintiffs filed a motion to dismiss our cross-appeal, which motion was denied on June 30, 2014. On July 7, 2014, the plaintiffs filed an opening brief relating to the appeal. We intend to file our opening brief by August 18, 2014.

THALOMID ® and REVLIMID ® : On October 2, 2013, Andrulis Pharmaceuticals Corporation (Andrulis) filed a lawsuit against us in the United States District Court for the District of Delaware claiming infringement of U.S. Patent No. 6,140,346 (“the ‘346 patent”). Andrulis alleges that we are liable for infringement of one or more claims of the ‘346 patent, which covers the use of THALOMID ® (and, as asserted by Andrulis, REVLIMID ® ) in combination with an alkylating agent (e.g., melphalan) to treat cancers. Andrulis is seeking an unspecified amount of damages, attorneys’ fees and injunctive relief. We disagree with Andrulis’ allegations and intend to vigorously defend against this infringement suit. On November 25, 2013, we filed a motion to dismiss Andrulis’ complaint. Andrulis’ motion seeking leave to file an amended complaint was granted on December 30, 2013. We filed a motion to dismiss Andrulis’ amended complaint on January 30, 2014. On April 11, 2014, the court denied our motion in part and granted our motion in part, dismissing two of Andrulis' four infringement claims without leave to amend. We filed an answer to the remaining claims on April 25, 2014. Fact discovery is set to close on June 16, 2015. A joint claim construction brief is due on March 30, 2015. A claim construction hearing is scheduled for April 30, 2015. Expert discovery is set to close on December 21, 2015. Trial is scheduled to begin on June 6, 2016. We do not expect the ultimate outcome of this lawsuit to have a material adverse effect on our financial condition or results of operations.

ISTODAX ® (romidepsin): We received a Notice Letter dated March 17, 2014 from Fresenius Kabi USA, LLC (Fresenius) notifying us of Fresenius’s ANDA that seeks approval from the FDA to market a generic version of romidepsin for injection. The Notice Letter contains Paragraph IV certifications against U.S. Patent Nos. 7,608,280 and 7,611,724 (the ‘280 and ‘724 patents) that are listed in the Orange Book for ISTODAX ® .

On April 30, 2014, Celgene and Astellas Pharma Inc., filed an infringement action in the United States District Court for the District of Delaware against Fresenius. In its answer and counterclaim, Fresenius asserts that the ‘280 and ‘724 patents are invalid and/or not infringed by its proposed generic products. As a result of the filing of our action, the FDA cannot grant final approval of Fresenius’s ANDA until the earlier of (i) a final decision that each of the patents is invalid and/or not infringed; or (ii) May 5, 2017.

Fact discovery is set to close on August 7, 2015. A joint claim construction brief is due on August 7, 2015. A claim construction hearing is scheduled for September 3, 2015. Expert discovery is set to close on May 27, 2016. Trial is scheduled to begin on September 19, 2016.

Other Proceedings:
 
In 2009, we received a Civil Investigative Demand (CID) from the U.S. Federal Trade Commission (FTC) seeking documents and other information relating to requests by manufacturers of generic drugs to purchase our patented REVLIMID ® and THALOMID ®  brand drugs in order for the FTC to evaluate whether there may be reason to believe that we have engaged in unfair methods of competition. In 2010, the State of Connecticut issued a subpoena referring to the same issues raised by the 2009 CID. Also in 2010, we received a second CID from the FTC relating to this matter. We continue to cooperate with the FTC and State of Connecticut investigations.
 
On April 3, 2014, Mylan Pharmaceuticals Inc. (Mylan) filed a lawsuit against us in the United States District Court for the District of New Jersey alleging that we violated various federal and state antitrust and unfair competition laws by allegedly refusing to sell samples of our THALOMID ® and REVLIMID ® brand drugs so that Mylan can conduct the bioequivalence testing needed to submit ANDAs to the FDA for approval to market generic versions of these products. Mylan is seeking injunctive relief, damages and declaratory judgment. We filed a motion to dismiss Mylan’s complaint on May 25, 2014. Mylan filed its opposition to our motion to dismiss on June 16, 2014. The Federal Trade Commission filed an amicus curiae brief in opposition to our motion to dismiss on June 17, 2014. A scheduling order has not yet been issued in this case. We intend to vigorously defend against Mylan’s claims.

In 2011, the United States Attorney’s Office for the Central District of California informed us that they were investigating possible off-label marketing and improper payments to physicians in connection with the sales of THALOMID ®  and REVLIMID ® . In 2012, we learned that two other United States Attorneys’ offices (the Northern District of Alabama and the Eastern District of Texas) and various state Attorneys General were conducting related investigations. In February 2014, three civil qui tam actions related to those investigations brought by three former Celgene employees on behalf of the federal and various state governments under the federal false claims act and similar state laws were unsealed after the United States Department of Justice (DOJ) declined to intervene in any of these actions. The DOJ retains the right to intervene in these actions at any time. Additionally, while several

29

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


states have similarly declined to intervene in some of these actions, they also retain the right to intervene in the future. The plaintiffs in the Northern District of Alabama and Eastern District of Texas actions have voluntarily dismissed their cases. On April 25, 2014, we filed a motion to dismiss the complaint in the remaining (Central District of California) action (Brown Action). Plaintiff filed a motion in opposition to our motion to dismiss on May 23, 2014. The DOJ as well as several state Attorneys General also filed Statements of Interest opposing certain arguments made in our motion to dismiss. The judge issued an order on July 10, 2014 largely denying our motion to dismiss, but granting in part our motion with respect to certain state claims. Our answer to the complaint is due on August 28, 2014. We intend to vigorously defend against the remaining claims in the Brown Action.

In a related matter, we have received a letter purportedly on behalf of two stockholders that demands, primarily on the basis of the allegations in the Brown Action, that our board of directors take action on the Company’s behalf to correct alleged deficiencies in the Company’s internal controls and to recover from named current and past directors and officers damages those stockholders allege to have resulted from breaches of fiduciary duties related to the matters alleged in the Brown Action. The demand will be given appropriate consideration.

On June 7, 2013, Children's Medical Center Corporation (CMCC) filed a lawsuit against us in the Superior Court of the Commonwealth of Massachusetts alleging that our obligation to pay a 1% royalty on REVLIMID ® net sales revenue and a 2.5% royalty on POMALYST ® /IMNOVID ® net sales revenue under a license agreement entered into in December 2002 extended beyond February 28, 2013 and that our failure to make royalty payments to CMCC subsequent to February 28, 2013 breached the license agreement. CMCC is seeking unspecified damages and a declaration that the license agreement remains in full force and effect. In July 2013, we removed these proceedings to the United States District Court for the District of Massachusetts. On August 5, 2013, we filed an answer to CMCC’s complaint and a counterclaim for declaratory judgment that our obligations to pay royalties have expired. On August 26, 2013, CMCC filed an answer to our counterclaim. A scheduling conference was held on February 11, 2014 and the court ordered fact discovery to be completed by December 15, 2014. No trial date has as yet been set by the court. On July 8, 2014, CR Rev Holdings, LLC (“CR Rev”) filed a complaint against Celgene in the same action. CR Rev alleges that CMCC sold and assigned a substantial portion of the royalty payments owed by Celgene on the sale of REVLIMID® to CR Rev. CR Rev has alleged identical causes of action with respect to REVLIMID ® as those alleged by CMCC, and seeks unspecified damages and a declaration that the license agreement is still in effect. We intend to vigorously defend against CMCC's and CR Rev’s claims. As of June 30, 2014, we consider the range of reasonably possible loss relating to this lawsuit to be between zero and $59.4 million , with the high end of the range being the royalty payments on REVLIMID ® we would have made to CMCC under the license agreement through June 30, 2014, if our obligation to pay royalties remained in effect. CMCC contends that our royalty obligation continues on net sales of REVLIMID ® , as well as POMALYST ® /IMNOVID ® , at least until May 2016 and if CMCC prevails, we may be obligated to continue to pay royalties on sales for periods after June 30, 2014.

In the second quarter of 2014, we received a Health Insurance Portability and Accountability Act (HIPAA) subpoena from the United States Attorney’s Office for the District of Massachusetts requesting certain documents relating to an investigators meeting in 2011 with respect to a clinical study relating to Abraxane. The Company is cooperating with the United States Attorney in connection with this subpoena.

30


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-Looking Information
 
This report contains forward-looking statements that reflect the current views of our management with respect to future events, results of operations, economic performance and/or financial condition. Any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Forward-looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “aims,” “plans,” “may,” “could,” “will,” “will continue,” “seeks,” “should,” “predicts,” “potential,” “outlook,” “guidance,” “target,” “forecast,” “probable,” “possible” or the negative of such terms and similar expressions. Forward-looking statements are based on current plans, estimates, assumptions and projections, which are subject to change and may be affected by risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Forward-looking statements speak only as of the date they are made and we undertake no obligation to update any forward-looking statement in light of new information or future events, although we intend to continue to meet our ongoing disclosure obligations under the U.S. securities laws and other applicable laws. We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements and therefore you should not place too much reliance on them. These factors include, among others, those described in the sections “Forward-Looking Statements” and “Risk Factors” contained in our 2013 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) and in this report and our other public reports filed with the SEC. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward-looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals. 

Executive Summary
 
Celgene Corporation, together with its subsidiaries (collectively “we,” “our,” “us,” “Celgene” or the “Company”), is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. We are dedicated to innovative research and development designed to bring new therapies to market and we are involved in research in several scientific areas designed to deliver proprietary next-generation therapies, targeting areas including intracellular signaling pathways, protein homeostasis and epigenetics in cancer and immune cells, immunomodulation in cancer and autoimmune diseases and therapeutic application of cell therapies.

Our primary commercial stage products include REVLIMID ® , ABRAXANE ® , VIDAZA ® , POMALYST ® /IMNOVID ® , THALOMID ® (inclusive of Thalidomide Celgene TM ), azacitidine for injection (generic version of VIDAZA ® ), ISTODAX ® and OTEZLA ® . OTEZLA ® was approved by the U.S. Food and Drug Administration (FDA) in March 2014 for the treatment of adult patients with active psoriatic arthritis and we began recognizing revenue related to OTEZLA ® during the second quarter of 2014. OTEZLA ® is currently under review for psoriasis in the United States and for psoriasis and psoriatic arthritis in the European Union. Additional sources of revenue include royalties from Novartis Pharma AG (Novartis) on their sales of FOCALIN XR ®  and the entire RITALIN ®  family of drugs, the sale of products and services through our Celgene Cellular Therapeutics (CCT) subsidiary and other licensing agreements. The diseases that our primary commercial stage products are approved to treat are described below for the major markets of the United States, the European Union and Japan. Approvals in other international markets are indicated in the aggregate for the disease indication that most closely represents the majority of the other international approvals.


31

Table of Contents

REVLIMID ® (lenalidomide): REVLIMID ®  is an oral immunomodulatory drug marketed in the United States and many international markets for the treatment of patients as indicated below:
Disease
Geographic Approvals
Multiple myeloma (MM), in combination with dexamethasone, in patients who have received at least one prior therapy
- United States
- European Union
- Japan
- Other international markets
Myelodysplastic syndromes (MDS)
 
Transfusion-dependent anemia due to low- or intermediate-1-risk MDS associated with a deletion 5q abnormality with or without additional cytogenetic abnormalities
- United States
- Other international markets
Transfusion-dependent anemia due to low- or intermediate-1-risk MDS in patients with isolated deletion 5q cytogenetic abnormality when other options are insufficient or inadequate
- European Union
MDS with a deletion 5q cytogenetic abnormality. The efficacy or safety of REVLIMID for International Prognostic Scoring System (IPSS) intermediate-2 or high risk MDS has not been established.
- Japan
Mantle cell lymphoma (MCL) in patients whose disease has relapsed or progressed after two prior therapies, one of which included bortezomib.
- United States
ABRAXANE ® (paclitaxel albumin-bound particles for injectable suspension):   ABRAXANE ® is a solvent-free chemotherapy product which was developed using our proprietary nab ®  technology platform. This protein-bound chemotherapy agent combines paclitaxel with albumin. ABRAXANE ® is approved for the treatment of patients as indicated below:
Disease
Geographic Approvals
Breast Cancer
 
Metastatic breast cancer, after failure of combination chemotherapy for metastatic disease or relapse within six months of adjuvant chemotherapy. Prior therapy should have included an anthracycline unless clinically contraindicated.
- United States
- Other international markets

Metastatic breast cancer in adult patients who have failed first-line treatment for metastatic disease for whom standard, anthracycline containing therapy is not indicated
- European Union
Breast cancer
- Japan
Non-Small Cell Lung Cancer (NSCLC)
 
Locally advanced or metastatic NSCLC, as first-line treatment in combination with carboplatin, in patients who are not candidates for curative surgery or radiation therapy
- United States
- Other international markets
NSCLC
- Japan
Metastatic adenocarcinoma of the pancreas, a form of pancreatic cancer, as first line treatment in combination with gemcitabine
- United States
- European Union
- Other international markets
Gastric cancer
- Japan
VIDAZA ® (azacitidine for injection):   VIDAZA ®  is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. VIDAZA ®  is a Category 1 recommended treatment for patients with intermediate-2 and high-risk MDS, according to the National Comprehensive Cancer Network and has been granted orphan drug designation for the treatment of MDS and AML. The U.S. regulatory exclusivity for VIDAZA ®  expired in May 2011. After the launch of a generic version of VIDAZA ® in the United States by a competitor in September 2013, we experienced a significant reduction in our U.S. sales of VIDAZA ® in the fourth quarter of 2013. In 2013, we also contracted with Sandoz AG to sell a generic version of VIDAZA ® in the United States, which we supply. Regulatory exclusivity for VIDAZA ® is expected to continue in

32

Table of Contents

Europe through 2018. VIDAZA ® is marketed in the United States and many international markets for the treatment of patients as indicated below:
Disease
Geographic Approvals
Myelodysplastic syndromes (MDS)
 
All French-American-British (FAB) subtypes
- United States
Intermediate-2 and high-risk MDS
- European Union
- Other international markets
Chronic myelomonocytic leukemia with 10% to 29% marrow blasts without myeloproliferative disorder
- European Union
- Other international markets
Acute myeloid leukemia (AML) with 20% to 30% blasts and multi-lineage dysplasia
- European Union
- Other international markets

POMALYST ® /IMNOVID ®1 (pomalidomide): POMALYST ® /IMNOVID ® is a proprietary, distinct, small molecule that is administered orally and modulates the immune system and other biologically important targets. POMALYST ® /IMNOVID ® received its first approvals from the FDA and the European Commission (EC) during 2013 for the treatment of patients as indicated below:
Disease
Geographic Approvals
Multiple myeloma for patients who have received at least two prior therapies, including lenalidomide and bortezomib and have demonstrated disease progression on or within 60 days of completion of the last therapy.
- United States
Relapsed and refractory multiple myeloma, in combination with dexamethasone, for adult patients who have received at least two prior therapies including both lenalidomide and bortezomib and have demonstrated disease progression on the last therapy.
- European Union
1 We received FDA approval for pomalidomide under the trade name POMALYST ® . We received EC approval for pomalidomide under the trade name IMNOVID ® .
THALOMID ® (thalidomide):   THALOMID ® , sold as Thalidomide Celgene TM outside the United States, is administered orally for the treatment of diseases as indicated below:
Disease
Geographic Approvals
Multiple myeloma
 
Newly diagnosed multiple myeloma, in combination with dexamethasone
- United States
Thalomid in combination with dexamethasone is indicated for induction therapy prior to high dose chemotherapy with autologous stem cell rescue, for the treatment of patients with untreated multiple myeloma.
- Other international markets
Multiple myeloma after failure of standard therapies (relapsed or refractory)
- Other international markets
Thalidomide Celgene TM  in combination with melphalan and prednisone as a first line treatment for patients with untreated multiple myeloma who are aged sixty-five years of age or older or ineligible for high dose chemotherapy
- European Union
- Other international markets
Erythema Nodosum Leprosum
 
Cutaneous manifestations of moderate to severe erythema nodosum leprosum (ENL), an inflammatory complication of leprosy
- United States
- Other international markets
Maintenance therapy for prevention and suppression of the cutaneous manifestation of ENL recurrence
- United States
- Other international markets

33

Table of Contents

azacitidine for injection (generic version of VIDAZA ® ): We contracted with Sandoz AG to sell azacitidine for injection, which they launched after the introduction of a generic version of VIDAZA ® in the United States by a competitor in September 2013. We recognize net product sales from our sales of azacitidine for injection to Sandoz AG.
ISTODAX ® (romidepsin):   ISTODAX ®  is administered by intravenous infusion for the treatment of diseases as indicated below and has received orphan drug designation for the treatment of non-Hodgkin’s T-cell lymphomas, including CTCL and PTCL.
Disease
Geographic Approvals
Cutaneous T-cell lymphoma (CTCL) in patients who have received at least one prior systemic therapy
- United States
- Other international markets
Peripheral T-cell lymphoma (PTCL) in patients who have received at least one prior therapy
- United States
- Other international markets
OTEZLA ® (apremilast): OTEZLA ® is an oral small-molecule inhibitor of phosphodiesterase 4 (PDE4) specific for cyclic adenosine monophosphate (cAMP). PDE4 inhibition results in increased intracellular cAMP levels. OTEZLA ® received approval from the FDA for psoriatic arthritis in March 2014 and has been submitted for approval in the United States in psoriasis and in the European Union for the treatment of psoriasis and psoriatic arthritis. OTEZLA ® is approved for the treatment of patients as indicated below:
Disease
Geographic Approvals
Adult patients with active psoriatic arthritis
- United States (Approved March 2014)

We continue to invest substantially in research and development in support of multiple ongoing proprietary clinical development programs which support our existing products and pipeline of new drug candidates. REVLIMID ® is in several phase III trials across a range of hematological malignancies that include newly diagnosed multiple myeloma and maintenance, lymphomas, chronic lymphocytic leukemia (CLL) and MDS. POMALYST ® /IMNOVID ® was approved in the United States and European Union for indications in multiple myeloma based on phase II and phase III results, respectively, and additional phase III trials are underway with POMALYST ® /IMNOVID ®  in relapsed and refractory multiple myeloma. Phase III trials are also underway for VIDAZA ® and CC-486 in MDS and AML and ISTODAX ® in first-line PTCL. In solid tumors, ABRAXANE ® is currently in various stages of investigation for breast, pancreatic and non-small cell lung cancers. In inflammation and immunology, OTEZLA ® is being evaluated in a broad phase III program for psoriatic arthritis, psoriasis and ankylosing spondylitis. Also in the inflammation and immunology therapeutic area, we have recently acquired a global development and commercialization license to GED-0301 and we plan to initiate a phase III trial for the use of GED-0301 in Crohn's disease before year-end 2014.
Beyond our phase III programs, we have access to a growing early-to-mid-stage pipeline of novel potential therapies to address significant unmet medical needs that consists of a combination of in-house developed compounds, compounds licensed from other companies and options to acquire compounds from collaboration partners.
We believe that continued use of our primary commercial stage products, participation in research and development collaboration arrangements, depth of our product pipeline, regulatory approvals of new products and expanded use of existing products will provide the catalysts for future growth.

The following table summarizes total revenue and earnings for the three-month periods ended June 30, 2014 and 2013 (dollar amounts in millions, except per share data):
 
Three-Month Periods Ended June 30,
 
Increase
 
Percent Change
 
2014
 
2013
 
 
Total revenue
$
1,872.7

 
$
1,599.0

 
$
273.7

 
17.1
%
Net income
$
597.8

 
$
478.1

 
$
119.7

 
25.0
%
Diluted earnings per share
$
0.72

 
$
0.56

 
$
0.16

 
28.6
%
 
Revenue increased by $273.7 million in the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily due to the continued growth in sales of REVLIMID ® , POMALYST ® /IMNOVID ® and ABRAXANE ® , partially offset by a reduction in sales of VIDAZA ® in the U.S. following the September 2013 launch in the U.S. of a generic version of VIDAZA ® . POMALYST ® /IMNOVID ® was approved by the FDA in February 2013 and by the European Commission (EC) in August 2013. The $119.7 million increase in net income and $0.16 increase in diluted earnings per share in the current year quarter were primarily due to a higher level of net product sales partly offset by an increase in marketing activities primarily related to OTEZLA ® , POMALYST ® /IMNOVID ® and ABRAXANE ® .

34

Table of Contents

The following table summarizes total revenue and earnings for the six-month periods ended June 30, 2014 and 2013 (dollar amounts in millions, except per share data):
 
Six-Month Periods Ended June 30,
 
Increase
 
Percent Change
 
2014
 
2013
 
 
Total revenue
$
3,602.7

 
$
3,063.6

 
$
539.1

 
17.6
%
Net income
$
877.5

 
$
863.0

 
$
14.5

 
1.7
%
Diluted earnings per share
$
1.05

 
$
1.00

 
$
0.05

 
5.0
%
 
Revenue increased by $539.1 million in the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily due to the continued growth in sales of REVLIMID ® , POMALYST ® /IMNOVID ® and ABRAXANE ® , partially offset by a reduction in sales of VIDAZA ® in the U.S. following the September 2013 launch in the U.S. of a generic version of VIDAZA ® . The $14.5 million increase in net income and $0.05 increase in diluted earnings per share in the current six-month period were primarily due to a higher level of net product sales partly offset by a $144.6 million increase in research and development expenses related to collaboration arrangements as well as an increase in marketing activities primarily related to OTEZLA ® , POMALYST ® /IMNOVID ® and ABRAXANE ® .

Results of Operations

Three-Month Periods Ended June 30, 2014 and 2013

Total Revenue:   Total revenue and related percentage changes for the three-month periods ended June 30, 2014 and 2013 were as follows (dollar amounts in millions):
 
Three-Month Periods Ended June 30,
 
Increase (Decrease)
 
Percent Change
 
2014
 
2013
 
 
Net product sales:
 

 
 

 
 

 
 

REVLIMID ®
$
1,213.7

 
$
1,051.5

 
$
162.2

 
15.4
 %
ABRAXANE ®
215.3

 
154.8

 
60.5

 
39.1
 %
POMALYST ® /IMNOVID ®
160.9

 
66.2

 
94.7

 
143.1
 %
VIDAZA ®
152.0

 
211.3

 
(59.3
)
 
(28.1
)%
azacitidine for injection
24.4

 

 
24.4

 
N/M

THALOMID ®
54.3

 
66.2

 
(11.9
)
 
(18.0
)%
ISTODAX ®
17.1

 
13.5

 
3.6

 
26.7
 %
OTEZLA ®
4.6

 

 
4.6

 
N/M

Other
2.3

 
0.6

 
1.7

 
283.3
 %
Total net product sales
$
1,844.6

 
$
1,564.1

 
$
280.5

 
17.9
 %
Collaborative agreements and other revenue
2.7

 
3.1

 
(0.4
)
 
(12.9
)%
Royalty revenue
25.4

 
31.8

 
(6.4
)
 
(20.1
)%
Total revenue
$
1,872.7

 
$
1,599.0

 
$
273.7

 
17.1
 %
N/M - Not meaningful
 
Total revenue increased by $273.7 million , or 17.1% , to $1.873 billion for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , reflecting increases of $122.0 million, or 12.5%, in the United States and $151.7 million, or 24.3%, in international markets.
 
Net Product Sales:   Total net product sales for the three-month period ended June 30, 2014 increased by $280.5 million , or 17.9% , to $1.845 billion compared to the three-month period ended June 30, 2013 . The increase was comprised of net volume increases of $221.0 million, net price increases of $47.6 million and a $11.9 million favorable foreign exchange impact, including the impact of foreign exchange hedging activity.
 
REVLIMID ®  net sales increased by $162.2 million , or 15.4% , to $1.214 billion for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily due to increased unit sales in both U.S. and international markets and price increases in the U.S. market. Increases in market penetration and treatment duration of patients using REVLIMID ®  in multiple myeloma contributed to the increase in U.S. unit sales. The growth in international markets resulted from volume increases, primarily driven by increased duration of use and market share gains.

35

Table of Contents

ABRAXANE ®  net sales increased by $60.5 million , or 39.1% , to $215.3 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily due to increased unit volumes in both the U.S. and international markets. ABRAXANE ® was approved for the treatment of metastatic adenocarcinoma of the pancreas in both the United States and European Union in the second half of 2013.

POMALYST ® /IMNOVID ® net sales increased by $94.7 million to $160.9 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily due to increased unit volumes in both the U.S. and international markets. The respective net sales increases were $46.5 million in the United States and $48.2 million in international markets. POMALYST ® was approved by the FDA in February 2013 and IMNOVID ® was approved by the European Commission in August 2013. Net sales of IMNOVID ® for the 2013 three-month period included only sales from approved early access programs in Europe.

VIDAZA ® net sales decreased by $59.3 million , or 28.1% , to $152.0 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily due to a $74.7 million decrease in the U.S. market resulting from the September 2013 introduction of a generic version of VIDAZA ® by a third party. The decrease in U.S. sales was partly offset by volume increases in international markets.

Azacitidine for injection net sales were $24.4 million for the three-month period ended June 30, 2014 . Azacitidine for injection is a generic version of VIDAZA ® supplied by Celgene to Sandoz AG (Sandoz) beginning in the fourth quarter of 2013.

THALOMID ®  net sales decreased by $11.9 million , or 18.0% , to $54.3 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily resulting from lower unit volumes in the U.S. and international markets offset slightly by U.S. price increases.
 
ISTODAX ®  net sales increased by $3.6 million , or 26.7% , to $17.1 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily due to an increase in unit volume.

OTEZLA ® net sales were $4.6 million for the three-month period ended June 30, 2014 . OTEZLA ® was approved by the FDA in March 2014 for the treatment of adult patients with active psoriatic arthritis and is under review for psoriasis in the United States and for psoriasis and psoriatic arthritis in the European Union. Launch activities for OTEZLA ® commenced in March 2014 and we began recognizing revenue related to OTEZLA ® during the second quarter of 2014.

Collaborative Agreements and Other Revenue:   Revenue from collaborative agreements and other sources decreased by $0.4 million to $2.7 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 .
 
Royalty Revenue:   Royalty revenue decreased by $6.4 million to $25.4 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 due to decreased royalties earned from Novartis based on its sales of FOCALIN XR ® and RITALIN ® , which have both been negatively impacted by generic competition in certain markets. Generic competition entered the market in the United States for certain strengths of FOCALIN XR ® in the fourth quarter of 2013.

Gross to Net Sales Accruals:   We record gross to net sales accruals for sales returns and allowances, sales discounts, government rebates, chargebacks and distributor service fees.

REVLIMID ® , POMALYST ® and THALOMID ® are distributed in the United States primarily through contracted pharmacies under the REVLIMID ®  Risk Evaluation and Mitigation Strategy (REMS), POMALYST REMS TM and THALOMID REMS TM  programs, respectively. These are proprietary risk-management distribution programs tailored specifically to provide for the safe and appropriate distribution and use of REVLIMID ® , POMALYST ® and THALOMID ® . Internationally, REVLIMID ® , THALOMID ® /Thalidomide Celgene TM and IMNOVID ® are distributed under mandatory risk-management distribution programs tailored to meet local authorities’ specifications to provide for the product’s safe and appropriate distribution and use. These programs may vary by country and, depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies. VIDAZA ® , ABRAXANE ® , ISTODAX ® and OTEZLA ®  are distributed through the more traditional pharmaceutical industry supply chain and are not subject to the same risk-management distribution programs as REVLIMID ® , POMALYST ® /IMNOVID ® and THALOMID ® /Thalidomide Celgene TM .

We base our sales returns allowance on estimated on-hand retail/hospital inventories, measured end-customer demand as reported by third-party sources, actual returns history and other factors, such as the trend experience for lots where product is still being returned or inventory centralization and rationalization initiatives conducted by major pharmacy chains, as applicable. If the historical data we use to calculate these estimates do not properly reflect future returns, then a change in the allowance would be

36

Table of Contents

made in the period in which such a determination is made and revenues in that period could be materially affected. Under this methodology, we track actual returns by individual production lots. Returns on closed lots, that is, lots no longer eligible for return credits, are analyzed to determine historical returns experience. Returns on open lots, that is, lots still eligible for return credits, are monitored and compared with historical return trend rates. Any changes from the historical trend rates are considered in determining the current sales return allowance. As noted above, REVLIMID ® , POMALYST ® /IMNOVID ® and THALOMID ® /Thalidomide Celgene TM are distributed primarily through hospitals and contracted pharmacies, which are typically subject to tighter controls of inventory quantities within the supply channel and, thus, resulting in lower returns activity.
 
Sales discount accruals are based on payment terms extended to customers.
 
Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are generally based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. The Medicaid rebate percentage was increased and extended to Medicaid Managed Care Organizations in March 2010. The accrual of the rebates associated with Medicaid Managed Care Organizations is calculated based on estimated historical patient data related to Medicaid Managed Care Organizations. We also analyze actual billings received from the states to further support the accrual rates. Subsequent to implementation of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the 2010 U.S. Health Care Reform Law), certain states have not completed their Medicaid Managed Care Organization billing for the years of 2010 through 2013. Our accruals for these Medicaid Managed Care Organization rebates had been at elevated levels given the delays in the receipt of complete invoices from certain states. Due to the receipt of more complete claims data during 2013, the accruals for certain states were reduced from these elevated levels as a result of both payments being applied to the accrual during 2013 and a change in estimate of the ultimate obligation during the fourth quarter of 2013. We will continue to adjust the rebate accruals as more information becomes available and to reflect actual claims experience. Effective January 1, 2011, manufacturers of pharmaceutical products are responsible for 50% of the patient’s cost of branded prescription drugs related to the Medicare Part D Coverage Gap. In order to estimate the cost to us of this coverage gap responsibility, we analyze data for eligible Medicare Part D patients against data for eligible Medicare Part D patients treated with our products as well as the historical invoices. This expense is recognized throughout the year as costs are incurred. In certain international markets government-sponsored programs require rebates to be paid based on program specific rules and, accordingly, the rebate accruals are determined primarily on estimated eligible sales.

Rebates or administrative fees are offered to certain wholesale customers, group purchasing organizations and end-user customers, consistent with pharmaceutical industry practices. Settlement of rebates and fees may generally occur from one to 15 months from the date of sale. We record a provision for rebates at the time of sale based on contracted rates and historical redemption rates. Assumptions used to establish the provision include level of wholesaler inventories, contract sales volumes and average contract pricing. We regularly review the information related to these estimates and adjust the provision accordingly.
 
Chargeback accruals are based on the differentials between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs. Distributor service fee accruals are based on contractual fees to be paid to the wholesale distributor for services provided. TRICARE is a health care program of the U.S. Department of Defense Military Health System that provides civilian health benefits for military personnel, military retirees and their dependents. TRICARE rebate accruals are included in chargeback accruals and are based on estimated Department of Defense eligible sales multiplied by the TRICARE rebate formula.
 
See Critical Accounting Estimates and Significant Accounting Policies in our 2013 Annual Report on Form 10-K for further discussion of gross to net sales accruals.


37

Table of Contents

Gross to net sales accruals and the balance in the related allowance accounts for the three-month periods ended June 30, 2014 and 2013 were as follows (in millions):
 
Returns
and
Allowances
 
Discounts
 
Government
Rebates
 
Chargebacks
and Distributor
Service Fees
 
Total
Balance at March 31, 2014
$
12.2

 
$
12.5

 
$
151.0

 
$
82.7

 
$
258.4

Allowances for sales during prior periods
(0.1
)
 

 
(1.0
)
 
(2.2
)
 
(3.3
)
Allowances for sales during 2014
2.6

 
21.6

 
69.8

 
94.0

 
188.0

Credits/deductions issued for prior year sales
(1.4
)
 
(1.8
)
 
(23.6
)
 
(9.3
)
 
(36.1
)
Credits/deductions issued for sales during 2014
(0.6
)
 
(20.4
)
 
(75.8
)
 
(78.4
)
 
(175.2
)
Balance at June 30, 2014
$
12.7

 
$
11.9

 
$
120.4

 
$
86.8

 
$
231.8

 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2013
$
15.0

 
$
14.1

 
$
157.8

 
$
58.7

 
$
245.6

Allowances for sales during prior periods
(1.7
)
 

 
(0.5
)
 
0.3

 
(1.9
)
Allowances for sales during 2013
2.5

 
19.1

 
63.4

 
74.1

 
159.1

Credits/deductions issued for prior year sales
(1.5
)
 

 
(33.5
)
 
(5.8
)
 
(40.8
)
Credits/deductions issued for sales during 2013
(0.6
)
 
(18.7
)
 
(68.0
)
 
(53.8
)
 
(141.1
)
Balance at June 30, 2013
$
13.7

 
$
14.5

 
$
119.2

 
$
73.5

 
$
220.9

  
A comparison of provisions for allowances for sales within each of the four categories noted above for the three-month periods ended June 30, 2014 and 2013 follows:
 
Returns and allowances provisions increased by $1.7 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , due primarily to a $1.7 million reduction in the returns allowance recorded in the second quarter of 2013 related to VIDAZA ® inventory levels held by certain distributors, which decreased during the three months ended June 30, 2013 .

Discounts provisions increased by $2.5 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , due to revenue increases in the U.S. and international markets, both of which offer discount programs.
 
Government rebates provisions increased by $5.9 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily attributable to increased expense related to Medicare Part D Coverage Gap and Medicaid rebates.

Chargebacks and distributor service fees provisions increased by $17.4 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 . Chargebacks and distributor service fees increased by approximately $13.5 million and $3.9 million, respectively, primarily due to higher sales volumes and changes in the structure of ABRAXANE ® sales contracts resulting in a greater portion of sales qualifying for chargeback rebates. Rebates specifically related to the TRICARE program increased by $2.0 million driven by higher volume and increased rebate rates.


38

Table of Contents

Operating Costs and Expenses : Operating costs, expenses and related percentages for the three-month periods ended June 30, 2014 and 2013 were as follows (dollar amounts in millions):
 
Three-Month Periods Ended June 30,
 
Increase (Decrease)
 
Percent Change
 
2014
 
2013
 
 
Cost of goods sold (excluding amortization of acquired intangible assets)
$
98.9

 
$
80.9

 
$
18.0

 
22.2
 %
Percent of net product sales
5.4
%
 
5.2
%
 
 

 
 

Research and development
$
456.9

 
$
458.1

 
$
(1.2
)
 
(0.3
)%
Percent of total revenue
24.4
%
 
28.6
%
 
 

 
 

Selling, general and administrative
$
491.8

 
$
418.1

 
$
73.7

 
17.6
 %
Percent of total revenue
26.3
%
 
26.1
%
 
 

 
 

Amortization of acquired intangible assets
$
65.3

 
$
65.7

 
$
(0.4
)
 
(0.6
)%
Acquisition related charges, net
$
0.9

 
$
12.5

 
$
(11.6
)
 
(92.8
)%

Cost of goods sold (excluding amortization of acquired intangible assets):   Cost of goods sold (excluding amortization of acquired intangible assets) increased by $18.0 million to $98.9 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 . As a percent of net product sales, cost of goods sold (excluding amortization of acquired intangible assets) increased to 5.4% for the three-month period ended June 30, 2014 compared to 5.2% for the three-month period ended June 30, 2013 . The increase in the dollar value of cost of goods sold was primarily due to the higher level of product sales. The dollar value of cost of goods sold and percent of net product sales increased due to higher sales volumes of products with higher costs such as ABRAXANE ® and azacitidine for injection.
 
Research and Development:   We make significant investments in research and development in support of multiple ongoing proprietary clinical development programs which support both our existing products and our pipeline of new drug candidates. Research and development costs are expensed as incurred and primarily include salary and benefit costs, third-party grants, fees paid to clinical research organizations, supplies and upfront and milestone payments arising from collaboration arrangements.

Research and development expenses decreased by $1.2 million to $456.9 million for the three-month period ended June 30, 2014 , compared to the three-month period ended June 30, 2013 . The decrease was primarily due to a $61.8 million decrease in expenses related to research and development collaboration arrangements which was almost entirely offset by an increase in research and drug development activities.

The following table provides a breakdown of research and development expenses for the three-month periods ended June 30, 2014 and 2013 (in millions):
 
Three-Month Periods Ended June 30,
 
Increase (Decrease)
 
2014
 
2013
 
Human pharmaceutical clinical programs
$
195.0

 
$
198.0

 
$
(3.0
)
Other pharmaceutical programs
160.5

 
114.9

 
45.6

Drug discovery and development
69.1

 
53.4

 
15.7

Cellular therapy
7.8

 
5.5

 
2.3

Collaboration arrangements
24.5

 
86.3

 
(61.8
)
Total
$
456.9

 
$
458.1

 
$
(1.2
)
 
We do not collect costs on a project basis or for any category of projects for the majority of costs involved in carrying out research projects. While we do perform cost calculations to facilitate our internal evaluation of individual projects, these calculations include significant estimations and allocations that are not relevant to, or included in, our external financial reporting mechanisms. As a consequence, we do not report research and development costs at the project level.


39

Table of Contents

The following table presents significant developments in our phase III clinical trials and regulatory approval requests that occurred during the three-month period ended June 30, 2014 , as well as developments that are expected to occur if the future occurrence is material and reasonably certain:
 
New phase III trials
Product
 
Disease Indication
ABRAXANE ®
 
Adjuvant Pancreatic Cancer

Regulatory approval requests in major markets
Product
 
Disease Indication
 
Major
Market
 
Regulatory
Agency
 
Date of Submission or Filing
REVLIMID ®
 
NDMM 1
 
U.S.
 
FDA
 
Q2 2014
(Filed)
ABRAXANE ®

 
NSCLC
 
E.U.
 
EC
 
Q2 2014
(Submitted)
 
1 Newly diagnosed multiple myeloma

Selling, General and Administrative:  Selling, general and administrative expenses primarily include salary and benefit costs for employees included in our sales, marketing, finance, legal and administrative organizations, costs related to the launch of new products or those approved for new indications, outside legal and professional services, donations to independent non-profit patient assistance organizations and facilities costs.
 
Selling, general and administrative expenses increased by $73.7 million to $491.8 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 . The increase was primarily due to an increase in marketing activities and headcount related to the launch of OTEZLA ® , as well as continued marketing activities related to recently approved indications for POMALYST ® /IMNOVID ® and ABRAXANE ® .

Amortization of Acquired Intangible Assets:   Amortization of intangible assets acquired as a result of business combinations is summarized below for the three-month periods ended June 30, 2014 and 2013 (in millions):
 
 
Three-Month Periods Ended June 30,
Acquisitions
 
2014
 
2013
Abraxis
 
$
39.7

 
$
40.0

Avila
 
11.8

 
11.8

Gloucester
 
12.8

 
12.9

Pharmion
 
1.0

 
1.0

Total amortization
 
$
65.3

 
$
65.7

 
Acquisition Related Charges, net:   Acquisition related charges, net were $0.9 million and $12.5 million for the three-month periods ended June 30, 2014 and 2013 , respectively. The $11.6 million decrease in the current year quarter was primarily due to a reduction in the fair value of our liability related to publicly traded contingent value rights (CVRs) that were issued as part of the acquisition of Abraxis, partly offset by an expense in the current year quarter for a partial quarter of accretion of our contingent liabilities related to the Nogra Pharma Limited (Nogra) acquisition.

Interest and Investment Income, Net:   Interest and investment income, net increased by $2.8 million to $7.3 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 primarily due to higher investment balances compared to the prior year quarter.

Interest (Expense):  Interest (expense) increased by $22.0 million to $41.6 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 primarily due to interest and fees associated with the issuance of $1.500 billion of senior notes in August 2013 and an additional $2.500 billion of senior notes in May 2014.


40

Table of Contents

Other Income (Expense), Net: Other income (expense), net is summarized below for the three-month periods ended June 30, 2014 and 2013 (in millions):
 
 
Three-Month Periods Ended June 30,
 
 
 
 
2014
 
2013
 
Change
Foreign exchange gains (losses) including foreign exchange derivative instruments not designated as hedging instruments
 
$
(3.6
)
 
$
17.2

 
$
(20.8
)
Premium paid on equity investment
 
(9.7
)
 

 
(9.7
)
Impairment charges
 
(2.0
)
 
(9.5
)
 
7.5

Other
 
(2.5
)
 
1.5

 
(4.0
)
Total other income (expense), net
 
$
(17.8
)
 
$
9.2

 
$
(27.0
)

Other income (expense), net was expense of $17.8 million for the three-month period ended June 30, 2014 and income of $9.2 million for the three-month period ended June 30, 2013 . The $27.0 million increase in expense was primarily due to the impact of foreign exchange gains recorded in the 2013 period that did not reoccur in 2014 and an expense related to a premium paid on an equity investment recorded in the three-month period ended June 30, 2014 . These increases in expense were partly offset by a year over year reduction in impairment charges related to certain investments.

Income Tax Provision :  The income tax provision increased by $29.3 million to $109.0 million for the three-month period ended June 30, 2014 compared to the three-month period ended June 30, 2013 , primarily as a result of an increase in income before taxes and an increase in the effective tax rate. The estimated full year 2014 underlying effective tax rate of 15.7% reflects the impact of our global business footprint. The increase in the estimated underlying effective tax rate from the second quarter of 2013 reflects a projected decrease in tax benefits from certain collaboration and acquisition-related items, as well as an increase in tax expense associated with the launch of new products. The effective tax rate for the second quarter of 2014 was increased by 0.2 percentage points as a result of a net increase in unrecognized tax benefits primarily related to ongoing examinations of tax positions taken in prior years. The income tax provision for the three-month period ended June 30, 2013 included an estimated full year underlying effective tax rate of 14.7% (which subsequently decreased to 12.2% when the actual 2013 full year results were achieved). The effective tax rate for the second quarter of 2013 was reduced by 0.7 percentage points as a result of a net decrease in unrecognized tax benefits related to settlements and ongoing examinations related to tax positions taken in prior years.

Six-Month Periods Ended June 30, 2014 and 2013

Total Revenue:   Total revenue and related percentages for the six-month periods ended June 30, 2014 and 2013 were as follows (dollar amounts in millions):
 
Six-Month Periods Ended June 30,
 
Increase (Decrease)
 
Percent Change
 
2014
 
2013
 
 
Net product sales:
 

 
 

 
 

 
 

REVLIMID ®
$
2,357.5

 
$
2,054.3

 
$
303.2

 
14.8
 %
ABRAXANE ®
400.1

 
277.5

 
122.6

 
44.2
 %
POMALYST ® /IMNOVID ®
296.5

 
94.7

 
201.8

 
213.1
 %
VIDAZA ®
300.4

 
415.4

 
(115.0
)
 
(27.7
)%
azacitidine for injection
42.8

 

 
42.8

 
N/M

THALOMID ®
112.3

 
123.6

 
(11.3
)
 
(9.1
)%
ISTODAX ®
33.2

 
26.4

 
6.8

 
25.8
 %
OTEZLA ®
4.6

 

 
4.6

 
N/M

Other
4.7

 
1.5

 
3.2

 
213.3
 %
Total net product sales
$
3,552.1

 
$
2,993.4

 
$
558.7

 
18.7
 %
Collaborative agreements and other revenue
4.6

 
10.2

 
(5.6
)
 
(54.9
)%
Royalty revenue
46.0

 
60.0

 
(14.0
)
 
(23.3
)%
Total revenue
$
3,602.7

 
$
3,063.6

 
$
539.1

 
17.6
 %
N/M - Not meaningful
 

41

Table of Contents

Total revenue increased by $539.1 million , or 17.6% , to $3.603 billion for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , reflecting increases of $258.4 million, or 14.2%, in the United States and $280.7 million, or 22.5%, in international markets.
 
Net Product Sales:   Total net product sales for the six-month period ended June 30, 2014 increased by $558.7 million , or 18.7% , to $3.552 billion compared to the six-month period ended June 30, 2013 . The increase was comprised of net volume increases of $449.0 million, net price increases of $95.6 million and a $14.1 million favorable foreign exchange impact, including the impact of foreign exchange hedging activity.
 
REVLIMID ®  net sales increased by $303.2 million , or 14.8% , to $2.358 billion for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily due to increased unit sales in both U.S. and international markets and price increases in the U.S. market. Increases in market penetration and treatment duration of patients using REVLIMID ®  in multiple myeloma contributed to the increase in U.S. unit sales. The growth in international markets resulted from volume increases, primarily driven by increased duration of use and market share gains.

ABRAXANE ®  net sales increased by $122.6 million , or 44.2% , to $ 400.1 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily due to increased unit volumes in both the U.S. and international markets. ABRAXANE ® was approved for the treatment of metastatic adenocarcinoma of the pancreas in both the United States and European Union in the second half of 2013.

POMALYST ® /IMNOVID ® net sales increased by $201.8 million to $296.5 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , reflecting net sales of $192.9 million in the United States and $103.6 million in international markets. POMALYST ® was approved by the FDA in February 2013 and IMNOVID ® was approved by the European Commission in August 2013. The 2013 six-month period included a partial period of sales in the U.S. and sales from approved early access programs in Europe.

VIDAZA ® net sales decreased by $115.0 million , or 27.7% , to $ 300.4 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily due to a $146.8 million decrease in the U.S. market resulting from the September 2013 introduction of a generic version of VIDAZA ® by a third party. The decrease in U.S. sales was partly offset by volume increases in international markets.

Azacitidine for injection net sales were $42.8 million for the six-month period ended June 30, 2014 . Azacitidine for injection is a generic version of VIDAZA ® supplied by Celgene to Sandoz AG (Sandoz) beginning in the fourth quarter of 2013.

THALOMID ®  net sales decreased by $11.3 million , or 9.1% , to $112.3 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily resulting from lower unit volumes in the U.S. and international markets, offset slightly by U.S. price increases.
 
ISTODAX ®  net sales increased by $6.8 million , or 25.8% , to $33.2 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily due to an increase in unit volume.

OTEZLA ® net sales were $4.6 million for the six-month period ended June 30, 2014 . OTEZLA ® was approved by the FDA in March 2014 for the treatment of adult patients with active psoriatic arthritis and is under review for psoriasis in the United States and for psoriasis and psoriatic arthritis in the European Union. Launch activities for OTEZLA ® commenced in March 2014 and we began recognizing revenue related to OTEZLA ® during the second quarter of 2014.

Collaborative Agreements and Other Revenue:   Revenue from collaborative agreements and other sources decreased by $5.6 million to $4.6 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 primarily due to a $5.0 million milestone payment received in 2013 related to the approval of additional indications for ABRAXANE ® in Japan. No milestone payments were received in 2014.
 
Royalty Revenue:   Royalty revenue decreased by $14.0 million to $46.0 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 due to decreased royalties earned from Novartis based on its sales of FOCALIN XR ® and RITALIN ® , which have both been negatively impacted by generic competition in certain markets. Generic competition entered the market in the United States for certain strengths of FOCALIN XR ® in the fourth quarter of 2013.


42

Table of Contents

Gross to net sales accruals and the balance in the related allowance accounts for the six-month periods ended June 30, 2014 and 2013 were as follows (in millions):
 
Returns
and
Allowances
 
Discounts
 
Government
Rebates
 
Chargebacks
and Distributor
Service Fees
 
Total
Balance at December 31, 2013
$
15.5

 
$
12.1

 
$
134.1

 
$
83.2

 
$
244.9

Allowances for sales during prior periods
(1.9
)
 

 
(5.1
)
 
(6.7
)
 
(13.7
)
Allowances for sales during 2014
4.4

 
40.7

 
146.7

 
176.4

 
368.2

Credits/deductions issued for prior year sales
(3.7
)
 
(7.9
)
 
(71.1
)
 
(41.8
)
 
(124.5
)
Credits/deductions issued for sales during 2014
(1.6
)
 
(33.0
)
 
(84.2
)
 
(124.3
)
 
(243.1
)
Balance at June 30, 2014
$
12.7

 
$
11.9

 
$
120.4

 
$
86.8

 
$
231.8

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
13.3

 
$
11.2

 
$
125.8

 
$
61.2

 
$
211.5

Allowances for sales during prior periods
(1.1
)
 

 
(6.9
)
 
0.5

 
(7.5
)
Allowances for sales during 2013
5.3

 
38.5

 
130.2

 
129.8

 
303.8

Credits/deductions issued for prior year sales
(2.4
)
 
(5.2
)
 
(50.1
)
 
(41.7
)
 
(99.4
)
Credits/deductions issued for sales during 2013
(1.4
)
 
(30.0
)
 
(79.8
)
 
(76.3
)
 
(187.5
)
Balance at June 30, 2013
$
13.7

 
$
14.5

 
$
119.2

 
$
73.5

 
$
220.9

  
A comparison of provisions for allowances for sales within each of the four categories noted above for the six-month periods ended June 30, 2014 and 2013 follows:
 
Returns and allowances provisions decreased by $1.7 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , due to a $7.9 million sales returns reserve for estimated returns related to the transition of THALOMID ® distribution from retail to specialty pharmacies recorded during the first quarter of 2013. In addition, a $1.6 million decrease in the returns allowance related to VIDAZA ®  inventory held by distributors was recorded in 2014 due to reductions in inventory levels resulting from competition from generic versions of VIDAZA ® . This was partially offset by a $7.5 million reduction in the returns allowance recorded in 2013 related to VIDAZA ® inventory levels held by certain distributors, which decreased during the six months ended June 30, 2013 .
 
Discounts provisions increased by $2.2 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily due to a $4.8 million increase in cash discounts in the United States and international markets relating to increased sales volume, partially offset by a $2.6 million decrease from the refinement of new product discount programs introduced into certain international markets during the first half of 2013.
 
Government rebates provisions increased by $18.3 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily attributable to increased expense related to Medicare Part D Coverage Gap and Medicaid rebates.

Chargebacks and distributor service fees provisions increased by $39.4 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 . Chargebacks and distributor service fees increased by approximately $31.2 million and $8.2 million, respectively, primarily due to higher sales volumes and changes in the structure of ABRAXANE ® sales contracts resulting in a greater portion of sales qualifying for chargeback rebates. Rebates specifically related to the TRICARE program increased by $3.1 million driven by higher volume and increased rebate rates.


43

Table of Contents

Operating Costs and Expenses : Operating costs, expenses and related percentages for the six-month periods ended June 30, 2014 and 2013 were as follows (dollar amounts in millions):
 
Six-Month Periods Ended June 30,
 
Increase (Decrease)
 
Percent Change
 
2014
 
2013
 
 
Cost of goods sold (excluding amortization of acquired intangible assets)
$
185.0

 
$
161.4

 
$
23.6

 
14.6
 %
Percent of net product sales
5.2
%
 
5.4
%
 
 

 
 

Research and development
$
1,170.6

 
$
910.5

 
$
260.1

 
28.6
 %
Percent of total revenue
32.5
%
 
29.7
%
 
 

 
 

Selling, general and administrative
$
985.9

 
$
787.1

 
$
198.8

 
25.3
 %
Percent of total revenue
27.4
%
 
25.7
%
 
 

 
 

Amortization of acquired intangible assets
$
131.0

 
$
131.4

 
$
(0.4
)
 
(0.3
)%
Acquisition related charges, net
$
9.5

 
$
45.7

 
$
(36.2
)
 
(79.2
)%

Cost of goods sold (excluding amortization of acquired intangible assets):   Cost of goods sold (excluding amortization of acquired intangible assets) increased by $23.6 million to $185.0 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 . The increase was primarily due to the higher level of net product sales, partly offset by the elimination of royalty payments on sales of REVLIMID ® which resulted from the expiration of our royalty obligations to Children's Medical Center Corporation (CMCC) at the end of February 2013. See Note 16 of Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report for additional details related to our royalty agreement with CMCC. As a percent of net product sales, cost of goods sold (excluding amortization of acquired intangible assets) decreased to 5.2% for the six-month period ended June 30, 2014 compared to 5.4% for the six-month period ended June 30, 2013 , primarily due to the elimination of royalty payments to CMCC on our sales of REVLIMID ® as noted above, partly offset by higher sales volumes of products with higher costs such as ABRAXANE® and azacitidine for injection.
 
Research and Development:   Research and development expenses increased by $260.1 million to $1.171 billion for the six-month period ended June 30, 2014 , compared to the six-month period ended June 30, 2013 . The increase was primarily due to a $144.6 million increase in expenses related to research and development collaboration arrangements and an increase in research and drug development activities.

The following table provides a breakdown of research and development expenses (in millions):
 
Six-Month Periods Ended June 30,
 
Increase
 
2014
 
2013
 
Human pharmaceutical clinical programs
$
386.3

 
$
374.5

 
$
11.8

Other pharmaceutical programs
296.2

 
233.2

 
63.0

Drug discovery and development
136.5

 
98.5

 
38.0

Cellular therapy
14.2

 
11.5

 
2.7

Collaboration arrangements
337.4

 
192.8

 
144.6

Total
$
1,170.6

 
$
910.5

 
$
260.1

 
Selling, General and Administrative:  Selling, general and administrative expenses increased by $198.8 million to $985.9 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 . The increase was primarily due to an increase in marketing activities and headcount related to the launch of OTEZLA ® and continued marketing activities related to recently approved indications for POMALYST ® /IMNOVID ® and ABRAXANE ® . The increase also included $25.0 million of expense related to the settlement of a contingent obligation to make matching contributions to The Chan Soon-Shiong Institute for Advanced Health, as well as a $25.8 million increase in donations to independent non-profit patient assistance organizations in the United States.


44

Table of Contents

Amortization of Acquired Intangible Assets:   Amortization of intangible assets acquired as a result of business combinations is summarized below for the six-month periods ended June 30, 2014 and 2013 (in millions):
 
 
Six-Month Periods Ended June 30,
Acquisitions
 
2014
 
2013
Abraxis
 
$
79.7

 
$
80.0

Avila
 
23.6

 
23.6

Gloucester
 
25.7

 
25.8

Pharmion
 
2.0

 
2.0

Total amortization
 
$
131.0

 
$
131.4

 
Acquisition Related Charges, net:   Acquisition related charges, net were $9.5 million and $45.7 million for the six-month periods ended June 30, 2014 and 2013 , respectively. The $36.2 million decrease in the current year six-month period was primarily due to a reduction in the fair value of our liability related to publicly traded contingent value rights (CVRs) that were issued as part of the acquisition of Abraxis, partly offset by an expense in the current year period for a partial quarter of accretion of our contingent liabilities related to the Nogra acquisition.

Interest and Investment Income, Net:   Interest and investment income, net increased by $4.4 million to $13.7 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 primarily due to higher investment balances compared to the prior year quarter.

Interest (Expense):  Interest (expense) increased by $33.4 million to $70.9 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 primarily due to interest and fees associated with the issuance of $1.500 billion of senior notes in August 2013 and an additional $2.500 billion of senior notes in May 2014.

Other Income (Expense), Net:   Other income (expense), net is summarized below for the six-month periods ended June 30, 2014 and 2013 (in millions):
 
 
Six-Month Periods Ended June 30,
 
 
 
 
2014
 
2013
 
Change
Foreign exchange gains (losses) including foreign exchange derivative instruments not designated as hedging instruments
 
$
(6.8
)
 
$
22.2

 
$
(29.0
)
Premium paid on equity investment
 
(9.7
)
 

 
(9.7
)
Impairment charges
 
(2.0
)
 
(18.8
)
 
16.8

Other
 
(5.9
)
 
3.5

 
(9.4
)
Total other income (expense), net
 
$
(24.4
)
 
$
6.9

 
$
(31.3
)

Other income (expense), net was expense of $24.4 million for the six-month period ended June 30, 2014 and income of $6.9 million for the six-month period ended June 30, 2013. The $31.3 million increase in expense was primarily due to the impact of foreign exchange gains recorded in the 2013 period that did not reoccur in 2014 and an expense related to a premium paid on an equity investment recorded in the six-month period ended June 30, 2014 . These increases in expense were partly offset by a year over year reduction in impairment charges related to certain investments.
Income Tax Provision :  The income tax provision increased by $18.4 million to $161.6 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 , primarily as a result of an increase in income before taxes and an increase in the effective tax rate. The estimated full year 2014 underlying effective tax rate of 15.7% reflects the impact of our global business footprint. The increase in the estimated underlying effective tax rate from the second quarter of 2013 reflects a projected decrease in tax benefits from certain collaboration and acquisition-related items, as well as an increase in tax expense associated with the launch of new products. The effective tax rate for the six-month period ended June 30, 2014 was reduced by 0.1 percentage points as a result of a net decrease in unrecognized tax benefits primarily related to ongoing examinations of tax positions taken in prior years. The income tax provision for the six-month period ended June 30, 2013 included an estimated full year underlying effective tax rate of 14.7% (which subsequently decreased to 12.2% when the actual 2013 full year results were achieved). The effective tax rate for the six-month period ended June 30, 2013 was reduced by 0.5 percentage points as a result of discrete items, including the retroactive reinstatement of the 2012 U.S. research and development tax credit and a net decrease in unrecognized tax benefits related to settlements and ongoing examinations of tax positions taken in prior years.


45

Table of Contents

Liquidity and Capital Resources
 
The following table summarizes the components of our financial condition (in millions):
 
June 30, 2014
 
December 31, 2013
 
Increase (Decrease)
Financial assets:
 
 
 

 
 

Cash and cash equivalents
$
3,219.5

 
$
3,234.4

 
$
(14.9
)
Marketable securities available for sale
2,993.5

 
2,452.6

 
540.9

Total financial assets
$
6,213.0

 
$
5,687.0

 
$
526.0

Debt:
 

 
 

 
 

Short-term borrowings
$
192.3

 
$
544.8

 
$
(352.5
)
Long-term debt, net of discount
6,743.3

 
4,196.5

 
2,546.8

Total debt
$
6,935.6

 
$
4,741.3

 
$
2,194.3

 
 
 
 
 
 
Working capital (1)
$
6,621.9

 
$
5,607.4

 
$
1,014.5

 
(1) Includes cash, cash equivalents and marketable securities available for sale, accounts receivable, net of allowances, inventory and other current assets, less short-term borrowings, accounts payable, accrued expenses, income taxes payable and other current liabilities.
 
We rely primarily on positive cash flows from operating activities, proceeds from sales of available-for-sale marketable securities and borrowings in the form of long-term notes payable and short-term Commercial Paper to provide for our liquidity requirements. We expect continued growth in our expenditures, particularly those related to research and development, clinical trials, commercialization of new products, international expansion and capital investments. However, we anticipate that existing cash and cash equivalent balances, marketable securities available for sale, cash generated from operations and existing sources of and access to financing are adequate to fund our operating needs, capital expenditures, debt service requirements and our plans to repurchase stock or pursue other strategic business initiatives for the foreseeable future.

Many of our operations are conducted outside the United States and significant portions of our cash, cash equivalents and short-term investments are held internationally. As of June 30, 2014 , we held approximately $5.200 billion of these short-term funds in foreign tax jurisdictions. The amount of funds held in U.S. tax jurisdictions can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as repurchases of our common stock and business development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows (both inflows and outflows). Repatriation of overseas funds can result in additional U.S. federal, state and local income tax payments. We record U.S. deferred tax liabilities for certain unremitted earnings, but when amounts earned overseas are expected to be permanently reinvested outside of the United States, no accrual for U.S. taxes is provided. Approximately $900.0 million of our foreign earnings, included in the $5.200 billion of short-term funds in foreign tax jurisdictions, may not be required for use in offshore operations and may be available for use in the United States. These earnings are not treated as permanently reinvested and accordingly, our deferred tax liabilities as of June 30, 2014 and December 31, 2013 included $316.5 million for the estimated U.S. federal and state income taxes that may be incurred should these earnings be repatriated. The remaining foreign earnings are unremitted and expected to be permanently reinvested outside the United States. We do not rely on these earnings as a source of funds for our domestic business as we expect to have sufficient current cash resources combined with future cash flows in the United States to fund our U.S. operational and strategic needs.

Share Repurchase Program:   From April 2009 through June 2014, our Board of Directors approved repurchases of an aggregate of up to $13.500 billion of our common stock, including $4.000 billion approved by our Board of Directors in April 2014. During the six-month period ended June 30, 2014 we used $2.182 billion for repurchases of our common stock, measured on a settlement date basis.

Senior Notes: In May 2014, we issued an additional  $2.500 billion  principal amount of senior notes consisting of  $500.0 million  aggregate principal amount of  2.250%  Senior Notes due 2019 (the 2019 notes),  $1.000 billion  aggregate principal amount of  3.625%  Senior Notes due 2024 (the 2024 notes) and  $1.000 billion  aggregate principal amount of  4.625%  Senior Notes due 2044 (the 2044 notes and, together with the 2019 notes and 2024 notes, the “2014 issued notes”). The 2014 issued notes were issued at  99.751% , 99.659%  and  99.646%  of par, respectively, and the discount is being amortized as additional interest expense over the period from issuance through maturity. Offering costs of $21.2 million  have been recorded as debt issuance costs on our Consolidated Balance Sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the 2014 issued notes is payable semi-annually in arrears on May 15 and November 15 each year beginning November 15, 2014 and the principal on each note is due in full at their respective maturity dates. The 2014 issued notes may be redeemed at our option, in whole or in part, at any time at a redemption price equaling accrued

46

Table of Contents

and unpaid interest plus the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of interest and principal discounted to the date of redemption on a semi-annual basis plus  10  basis points in the case of the 2019 notes,  15  basis points in the case of the 2024 notes and  20  basis points in the case of the 2044 notes. If we experience a change of control accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the notes at a purchase price equal to  101%  of their principal amount plus accrued and unpaid interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property.

In anticipation of issuing debt in 2014, we entered into an aggregate notional value of $1.500 billion in forward starting swaps that were designated as cash flow hedges to hedge against changes in interest rates that could impact the issuance of debt. In April 2014 we accelerated our planned debt issuance date, which resulted in hedge ineffectiveness in the forward starting swaps and a $3.6 million charge to other income (expense), net due to differences between the effective date of the swaps and the accelerated debt issuance date. In addition, all forward starting swaps were settled upon the issuance of debt in May 2014 when the net fair value of the forward starting swaps in accumulated other comprehensive income was a loss position of $25.9 million. The net loss of $25.9 million will be recognized as interest expense over the life of the associated senior notes. There were no forward starting swaps outstanding as of June 30, 2014.

Components of Working Capital
 
Cash, Cash Equivalents and Marketable Securities Available for Sale:  We invest our excess cash primarily in money market funds, U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities (MBS), non-U.S. government agency and Supranational securities, global corporate debt securities and asset backed securities. All liquid investments with maturities of three months or less from the date of purchase are classified as cash equivalents and all investments with maturities of greater than three months from the date of purchase are classified as marketable securities available for sale. We determine the appropriate classification of our investments in marketable debt and equity securities at the time of purchase. The $526.0 million increase in cash, cash equivalents and marketable securities available for sale at June 30, 2014 compared to December 31, 2013 was primarily due to $2.471 billion in cash generated from the May 2014 issuance of an additional $2.500 billion principal amount of senior notes and $1.073 billion in net cash provided by operating activities. These increases were partly offset by $2.182 billion paid under our share repurchase program, $412.3 million of net purchases of marketable securities, and $352.6 million of net repayments on short-term borrowings.

Marketable securities available for sale are carried at fair value, held for an unspecified period of time and are intended for use in meeting our ongoing liquidity needs. Unrealized gains and losses on available-for-sale securities, which are deemed to be temporary, are reported as a separate component of stockholders’ equity, net of tax. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses and other than temporary impairment charges, is included in interest and investment income, net. For more information related to the fair value and valuation of our marketable securities, see Note 6 of Notes to Unaudited Consolidated Financial Statements included elsewhere in this report.
 
Accounts Receivable, Net :  Accounts receivable, net increased by $63.0 million to $1.124 billion at June 30, 2014 compared to December 31, 2013 primarily due to an increased level of sales. Sales made outside the United States typically have payment terms that are greater than 60 days, thereby extending collection periods beyond those in the United States. We expect our accounts receivable balance to continue to grow as our international sales continue to expand.

We continue to monitor economic conditions, including the volatility associated with international economies, the sovereign debt crisis in certain European countries and associated impacts on the financial markets and our business. Our current business model in these markets is typically to sell our products directly to principally government owned or controlled hospitals, which in turn directly deliver critical care to patients. Our products are used to treat life-threatening diseases and we believe this business model enables timely delivery and adequate supply of products. Many of the outstanding receivable balances are related to government-funded hospitals and we believe the receivable balances are ultimately collectible. Similarly, we believe that future sales to these customers will continue to be collectible.
 
The credit and economic conditions within Spain, Italy, Portugal and Greece, as well as increasing sales levels in those countries have resulted in, and may continue to result in, an increase in the average length of time it takes to collect accounts receivable. Our total net receivables in Spain, Italy and Portugal are composed almost entirely of amounts receivable from government-owned or controlled hospitals and the public sector and amounted to $278.3 million at June 30, 2014 compared to $348.4 million at December 31, 2013 . Approximately $48.0 million of the $278.3 million receivable balance at June 30, 2014 was greater than one year past due. Our exposure to the sovereign debt crisis in Greece is limited, as we do not have a material amount of receivables

47

Table of Contents

in Greece. We maintain timely and direct communication with hospital customers in Spain, Italy and Portugal regarding both the current and past due receivable balances. We continue to receive payments from these countries and closely monitor the plans for payment at the regional government level. Payments from customers in these countries are not received on regular intervals and several months could elapse between significant payments.
 
In determining the appropriate allowance for doubtful accounts for Spain, Italy and Portugal, we considered that the balance of past due receivables is related to sales made to government-owned or supported customers. We regularly monitor developments in Europe to assess whether the level of risk of default for any customers has increased and note the ongoing efforts by the European Union, European Monetary Union and International Monetary Fund to support countries with large public deficits and outstanding debt balances. We also monitor the efforts of individual countries to support their regions with large public deficits and outstanding debt balances. We have not experienced significant losses or write-offs with respect to the collection of our accounts receivable in these countries as a result of their economic difficulties and we do not expect to have write-offs or adjustments to accounts receivable which would have a material adverse impact on our financial position or results of operations.

Inventory :  Inventory balances increased by $19.6 million to $360.0 million at June 30, 2014 compared to December 31, 2013 . The increase was primarily due to an increase in both ABRAXANE ® and OTEZLA ® inventory in anticipation of an increase in their future sales levels, partly offset by a decrease in VIDAZA ® inventories which was negatively impacted by the introduction of generic versions in the U.S. market.

Other Current Assets :  Other current assets decreased by $53.8 million to $382.6 million at June 30, 2014 compared to December 31, 2013 primarily due to a $33.2 million decrease in the fair value of foreign currency forward contracts, $10.4 million decrease in royalty receivables, $9.5 million decrease in miscellaneous prepaid taxes and a net decrease in other receivable and prepaid accounts.
 
Commercial Paper:   In September 2011, we entered into a commercial paper program (the Program) under which we issue unsecured commercial paper notes (Commercial Paper) on a private placement basis, the proceeds of which are used for general corporate purposes. The maximum aggregate amount available under the Program is currently $1.500 billion. The maturities of the Commercial Paper may vary, but may not exceed 270 days from the date of issue. The Commercial Paper is sold under customary terms to a dealer or in the commercial paper market and is issued at a discount from par or, alternatively, is sold at par and bears varying interest rates on a fixed or floating basis. Borrowings under the Program are accounted for as short-term borrowings. As of June 30, 2014 , $192.3 million of Commercial Paper was outstanding compared to $544.8 million as of December 31, 2013 , bearing an effective interest rate of 0.3%.
 
Senior Unsecured Credit Facility:  In September 2011, we entered into a senior unsecured revolving credit facility (Credit Facility) providing for revolving credit. The Credit Facility has currently been established at an aggregate maximum amount of $1.500 billion with an expiration date of April 18, 2018. Subject to certain conditions, we have the right to increase the amount of the Credit Facility (but in no event more than one time per annum), up to a maximum aggregate amount of $1.750 billion.
 
Amounts may be borrowed under the Credit Facility for working capital, capital expenditures and other corporate purposes. The Credit Facility serves as backup liquidity for our Commercial Paper borrowings. As of June 30, 2014 there was no outstanding borrowing against the Credit Facility.
 
The Credit Facility contains affirmative and negative covenants including certain customary financial covenants. We were in compliance with all debt covenants as of June 30, 2014 .
 
Accounts Payable, Accrued Expenses and Other Current Liabilities :  Accounts payable, accrued expenses and other current liabilities decreased by $106.8 million to $1.250 billion at June 30, 2014 compared to December 31, 2013 . The decrease was primarily due to a $55.4 million net decrease in compensation-related accruals, a $45.0 million net decrease related to collaboration agreements and a $45.9 million decrease related to our common share repurchase program due to the timing of transaction settlements, partly offset by increases in accrued interest, miscellaneous taxes and professional services.

Income Taxes Payable (Current and Non-Current): Income taxes payable increased by $23.8 million to $274.8 million at June 30, 2014 compared to December 31, 2013 , primarily from the current provision for income taxes of $342.6 million and net deferred inter-company credits of $8.6 million, offset by income tax payments of $193.4 million, a decrease in refundable income taxes of $43.0 million and a tax benefit of stock options of $90.3 million.
 



48

Table of Contents

Analysis of Cash Flows
Cash flows from operating, investing and financing activities for the six-month periods ended June 30, 2014 and 2013 were as follows (in millions):
 
Six-Month Periods Ended June 30,
 
 
 
2014
 
2013
 
Change
Net cash provided by operating activities
$
1,072.8

 
$
1,104.1

 
$
(31.3
)
Net cash used in investing activities
$
(1,205.9
)
 
$
(526.9
)
 
$
(679.0
)
Net cash provided by (used in) financing activities
$
110.0

 
$
(899.0
)
 
$
1,009.0

 
Operating Activities:   Net cash provided by operating activities decreased by $31.3 million to $1,072.8 million for the six-month period ended June 30, 2014 compared to the six-month period ended June 30, 2013 . The decrease in net cash provided by operating activities was primarily attributable to a decrease in accounts payable and other operating liabilities of $117.6 million partially offset by an increase in net income from operations of $14.5 million.
 
Investing Activities: Net cash used in investing activities for the six-month period ended June 30, 2014 increased to a net usage of $1,205.9 million compared to a net usage of $526.9 million for the six-month period ended June 30, 2013 . The increase in net cash used in investing activities was principally related to $710.0 million payment for the acquisition of Nogra.

Financing Activities :  Net cash provided by financing activities amounted to $110.0 million for the six-month period ended June 30, 2014 , which was an increase in cash provided of $1,009.0 million compared to the six-month period ended June 30, 2013 . The $1,009.0 million increase in net cash provided by financing activities in the six-month period ended June 30, 2014 was primarily attributable to the $2,470.6 million of proceeds from the issuance of long-term debt partially offset by a $929.8 million decrease in net proceeds from short-term borrowings, $304.3 million increase in cash used for repurchases of common stock and $226.5 million decrease in net proceeds from share-based compensation arrangements.

Contractual Obligations
 
For a discussion of our contractual obligations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2013 Annual Report on Form 10-K. There have not been any material changes to such contractual obligations or potential milestone payments since December 31, 2013 aside from those disclosed in Note 3 and Note 14 of Notes to Unaudited Consolidated Financial Statements included elsewhere in this report.
 
Critical Accounting Estimates and Significant Accounting Policies
 
A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting estimates are disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2013 Annual Report on Form 10-K. There have not been any material changes to such critical accounting estimates since December 31, 2013 .

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 
The following discussion provides forward-looking quantitative and qualitative information about our potential exposure to market risk. Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings.

We have established guidelines relative to the diversification and maturities of investments to maintain safety and liquidity. These guidelines are reviewed periodically and may be modified depending on market conditions. Although investments may be subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. At June 30, 2014 , our market risk sensitive instruments consisted of marketable securities available for sale, our long-term debt, and certain derivative contracts.

Marketable Securities Available for Sale:   At June 30, 2014 , our marketable securities available for sale consisted of U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency MBS securities, non-U.S. government, agency and Supranational securities, global corporate debt securities, asset backed securities and marketable equity

49

Table of Contents

securities. U.S. government-sponsored agency securities include general unsecured obligations either issued directly by or guaranteed by U.S. Government Sponsored Enterprises. U.S. government-sponsored agency MBS include mortgage backed securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. Non-U.S. government, agency and Supranational securities consist of direct obligations of highly rated governments of nations other than the United States, obligations of sponsored agencies and other entities that are guaranteed or supported by highly rated governments of nations other than the United States. Corporate debt – global includes obligations issued by investment-grade corporations including some issues that have been guaranteed by governments and government agencies. Asset backed securities consist of triple-A rated securities with cash flows collateralized by credit card receivables and auto loans. 

Marketable securities available for sale are carried at fair value, held for an unspecified period of time and are intended for use in meeting our ongoing liquidity needs. Unrealized gains and losses on available-for-sale securities, which are deemed to be temporary, are reported as a separate component of stockholders’ equity, net of tax. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses and other than temporary impairment charges, is included in interest and investment income, net.

As of June 30, 2014 , the principal amounts, fair values and related weighted-average interest rates of our investments in debt securities classified as marketable securities available for sale were as follows (dollar amounts in millions):
 
Duration
 
Less Than
1 Year
 
1 to 3 Years
 
3 to 5 Years
 
Total
Principal amount
$
388.2

 
$
1,725.3

 
$
200.9

 
$
2,314.4

Fair value
$
391.5

 
$
1,745.9

 
$
209.0

 
$
2,346.4

Weighted average interest rate
0.6
%
 
0.7
%
 
1.7
%
 
0.8
%
 

50

Table of Contents

Long-Term Debt: We have issued an aggregate $6.750 billion principal amount of senior notes at varying maturity dates and interest rates. The principal amounts and carrying values of these senior notes as of June 30, 2014 are summarized below (in millions):
 
Principal
Amount
 
Carrying
Value
2.450% senior notes due 2015
$
500.0

 
$
510.2

1.900% senior notes due 2017
500.0

 
501.9

2.300% senior notes due 2018
400.0

 
401.4

2.250% senior notes due 2019
500.0

 
498.8

3.950% senior notes due 2020
500.0

 
497.6

3.250% senior notes due 2022
1,000.0

 
990.5

4.000% senior notes due 2023
700.0

 
703.6

3.625% senior notes due 2024
1,000.0

 
996.6

5.700% senior notes due 2040
250.0

 
249.6

5.250% senior notes due 2043
400.0

 
396.6

4.625% senior notes due 2044
1,000.0

 
996.5

Total long-term debt
$
6,750.0

 
$
6,743.3


At June 30, 2014 , the fair value of our senior notes outstanding was $6.921 billion .

Celgene Common Stock: As part of the management of our share repurchase program, we may, from time to time, sell put options on our common stock with strike prices that we believe represent an attractive price to repurchase our shares. If the trading price of our shares exceeds the strike price of the put option at the time the option expires, we will have economically reduced the cost of our share repurchase program by the amount of the premium we received from the sale of the put option. If the trading price of our stock is below the strike price of the put option at the time the option expires, we would repurchase the shares covered by the option at the strike price of the put option. While such a purchase would be at a price above the then fair market value of our shares, it would be at a price that we feel is favorable in the overall context of our share repurchase program. At June 30, 2014 , we had no outstanding put options.  In July 2014, we sold a put option on  $100.0 million  notional amount of shares of our common stock with a strike price of  $87.24  maturing in September 2014 for a premium of  $2.2 million .

MARKET RISK MANAGEMENT
Our revenue and earnings, cash flows and fair values of assets and liabilities can be impacted by fluctuations in foreign exchange rates and interest rates. We actively manage the impact of foreign exchange rate and interest rate movements through operational means and through the use of various financial instruments, including derivative instruments such as foreign currency option contracts, foreign currency forward contracts, treasury rate lock agreements and interest rate swap contracts.
Foreign Currency Risk Management

We maintain a foreign exchange exposure management program to mitigate the impact of volatility in foreign exchange rates on future foreign currency cash flows, translation of foreign earnings and changes in the fair value of assets and liabilities denominated in foreign currencies.
 
Through our revenue hedging program, we endeavor to reduce the impact of possible unfavorable changes in foreign exchange rates on our future U.S. dollar cash flows that are derived from foreign currency denominated sales. To achieve this objective, we hedge a portion of our forecasted foreign currency denominated sales that are expected to occur in the foreseeable future, typically within the next three years. We manage our anticipated transaction exposure principally with foreign currency forward contracts and occasionally foreign currency put and call options.
 
Foreign Currency Forward Contracts:   We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and to reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
 
We manage a portfolio of foreign currency forward contracts to protect against changes in anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with non-functional currency denominated revenues and expenses of foreign subsidiaries. The foreign currency forward hedging contracts outstanding at June 30, 2014 and December 31, 2013 had settlement dates within 37 months. These foreign currency forward contracts are designated as cash flow

51

Table of Contents

hedges and, to the extent effective, any unrealized gains or losses on them are reported in other comprehensive income (loss) (OCI) and reclassified to operations in the same periods during which the underlying hedged transactions affect earnings. Any ineffectiveness on these foreign currency forward contracts is reported in the Consolidated Statements of Income as other income (expense), net. Foreign currency forward contracts entered into to hedge forecasted revenue and expenses were as follows at June 30, 2014 and December 31, 2013 (in millions):

 
 
Notional Amount
Foreign Currency
 
June 30, 2014
 
December 31, 2013
Australian Dollar
 
$
50.5

 
$

British Pound
 
437.8

 
279.4

Canadian Dollar
 
122.0

 

Euro
 
3,870.6

 
3,318.2

Japanese Yen
 
618.8

 
559.1

Total
 
$
5,099.7

 
$
4,156.7

 
 
We consider the impact of our own and the counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its obligations under the contract on an ongoing basis. As of June 30, 2014 , credit risk did not materially change the fair value of our foreign currency forward contracts.
 
We also manage a portfolio of foreign currency contracts to reduce exposures to foreign currency fluctuations of certain recognized assets and liabilities denominated in foreign currencies and, from time to time, we enter into foreign currency contracts to manage exposure related to translation of foreign earnings. These foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Income in other income (expense), net in the current period. The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding at June 30, 2014 and December 31, 2013 were $796.5 million and $878.5 million , respectively.

Although not predictive in nature, we believe a hypothetical 10% threshold reflects a reasonably possible near-term change in foreign currency rates. Assuming that the June 30, 2014 exchange rates were to change by a hypothetical 10%, the fair value of the foreign currency forward contracts would change by approximately $586.8 million. However, since the contracts either hedge specific forecasted intercompany transactions denominated in foreign currencies or relate to assets and liabilities denominated in currencies other than the entities’ functional currencies, any change in the fair value of the contract would be either reported in other comprehensive income and reclassified to earnings in the same periods during which the underlying hedged transactions affect earnings or re-measured through earnings each period along with the underlying asset or liability.
 
Interest Rate Risk Management  
In anticipation of issuing fixed-rate debt, we may use forward starting interest rate swaps (forward starting swaps) or treasury rate lock agreements (treasury rate locks) that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. To the extent these hedges of cash flows related to anticipated debt are effective, any realized or unrealized gains or losses on the treasury rate locks or forward starting swaps are reported in OCI and are recognized in income over the life of the anticipated fixed-rate notes.

Forward Starting Interest Rate Swaps: In anticipation of issuing debt in 2014, we entered into an aggregate notional value of $1.500 billion in forward starting swaps that were designated as cash flow hedges. In April 2014 we accelerated our planned debt issuance date, which resulted in hedge ineffectiveness in the forward starting swaps and a $3.6 million charge to other income (expense), net due to differences between the effective date of the swaps and the accelerated debt issuance date. In addition, all forward starting swaps were settled upon the issuance of debt in May 2014 when the net fair value of the forward starting swaps in accumulated other comprehensive income was a loss position of $25.9 million. The net loss of $25.9 million will be recognized as interest expense over the life of the associated senior notes. There were no forward starting swaps outstanding as of June 30, 2014.

Interest Rate Swap Contracts:   From time to time we hedge the fair value of certain debt obligations through the use of interest rate swap contracts. The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in interest rates. Since the specific terms and notional amount of the swap are intended to match those of the debt being hedged, it is assumed to be a highly effective hedge and all changes in fair value of the swap is recorded on the Consolidated

52

Table of Contents

Balance Sheets with no net impact recorded in income. Any net interest payments made or received on interest rate swap contracts are recognized as interest expense. We may terminate the hedging relationship of certain swap contracts by settling the contracts or by entering into offsetting contracts. At the time a hedging relationship is terminated, accumulated gains or losses associated with the swap contract are measured and recorded as a reduction or increase of current and future interest expense associated with the previously hedged notes.
 
We have entered into swap contracts that were designated as hedges of certain of our fixed rate notes and also terminated the hedging relationship by settling certain of those swap contracts during 2013 and 2014. The settlement of swap contracts resulted in the receipt of net proceeds of $12.4 million and $16.2 million during the six-month periods ended June 30, 2014 and 2013, respectively, which is accounted for as a reduction of current and future interest expense associated with these notes. See Note 11 of Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report for additional details related to reductions of current and future interest expense.

The following table summarizes the notional amounts of our outstanding swap contracts at June 30, 2014 and December 31, 2013 (in millions): 
 
 
 
Notional Amount
 
 
June 30, 2014
 
December 31, 2013
Interest rate swap contracts entered into as fair value hedges of the following fixed-rate senior notes:
 
 

 
 

2.450% senior notes due 2015
 
$
300.0

 
$
300.0

1.900% senior notes due 2017
 
300.0

 
300.0

2.300% senior notes due 2018
 
200.0

 
200.0

3.950% senior notes due 2020
 
500.0

 
500.0

3.250% senior notes due 2022
 
800.0

 
850.0

4.000% senior notes due 2023
 

 
150.0

Total
 
$
2,100.0

 
$
2,300.0


A sensitivity analysis to measure potential changes in the market value of our fixed-rate senior notes and interest rate swap contracts from a change in interest rates indicated that a one percentage point increase in interest rates at June 30, 2014 would have reduced the aggregate fair value of our net payable by $422.0 million. A one percentage point decrease at June 30, 2014 would have increased the aggregate fair value of our net payable by $505.5 million.

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), or the Exchange Act). Based upon the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management (including our Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosures.
 
Changes in internal control over financial reporting
 
There were no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

53

Table of Contents

PART II  -  OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
The information called for by this item is incorporated herein by reference to Note 16 of Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report.
 
Item 1A. Risk Factors
 
The following describes the major risks to our business and should be considered carefully. Any of these factors could significantly and negatively affect our business, prospects, financial condition, operating results or credit ratings, which could cause the trading prices of our equity securities to decline. The risks described below are not the only risks we may face. Additional risks and uncertainties not presently known to us, or risks that we currently consider immaterial, could also negatively affect us.
 
Our operating results are subject to significant fluctuations.
 
Our operating results may fluctuate from quarter to quarter and year to year for a number of reasons, including the risks discussed elsewhere in this “ Risk Factors ” section. Events such as a delay in product development or a revenue shortfall may cause financial results for a particular period to be below our expectations. In addition, we have experienced and may continue to experience fluctuations in our quarterly operating results due to the timing of charges that we may take. We have recorded, or may be required to record, charges that include development milestone and license payments under collaboration and license agreements and amortization of acquired intangibles and other acquisition related charges.

Our revenues are also subject to foreign exchange rate fluctuations due to the global nature of our operations. We recognize foreign currency gains or losses arising from our operation in the period in which we incur those gains or losses. Although we utilize foreign currency forward contracts and option contracts to manage foreign currency risk, our efforts to reduce currency exchange losses may not be successful. As a result, currency fluctuation among our reporting currency, the U.S. dollar, and the currencies in which we do business will affect our operating results. Our net income may also fluctuate due to the impact of charges we may be required to take with respect to foreign currency and other hedge transactions. In particular, we may incur higher than expected charges from hedge ineffectiveness or from the termination of a hedge arrangement.

We are dependent on the continued commercial success of our primary products, REVLIMID ® , VIDAZA ® , THALOMID ® , ABRAXANE ® ,  POMALYST ® /IMNOVID ® and OTEZLA ® .
 
Currently, our business is largely dependent on the commercial success of REVLIMID ® , VIDAZA ® , THALOMID ® , ABRAXANE ® , POMALYST ® /IMNOVID ® and OTEZLA ® . The success of these products depends on acceptance by regulators, key opinion leaders, physicians, and patients as effective drugs with certain advantages over other therapies. A number of factors, as discussed in greater detail below, may adversely impact the degree of acceptance of these products, including their efficacy, safety, price and benefits over competing products, as well as the reimbursement policies of third-party payers, such as government and private insurance plans.
 
If unexpected adverse events are reported in connection with the use of any of these products, physician and patient acceptance of the product could deteriorate and the commercial success of such product could be adversely affected. We are required to report to the U.S. Food and Drug Administration (FDA) or similar bodies in other countries events associated with our products relating to death or serious injury. Adverse events could result in additional regulatory controls, such as a requirement for costly post-approval clinical studies or revisions to our approved labeling which could limit the indications or patient population for a product or could even lead to the withdrawal of a product from the market. THALOMID ® is known to be toxic to the human fetus and exposure to the drug during pregnancy could result in significant deformities. REVLIMID ® and POMALYST ® /IMNOVID ® are also considered toxic to the human fetus and their respective labels contain warnings against use which could result in embryo-fetal exposure. While we have restricted distribution systems for THALOMID ® , REVLIMID ® , and POMALYST ® /IMNOVID ® , and endeavor to educate patients regarding the potential known adverse events, including pregnancy risks, we cannot ensure that all such warnings and recommendations will be complied with or that adverse events resulting from non-compliance will not occur.
 

54

Table of Contents

Our future commercial success depends on gaining regulatory approval for products in development, and obtaining approvals for our current products for additional indications.
 
The testing, manufacturing and marketing of our products require regulatory approvals, including approval from the FDA and similar bodies in other countries. Certain of our pharmaceutical products, such as FOCALIN ® , also require authorization by the U.S. Drug Enforcement Agency (DEA) of the U.S. Department of Justice. Our future growth would be negatively impacted if we fail to obtain timely, or at all, requisite regulatory approvals in the United States and internationally for products in development and approvals for our existing products for additional indications.
 
The principal risks to obtaining and maintaining regulatory approvals are as follows:

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 may not lead to regulatory approval;
Delays or rejections may be encountered during any stage of the regulatory process if the clinical or other data fails to demonstrate compliance with a regulatory agency’s requirements for safety, efficacy and quality;
Requirements for approval may become more stringent due to changes in regulatory agency policy or the adoption of new regulations or legislation;
Even if a product is approved, the scope of the approval may significantly limit the indicated uses for which the product may be marketed and may impose significant limitations in the nature of warnings, precautions and contra-indications that could materially affect the sales and profitability of the product;
After a product is approved, the FDA or other international regulatory agency may withdraw or modify an approval in a significant manner or request that we perform additional clinical trials or change the labeling of the product due to a number of reasons, including safety concerns, adverse events and side effects;
Products, such as REVLIMID ®  and POMALYST ® /IMNOVID ® , that are subject to accelerated approval can be subject to an expedited withdrawal if post-marketing restrictions are not adhered to or are shown to be inadequate to assure safe use, or if the drug is shown to be unsafe or ineffective under its conditions of use;
Guidelines and recommendations published by various governmental and non-governmental organizations can reduce the use of our approved products;
Approved products, as well as their manufacturers, are subject to continuing and ongoing review by regulatory agencies, and the discovery of previously unknown problems with these products or the failure to comply with manufacturing or quality control requirements may result in restrictions on the manufacture, sale or use of a product or its withdrawal from the market; and
Changes in regulatory agency policy or the adoption of new regulations or legislation could impose restrictions on the sale of our approved products.
If we fail to comply with laws or government regulations or policies our business could be adversely affected.

The discovery, preclinical development, clinical trials, manufacturing, risk evaluation and mitigation strategies (such as our REMS ® program), marketing and labeling of pharmaceuticals and biologics are all subject to extensive laws and government regulations and policies. In addition, individual states, acting through their attorneys general, are increasingly seeking to regulate the marketing of prescription drugs under state consumer protection and false advertising laws. If we fail to comply with the laws and regulations regarding the promotion and sale of our products, appropriate distribution of our products under our restricted distribution systems, off-label promotion and the promotion of unapproved products, government agencies may bring enforcement actions against us that could inhibit our commercial capabilities and result in significant penalties.
 
Other matters that may be the subject of governmental or regulatory action which could adversely affect our business include laws, regulations and policies governing:

protection of the environment, privacy, healthcare reimbursement programs, and competition;
parallel importation of prescription drugs from outside the United States at prices that are regulated by the governments

55

Table of Contents

of various foreign countries; and
premature or mandated disclosures of clinical trial or other data.
The FDA’s Center for Biologics Evaluation and Research currently regulates human tissue or cells intended for transplantation, implantation, infusion or transfer to a human, requiring, among other things, cell and tissue establishments to screen and test donors, prepare and follow written procedures for the prevention of the spread of communicable disease and register with FDA. Through our Celgene Cellular Therapeutics (CCT) subsidiary, we are licensed in certain states to operate our allogeneic and private stem cell banking businesses. If we are unable to maintain those licenses or are unable to obtain licenses in other states that may adopt similar licensing requirements, those businesses could be adversely affected.

Sales of our products will be significantly reduced if access to and reimbursement for our products by governmental and other third-party payers is reduced or terminated.
 
Sales of our current and future products depend, in large part, on the conditions under which our products are paid for 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 payers. Generally, in Europe and other countries outside the United States, the government-sponsored healthcare system is the primary payer of patients’ healthcare costs. These health care management organizations and third-party payers are increasingly challenging the prices charged for medical products and services, seeking to implement cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Our products continue to be subject to increasing price and reimbursement pressure due to price controls imposed by governments in many countries; increased difficulty in obtaining and maintaining satisfactory drug reimbursement rates; and the tendency of governments and private health care providers to favor generic pharmaceuticals. In addition, governmental and private third-party payers and purchasers of our products may restrict access to formularies or otherwise discourage use of our products. Limitations on patient access to our drugs, adoption of price controls and cost-containment measures could adversely affect our business. In addition, our operating results may also be affected by distributors seeking to take advantage of price differences among various markets by buying our products on low cost markets for resale in higher cost markets.

The Affordable Care Act and other legislation may affect our pricing policies and government reimbursement of our products that may adversely impact our revenues and profitability.

In the U.S. there have been and may continue to be a number of legislative and regulatory proposals and enactments related to drug pricing and reimbursement that could impact our profitability. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law on March 23, 2010 and March 30, 2010, respectively, and are referred to collectively as the Healthcare Reform Acts. Although these reforms have significantly impacted the pharmaceutical industry, the full effects of these provisions will become apparent over time as these laws are implemented and the Centers for Medicare & Medicaid Services and other agencies issue applicable regulations or guidance as required by the Healthcare Reform Acts. Moreover, in the coming years, additional changes could be made to governmental healthcare programs that could significantly impact the profitability of our products.

The Healthcare Reform Acts, among other things, made significant changes to the Medicaid rebate program by increasing the minimum rebates that manufacturers like Celgene are required to pay. These changes also expanded the government’s 340B drug discount program by expanding the category of entities qualified to participate in the program and benefit from its deeply discounted drug pricing. The Company has received an inquiry from the Health Resources and Services Administration of the Department of Health & Human Services (“HRSA”) regarding the Company’s compliance with the 340B program. We have responded to the inquiry and believe that we have complied with applicable legal requirements. If, however, the Company is ultimately required to change its sales or pricing practices, there would be an adverse effect on our revenues and profitability.

Our ability to sell our products to hospitals in the United States depends in part on our relationships with group purchasing organizations.

Many existing and potential customers for our products become members of group purchasing organizations (GPOs). GPOs negotiate pricing arrangements and contracts, sometimes on an exclusive basis, with medical supply manufacturers and distributors and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. If we are not one of the providers selected by a GPO, affiliated hospitals and other members may be less likely to purchase our products, and if the GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’s products, we may be precluded from

56

Table of Contents

making sales to members of the GPO for the duration of that contractual arrangement. Our failure to enter into or renew contracts with GPOs may cause us to lose market share and could adversely affect our sales.
 
Our long-term success depends, in part, on intellectual property protection .
 
Our success depends, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties and to conduct our business without infringing upon the proprietary rights of others. The patent positions of pharmaceutical and biopharmaceutical companies, including ours, can be uncertain and involve complex legal and factual questions. There can be no assurance that if claims of any of our owned or licensed patents are challenged by one or more third parties, a court or patent authority ruling on such challenge will determine that our patent claims are valid and enforceable. 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, be subject to significant liabilities to such third party and/or be required to license technologies from such third party. Lawsuits involving patent claims are costly and could affect our results of operations, result in significant expense and divert the attention of managerial and scientific personnel. For more information on challenges to certain of our patents, see “Legal Proceedings” contained elsewhere in this report.

In addition, we do not know whether any of our owned or licensed pending patent applications, which have not already been allowed, will result in the issuance of patents or, if patents are issued, whether they will be dominated by third-party patent rights, provide significant proprietary protection or commercial advantage or be circumvented, opposed, invalidated, rendered unenforceable or infringed by others.
 
Our intellectual property rights may be affected in ways that are difficult to anticipate at this time under the provisions of the America Invents Act enacted in 2011. This law includes a number of important changes to established practices, including transition to a first-to-file system, post-grant review for issued patents, and various procedural changes. The scope of these changes and the lack of experience with their practical implementation may result in uncertainty over the next few years.
 
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 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 or recognized by the judicial interpretation given to a corresponding patent issued in another country.

The United States Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.

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. Despite precautions taken by us, there can be no assurance that these agreements provide meaningful protection, that they will not be breached, that we would have adequate remedies for any such breach or that our proprietary and trade secret technology will not otherwise become known to others or found to be non-proprietary.

We receive confidential and proprietary information from collaborators, prospective licensees and other third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and diversion of personnel and resources.

Our products may face competition from lower cost generic or follow-on products.
 
Manufacturers of generic drugs are seeking to compete with our drugs and present a significant challenge to us. Those manufacturers may challenge the scope, validity or enforceability of our patents in court, requiring us to engage in complex, lengthy and costly litigation. If any of our owned or licensed patents are infringed or challenged, we may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively, which

57

Table of Contents

would have a material adverse effect on our sales from that product. In addition, manufacturers of innovative drugs as well as generic drug manufacturers may be able to design around our owned or licensed patents and compete with us using the resulting alternative technology. For more information concerning certain pending proceedings relating to our intellectual property rights, see “Legal Proceedings” contained elsewhere in this report.
 
Upon the expiration or loss of patent protection for a product, or upon the “at-risk” launch (despite pending patent infringement litigation against the generic product) by a manufacturer of a generic version of one of our products, we can quickly lose a significant portion of our sales of that product. In addition, if generic versions of our competitors’ branded products lose their market exclusivity, our patented products may face increased competition or pricing pressure.

Our business operates in an extremely competitive environment.
 
The pharmaceutical and biotechnology industries in which we operate are highly competitive and subject to rapid and significant technological change. Our present and potential competitors include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms, including, but not limited to:

Hematology and Oncology: Amgen, AstraZeneca, Bristol-Myers-Squibb, Eisai, Gilead, Johnson & Johnson, Novartis, Pharmacyclics, Roche/Genentech, Sanofi and Takeda.
Inflammation and Immunology: AbbVie, Amgen, Biogen Idec, Eisai, Johnson & Johnson, Merck, Pfizer and UCB S.A.
Many of these companies have considerably greater financial, technical and marketing resources than we have, enabling them, among other things, to make greater research and development investments. We also experience competition in drug development from universities and other research institutions, and we compete with others in acquiring technology from these sources. The pharmaceutical industry has undergone, and is expected to continue to undergo, rapid and significant technological change and we expect competition to intensify as technical advances are made and become more widely known. The development of products or processes by our competitors with significant advantages over those that we are developing could adversely affect our future revenues and profitability.
 
A decline in general economic conditions would adversely affect our results of operations.
 
Sales of our products are dependent, in large part, on third-party payers. As a result of global credit and financial market conditions, these organizations may be unable to satisfy their reimbursement obligations or may delay payment. For information about amounts receivable from the government-owned or -controlled hospitals in Spain, Italy and Portugal, see our discussion of accounts receivable from those countries in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report.

In addition, due to tightened global credit, there may be a disruption or delay in the performance of our third-party contractors, suppliers or collaborators. We rely on third parties for several important aspects of our business, including portions of our product manufacturing, clinical development of future collaboration products, conduct of clinical trials and supply of raw materials. If such third parties are unable to satisfy their commitments to us, our business could be adversely affected.
 
We may be required to modify our business practices, pay fines and significant expenses or experience other losses due to governmental investigations or other enforcement activities.
 
We may become subject to litigation or governmental investigations in the United States and foreign jurisdictions that may arise from the conduct of our business. Like many companies in our industry, we have from time to time received inquiries and subpoenas and other types of information requests from government authorities and we have been subject to claims and other actions related to our business activities. For more information relating to governmental investigations and other legal proceedings, see Note 16 of Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report.
 
While the ultimate outcome of investigations and legal proceedings are difficult to predict, adverse resolutions or settlements of those matters could result in, among other things:

significant damage awards, fines, penalties or other payments, and administrative remedies, such as exclusion and/or debarment from government programs, or other rulings that preclude us from operating our business in a certain manner;
changes to our business operations to avoid risks associated with such litigation or investigations;

58

Table of Contents

product recalls;
reputational damage and decreased demand for our products; and
expenditure of significant time and resources that would otherwise be available for operating our business.
The development of new biopharmaceutical products involves a lengthy and complex process and we may be unable to commercialize any of the products we are currently developing.
 
Many of our drug candidates are in the early or mid-stages of research and development and will require the commitment of substantial financial resources, extensive research, development, preclinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. This process takes many years of effort without any assurance of ultimate success. Our product development efforts with respect to a product candidate may fail for many reasons, including:

the failure of the product candidate in preclinical or clinical studies;
adverse patient reactions to the product candidate or indications of other safety concerns;
insufficient clinical trial data to support the effectiveness or superiority of the product candidate;
our inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner;
our failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate, the facilities or the process used to manufacture the product candidate;
changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or of an existing product for a new indication no longer attractive; and
the failure to obtain or maintain satisfactory drug reimbursement rates by governmental or third-party payers.

The stem cell products that we are developing through our CCT subsidiary may represent substantial departures from established treatment methods and will compete with a number of traditional products and therapies which are now, or may be in the future, manufactured and marketed by major pharmaceutical and biopharmaceutical companies. Furthermore, public attitudes may be influenced by claims that stem cell therapy is unsafe and stem cell therapy may not gain the acceptance of the public or the medical community.

If a product were to fail to be approved or if sales fail to materialize for a newly approved product, we may incur losses related to the write-down of inventory, impairment of property, plant and equipment dedicated to the product or expenses related to restructuring.

Disruptions of our manufacturing and distribution operations could significantly interrupt our production and distribution capabilities.

We have our own manufacturing facilities for many of our products and we have contracted with third parties to provide other manufacturing, finishing, and packaging services. Any of those manufacturing processes could be partially or completely disrupted by fire, contamination, natural disaster, terrorist attack, governmental action or military action. A disruption could lead to substantial production delays and the need to establish alternative manufacturing sources for the affected products requiring additional regulatory approvals. In the interim, our finished goods inventories may be insufficient to satisfy customer orders on a timely basis. Further, our business interruption insurance may not adequately compensate us for any losses that may occur.
 
In all the countries where we sell our products, governmental regulations define standards for manufacturing, packaging, labeling, distributing and storing pharmaceutical products. Our failure to comply, or the failure of our contract manufacturers and distributors to comply with applicable regulations could result in sanctions being imposed on them or us, including fines, injunctions, civil penalties, disgorgement, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions.
 
We have contracted with distributors to distribute REVLIMID ® , THALOMID ® , VIDAZA ® , ABRAXANE ® , POMALYST ® /IMNOVID ® , ISTODAX ® and OTEZLA ® . If our distributors fail to perform and we cannot secure a replacement distributor within a reasonable period of time, our revenue could be adversely affected.
 
The consolidation of drug wholesalers and other wholesaler actions could increase competitive and pricing pressures.
 
We sell our pharmaceutical products in the United States primarily through wholesale distributors and contracted pharmacies.

59

Table of Contents

These wholesale customers comprise a significant part of our distribution network for pharmaceutical products in the United States. This distribution network is continuing to undergo significant consolidation. As a result, a smaller number of large wholesale distributors and pharmacy chains control a significant share of the market. We expect that consolidation of drug wholesalers and pharmacy chains will increase competitive and pricing pressures on pharmaceutical manufacturers, including us. In addition, wholesalers may apply pricing pressure through fee-for-service arrangements and their purchases may exceed customer demand, resulting in increased returns or reduced wholesaler purchases in later periods.

Risks from the improper conduct of employees, agents, contractors or collaborators could adversely affect our business or reputation.
 
We cannot ensure that our compliance controls, policies and procedures will in every instance protect us from acts committed by our employees, agents, contractors or collaborators that violate the laws or regulations of the jurisdictions in which we operate, including employment, anti-corruption, environmental, competition and privacy laws. Such improper actions, particularly with respect to foreign healthcare professionals and government officials, could subject us to civil or criminal investigations, monetary and injunctive penalties, adversely impact our ability to conduct business in certain markets, negatively affect our results of operations and damage our reputation.

We are subject to a variety of risks related to the conduct and expansion of our business internationally, particularly in emerging markets.

As our operations expand globally, we are subject to risks associated with conducting business in foreign markets, particularly in emerging markets. Those risks include:

increased management, travel, infrastructure and legal compliance costs;
longer payment and reimbursement cycles;
difficulties in enforcing contracts and collecting accounts receivable;
local marketing and promotional challenges;
lack of consistency, and unexpected changes, in foreign regulatory requirements and practices;
increased risk of governmental and regulatory scrutiny and investigations;
increased exposure to fluctuations in currency exchange rates;
the burdens of complying with a wide variety of foreign laws and legal standards;
operating in locations with a higher incidence of corruption and fraudulent business practices;
difficulties in staffing and managing foreign sales and development operations;
import and export requirements, tariffs, taxes and other trade barriers;
weaker protection of intellectual property rights;
possible enactment of laws regarding the management of and access to data and public networks;
possible future limitations on foreign-owned businesses;
increased financial accounting and reporting burdens and complexities; and
other factors beyond our control, including political, social and economic instability, popular uprisings, war, terrorist attacks and security concerns in general.

60

Table of Contents

As we continue to expand our business into multiple international markets, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these risks could harm our international operations and reduce our sales, adversely affecting our business, results of operations, financial condition and growth prospects.
 
The integration of acquired businesses may present significant challenges to us.
 
We may face significant challenges in effectively integrating entities and businesses that we acquire and we may not realize the benefits anticipated from such acquisitions. Achieving the anticipated benefits of our acquired businesses will depend in part upon whether we can integrate our businesses in an efficient and effective manner. Our integration of acquired businesses involves a number of risks, including:
 
demands on management related to the increase in our size after the acquisition;
the diversion of management’s attention from daily operations to the integration of acquired businesses and personnel;
higher than anticipated integration costs;
failure to achieve expected synergies and costs savings;
difficulties in the assimilation and retention of employees;
difficulties in the assimilation of different cultures and practices, as well as in the assimilation of broad and geographically dispersed personnel and operations; and
difficulties in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards and controls, including internal control over financial reporting, and related procedures and policies.
We may not be able to continue to attract and retain highly qualified managerial, scientific, manufacturing and commercial talent.
 
The success of our business depends, in large part, on our continued ability to attract and retain highly qualified managerial, scientific, manufacturing and commercial personnel, and competition for these types of personnel is intense. We cannot be sure that we will be able to attract or retain skilled personnel or that the costs of doing so will not materially increase.
 
Risks associated with using hazardous materials in our business could subject us to significant liability.
 
We use certain hazardous materials in our research, development, manufacturing and other business activities. If an accident or environmental discharge occurs, or if we discover contamination caused by prior owners and operators of properties we acquire, we could be liable for remediation obligations, damages and fines that could exceed our insurance coverage and financial resources. Additionally, the cost of compliance with environmental and safety laws and regulations may increase in the future, requiring us to expend more financial resources either in compliance or in purchasing supplemental insurance coverage.
 
Product liability claims could adversely affect our business, results of operations and financial condition.

Product liability claims could result in significant damage awards or settlements. Such claims can also be accompanied by consumer fraud claims or claims by third-party payers seeking reimbursement of the cost of our products. In addition, adverse determinations or settlements of product liability claims may result in suspension or withdrawal of a product marketing authorization or changes to our product labeling, including restrictions on therapeutic indications, inclusion of new contraindications, warnings or precautions. Although we purchase product liability coverage from third-party carriers, it is increasingly difficult and costly to obtain. There can be no assurance that we will be able to recover under any insurance policy or that such coverage will be adequate to fully cover all risks or damage awards or settlements. Product liability claims, regardless of their merits or ultimate outcome, are costly, divert management attention, may harm our reputation and can impact the demand for our products.


61

Table of Contents

Changes in our effective income tax rate could adversely affect our results of operations.
 
We are subject to income taxes in both the United States and various foreign jurisdictions and our domestic and international tax liabilities are largely dependent upon the distribution of income among these different jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate. These factors include interpretations of existing tax laws, the accounting for stock options and other share-based compensation, changes in tax laws and rates, future levels of research and development spending, changes in accounting standards, changes in the mix of earnings in the various tax jurisdictions in which we operate, the outcome of examinations by the U.S. Internal Revenue Service and other tax authorities, the accuracy of our estimates for unrecognized tax benefits and realization of deferred tax assets and changes in overall levels of pre-tax earnings. The impact on our income tax provision resulting from the above-mentioned factors and others could have a material impact on our results of operations.
 
Currency fluctuations and changes in exchange rates could adversely affect our revenue growth, increase our costs and cause our profitability to decline.
 
We collect and pay a substantial portion of our sales and expenditures in currencies other than the U.S. dollar. Therefore, fluctuations in foreign currency exchange rates affect our operating results. We utilize foreign currency forward contracts and option contracts, which are derivative instruments, to manage foreign currency risk. We use these derivative instruments to hedge certain forecasted transactions, manage exchange rate volatility in the translation of foreign earnings and reduce exposures to foreign currency fluctuations of certain balance sheet items denominated in foreign currencies. The use of these derivative instruments is intended to mitigate a portion of the exposure of these risks with the intent to reduce our risk or cost, but generally would not fully offset any change in operating results as a consequence of fluctuations in foreign currencies. Any significant foreign exchange rate fluctuations could adversely affect our financial condition and results of operations. See Note 7 of Notes to Unaudited Consolidated Financial Statements and Item 3. “Quantitative and Qualitative Disclosures About Market Risk” contained elsewhere in this report.
 
We may experience an adverse market reaction if we are unable to meet our financial reporting obligations.
 
As we continue to expand at a rapid pace, the development of new and/or improved automated systems will remain an ongoing priority. During this expansion period, our internal control over financial reporting may not prevent or detect misstatements in our financial reporting. Such misstatements may result in litigation and/or negative publicity and possibly cause an adverse market reaction that may negatively impact our growth plans and the value of our common stock.
 
Impairment charges or write downs in our books and changes in accounting standards could have a significant adverse effect on our results of operations and financial condition.

New or revised accounting standards, rules and interpretations could result in changes to the recognition of income and expense that may materially and adversely affect our financial results. In addition, the value allocated to certain of our assets could be substantially impaired due to a number of factors beyond our control. Also, if any of our strategic equity investments decline in value, we may be required to write down such investment.

The price of our common stock may fluctuate significantly.
 
The market for our shares of common stock may fluctuate significantly. The following key factors may have an adverse impact on the market price of our common stock:

results of our clinical trials or adverse events associated with our marketed products;
fluctuations in our commercial and operating results;
announcements of technical or product developments by us or our competitors;
market conditions for pharmaceutical and biotechnology stocks in particular;
changes in laws and governmental regulations, including changes in tax, healthcare, environmental, competition and patent laws;
new accounting pronouncements or regulatory rulings;

62

Table of Contents

public announcements regarding medical advances in the treatment of the disease states that we are targeting;
patent or proprietary rights developments;
changes in pricing and third-party reimbursement policies for our products;
the outcome of litigation involving our products, processes or intellectual property;
the existence and outcome of governmental investigations and proceedings;
regulatory actions that may impact our products or potential products;
disruptions in our manufacturing processes or supply chain;
failure of our collaboration partners to successfully develop potential drug candidates;
competition; and
investor reaction to announcements regarding business or product acquisitions.
In addition, a market downturn in general and/or in the biopharmaceutical sector in particular, may adversely affect the market price of our securities, which may not necessarily reflect the actual or perceived value of our Company.
 
Our business would be adversely affected if we are unable to service our debt obligations.
 
We have incurred various forms of indebtedness, including senior notes, commercial paper and a senior unsecured credit facility. Our ability to pay interest and principal amounts when due, comply with debt covenants or repurchase the senior notes if a change of control occurs, will depend upon, among other things, continued commercial success of our products and other factors that affect our future financial and operating performance, including prevailing economic conditions and financial, business and regulatory factors, many of which are beyond our control.
 
If we are unable to generate sufficient cash flow to service the debt service requirements under our debt instruments, we may be forced to take remedial actions such as:

restructuring or refinancing our debt;
seeking additional debt or equity capital;
reducing or delaying our business activities, acquisitions, investments or capital expenditures, including research and development expenditures; or
selling assets, businesses, products or other potential revenue streams.
Such measures might not be successful and might not enable us to service our debt obligations. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms, if at all.
 
A breakdown or breach of our information technology systems could subject us to liability or interrupt the operation of our business.

We rely upon our information technology systems and infrastructure for our business. The size and complexity of our computer systems make them potentially vulnerable to breakdown and unauthorized intrusion. Similarly, data privacy breaches by those who access our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. There can be no assurance that our efforts to protect our data and information technology systems will prevent breakdowns or breaches in our systems that could adversely affect our business.
 
The illegal distribution and sale by third parties of counterfeit versions of our products or stolen products could have a negative impact on our reputation and business.

Third parties might illegally distribute and sell counterfeit or unfit versions of our products, which do not meet our rigorous

63

Table of Contents

manufacturing and testing standards. A patient who receives a counterfeit or unfit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand name. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold through unauthorized channels, could adversely impact patient safety, our reputation and our business.

We have certain charter and by-law provisions that may deter a third-party from acquiring us and may impede the stockholders’ ability to remove and replace our management or board of directors.
 
Our board of directors has the authority to issue, at any time, without further stockholder approval, up to 5.0 million shares of preferred stock and to determine the price, rights, privileges and preferences of those shares. An issuance of preferred stock could discourage a third-party from acquiring a majority of our outstanding voting stock. Additionally, our by-laws contain provisions intended to strengthen the board’s position in the event of a hostile takeover attempt. These provisions could impede the stockholders’ ability to remove and replace our management and/or board of directors. Furthermore, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law, which may also dissuade a potential acquirer of our common stock.
 
In addition to the risks relating to our common stock, holders of our CVRs are subject to additional risks.
 
On October 15, 2010, we acquired all of the outstanding common stock of Abraxis BioScience, Inc. (Abraxis) and in connection with our acquisition, contingent value rights (CVRs) were issued entitling each holder of a CVR to a pro rata portion of certain milestone and net sales payments if certain specified conditions are satisfied. In addition to the risks relating to our common stock, CVR holders are subject to additional risks, including:

an active public market for the CVRs may not continue to exist or the CVRs may trade at low volumes, both of which could have an adverse effect on the market price, if any, of the CVRs;
if the clinical approval milestones or net sales targets specified in the CVR Agreement are not achieved for any reason within the time periods specified therein, no payment will be made under the CVRs and the CVRs will expire valueless;
since the U.S. federal income tax treatment of the CVRs is unclear, any part of a CVR payment could be treated as ordinary income and the tax thereon may be required to be paid prior to the receipt of the CVR payment;
any payments in respect of the CVRs are subordinated to the right of payment of certain of our other indebtedness;
we may under certain circumstances redeem the CVRs; and
upon expiration of our obligations under the CVR Agreement to continue to commercialize ABRAXANE ® or any of the other Abraxis pipeline products, we may discontinue such efforts, which would have an adverse effect on the value, if any, of the CVRs.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
(c)    Issuer Purchases of Equity Securities
 
From April 2009 through June 2014, our Board of Directors approved repurchases of an aggregate of up to $13.500 billion of our common stock, including $4.000 billion approved by our Board of Directors in April 2014. Approved amounts exclude share repurchase transaction fees.

In June 2014, our stockholders approved an amendment to our Certificate of Incorporation that increased the number of shares of common stock that we are authorized to issue and effected a two-for-one stock split. As a result, our total number of authorized shares of common stock increased from 575.0 million to 1.150 billion on June 18, 2014. Stockholders of record received one additional share of common stock for each share of common stock owned. All impacted share numbers and per share amounts presented in the consolidated financial statements and the accompanying notes to the financial statements in this report have been restated to reflect the impact of the stock split. Common stock held in treasury was not adjusted for the stock split.


64

Table of Contents

The following table presents the number of shares purchased during the three-month period ended June 30, 2014 , the average price paid per share, the number of shares that were purchased and the approximate dollar value of shares that still could have been purchased, pursuant to our repurchase authorization:
Period
 
Total Number of
Shares Purchased
 
Average Price Paid
per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs
 
Approximate Dollar Value
of Shares That May Yet be
Purchased Under the Plans
or Programs
April 1 - April 30
 
435,943

 
$
144.07

 
435,943

 
$
4,343,964,019

May 1 - May 31
 
2,168,802

 
$
148.90

 
2,168,802

 
$
4,021,031,132

June 1 - June 30
 
566,651

 
$
157.71

 
566,651

 
$
3,931,665,431

Total
 
3,171,396

 
$
149.81

 
3,171,396

 
 

 
During the three-month period ended June 30, 2014 , we have repurchased 3.2 million shares of common stock under the stock repurchase program from all sources at a total cost of $475.2 million . As of June 30, 2014 , we had a remaining repurchase authorization of $3.932 billion .

During the period covered by this report, we did not sell any of our equity shares that were not registered under the Securities Act of 1933, as amended.

65

Table of Contents

Item 6. Exhibits.
 
3.1*

Certificate of Incorporation of the Company, as amended through June 18, 2014.
 
 
3.2

Bylaws of the Company (incorporated by reference to Exhibit 2 to the Company’s Current Report on Form 8-K, dated September 16, 1996), as amended effective May 1, 2006 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006), as further amended effective December 16, 2009 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 17, 2009), and as further amended effective February 17, 2010 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009).
 
 
10.1*†

License Agreement among the Company, Celgene Alpine Investment Company II LLC and Nogra Pharma Limited dated April 23, 2014.
 
 
31.1*

Certification by the Company's Chief Executive Officer.
 

 
31.2*

Certification by the Company's Chief Financial Officer.
 

 
32.1*

Certification by the Company's Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
 

 
32.2*

Certification by the Company's Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
 

 
101*

The following materials from Celgene Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Unaudited Consolidated Financial Statements.
 
 
 
* Filed herewith.
 
†  Confidential treatment requested as to certain portions, which portions have been omitted and submitted separately to the Securities and Exchange Commission.


66

Table of Contents

SIGNATURE
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
CELGENE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
 
Date:
July 29, 2014
By:
/s/Jacqualyn A. Fouse
 
 
 
 
 Jacqualyn A. Fouse, Ph.D.
 
 
 
 Executive Vice President and
 Chief Financial Officer
 
 
 
(principal financial and accounting officer)

67



Exhibit 3.1

CERTIFICATE OF INCORPORATION
OF
CELGENE CORPORATION
FIRST. The name of the Corporation is CELGENE CORPORATION.
SECOND. The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH. The aggregate number of shares which the Corporation shall have authority to issue is 30,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated "Preferred Stock" and 25,000,000 shares of the par value of $.01 per share shall be designated
<PAGE>
"Common Stock." Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock as Preferred Stock of any series and, in connection with the creation of each such series, to fix by the resolution or resolutions providing for the issue of shares thereof, the number of shares of such series, and the designations, powers, preferences, and rights, and the qualifications, limitations, and restrictions, of such series, to the full extent now or hereafter permitted by the laws of the State of Delaware.
FIFTH. The name and mailing address of the incorporator is Kenneth R. Koch, c/o Shea & Gould, 330 Madison Avenue, New York, New York 10017.
SIXTH. Election of directors need not be by written ballot.
SEVENTH. The Board of Directors is authorized to adopt, amend, or repeal By-Laws of the Corporation.
EIGHTH. Any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (whether or not by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, incorporator, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer,
-2-
<PAGE>
incorporator, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise (including an employee benefit plan), shall be entitled to be indemnified by the Corporation to the full extent then permitted by law against expenses (including attorneys' fees), judgments, fines (including excise taxes assessed on a person with respect to an employee benefit plan), and amounts paid in settlement incurred by him in connection with such action, suit, or proceeding. Such right of indemnification shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Article EIGHTH. Such right of indemnification shall continue as to a person who has ceased to be a director, officer, incorporator, employee, or agent and shall inure to the benefit of the heirs and personal representatives of such a person.
NINTH. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder





thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any
-3-
<PAGE>
receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
IN WITNESS WHEREOF, I have made, signed, and sealed this Certificate of Incorporation this 15th day of April, 1986.
/s/ Kenneth R. Koch     (L.S.)
Kenneth R. Koch, Incorporator
-4-
<PAGE>
CERTIFICATE OF AMENDMENT
of
THE CERTIFICATE OF INCORPORATION
Of
CELGENE CORPORATION
CELGENE CORPORATION, a Delaware corporation (the "Corporation"), does hereby certify as follows:
FIRST: At a duly held meeting, the Board of Directors of the Corporation adopted resolutions proposing and declaring it advisable that the Certificate of Incorporation of the Corporation be amended as follows:
a) By striking the first sentence of Article Fourth and substituting in lieu thereof the following sentence:
"FOURTH. The aggregate number of shares which the Corporation shall have
authority to issue is 40,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated 'Preferred Stock' and 35,000,000 shares of the par value of $.01 per share shall be designated 'Common Stock.'"
b) By adding the following sentence to the end of Article EIGHTH:
"The indemnification provided by this Article Eighth shall not be deemed exclusive of any other indemnification rights which may be provided now or in the future under any provision currently in effect or hereafter adopted of the by-laws, in any agreement, by vote of stockholders, by resolution of dis-
<PAGE>
interested directors, by provision of law, or otherwise."






c) By adding the following new Article TENTH thereto:
"TENTH: No director of the Corporation shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit."
SECOND: The stockholders of the Corporation have duly adopted the foregoing amendments at a Special Meeting of Stockholders duly called and held on December 19, 1986 in accordance with the provisions of Section 222 of the General Corporation Law of Delaware.
THIRD: Such amendments to the Certificate of Incorporation were duly adopted in accordance with the applicable provisions of Sections 222 and 242 of the General Corporation Law of Delaware.
FOURTH: These amendments to the Certificate of Incorporation shall be effective on and as of the date of
-2-
<PAGE>
filing of this Certificate of Amendment with the office of the Secretary of State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed in its name by its Vice President and attested to by its Secretary this 26th day of January, 1987 and the statements contained herein are affirmed as true under penalties of perjury.
CELGENE CORPORATION
BY: /s/ Isaac Blech    
Isaac Blech, Vice President
ATTEST:
By: / s/ David Blech    
David Blech, Secretary
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
Of
THE CERTIFICATE OF INCORPORATION
Of
CELGENE CORPORATION
(Pursuant to Section 228 and 242 of the General Corporation Law of the State of Delaware)
CELGENE CORPORATION, a Delaware corporation (the "Corporation"), does hereby certify as follows:
FIRST: At a duly held meeting, the Board of Directors of the Corporation adopted resolutions proposing and declaring it advisable that the Certificate of Incorporation of the Corporation be amended as follows:






(a) The first sentence of Article Fourth is hereby deleted and the following is substituted therefor:
"FOURTH. The aggregate number of shares which the Corporation shall have authority to issue is 25,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated 'Preferred Stock' and 20,000,000 shares of the par value of $.01 per share shall be designated 'Common Stock.'"

(b)    The following new sentence is hereby added to the end of Article Fourth:
"Upon the filing in the office of the Secretary of the State of Delaware of the Certificate of Amendment to the Certificate of Incorporation of the Corporation whereby this Article Fourth is amended to read as set forth herein,
<PAGE>
each six issued and outstanding shares of Common Stock of the Corporation shall thereby and thereupon be combined into one share of validly issued, fully paid, and nonassessable share of Common Stock of the Corporation. No scrip or fractional shares will be issued by reason of this amendment."
SECOND: This amendment to the Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 228 and 242 of the General Corporation Law of Delaware.
THIRD: This amendment to the Certificate of Incorporation shall be effective on and as of the date of filing of this Certificate of Amendment with the office of the Secretary of State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed in its name by its Vice President and attested to by its Secretary this 10th day of July, 1987 and the statements contained herein are affirmed as true under penalties of perjury.
CELGENE CORPORATION
By: /s/ Isaac Blech    
Isaac Blech, Vice President
ATTEST:
By: /s/ David Blech    
David Blech, Secretary
-2-
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/06/1996
960065500 - 2088605
CELGENE CORPORATION
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE
PREFERRED STOCK





(Pursuant to Section 151 of the Delaware General Corporation Law)
We, John W. Jackson and Robert Eastty, the Chairman of the Board and Chief Executive Officer and the Assistant Secretary, respectively, of Celgene Corporation, a Delaware corporation, in accordance with the provisions of Section 103 of the Delaware General Corporation Law do hereby certify that:

1.    The name of the corporation (hereinafter called the "Corporation") is CELGENE CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware.

2.    The Certificate of Incorporation (as amended) authorizes the issuance of 5,000,000 shares of Preferred Stock of a par value of $.01 each and expressly vests in the Board of Directors of the Corporation the authority provided therein to issue any or all of said shares in one or more series and by resolution or resolutions to establish the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative, participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued.

3.    The following is a true and correct copy of certain resolutions duly adopted by the Board of Directors of the Corporation on March 6, 1996, which constituted all necessary action on the part of the Company for adoption of such resolutions.
RESOLVED, that Four Hundred and Twenty (420) of the 5 Million (5,000,000) authorized shares of Preferred Stock of the Corporation shall be designated Series A Convertible Preferred Stock, $.01 par value per share, and shall possess the rights and privileges set forth below:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Convertible Preferred Stock" (the "Series A Convertible Preferred Stock") and the number of shares constituting the Series A Convertible Preferred Stock (the "Shares") shall be 420, such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of Shares to a number less than the number of shares then outstanding.
Section 2. RANK. The Series A Convertible Preferred Stock shall rank: (i) prior to all of the Corporation's Common Stock, par value $.01 per share ("Common Stock"); (ii) prior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to the Series A Convertible Preferred Stock (collectively, with the Common Stock, "Junior Securities'); (iii) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series A Convertible Preferred Stock ("Parity Securities") and (iv) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms senior to the Series A Convertible Preferred Stock ("Senior Securities"); in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (all such distributions being referred to collectively as "Distributions");
1
<PAGE>
Section 3. DIVIDENDS. The Series A Convertible Preferred Stock will bear no dividends, and the holders of the Series A Convertible Preferred Stock shall not be entitled to receive dividends on the Series A Convertible Preferred Stock.
Section 4. LIQUIDATION PREFERENCE.

(a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntar("an Event"), the holders of Shares shall be entitled to receive, immediately after any distributions to Senior Securities and prior and in preference to any distribution to Junior Securities but in parity with any distribution to Parity Securities, an amount per share equal to the sum of (i) $50,000 for each outstanding Share (the "Original Series A Issue Price") and (ii) an amount equal to 4.9% of the Original Series A Issue Price per annum for the period that has passed since the date of issuance of any Series A Convertible Preferred Stock (such amount being referred to herein as the "Accretion"). If upon the occurrence of such Event, the assets and funds thus distributed among the holders of the Series A Convertible Preferred Stock and Parity Securities shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series A Convertible Preferred Stock and the Parity Securities, respectively, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series A Convertible Preferred Stock and the Parity





Securities, pro rata, based on the respective liquidation amounts to which each such series of stock is entitled by the Corporation's Certificate of Incorporation and any Certificate(s) of Designation.

(b)    Upon the completion of the distribution required by subsection 4(a), if assets remain in this Corporation, they shall be distributed to holders of Junior Securities in accordance with the Corporation's Certificate of Incorporation including any duly adopted Certificate(s) of Designation.
(c)    A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within, the meaning of this Section 4, but shall instead be treated pursuant to Section 5(f)(ii) hereof.

Section 5. CONVERSION.
The record Holders of this Series A Convertible Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record holder of the Series A Convertible Preferred Stock shall be entitled, as set forth below, and, subject to the Company's right of redemption set forth in Section 6 and the restrictions on conversion set forth in Section 5(b) below, to convert the Shares held by such holder into that number of fully-paid and nonassessable shares of the Common Stock at the Conversion Rate as set forth below. The minimum number of Shares that may be converted is the lesser of (i) Two Shares or (ii) all of the Holder's remaining Shares. The rate at which Shares may be converted into shares of Common Stock is hereinafter referred to as the "Conversion Rate" and is computed as follows:
Number of shares of Common Stock issued upon conversion of one share of Preferred Stock = Principal Conversion Rate + Accretion Conversion Rate, where
2
<PAGE>
ISSUE PRICE
"Principal Conversion Rate" =     ---------------------------------------------
Conversion Price,
(.049)(N/365)(Issue Price)
and "Accretion Conversion Rate =     ---------------------------------------------------------------
Accretion Conversion Price
where
N = the number of days between (i) the date that, in connection with the consummation of the initial purchase of the Preferred Stock from the Company, the escrow agent first had in its possession funds representing full payment for the Preferred Stock for which conversion is being elected, and (ii) the Date of Conversion;
Issue Price = the Original Series A Issue Price, as defined in Section 4(a);
Accretion Conversion Price equals the average Closing Price for the Common Stock as that term is defined below, for the 30 calendar days prior to the Date of Conversion; and
Conversion Price = the lesser of (x) $18.81 (the "Fixed Conversion Price") (which equals 110% of $17.1, which is the average closing bid price for the seven (7) trading days ending on February 29, 1996), or (y) 90% of the average Closing Price, as that term is defined below, of the Company's Common Stock for the seven (7) trading days immediately preceding the Date of Conversion. For purposes hereof, the term "Closing Price" shall mean the closing price of the Company's Common Stock as reported by NASDAQ (or, if not reported by NASDAQ, as reported by such other exchange or market where traded).
(b) Restrictions on Conversion. No shares of Series A Convertible Preferred Stock may be convened prior to 60 days after the Last Closing (as defined in the Subscription Agreement). Thereafter, (subject to the effectiveness of the S-3 Registration Statement as defined in the Subscription Agreement) each Holder of Series A Convertible Preferred Stock may convert one-third of his shares of Series A Convertible Preferred Stock on or after the 60th day after the Last Closing, an





additional one-third on or after the 90th day after the Last Closing, and all additional remaining Series A Convertible Preferred Stock on or after the 120th day after the Last Closing.

(c) Mechanics of Conversion. In order to convert Series A Convertible Preferred Stock into shares of Common Stock, the holder shall (i) fax a copy of the fully executed notice of conversion in the form attached hereto ("Notice of Conversion") to the Company at the office of the Company and to American Stock Transfer & Trust Company (the "Exchange Agent") that he elects to convert the same, which notice shall specify the number of shares of Series A Convertible Preferred Stock to be converted and shall contain a calculation of the Conversion Rate (together with a copy of the first page of each certificate to be converted) prior to Midnight, New York City time (the "Conversion Notice Deadline") on the Date of Conversion specified on the Notice of Conversion and (ii) surrender the original certificate or certificates therefor, duly endorsed, and the original Notice of Conversion, no later than Midnight (New York City Time) the next business day, to a common courier for overnight delivery or (if overseas) 2-day delivery to the Exchange Agent. The Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless either the certificates evidencing such Series A Convertible Preferred Stock are delivered to the Exchange Agent as provided above, or the Holder notifies the Exchange Agent that such certificates have been lost, stolen or destroyed and such Holder provides
3
<PAGE>
such indemnity as is reasonably acceptable to the Company with respect to such lost, stolen or destroyed certificate. In the case of a dispute as to the calculation of the Conversion Rate, the Company's calculation shall be deemed conclusive absent manifest error. No fractional shares of Common Stock shall be issued upon conversion of this Series A Convertible Preferred Stock. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall round up to the nearest whole share.
The Company shall issue and deliver or cause to be issued and delivered within three (3) business days after delivery to the Exchange Agent of such certificates, or after the holder has furnished such indemnity such holder of Series A Convertible Preferred Stock at the address of the Holder on the books of the Company, a certificate or certificates for the number of shares of Common Stock to which the Holder shall be entitled as provided in Section 5(a) above. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in such Notice of Conversion, provided (i) that the advance copy of the Notice of Conversion is faxed to the Company and the Exchange Agent before midnight, New York City time, on the Date of Conversion and (ii) that the stock certificates (the "Preferred Stock Certificates") representing the Series A Convertible Preferred Stock to be converted are received by the Exchange Agent within five (5) business days thereafter. The person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. If the original Series A Convertible Preferred Stock Certificates to be converted are not received by the Exchange Agent or the Company within five (5) business days after the Date of Conversion, the Company may, at its option, treat the Notice of Conversion as null and void.

(d) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series A Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series A Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Convertible Preferred Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(e) Automatic Conversion. Each share of Series A Convertible Preferred Stock outstanding two years from the Date of the Last Closing automatically shall be converted into Common Stock on such date at the Conversion Price then in effect and two years from the Date of the Last Closing shall be deemed the Date of Conversion with respect to such Shares then outstanding provided that, if such date is not a business day, the next following business day shall be the operative date.

(f) Adjustment to Fixed Conversion Price.
In computing the Fixed Conversion Price for purposes of Section
5(a):
(i) If, prior to the conversion of all of the Series A Convertible Preferred Stock, the number of outstanding shares of Common Stock is adjusted by a stock split stock dividend, or other similar event, the Fixed Conversion Price shall be proportionately adjusted.






(ii) If, prior to the conversion of all Series A Convertible Preferred Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity, then the Holders of Series A Convertible Preferred Stock shall
4
<PAGE>
thereafter have the right to purchase and receive upon conversion of Series A Convertible Preferred Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such shares of stock and/or securities as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore purchasable and receivable upon the conversion of Series A Convertible Preferred Stock held by such Holders had the Holders converted their Series A Preferred to Common immediately prior to such merger, consolidation, exchange of shares, recapitalization or reorganization, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holders of the Series A Convertible Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Fixed Conversion Price and of the number of shares issuable upon conversion of the Series A Convertible Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter be deliverable upon the conversion of Series A Convertible Preferred Stock. The Company shall not effect any transaction described in this subsection 5(f) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Holders of the Series A Convertible Preferred Stock such shares of stock and/or securities as, in accordance with the foregoing provisions, the Holders of the Series A Convertible Preferred Stock may be entitled to purchase.

(iii) If any adjustment under this Section 5(f) would create a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share (on an aggregate basis) shall be disregarded and the number of shares of Common Stock issuable upon conversion shall be rounded to the next higher number of shares.
Section 6. REDEMPTION BY COMPANY; LOCK UP.
(a) Company's Right to Redeem or Lock Up Conversion in the Event of Conversion.
(i) REDEMPTION UPON RECEIPT OF NOTICE OF CONVERSION. In the event the average Closing Price of the Company's Common Stock on the NASDAQ for the seven (7) trading days immediately preceding the Date of Conversion shall be at or less than the Fixed Conversion Price, the Company shall have the right, in its sole discretion, upon receipt of a Notice of Conversion pursuant to Section 5, to redeem in whole or in part any Series A Convertible Preferred Stock submitted for conversion, immediately prior to conversion. If the Company elects to redeem some, but not all, of the Series A Convertible Preferred Stock submitted for conversion, the Company shall redeem from among the Series A Convertible Preferred Stock submitted by the various shareholders for conversion on the applicable date, a pro-rata amount from each shareholder so submitting Series A Convertible Preferred Stock for conversion.
In the case of a redemption under this Section 6(a)(i). the redemption
price shall equal the sum of the Principal Redemption Price plus the Accretion, where:
Principal Redemption Price =

Issue Price X Closing Price On Date Of Conversion
----------------------------------------------------------------------
Conversion Price
In the event of redemption, the Accretion is payable, at the Company's option, in cash or Common Stock. If the Accretion is paid in Common Stock, the number of shares for such payment shall be calculated in accordance with the following formula:
Accretion





---------------------------------------
Accretion Conversion Price
5
<PAGE>
where "N," "Issue Price," "Closing Price", "Accretion Conversion Price"
and "Conversion Price" have the meanings set forth in Section 5, and "Accretion" has the meaning set forth in Section 4.
(ii) REDEMPTION OR LOCKUP BELOW SOFT FLOOR PRICE. In the event the Closing Price per share shall be at or less than $11.50 (the "Soft Floor Price"), for each of the five (5) trading days preceding the date of submission of a Notice of Conversion by a Holder, the Company shall have the right, in its sole discretion, upon receipt of such Notice of Conversion pursuant to Section 5, to elect, in lieu of conversion, either (A) or (B), as follows:
A. The Company may elect to declare such conversion null and void, and declare that no conversion of any Preferred Stock that is included in the Notice of Conversion (the "Affected Preferred Stock") shall be permitted for the subsequent ninety (90) day period (the "90 Day Lock Up Period"). In the event the Company declares a 90 Day Lock Up Period, the Company shall issue within 10 business days, to the Holder of the Affected Preferred Stock warrants ("90 Day Lock Up Warrants"), to purchase Common Stock of the Company, as follows:
TERMS OF 90 DAY LOCK UP WARRANT
- the 90 Day Lock Up Warrant shall entitle the holder to purchase a number of shares of common stock equal to 10% of the number of shares of Common Stock that would have been issued upon conversion, of the Affected Preferred Stock at the Soft Floor Price.
- the strike price of the 90 Day Lock Up Warrant shall equal the Soft Floor Price.
- The term of the 90 Day Lock Up Warrant shall be two (2) years.
The Company may, in its discretion, offer ("180 Day Lock Up Offer") to provide another warrant ("180 Day Lock Up Warrant"), in addition to the 90 Day Lock Up Warrant, to purchase Common Stock of the Company, to the Holder of Affected Preferred Stock in exchange for such Holder's agreement to forebear from converting its Affected Preferred Stock for an additional 90 days beyond the 90 Day Lockup Period (a "180 Day Lockup Period"). The Holder, in its discretion, may accept or reject the 180 Day Lock Up Offer. The Company shall issue to the Holder, within 10 business days of Holder's written acceptance of a 180 Day Lock Up Offer, a 180 Day Lock Up Warrant, the terms of which shall be equivalent to the terms of a 90 Day Lock Up Warrant.
After any 90 Day Lock Up Period or 180 Day Lock Up Period (as applicable), the Investor shall again be entitled to convert the Affected Preferred Stock pursuant to the terms of Section 5 above, without any further lock up restrictions.
B. Redeem such Affected Preferred Stock pursuant to Section 6(a)(i).
6
<PAGE>
(iii) MECHANICS OF REDEMPTION OR LOCK UP. Any shareholder considering submitting Preferred Stock for conversion at such time as the Company's right of redemption under Section 6(a)(i) or lock up under Section 6(a)(ii) is or may be in effect may provide notice to the Company by facsimile, of his possible desire to convert a specified number of Shares, and ask the Company to determine whether or not the Company would exercise its right of redemption or lock up if the Shares were submitted for conversion. The Company shall respond within two (2) business days of the date of receipt of that notice, and State whether it would redeem or lock up the Shares, in whole or in part, or allow conversion into Common Stock





without redemption or lock up, which election will be applicable to conversion by such shareholder of the number of Shares specified in his notice within the next five business days after the date of the Company's response. Failure of the Company to respond within the two (2) business day period shall be deemed an election by the Company not to redeem or lock up the Shares covered by that notice if submitted for conversion within the next five business days. If the holder does not provide advance notice of intention to convert as contemplated in this section (iii), the Company may effect redemption or lock up of Shares submitted for conversion by giving notice of its election to redeem or lock up, by facsimile within 2 business days following receipt of a Notice of Conversion from a Holder, with a copy by overnight or 2-day courier, to (A) the Holder of Series A Convertible Preferred Stock submitted for conversion at the address and facsimile number of such Holder appearing in the Company's register for the Series A Convertible Preferred Stock and (B) the Exchange Agent, Such notice shall indicate whether the Company will redeem or lock up all or part of the Series A Convertible Preferred Stock submitted for conversion.
The Company shall not be entitled to exercise its right to redeem shares submitted for conversion under this Section 6(a) unless it has (x) the full amount of the redemption price, in cash, available in a demand or other immediately available account in a bank or similar financial institution or (y) immediately available credit facilities, in the full amount of the redemption price, with a bank or similar financial institution on the date the redemption notice is sent to Holders.
(b) Company's Right to Call Redemption if the Price of the Company's Common Stock Is Greater Than the Fixed Strike Price. The Company shall have the right to redeem the Series A Convertible Preferred Stock on the following terms and conditions:
(i) at any time after nine (9) months following the Last Closing Date, if the average closing price of the Company's Common Stock for the seven (7) trading days immediately preceding the Notice Date (as defined below) is greater than the Fixed Conversion Price, the Company may, in its discretion, give written notice that it intends, at least thirty (30) but no more than forty five (45) business days from the date of such notice ("Notice Date") to redeem the Series A Convertible Preferred Stock at the redemption price listed in 6(b)(iii) below. The Company may elect to redeem some, but not all, of the Series A Convertible Preferred Stock, but in no event less than $1,500,000 per redemption. If the Company elects to redeem some, but not all, of the Series A Convertible Preferred Stock, the Company shall redeem a pro-rata amount from among all the Series A Convertible Preferred Stock holders. The holders of the Preferred Stock shall have the right to convert their Preferred Stock until the redemption date.

(ii) Mechanics of Redemption. The Company shall effect each such redemption by giving notice of its election to redeem, by facsimile with a copy by overnight or 2-day courier, no less than 30 business days prior to the intended redemption date. Such redemption notice shall indicate whether the Company will redeem all or part of the Series A Convertible Preferred Stock, the effective date of the redemption and the applicable redemption price. The Company shall not be entitled to send any notice of redemption and begin the redemption procedure unless
7
<PAGE>
it has (x) the full amount of the redemption price, in cash, available in a demand or other immediately available account in a bank or similar financial institution or (y) immediately available credit facilities, in the full amount of the redemption price, with a bank or similar financial institution on the date the redemption notice is sent to shareholders. If the Company has met the requirements of the preceding sentence, and a Holder has not submitted his Series A Convertible Preferred Stock for redemption as required by this Section 6(c) by the redemption date, the Company may pay the redemption price described in (iii) below and cancel the Series A Convertible Preferred Stock subject to the redemption notice, and such redeemed Series A Convertible Preferred Stock shall be of no further validity, force or effect.
(iii) Redemption Price. In the case of a redemption under this Section 6(b), the redemption price per share of Series A Convertible Preferred Stock shall be as follows:
REDEMPTION PRICE              ELAPSED TIME SINCE LAST CLOSING
130% of Stated Value            9 months and 1 day - 12 months
125% of Stated Value            12 months and 1 day - 18 months
120% of Stated Value            18 months and 1 day - 24 months





For purposes of this paragraph, the "Stated Value" shall equal the Original Series A Issue Price plus the Accretion (calculated as of the effective date of such redemption).
(c) Payment of Redemption Price. The redemption price for redemptions under either Section 6(a) or 6(b) above shall be paid to the Holder of Series A Convertible Preferred Stock redeemed within 5 business days after the redemption; provided, however, that the Company shall not be obligated to deliver any portion of such redemption price unless either the certificates evidencing the Series A Convertible Preferred Stock redeemed are delivered to the Exchange Agent, or the Holder notifies the Company or the Exchange Agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates.
Section 7. VOTING RIGHTS. The holders of the Series A Convertible Preferred Stock have no voting rights except as required by the General Corporation Law of the State of Delaware.
Section 8. PROTECTIVE PROVISION. So long as shares of Series A Preferred Stock are outstanding, the Company shall not alter or change the rights, preferences or privileges of the shares of Series A Convertible Preferred Stock in a manner not contemplated hereby so as to affect adversely the Series A Convertible Preferred Stock.
Section 9. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any shares of Series A Convertible Preferred Stock shall be redeemed or converted pursuant to Section 5 or Section 6 hereof, the shares so converted or redeemed shall be canceled, shall return to the status of authorized but unissued Preferred Stock of no designated series, and shall not be issuable by the Corporation as Series A Convertible Preferred Stock.
8
<PAGE>
FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Series A Convertible Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the Certificate of Incorporation of the Corporation pursuant to the provisions of the General Corporation Law of the State of Delaware.
FURTHER RESOLVED, that the officers of the Corporation be, and each acting individually hereby is, authorized and directed to take all actions necessary and advisable to effect the purpose and intent of the foregoing resolutions.
IN WITNESS WHEREOF, Celgene Corporation has caused this certificate to be signed by John P. Jackson, its Chairman of the Board and Chief Executive Officer, and attested by Robert Eastty, its Assistant Secretary, this 6th day of March, 1996.
CELGENE CORPORATION
By /s/ John W. Jackson    
John W. Jackson
Chairman of the Board and Chief Executive Officer
Attest:
By /s/ Robert Eastty    
Robert Eastty
Assistant Secretary
Each of the undersigned, the Chairman of the Board and Chief Executive Officer and Assistant Secretary, respectively, of Celgene Corporation, a Delaware corporation, declares under penalty of perjury that the matters set forth in this certificate are true and correct of his own knowledge.





Executed at Warren, New Jersey on March 6, 1996.
/s/ John W. Jackson    
John W. Jackson
Chairman of the Board and Chief Executive Officer

/s/ Robert Eastty    
Robert Eastty
Assistant Secretary
9
<PAGE>
STATE OF DELAWARE SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/11/1996
960069734 - 2088605

CELGENE CORPORATION
AMENDED
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE
PREFERRED STOCK

(Pursuant to Section 151 of the Delaware General Corporation Law)
We, John W. Jackson and Sanford Kaston, the Chairman of the Board and Chief Executive Officer and the Assistant Secretary, respectively, of Celgene Corporation, a Delaware corporation, in accordance with the provisions
of Section 103 of the Delaware General Corporation Law do hereby certify that:

1. The name of the corporation (hereinafter called the "Corporation") is CELGENE CORPORATION, a corporation duly organized and existing under the Laws of the State Of Delaware.

2. The Certificate of Incorporation (as amended) authorizes the issuance of 5,000,000 shares of Preferred Stock of a par value of $.01 each and expressly vests in the Board of Directors of the Corporation the authority provided therein to issue any or all of said shares in one or more series and by resolution or resolutions to establish the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative, participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued.

3. A Certificate of Designation setting forth the rights and privileges with respect to the Series A Convertible Preferred Stock, $.01 par value per share, of the Corporation and designating Four Hundred Twenty (420) of the 5 Million (5,000,000) authorized shares of Preferred Stock as Series A Convertible Preferred Stock, $.01 par value per share, was filed with the Secretary of State of the State of Delaware on March 6, 1996. This Amended and Restated Certificate of Designation amends and restates the Certificate of Designation that was filed on March 6, 1996.

4. The following is a true and correct copy of certain resolutions duly adopted by the Board of Directors of the Corporation on Match 11, 1996, which constituted all necessary action on the part of the Company for adoption of such resolutions.
1





<PAGE>
RESOLVED, that Five Hundred and Twenty (520) of the 5 Million (5,000,000) authorized shares of Preferred Stock of the Corporation shall be designated Series A Convertible Preferred Stock, $.01 par value per share, and shall possess the rights and privileges set forth below:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Convertible Preferred Stock" (the "Series A Convertible Preferred Stock") and the number of shares constituting the Series A Convertible Preferred Stock (the "Shares") shall be 520; such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of Shares to a number less than the number of shares then outstanding.
Section 2. RANK. The Series A Convertible Preferred Stock shall rank: (i) prior to all of the Corporation's Common Stock, par value $.01 per share ("Common Stock"); (ii) prior to any Class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to the Series A Convertible Preferred Stock (collectively, with the Common Stock, "Junior Securities"); (iii) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series A Convertible Preferred Stock ("Parity Securities") and (iv) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms senior to the Series A Convertible Preferred Stock ("Senior Securities"); in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (all such distributions being referred to collectively as "Distributions");
Section 3. DIVIDENDS. The Series A Convertible Preferred Stock will bear no dividends, and the holders of the Series A Convertible Preferred Stock shall not be entitled to receive dividends on the Series A Convertible Preferred Stock.
Section 4. LIQUIDATION PREFERENCE.

(a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary ("an Event"), the holders of Shares shall be entitled to receive, immediately after any distributions to Senior Securities and prior and in preference to any distribution to Junior Securities but in parity with any distribution to Parity Securities, an amount per share equal to the sum of (i) $50,000 for each outstanding Share (the "Original Series A Issue Price") and (ii) an amount equal to 4.9% of the Original Series A Issue Price per annum for the period that has passed since the date of issuance of any Series A Convertible Preferred Stock (such amount being referred to herein as the "Accretion"). If upon the occurrence of such Event, the assets and funds thus distributed among the holders of the Series A Convertible Preferred Stock and Parity Securities shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series A Convertible Preferred Stock and the Parity Securities, respectively, then the entire assets and funds of the Corporation
2
<PAGE>
legally available for distribution shall be distributed among the holders of the Series A Convertible Preferred Stock and the Parity Securities, pro rata, based on the respective liquidation amounts to which each such series of stock is entitled by the Corporation's Certificate of Incorporation and any Certificate(s) of Designation.
(b) Upon the completion of the distribution required by subsection 4(a), if assets remain in this Corporation, they shall be distributed to holders of Junior Securities in accordance with the Corporation's Certificate of Incorporation including any duly adopted Certificate(s) of Designation.
(c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 4, but shall instead be treated pursuant to Section 5(f)(ii) hereof.
Section 5. CONVERSION.





The record Holders of this Series A Convertible Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert: The record holder of the Series A Convertible Preferred Stock shall be entitled, as set forth below, and, subject to the Company's right of redemption set forth in Section 6 and the restrictions on conversion set forth in Section 5(b) below, to convert the Shares held by such holder into that number of fully-paid and nonassessable shares of the Common Stock at the Conversion Rate as set forth below. The minimum number of Shares that may be converted is the lesser of (i) Two Shares or (ii) all of the Holder's remaining Shares. The rate at which Shares may be converted into shares of Common Stock is hereinafter referred to as the "Conversion Rate" and is computed as follows:
Number of shares of Common Stock issued upon conversion of one share of Preferred Stock = Principal Conversion Rate + Accretion Conversion Rate, where
Issue Price
"Principal Conversion Rate" =     ------------------------------------------------
Conversion Price
(.049)(N/365)(Issue Price)
and "Accretion Conversion Rate =      ----------------------------------------------------------
Accretion Conversion Price
where
3
<PAGE>
N = the number of days between (i) the date that, in connection with the consummation of the initial purchase of the Preferred Stock from the Company, the escrow agent first had in its possession funds representing full payment for the Preferred Stock for which conversion is being elected, and (ii) the Date of Conversion;
Issue Price = the Original Series A Issue Price, as defined in Section 4(a);
Accretion Conversion Price equals the average Closing Price for the Common Stock as that term is defined below, for the 30 calendar days prior to the Date of Conversion; and
Conversion Price = the lesser of (x) $18.81 (the "Fixed Conversion Price") (which equals 110% of $17.1, which is the average closing price for the seven (7) trading days ending on February 29, 1996), or (y) 90% of the average Closing Price, as that term is defined below, of the Company's Common Stock for the seven (7) trading days immediately preceding the Date of Conversion. For purposes hereof, the term "Closing Price" shall mean the closing price of the Company's Common Stock as reported by NASDAQ (or, if not reported by NASDAQ, as reported by such other exchange or market where traded).

(b)    Restrictions on Conversion. No shares of Series A Convertible Preferred Stock may be converted prior to 60 days after the Last Closing (as defined in the Subscription Agreement). Thereafter, (subject to the effectiveness of the S-3 Registration Statement as defined in the Subscription Agreement) each Holder of Series A Convertible Preferred Stock may convert one-third of his shares of Series A Convertible Preferred Stock on or after the 60th day after the Last Closing, an additional one-third on or after the 90th day after the Last Closing, and an additional remaining Series A Convertible Preferred Stock on or after the 120th day after the Last Closing.

(c)    Mechanics of Conversion. In order to convert Series A Convertible Preferred Stock into shares of Common Stock, the holder shall (i) fax a copy of the fully executed notice of conversion in the form attached hereto ("Notice of Conversion") to the Company at the office of the Company and to American Stock Transfer & Trust Company (the "Exchange Agent") that he elects to convert the same, which notice shall specify the number of shares of Series A Convertible Preferred Stock to be converted and shall contain a calculation of the Conversion Rate (together with a copy of the first page of each certificate to be converted) prior to Midnight, New York City time (the "Conversion Notice Deadline") on the Date of Conversion specified on the Notice of Conversion and (ii) surrender the original certificate or certificates therefor, duly endorsed, and the original Notice of Conversion, no later than Midnight (New York City Time) the next business day, to a common courier for overnight delivery or (if overseas) 2-day delivery to the Exchange Agent. The Company shall not be obligated to issue certificates evidencing the shares
4
<PAGE>





of Common Stock issuable upon such conversion unless either the certificates evidencing such Series A Convertible Preferred Stock are delivered to the Exchange Agent as provided above, or the Holder notifies the Exchange Agent that such certificates have been lost, stolen or destroyed and such Holder provides such indemnity as is reasonably acceptable to the Company with respect to such lost, stolen or destroyed certificate. In the case of a dispute as to the calculation of the Conversion Rate, the Company's calculation shall be deemed conclusive absent manifest error. No fractional shares of Common Stock shall be issued upon conversion of this Series A Convertible Preferred Stock. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall round up to the nearest whole share.
The Company shall issue and deliver or cause to be issued and delivered within three (3) business days after delivery to the Exchange Agent of such certificates, or after the holder has furnished such indemnity such holder of Series A Convertible Preferred Stock at the address of the Holder on the books of the Company, a certificate or certificates for the number of shares of Common Stock to which the Holder shall be entitled as provided in Section 5(a) above. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in such Notice of Conversion, provided (i) that the advance copy of the Notice of Conversion is faxed to the Company and the Exchange Agent before midnight, New York City time, on the Date of Conversion and (ii) that the stock certificates (the "Preferred Stock Certificates") representing the Series A Convertible Preferred Stock to be converted are received by the Exchange Agent within five (5) business days thereafter. The person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. If the original Series A Convertible Preferred Stock Certificates to be converted are not received by the Exchange Agent or the Company within five (5) business days after the Date of Conversion, the Company may, at its option, treat the Notice of Conversion as null and void.
    
(d) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series A Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series A Convertible Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Convertible Preferred Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(e) Automatic Conversion. Each share of Series A Convertible Preferred Stock outstanding two years from the Date of the Last Closing automatically shall be converted into Common Stock on such date at the Conversion Price then in effect and two years
5
<PAGE>
from the Date of the Last Closing shall be deemed the Date of Conversion with respect to such Shares then outstanding provided that, if such date is not a business day, the next following business day shall be the operative date.

(f)    Adjustment to Fixed Conversion Price.
In computing the Fixed Conversion Price for purposes of Section 5(a):

(i) If, prior to the conversion of all of the Series A Convertible Preferred Stock, the number of outstanding shares of Common Stock is adjusted by a stock split stock dividend, or other similar event, the Fixed Conversion Price shall be proportionately adjusted.

(ii) If, prior to the conversion of all Series A Convertible Preferred Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity, than the Holders of Series A Convertible Preferred Stock shall thereafter have the right to purchase and receive upon conversion of Series A Convertible Preferred Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such shares of stock and/or securities as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore purchasable and receivable upon the conversion of Series A Convertible Preferred





Stock held by such Holders had the Holders converted their Series A Preferred to Common immediately prior to such merger, consolidation, exchange of shares, recapitalization or reorganization, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holders of the Series A Convertible Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Fixed Conversion Price and of the number of shares issuable upon conversion of the Series A Convertible Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter be deliverable upon the conversion of Series A Convertible Preferred Stock. The Company shall not effect any transaction described in this subsection 5(f) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Holders of the Series A Convertible Preferred Stock such shares of stock and/or securities as, in accordance with the foregoing provisions, the Holders of the Series A Convertible Preferred Stock may be entitled to purchase.

(iii) If any adjustment under this Section 5(f) would create a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share (on an aggregate basis) shall be disregarded and the number of shares of Common Stock issuable upon conversion shall be rounded to the next higher number of shares.
6
<PAGE>
Section 6. REDEMPTION BY COMPANY; LOCK UP.
(a) Company's Right to Redeem or Lock Up Conversion in the Event of Conversion.
(i) REDEMPTION UPON RECEIPT OF NOTICE OF CONVERSION. In the event the average Closing Price of the Company's Common Stock on the NASDAQ for the seven (7) trading days immediately preceding the Date of Conversion shall be at or less than the Fixed Conversion Price, the Company shall have the right, in its sole discretion, upon receipt of a Notice Conversion pursuant to Section 5, to redeem in whole or in part any Series A Convertible Preferred Stock submitted for conversion, immediately prior to conversion. If the Company elects to redeem some, but not all, of the Series A Convertible Preferred Stock submitted for conversion, the Company shall redeem from among the Series A Convertible
Preferred Stock submitted by the various shareholders for conversion on the applicable date, a pro-rata amount from each shareholder so submitting Series A Convertible Preferred stock for conversion.
In the case of a redemption under this Section 6(a)(i), the redemption
price shall equal the sum of the Principal Redemption Price plus the Accretion, where:
Principal Redemption Price =
Issue Price X Closing Price On Date of Conversion
-----------------------------------------------------------------
Conversion Price
In the event of redemption, the Accretion is payable, at the Company's option, in cash or Common Stock. If the Accretion is paid in Common Stock, the number of shares for such payment shall be calculated in accordance with the following formula:
Accretion
---------------------------------------
Accretion Conversion Price
where "N," "Issue Price," "Closing Price", "Accretion Conversion Price" and "Conversion Price" have the meanings set forth in Section 5, and "Accretion" has the meaning set forth in Section 4.
(ii) REDEMPTION OR LOCKUP BELOW SOFT FLOOR PRICE. In the event the Closing Price per share shall be at or less than $ll.50 (the "Soft Floor Price"), for each of the five (5) trading days preceding the date of submission of a Notice of Conversion by a Holder, the Company shall have the right, in its sole discretion, upon receipt of such Notice of Conversion pursuant to Section 5, to elect, in lieu of conversion, either (A) or (B), as follows:






A. The Company may elect to declare such conversion null and

7
<PAGE>
void, and declare that no conversion of any Preferred Stock that is included in the Notice of Conversion (the "Affected Preferred Stock") shall be permitted for the subsequent ninety (90) day period (the "90 Day Lock Up Period"). In the event the Company declares a 90 Day Lock Up Period, the Company shall issue within 10 business days, to the Holder of the Affected Preferred Stock warrants ("90 Day Lock Up Warrants"), to purchase Common Stock of the Company, as follows:
TERMS OF 90 DAY LOCK UP WARRANT
- the 90 Day Lock Up Warrant shall entitle the holder to purchase a number of shares of common stock equal to 10% of the number of shares of Common Stock that would have been issued upon conversion of the Affected Preferred Stock at the Soft Floor Price.
- the strike price of the 90 Day Lock Up Warrant shall equal the Soft Floor Price.
- the term of the 90 Day Lock Up Warrant shall be two (2) years.

The Company may, in its discretion, offer ("180 Day Lock Up Offer") to provide another warrant ("180 Day Lock Up Warrant"), in addition to the 90 Day Lock Up Warrant, to purchase Common Stock of the Company, to the Holder of Affected Preferred Stock in exchange for such Holder's agreement to forebear from converting its Affected Preferred Stock for an additional 90 days beyond the 90 Day Lockup Period (a "180 Day Lockup Period"). The Holder, in its discretion, may accept or reject the 180 Day Lock Up Offer. The Company shall issue to the Holder, within 10 business days of Holder's written acceptance of a 180 Day Lock Up Offer, a 180 Day Lock Up Warrant, the terms of which shall be equivalent to the terms of a 90 Day Lock Up Warrant.
After any 90 Day Lock Up Period or 180 Day Lock Up Period (as applicable), the Investor shall again be entitled to convert the Affected Preferred Stock pursuant to the terms of Section 5 above, without any further lock up restrictions.

B. Redeem such Affected Preferred Stock pursuant to Section 6(a)(i).


8
<PAGE>
(iii) MECHANICS OF REDEMPTION OR LOCK UP. Any shareholder considering submitting Preferred Stock for conversion at such time as the Company's right of redemption under Section 6(a)(i) or lock up under Section 6(a)(ii) is or may be in effect may provide notice to the Company by facsimile, of his possible desire to convert a specified number of Shares, and ask the Company to determine whether or not the Company would exercise its right of redemption or lock up if the Shares were submitted for conversion. The Company shall respond within, two (2) business days of the date of receipt of that notice, and state whether it would redeem or lock up the Shares, in whole or in part, or allow conversion into Common Stock without redemption or lock up, which election will be applicable to conversion by such shareholder of the number of Shares specified in his notice within the next five business days after the date of the Company's response. Failure of the Company to respond within the two (2) business day period shall be deemed an election by the Company not to redeem or lock up the Shares covered by that notice if submitted for conversion within the next five business days. If the holder does not provide advance notice of intention to convert as contemplated in this section (iii), the Company may effect redemption or lock up of Shares submitted for conversion by giving notice of its election to redeem or lock up, by facsimile within 2 business days following receipt of a Notice of Conversion from a Holder, with a copy by overnight or 2-day courier, to (A) the Holder of Series A Convertible Preferred Stock submitted for conversion at the address and facsimile number of such Holder appearing in the Company's register for the Series A Convertible Preferred Stock and (B) the Exchange Agent. Such





notice shall indicate whether the Company will redeem or lock up all or part of the Series A Convertible Preferred Stock submitted for conversion.
The Company shall not be entitled to exercise its right to redeem shares submitted for conversion under this Section 6(a) unless it has (x) the full amount of the redemption price, in cash, available in a demand or other immediately available account in a bank or similar financial institution or (y) immediately available credit facilities, in the full amount of the redemption price, with a bank or similar financial institution on the date the redemption notice is sent to Holders.
(b) Company's Right to Call Redemption if the Price of the Company's Common Stock Is Greater Than the Fixed Strike Price. The Company shall have the right to redeem the Series A Convertible Preferred Stock on the following terms and conditions:
(i) at any time after nine (9) months following the Last Closing Date, if the average closing price of the Company's Common Stock for the seven (7) trading days immediately preceding the Notice Date (as defined below) is greater than the Fixed Conversion Price, the Company may, in its discretion, give written notice that it intends, at least thirty (30} but no more than forty five (45) business days from the date of such notice ("Notice Date") to redeem the Series A Convertible Preferred Stock at the redemption price listed in 6(b)(iii) below. The Company may elect to
9
<PAGE>
redeem some, but not all, of the Series A Convertible Preferred Stock, but in no event less than $1,500,000 per redemption. If the Company elects to redeem some, but not all, of the Series A Convertible Preferred Stock, the Company shall redeem a pro-rata amount from among all the Series A Convertible Preferred Stock holders. The holders of the Preferred Stock shall have the right to convert their Preferred Stock until the redemption date.
(ii) Mechanics of Redemption. The Company shall effect each such redemption by giving notice of its election to redeem, by facsimile with a copy by overnight or 2-day courier, no less than 30 business days prior to the intended redemption date. Such redemption notice shall indicate whether the Company will redeem all or part of the Series A Convertible Preferred Stock, the effective date of the redemption and the applicable redemption price. The Company shall not be entitled to send any notice of redemption and begin the redemption procedure unless it has (x) the full amount of the redemption price, in cash, available in a demand or other immediately available account in a bank or similar financial institution or (y) immediately available credit facilities, in the full amount of the redemption price, with a bank or similar financial institution on the date the redemption notice is sent to shareholders. If the Company has met the requirements of the preceding sentence, and a Holder has not submitted his Series A Convertible Preferred Stock for redemption as required by this Section 6(c) by the redemption date, the Company may pay the redemption price described in (iii) below and cancel the Series A Convertible Preferred Stock subject to the redemption notice, and such redeemed Series A Convertible Preferred Stock shall be of no further validity, force or effect.
(iii) Redemption Price. In the case of a redemption under this Section 6(b), the redemption price per share of Series A Convertible Preferred Stock shall be as follows:
Closing          Redemption Price          Elapsed Time Since Last
months        130% of Stated Value    9 months and 1 day - 12
months        125% of Stated Value    12 months and 1 day - 18
months        120% of Stated Value    18 months and 1 day - 24
For purposes of this paragraph, the "Stated Value" shall equal the Original Series A Issue Price plus the Accretion (calculated as of the effective date of such redemption).


10






<PAGE>
(c) Payment of Redemption Price. The redemption price for redemptions under either Section 6(a) or 6(b) above shall be paid to the Holder of Series A Convertible Preferred Stock redeemed within 5 business days after the redemption; provided, however, that the Company shall not be obligated to deliver any portion of such redemption price unless either the certificates evidencing the Series A Convertible Preferred Stock redeemed are delivered to the Exchange Agent, or the Holder notifies the Company or the Exchange Agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates.
Section 7. VOTING RIGHTS. The holders of the Series A Convertible Preferred Stock have no voting rights except as required by the General Corporation Law of the State of Delaware.
Section 8. PROTECTIVE PROVISION. So long as shares of Series A Preferred Stock are outstanding, the Company shall not alter or change the rights, preferences or privileges of the shares of Series A Convertible Preferred Stock in a manner not contemplated hereby so as to affect adversely the Series A Convertible Preferred Stock.
Section 9. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any shares of Series A Convertible Preferred Stock shall be redeemed or converted pursuant to Section 5 or Section 6 hereof, the shares so converted or redeemed shall be canceled, shall return to the status of authorized but unissued Preferred Stock of no designated series, and shall not be issuable by the Corporation as Series A Convertible Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Series A Convertible Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the Certificate of Incorporation of the Corporation pursuant to the provisions of the General Corporation Law of the State of Delaware.
FURTHER RESOLVED, that the officers of the Corporation be, and each acting individually hereby is, authorized and directed to take all actions necessary and advisable to effect the purpose and intent of the foregoing resolutions.
11
<PAGE>
IN WITNESS WHEREOF, Celgene Corporation has caused this certificate to be signed by John W. Jackson, its Chairman of the Board and Chief Executive Officer, and attested by Sanford Kaston, its Assistant Secretary, this llth day of March, 1996.
CELGENE CORPORATION
By /s/ John W. Jackson    
John W. Jackson
Chairman of the Board
and Chief Executive Officer
By /s/ Sanford Kaston    
Sanford Kaston
Assistant Secretary
Each of the undersigned, the Chairman of the Board and Chief Executive Officer and Assistant Secretary, respectively, of Celgene Corporation, a Delaware corporation, declares under penalty of perjury that the matters set forth in this certificate are true and correct of his own knowledge.

Executed at Warren, New Jersey on March 11, 1996.
/s/ John W. Jackson    
John W. Jackson





Chairman of the Board and Chief Executive Officer
/s/ Sanford Kaston    
Sanford Kaston
Assistant Secretary
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/09/1997
971187375 - 2088605
CELGENE CORPORATION
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE
PREFERRED STOCK

(Pursuant to Section 151 of the Delaware General Corporation Law)
We, Sol J. Barer and Robert C. Butler, the President and the Secretary, respectively, of Celgene Corporation, a Delaware corporation, in accordance with the provisions of Section 103 of the Delaware General Corporation Law do hereby certify that:

1. The name of the corporation (hereinafter called the "Company") is CELGENE CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware.
2. The Certificate of Incorporation (as amended) authorizes the issuance of 5,000,000 shares of Preferred Stock of a par value of $.01 each and expressly vests in the Board of Directors of the Company the authority provided therein to issue any or all of said shares in one or more series and by resolution to establish the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative, participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued.
3. The following is a true and correct copy of certain resolutions duly adopted by the Board of Directors of the Company on May 30, 1997, which constituted all necessary action on the part of the Company for adoption of such resolutions.
RESOLVED, that a series of Preferred Stock, par value $.01 per share, of the Company is hereby created and the designation, number of shares, powers, preferences, rights, qualifications, limitations, and restrictions thereof (in addition to any provisions set forth in the Certificate of Incorporation of the Company which are applicable to the preferred stock of all classes and series) are as follows:
<PAGE>
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series B Convertible Preferred Stock" (the "Series B Convertible Preferred Stock") and the number of shares constituting the Series B Convertible Preferred Stock (the "Shares") shall be Twenty Thousand (20,000); such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of Shares to a number less than the number of shares then outstanding.
SECTION 2. RANK. All Series B Convertible Preferred Stock shall rank (i) senior to the Common Stock, par value $.01 per share (the "Common Stock"), of the Company, now or hereafter issued, as to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, and (ii) senior to the Series A Convertible Preferred Stock, par value $.01 per share, of the Company, now or hereafter issued, both as





to payment of dividends and distributions of assets upon liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary.
SECTION 3. DIVIDENDS. Each Series B Convertible Preferred Stock will bear dividends, when, as and if declared by the Board of Directors at the higher of (i) a rate of 9% of the Original Series B Issue Price (as defined in Section 4(a) below) per annum, compounded quarterly, or (ii) the total of all cash dividends paid in any one calendar year per share of Common Stock, multiplied by the number of Conversion Shares into which a share of Series B Convertible Preferred Stock is convertible on December 31 of such calendar year. Dividends on the Series B Convertible Preferred Stock shall accrue cumulatively, whether or not declared, and shall be added to the Liquidation Preference as hereinafter provided.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or the sale of substantially all of the assets of the Company (an "Event"), the holders of Shares shall be entitled to receive out of the assets of the Company, whether such assets constitute stated capital or surplus of any nature, an amount per share of Series B Convertible Preferred Stock equal to the sum of (i) $1,000 for each outstanding Share (the "Original Series B Issue Price") and (ii) an amount equal to the accrued but unpaid dividends on such Share (such amount being referred to herein as the "Accretion") (the Original Series B Issue Price and Accretion collectively, the "Liquidation Preference"), and no more, before any payment shall be made or any assets distributed to the holders of Common Stock or any other class or series of the Company's capital stock ranking junior as to liquidation rights to the Series B Convertible Preferred Stock (collectively, the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that such rights shall accrue to the holders of Series B Convertible Preferred Stock only in the event that the Company's payments with respect to the liquidation preference of the holders of capital stock of the Company ranking senior as to liquidation rights to the Series B Convertible Preferred Stock (the "Senior Liquidation Stock") are fully met. After the liquidation preferences of the Senior Liquidation Stock are fully met, the entire assets of the Company available for distribution shall be distributed ratably among the holders of the Series B Convertible Preferred Stock and any other class or series of the Company's
2
<PAGE>
capital stock having parity as to liquidation rights with the Series B Convertible Preferred Stock (the "Parity Liquidation Stock") in proportion to the respective preferential amounts to which each is entitled (but only to the extent of such preferential amounts). After payment in full of the Liquidation Preference of the shares of the Series B Convertible Preferred Stock and the Parity Liquidation Stock, if assets remain in the Company, they shall be distributed ratably to holders of Series B Convertible Preferred Stock (on an as-converted basis) and to holders of Junior Liquidation Stock in accordance with the Company's Certificate of Incorporation including any duly adopted Certificate(s) of Designation.
(b) Upon consummation of a consolidation, reorganization or merger (whether or not the Company is the surviving entity) in which the stockholders of the Company immediately prior to the consolidation, reorganization or merger do not continue to own more than 50% of the voting power of the surviving entity, the holder of Shares will be entitled to cash in the amount of the Liquidation Preference and the Shares will be automatically converted to the securities to which the holders of Shares would have been entitled had the Shares been converted immediately prior to the consummation of such consolidation, reorganization or merger.
SECTION 5. CONVERSION. Except as otherwise provided in Section 10, the recordholders of the Series B Convertible Preferred Stock shall have conversion rights as follows:
(a) RIGHT TO CONVERT. The record holder of the Series B Convertible Preferred Stock shall be entitled to convert the shares of Preferred Stock held by such holder into fully-paid and nonassessable shares of the Common Stock at the Conversion Rate, as follows:
Original Series B Issue Price + Accretion
Conversion Rate = --------------------------------------------------------------
Conversion Price
The Conversion Price shall equal $6.50 (the "Initial Conversion Price"); provided, however, that the Conversion Price may be reset on each Reset Date in accordance with the following two paragraphs.





A "Reset Date" shall mean one or more of the following dates, if on any such date(s) the average Closing Price (as defined below) for the ten (10) trading days ending on such Reset Date is lower than the Initial Conversion Price (or the Conversion Price as reset in accordance with this paragraph):
(i)
the dates of the Second Closing, Third Closing or Fourth Closing (all as defined in the Securities Purchase Agreement dated June 9, 1997 between the Company and certain investors);
(ii)
June 1, 1998; and
(iii)
July 9, 2002, with respect to the Shares of Preferred Stock that have not been redeemed pursuant to Section 6 below.
3
Upon the occurrence of a Reset Date, the Conversion Price shall thereafter equal the average Closing Price for the ten (10) trading days ending on such Reset Date(s); provided, however, that if the Conversion Price in effect on any Date of Conversion is lower than the Floor Price in effect on such Date of Conversion, then the Conversion Price shall equal the Floor Price for such Date of Conversion. For conversions occurring prior to June 2, 1998, the Floor Price shall be $6.00; for conversions occurring on a Date of Conversion on or after June 2, 1998 and prior to June 2, 1999, the Floor Price shall be $5.00; for conversions occurring on a Date of Conversion on or after June 2, 1999 and prior to June 9, 2002, the Floor Price shall be 55% of the Initial Conversion Price, For conversions occurring on a Conversion Date on or after June 9, 2002, there shall be no Floor Price.
In the event that the Company does not file a Registration Statement as required by Section 2.a. of the Registration Rights Agreement dated as of June 9, 1997, within the period therein specified, then the Conversion Price for all outstanding Series B Convertible Preferred Stock shall be reset to equal the average Closing Price for the ten trading days beginning on a date that is the first day after the date that the Securities and Exchange Commission declares effective such Registration Statement, if such average Closing Price is lower than the Conversion Price then in effect. The Conversion Price, as adjusted by this paragraph, shall remain subject to the Floor Price as set forth in the preceding paragraph.
"Closing Price" shall mean the closing price of the Company's Common Stock as reported by the Nasdaq National Market System (or, if not reported by Nasdaq, as reported by such other exchange or market where traded).
No fractional shares of Common Stock shall be issued upon conversion of this Series B Convertible Preferred Stock. In lieu of any fractional share of Common Stock to which the Investor would otherwise be entitled, the Company shall round up to the nearest whole share of Common Stock.
(b) MECHANICS OF CONVERSION. In order to convert Series B Convertible Preferred Stock into shares of Common Stock, the holder shall (i) fax a copy of the fully executed notice of conversion in the form attached hereto ("Notice of Conversion") (together with a copy of the first page of each certificate to be converted) to the Company at the office of the Company and to American Stock Transfer & Trust Company (the "Exchange Agent") that such holder elects to convert the same, which notice shall specify the number of shares of Series B Convertible Preferred Stock to be converted and shall contain a calculation of the Conversion Rate prior to Midnight, New York City time on the Date of Conversion specified on the Notice of Conversion and (ii) surrender the original certificate or certificates therefor, duly endorsed, and the original Notice of Conversion, no later than Midnight (New York City Time) the next business day, to a common courier for overnight delivery or 2-day delivery (if overseas) to the Exchange Agent.
The Company shall issue and deliver or cause to be issued and delivered within three (3) business days after delivery to the Exchange Agent of such certificates, to such holder of Series B Convertible Preferred Stock at the address of the Holder on the books of the Company, a
4
<PAGE>
certificate for the number of shares of Common Stock to which the Holder shall be entitled as provided in Section 5(a) above. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in such Notice of Conversion, provided (i) that the advance copy of the Notice of Conversion is faxed to the Company and the Exchange Agent before midnight, New York City time, on the Date of Conversion and (ii) that the stock certificates (the "Preferred Stock Certificates") representing the Series B Convertible Preferred Stock to be converted (or reasonable indemnity reasonably acceptable to the Company with respect to any lost, stolen or destroyed certificate) are received by the Exchange Agent within five (5) business days thereafter. The person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. If





the original Series B Convertible Preferred Stock Certificates to be converted (or reasonable indemnity) are not received by the Exchange Agent or the Company within five (5) business days after the Date of Conversion, the Company may, at its option, treat the Notice of Conversion as null and void.
            
(c) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series B Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series B Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series B Convertible Preferred Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
            
(d) AUTOMATIC CONVERSION. Each outstanding share of Series B Convertible Preferred Stock (other than an Excess Share, as defined in Section 10) shall automatically be converted (the "Automatic Conversion") into Common Stock on the later of (a) June 2, 1998 or (b) the date on which the Company receives a letter from the United States Food & Drug Administration granting accelerated approval of the Company's New Drug Application to market Synovir for the AIDS/cachexia indication, at the Conversion Price in effect on the date of such automatic conversion; PROVIDED, HOWEVER, that Automatic Conversion shall not occur prior to June 2, 1999 unless the average Closing Price for the 15 trading days prior to the date of automatic conversion is equal to or above the Floor Price then in effect. Notwithstanding any of the above, but subject to Section 10 below (i) any shares of Series B Convertible Preferred Stock outstanding on June 2, 1999 shall be automatically converted into Common Stock on any date on or after June 2, 1999 on which the average Closing Price for the 15 preceding trading days is greater than 200% of the Conversion Price then in effect, at the Conversion Price in effect on the date of such automatic conversion, and (ii) no shares of Series B Convertible Preferred Stock shall convert pursuant to this Section 5(d) if, on the date conversion would otherwise occur pursuant to this Section 5(d), the Common Stock is not listed for quotation and trading on the Nasdaq National Market; provided, however, that such conversion shall occur pursuant to this Section 5(d) on such date thereafter, if any, as the Common Stock shall become listed for quotation and trading on the Nasdaq National Market.
5
<PAGE>
(e) ADJUSTMENT TO CONVERSION PRICE. In computing the Conversion Price for purposes of Section 5(a):

(i) If, prior to the conversion of all of the Series B Convertible Preferred Stock, the number of outstanding shares of Common Stock is adjusted by a stock split, stock dividend, or other similar event, the Conversion Price shall be proportionately adjusted.

(ii) If, prior to the conversion of all Series B Convertible Preferred Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity, then the holders of Series B Convertible Preferred Stock shall thereafter have the right to purchase and receive upon conversion of Series B Convertible Preferred Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such shares of stock and/or securities as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore purchasable and receivable upon the conversion of Series B Convertible Preferred Stock held by such Holders had the Holders converted their Series B Preferred to Common immediately prior to such merger, consolidation, exchange of shares, recapitalization or reorganization, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holders of the Series B Convertible Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Series B Convertible Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the conversion of Series B Convertible Preferred Stock. The Company shall not effect any transaction described in this subsection 5(e) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Holders of the Series B Convertible Preferred Stock such shares of stock and/or securities as, in accordance with the foregoing provisions, the Holders of the Series B Convertible Preferred Stock may be entitled to purchase.





SECTION 6. REDEMPTION. At the option of the Company, any Shares of Preferred Stock outstanding on June 9, 2002 may be redeemed on that date by the Company at a redemption price equal to (i) the Original Series B Issue Price, and (ii) the Accretion. Notice of redemption shall be given not more than 60 nor less than 30 days prior June 9, 2002. The number of Shares from each holder that are to be redeemed shall be in the same proportion as the total number of Shares to be redeemed bears to the total number of Shares then outstanding.
SECTION 7. VOTING RIGHTS.
(a) Except as otherwise provided in Section 10 below, each share of Series B Convertible Preferred Stock issued and outstanding shall have the number of votes equal to the number of shares of Common Stock into which it shall have been convertible as of the record date
6
<PAGE>
of the stockholders' meeting at which action is proposed to be taken or for any stockholder action to be taken by written consent. Except as otherwise provided in this Section 7 or as otherwise required by law, the holders of Series B Preferred Stock and the holders of Common Stock shall vote together as one class upon all matters submitted to stockholders for a vote.

(b) Except as otherwise provided in Section 10 below, until such time after December 10, 1998 as there are outstanding shares of Series B Preferred Stock having an aggregate Original Series B Issue Price of less than $2,000,000:
(i) The holders representing 75% or more of the outstanding shares of Series B Preferred Stock (other than those which are subject to Section 10(c)(ii) below), voting as a single class, will be required: (a) to authorize the incurrence of indebtedness (except for trade payables, lease financing and other indebtedness incurred in the ordinary course of business), (b) to authorize the issuance of securities having a preference over, or on a parity with, the Series B Convertible Preferred or to increase the number of authorized shares of Series B Preferred, (c) to reclassify any Common Stock or other securities of the Company into shares or debt (except for trade payables, lease financing and other indebtedness incurred in the ordinary course of business) having a preference or priority superior to or on parity with the Series B Convertible Preferred Stock, or (d) alter or change the rights, preferences or privileges in its shares of Series B Convertible Preferred or otherwise amend the Certificate of Incorporation of the Company in either case whether by merger, consolidation or otherwise so as to adversely affect such shares.
(ii) The holders representing a majority of the outstanding shares of Series B Preferred Stock (other than those which are subject to Section 10(c)(ii) below), voting as a single class, will be required: (a) to effect a sale or transfer of all or substantially all of the Company's assets or to effect a merger which results in the holders of the Company's capital stock prior to the transaction owning less than 50% of the voting power of the Company's capital stock after the transaction; (b) to declare any dividend or make any other distribution other than as contemplated herein; (c) to acquire for more than $5,000,000 in cash or Celgene securities, assets or stock in any other company; or (d) to enter into any corporate event that could be considered a "liquidation" or sale of the Company (except for bankruptcy).
SECTION 8. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any shares of Series B Convertible Preferred Stock shall be converted or redeemed pursuant to Section 5 or Section 6 hereof, the shares so converted or redeemed shall be canceled, shall return to the status of authorized but unissued Preferred Stock of no designated series, and shall not be issuable by the Company as Series B Convertible Preferred Stock.
SECTION 9. NO SINKING FUND. The shares of Series B Convertible Preferred Stock shall not be subject to the operation of a purchase, retirement or sinking fund.
SECTION 10. RESTRICTIONS ON CONVERSIONS AND VOTING RIGHTS. Notwithstanding anything set forth elsewhere herein, if at any time the percentage beneficial ownership of LGT Asset Management, Inc. ("LGT") (as determined in accordance with Regulation 13D-G under the Securities
7
<PAGE>





Exchange Act of 1934, as may be amended from time to time) of the total outstanding Common Stock of the Company (the "LGT Beneficial Ownership") exceeds 20% (the "Series B Percentage Restriction"), then the following provisions shall apply with respect to those shares of Series B Convertible Preferred Stock which are beneficially owned by LGT and which exceed the Series B Percentage Restriction (each, an "Excess Share"):

(a) No Excess Share shall (i) be convertible pursuant to Section 5(a) hereof or (ii) be automatically converted pursuant to the Automatic Conversion set forth in Section 5(d) HEREOF;

(b) No Excess Share shall be entitled to vote in an election for directors of the Company pursuant to the voting rights set forth in Section 7(a) HEREOF;
(c) Upon the occurrence of an Automatic Conversion under Section 5(d), (i) the Conversion Rate for each Excess Share shall be fixed at the Conversion Rate (subject to antidilution adjustments as provided for herein) (the "Fixed Rate") in effect on the date of such Automatic Conversion and thereafter such Excess Shares may be converted only, if at all, at such Fixed Rate, (ii) no Excess Share shall be entitled to the voting rights set forth in Section 7(b); and (iii) no Excess Share shall accrue dividends pursuant to Section 3 but shall retain all previously accrued dividends;

(d) Each Excess Share shall continue to accrue liquidation preference pursuant to Section 4 (whether or not there is an Automatic Conversion);

(e) Following the passage of any consecutive 75 calendar day period (the "75-Day Period") during which the LGT Beneficial Ownership is below and has continuously remained below the Series B Percentage Restriction (the "Shortfall"), that number of Excess Shares which is equal to the difference between the Series B Percentage Restriction and the Shortfall shall become convertible pursuant to Section 5(a) hereof and shall become entitled to the rights described in (a)(ii) and (b) above (each, a "Restored Share"); PROVIDED, HOWEVER, that, if an Automatic Conversion has occurred while a share of Series B Convertible Preferred Stock was an Excess Share (whether before or during the 75-day Period), then, upon expiration of the 75-Day Period, such Excess Share that becomes a Restored Share following the expiration of the 75-Day Period shall be automatically converted at the Conversion Rate in effect on the date of the Automatic Conversion;

(f) Other than as specifically set forth above, each Excess Share shall be entitled to, and be subject to all of the powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics set forth in this Certificate of Designation; and

(g) In calculating the Series B Percentage Restriction, all warrants issuable or issued to and held by the Series B Preferred holder pursuant to the Securities Purchase Agreement with the Company dated of even date herewith, and shares of Common Stock issuable pursuant to such warrants shall be excluded from the calculation of the LGT Beneficial Ownership.
8
<PAGE>
SECTION 11. PARTICIPATION RIGHTS. The holders of Series B Convertible Preferred Stock shall have the right to participate, as provided herein, in any private placement by the Company of Common Stock or Common Stock equivalents at a price per share below the then current trading price of Common Stock (a "Subsequent Placement"). Each such holder shall have the right to participate in such Subsequent Placement on a pro-rata basis, as provided herein. The Company shall, at least ten days prior to the closing of any such Subsequent Placement, deliver written notice to each such holder describing the proposed financing, the terms thereof, and any and all disclosure or similar materials provided to proposed investors in the Subsequent Placement. Each such holder shall have the right to purchase his pro-rata share of the securities to be issued in the Subsequent Placement on the terms thereof Each such holder's pro-rata share of any Subsequent Placement shall be computed as a fraction, the numerator of which shall be the number of shares of Common Stock into which the Series B Convertible Preferred Stock of such holder is then convertible, and the denominator of which shall be the sum of the number of shares of Common Stock or Common Stock equivalents to be outstanding upon completion of the Subsequent Placement plus the number of shares of Common Stock into which all outstanding Series B Convertible Preferred Stock is then convertible.
FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Sales B Convertible Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall,





upon the effective date of said series, be deemed to be included in and be a part of the Certificate of Incorporation of the Company pursuant to the provisions of the General Corporation Law of the State of Delaware.
FURTHER RESOLVED, that the officers of the Company be, and each acting individually hereby is, authorized and directed to take all actions necessary and advisable to effect the purpose and intent of the foregoing resolutions.
9
<PAGE>
IN WITNESS WHEREOF, Celgene Corporation has caused this certificate to be signed by Sol J. Barer, its President, and attested by Robert C. Butler, its Secretary, this 3rd day of June, 1997.
CELGENE CORPORATION
BY /s/ Sol J. Barer    
Sol J. Barer
President
Attest:
By /s/ Robert C. Butler    
Robert C. Butler
Secretary
Each of the undersigned, the President and the Secretary, respectively, of Celgene Corporation, a Delaware corporation, declares under penalty of perjury that the matters set forth in this certificate are true and correct of his own knowledge.
Executed at Warren, New Jersey on June 3, 1997.
/s/ Sol J. Barer    
Sol J. Barer President
/s/ Robert C. Butler    
Robert C. Butler Secretary
<PAGE>
SECRETARY OF STATES
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/15/1998
981275264 - 2088605

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CELGENE CORPORATION
(Under Section 242 of the General Corporation
Law of the State of Delaware)
CELGENE CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that:
FIRST: The name of the corporation is Celgene Corporation (the "Corporation").





SECOND: The Certificate of Incorporation, as heretofore amended (the "Certificate of Incorporation"), of the Corporation is hereby amended to increase the authorized number of shares of the Corporation's common stock, par value $0.01. from 20,000,000 to 30,000,000 by striking out the first sentence of Article FOURTH thereof and by substituting a lieu thereof the following new sentence:
FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is thirty-five million (35,000,000) of which five million (5,000,000) shares, having a par value of $.01 per share, shall be designated "Preferred Stock" and thirty-million (30,000,000) shares, having a par value of $.01 per share, shall be designated "Common Stock."
<PAGE>
THIRD: The foregoing amendment to the Certificate of Incorporation was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Celgene Corporation has caused this Certificate to be signed this 15th day of July, 1998.

CELGENE CORPORATION
By: /s/ John W. Jackson    
Name: John W. Jackson
Title: Chief Executive Officer
ATTEST:
/s/ Sol J. Barer    
Name: Sol J. Barer
Title: President
2
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 05:00 PM 04/11/2000
001187106 - 2088605
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF

CELGENE CORPORATION
Celgene Corporation, a Delaware corporation (the "Corporation"), does hereby certify as follows:





FIRST: At a duly held meeting, the Board of Directors adopted resolutions proposing and declaring it advisable that the Certificate of Incorporation of the Corporation be amended as follows:
(a)    By striking the first sentence of Article Fourth and substituting in
lieu thereof the following sentences:
"FOURTH. The aggregate number of shares which the Corporation shall have the authority to issue is 125,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated 'Preferred Stock' and 120,000,000 shares of the par value of $.01 per share shall be designated 'Common Stock.' Upon the filing in the office of the Secretary of State of Delaware of this Certificate of Amendment of the Certificate of Incorporation of the Corporation, each issued and outstanding share of Common Stock of the Corporation shall thereby and thereupon be subdivided into three shares of validly issued, fully paid, non-assessable and outstanding shares of Common Stock of the Corporation without any other action of the stockholders with respect thereto."
SECOND: The stockholders of the Corporation have duly adopted the foregoing amendment at a Special Meeting of the Stockholders duly called and held on April 10, 2000 in accordance with the provisions of Section 222 of the General Corporation Law of Delaware.
THIRD: Such amendment to the Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 222 and 242 of the General Corporation Law of Delaware.
FOURTH: This amendment to the Certificate of Incorporation shall be effective on and as of the date of filing of this Certificate of Amendment with the office of the Secretary of State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed in its name by its Chief Executive Officer and attested to by its Chief Financial Officer this 11th day of April, 2000 and the statements contained herein are affirmed as true under penalties of perjury.
CELGENE CORPORATION
By: /s/ John W. Jackson    
Name: John W. Jackson
Title: Chairman and Chief Executive Officer
ATTEST:
By: /s/ Robert J. Hugin    
Name: Robert J. Hugin
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
DELIVERED 03:59 PM 06/18/2004
FILED 03:32 PM 06/18/2004
SRV 040452550 - 2088605 FILE






CERTIFICATE OF AMENDMENT

OF

THE CERTIFICATE OF INCORPORATION

OF

CELGENE CORPORATION
Celgene Corporation, a Delaware corporation (the "Corporation"), does hereby certify as follows:
FIRST: At a duly held meeting, the Board of Directors adopted resolutions proposing and declaring it advisable that the Certificate of Incorporation of the Corporation be amended as follows:
(a)    By striking the first sentence of Article Fourth and substituting in
lieu thereof the following sentence:
"FOURTH. The aggregate number of shares which the Corporation shall have the authority to issue is 280,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated 'Preferred Stock' and 275,000,000 shares of the par value of $.01 per share shall be designated 'Common Stock.'"
SECOND: The stockholders of the Corporation have duly adopted the foregoing amendment at the Annual Meeting of the Stockholders duly called and held on June 15, 2004 in accordance with the provisions of Section 222 of the General Corporation Law of Delaware.
THIRD: Such amendment to the Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 222 and 242 of the General Corporation Law of Delaware.
FOURTH: This amendment to the Certificate of Incorporation shall be effective on and as of the date of filing of this Certificate of Amendment with the office of the Secretary of State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed in its name by its Chief Executive Officer and attested to by its Chief Financial Officer this 18th day of June, 2004 and the statements contained herein are affirmed as true under penalties of perjury.
CELGENE CORPORATION
By: /s/ John W. Jackson    
Name: John W. Jackson
Title: Chairman and Chief Executive Officer
ATTEST:
By: /s/ Robert J. Hugin    
Name: Robert J. Hugin
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS





DELIVERED 11:36 AM 10/22/2004
FILED 11:36 AM 10/22/2004
SRV 040763222 - 2088605 FILE



CERTIFICATE OF AMENDMENT

OF

THE CERTIFICATE OF INCORPORATION

OF

CELGENE CORPORATION
Celgene Corporation, a Delaware corporation (the "Corporation"), does hereby certify as follows:
FIRST: At a duly held meeting, the Board of Directors adopted resolutions proposing and declaring it advisable that the Certificate of Incorporation of the Corporation be amended as follows:
(a)    By striking the first sentence of Article Fourth and substituting in
lieu thereof the following sentences:
"FOURTH. The aggregate number of shares which the Corporation shall have the authority to issue is 280,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated 'Preferred Stock' and 275,000,000 shares of the par value of $.01 per share shall be designated 'Common Stock.' Upon the filing in the office of the Secretary of State of Delaware of this Certificate of Amendment of the Certificate of Incorporation of the Corporation, each issued and outstanding share of Common Stock of the Corporation shall thereby and thereupon be subdivided into two shares of validly issued, fully paid, non-assessable and outstanding shares of Common Stock of the Corporation without any other action of the stockholders with respect thereto."
SECOND: The stockholders of the Corporation have duly adopted the foregoing amendment at the Annual Meeting of the Stockholders duly called and held on June 15, 2004 in accordance with the provisions of Section 222 of the General Corporation Law of Delaware.
THIRD: Such amendment to the Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 222 and 242 of the General Corporation Law of Delaware.
FOURTH: This amendment to the Certificate of Incorporation shall be effective on and as of the date of filing of this Certificate of Amendment with the office of the Secretary of State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed in its name by its Chief Executive Officer and attested to by its Chief Financial Officer this 22nd day of October, 2004 and the statements contained herein are affirmed as true under penalties of perjury.
CELGENE CORPORATION
By: /s/ John W. Jackson    
Name: John W. Jackson
Title: Chairman and





Chief Executive Officer
ATTEST:
By: /s/ Robert J. Hugin    
Name: Robert J. Hugin
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
DELIVERED 03:06 PM 02/16/2006
FILED 03:05 PM 02/16/2006
SRV 060148262 - 2088605 FILE





CERTIFICATE OF AMENDMENT

OF

THE CERTIFICATE OF INCORPORATION

OF

CELGENE CORPORATION
Celgene Corporation, a Delaware corporation (the "Corporation"), does hereby certify as follows:
FIRST: At a duly held meeting, the Board of Directors adopted resolutions proposing and declaring it advisable that the Certificate of Incorporation of the Corporation be amended as follows:
(a)    By striking the first two sentences of Article FOURTH and
substituting in lieu thereof the following sentence:
"FOURTH. The aggregate number of shares which the Corporation shall have the authority to issue is 580,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated 'Preferred Stock' and 575,000,000 shares of the par value of $.01 per share shall be designated 'Common Stock.'"
SECOND: The stockholders of the Corporation have duly adopted the foregoing amendment at the Special Meeting of the Stockholders duly called and held on February 16, 2006 in accordance with the provisions of Section 222 of the General Corporation Law of Delaware.

THIRD: Such amendment to the Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 222 and 242 of the General Corporation Law of Delaware.
FOURTH: This amendment to the Certificate of Incorporation shall be effective on and as of the date of filing of this Certificate of Amendment with the office of the Secretary of State of Delaware.
<PAGE>





IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed in its name by its Chief Financial Officer this 16th day of February, 2006 and the statements contained herein are affirmed as true under penalties of perjury.
CELGENE CORPORATION


By: /s/ Robert J. Hugin    
Name: Robert J. Hugin
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
DELIVERED 01:56 PM 06/18/2014
FILED 01:52 PM 06/18/2014
SRV 140852970 - 2088605 FILE



CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
CELGENE CORPORATION
Dated as of June 18, 2014
Celgene Corporation, a Delaware corporation (the “Corporation”), does hereby certify as follows:
FIRST: At a duly held meeting, the Board of Directors adopted resolutions proposing and declaring it advisable that the Certificate of Incorporation of the Corporation be amended by striking the first sentence of Article FOURTH of the Certificate of Incorporation of the Corporation and replacing it in its entirety with the following three sentences:
“FOURTH: The aggregate number of shares that the Corporation shall have the authority to issue is 1,155,000,000, of which 5,000,000 shares of the par value of $.01 per share shall be designated ‘Preferred Stock’ and 1,150,000,000 shares of the par value of $.01 per share shall be designated ‘Common Stock.’ Effective upon the filing of this amendment to the Certificate of Incorporation of the Corporation with the Secretary of State of Delaware (the “Effective Time”), every one outstanding share of Common Stock shall be split into two fully





paid and non-assessable shares of Common Stock (the ‘Stock Split’). The Stock Split shall occur without any further action on the part of the Corporation or the holders of shares of Common Stock and whether or not certificates representing such holders’ shares prior to the Stock Split are surrendered for cancellation.”
SECOND: The stockholders of the Corporation have duly adopted the foregoing amendment at the Annual Meeting of Stockholders duly called and held on June 18, 2014 in accordance with the provisions of Section 222 of the General Corporation Law of Delaware.
THIRD: Such amendment to the Certificate of Incorporation was duly adopted in accordance with the applicable provisions of Sections 222 and 242 of the General Corporation Law of Delaware.
<PAGE>
FOURTH: This amendment to the Certificate of Incorporation shall be effective on and as of the date of filing of this Certificate of Amendment with the office of the Secretary of State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of the day and year first written above.
CELGENE CORPORATION
By:     /s/Robert J. Hugin    
Name: Robert J. Hugin
Title: Chief Executive Officer, President, and Chairman of the Board of Directors



Exhibit 10.1

ttCONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER A CONFIDENTIAL TREATMENT REQUEST, PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT AT THE APPROPRIATE PLACE WITH THREE ASTERISKS [***].

LICENSE AGREEMENT
This License Agreement (this “ Agreement ”), dated as of April 23, 2014 (the “ Execution Date ”), is made by and between Nogra Pharma Limited, organized under the laws of Ireland having business offices at 33 Sir John Rogerson’s Quay, Dublin 2, Ireland (“ Nogra ”), and Celgene Corporation, a Delaware corporation (“ Celgene Corp. ”), with respect to all rights and obligations under this Agreement in the United States (subject to Section 13.16), and Celgene Alpine Investment Company II LLC, a Delaware limited liability company (“ Celgene Alpine ”), with respect to all rights and obligations under this Agreement outside of the United States (subject to Section 13.16) (Celgene Alpine and Celgene Corp. together, “ Licensee ”). Nogra and Licensee are sometimes hereinafter referred to each as a “ Party ” and collectively as the “ Parties .”
WHEREAS, Nogra has been engaged in the development of GED-0301, an antisense oligonucleotide targeting SMAD7 , and controls certain patent rights and know-how with respect thereto;
WHEREAS, Licensee desires to obtain exclusive rights under the Nogra Patent Rights and Nogra Know-How in order to continue the development thereof and products based thereupon; and
WHEREAS, the Parties desire to enter into an agreement pursuant to which Nogra will grant an exclusive license to Licensee under the Nogra Patent Rights and Nogra Know-How for Licensee to develop, manufacture and commercialize Licensed Compound and Licensed Products, all on the terms set forth below.
NOW, THEREFORE, the Parties hereby agree as follows:
Section 1.
Definitions .
For the purpose of this Agreement, the following terms and phrases (and cognates) will have the meanings set forth below:
1.1      Accounting Standards ” means generally accepted accounting principles as practiced in the United States or IFRS (International Financial Reporting Standards), in each case, consistently applied.
1.2      Affiliate ” of a Person means any other Person which (directly or indirectly) is controlled by, controls or is under common control with such Person. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to any Person means (a) in the case of a corporate entity, direct or indirect ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors, (b) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%), including ownership by trusts with substantially the same beneficial interest, of the equity interests with the power to direct the management and policies of such Person, provided that if local law restricts foreign ownership, control will be established by direct or indirect ownership of the maximum ownership percentage that may, under such local law, be owned by foreign interests, or (c) the power to direct the management or policies of a Person, whether through ownership of voting securities, by contract or otherwise.

1


LICENSE AGREEMENT


1.3      Calendar Quarter ” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31.
1.4      Calendar Year ” means each successive period of twelve (12) months commencing on January 1 and ending on December 31.
1.5      Change of Control ” means (a) completion of a merger, reorganization, amalgamation, arrangement, share exchange, consolidation, tender or exchange offer, private purchase, business combination, recapitalization or other transaction involving a Party as a result of which either (i) the stockholders of such Party immediately preceding such transaction hold less than fifty percent (50%) of the outstanding shares, or less than fifty percent (50%) of the outstanding voting power, respectively, of the ultimate company or entity resulting from such transaction immediately after consummation thereof (including a company or entity which as a result of such transaction owns the then outstanding securities of a Party or all or substantially all of a Party’s assets, including for Licensee, Licensee’s assets related to the Licensed Compounds or Licensed Products, either directly or through one or more subsidiaries), or (ii) any single Third Party Person or group (within the meaning of the U.S. Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect, referred to as a “ Group ”) (but with respect to Nogra, other than the then existing shareholders of such Party and their Affiliates) holds fifty percent (50%) or more of the outstanding shares or voting power of the ultimate company or entity resulting from such transaction immediately after the consummation thereof (including a company or entity which as a result of such transaction owns the then outstanding securities of a Party or all or substantially all of a Party’s assets either directly or through one or more subsidiaries); (b) the direct or indirect acquisition (including by means of a tender offer or an exchange offer) by any Third Party Person or Group (but with respect to Nogra, other than the then existing shareholders of such Party and their Affiliates) of beneficial ownership (within the meaning of the U.S. Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission (“ SEC ”) thereunder as in effect), or the right to acquire beneficial ownership, or formation of any Group which beneficially owns or has the right to acquire beneficial ownership, of fifty percent (50%) or more of either the outstanding voting power or the then outstanding shares of a Party, in each case on a fully diluted basis; (c) in the case of any Party whose shares are traded on a recognized stock exchange, individuals who, as of the Execution Date, constitute the Board of Directors of such Party (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board of Directors of such Party; provided, however, that any individual becoming a director subsequent to the Execution Date whose election, or nomination for election by such company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board of Directors of such Party; (d) the adoption of a plan relating to the liquidation or dissolution of a Party, other than in connection with a corporate reorganization (without limitation of clause (a), above); (e) the sale or disposition to a Third Party of all or substantially all the assets of a Party (determined on a consolidated basis); or (f) the sale or disposition to a Third Party of assets or businesses that constitute fifty percent (50%) or more of the total revenue or assets of a Party (determined on a consolidated basis). For purposes of this definition of “Change of Control” a Person shall not be deemed to have either “voting power” in clause (b) above or “beneficial ownership” in clause (c) above if such “voting power” or “beneficial ownership” (as applicable) is the result of an agreement, arrangement or understanding to vote such applicable securities where such agreement, arrangement or understanding arises solely from a revocable proxy given in response to a proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the Securities Exchange Act of 1934 and the regulations thereunder, as amended from time to time.

2


LICENSE AGREEMENT


1.6      Clinical Studies ” means any study in which human subjects are dosed with a drug, whether approved or investigational, including any Phase 1, 2, 3 or 4 clinical study.
1.7      Combination Product ” means a Licensed Product that includes at least one additional active ingredient other than Licensed Compound. Drug delivery vehicles, adjuvants, and excipients will not be deemed to be “active ingredients”, except in the case where such delivery vehicle, adjuvant, or excipient is recognized as an active ingredient in accordance with 21 C.F.R. § 210.3(b)(7) (as amended), or any foreign counterpart
1.8      Commercially Reasonable Efforts ” means, with respect to any Licensed Compound or Licensed Product, that level of efforts and resources commonly dedicated in the pharmaceutical industry by a global pharmaceutical company to the Manufacture, Development or Commercialization, as the case may be, of a product of similar commercial potential at a similar stage in its lifecycle to any Licensed Compound or Licensed Product, in each case taking into account (the “ CRE Considerations ”) issues of safety and efficacy, product profile, the proprietary position, the then current competitive environment and the likely timing of market entry, the regulatory environment and status of such product, and other relevant scientific, technical and commercial factors, but without regard to any payments owed to Nogra under this Agreement. After Regulatory Approval of a Licensed Product, “Commercially Reasonable Efforts” will be determined on a market-by-market basis without regard to the particular circumstances of Licensee, including any other product opportunities of Licensee or any payments owed to Nogra under this Agreement, but with regard to the level of efforts and resources commonly dedicated in the pharmaceutical industry by a global pharmaceutical company. Commercially Reasonable Efforts requires that, taking into account the CRE Considerations, Licensee: [***] .
1.9      Commercialization ” means activities directed to obtaining pricing and reimbursement approvals, carrying out Phase 4 clinical studies for, marketing, promoting, distributing, importing, exporting, offering for sale or selling any pharmaceutical product, including any Licensed Product.
1.10      Commercialization Budget ” means the budget for conducting Commercialization of any Licensed Product in the Territory pursuant to the Commercialization Plan during [***] , as developed by Licensee and approved by the JCC and JSC in accordance with Section 6.2(b), which budget will be updated and amended concurrently with the Commercialization Plan in accordance with Section 6.2(c).
1.11      Commercialization Plan ” means the plan setting forth the activities and timelines relating to the Commercialization of any Licensed Product in the Territory during [***] , as developed by Licensee in consultation with the JCC and approved by the JCC and JSC in accordance with Section 6.2(a), including the Commercialization Budget and annual Net Sales forecasts for the Territory, as amended from time to time in accordance with the procedures set forth in this Agreement.
1.12      Confidential Information ” means all Know-How, marketing plans, strategies and customer lists, and other information or material that are disclosed or provided by a Party or its Affiliates to the other Party or its Affiliates, regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party or its Affiliates in oral, written, graphic, or electronic form.
1.13      Confidentiality Agreement ” means that certain Mutual Non-Disclosure Agreement, dated January 24, 2014, by and between the Parties.
1.14      Controlled ” means, with respect to any patent right, Know-How, or other intellectual property right, the possession (whether by ownership or license, other than by a license or sublicense granted pursuant to this Agreement) by a Party or its Affiliates of the ability to grant to the other Party a license or access as provided herein to such item, without violating the terms of any agreement or other arrangement with any Third Party or, other than under the [***] License Agreement, the [***] Research

3


LICENSE AGREEMENT


Agreement or any other agreement required to be scheduled on Schedule 11.1(e), being obligated to pay any royalties or other consideration therefor, in existence as of the time such Party or its Affiliates would first be required hereunder to grant the other Party such license or access. Notwithstanding the foregoing, with respect to any patent right, Know-How or other intellectual property right acquired after the Execution Date for which a Party would be required to make payments to any Third Party in connection with the license or access granted to the other Party under this Agreement, such intellectual property will be treated as “Controlled” by the licensing Party to the extent that, and only to the extent that and for so long as, the other Party agrees and does promptly pay to the licensing Party all such payments to such Third Party arising out of the grant of the license to the other Party. For clarity, (a) the [***] IP is “Controlled” by Nogra, and (b) any patent right, Know-How or other intellectual property right which Nogra or any of its Affiliates obtains rights to under (i) the [***] Research Agreement, and (ii) any other agreement required to be scheduled on Schedule 11.1(e) (except the [***] Manufacturing Agreement and the [***] Manufacturing Agreement), in each case is “Controlled” by Nogra.
1.15      Development ” means non-clinical and clinical drug development activities reasonably related to the development and submission of information to a Regulatory Authority, including toxicology, pharmacology and other discovery and pre-clinical efforts, test method development and stability testing, manufacturing process development and improvement, process validation, process scale-up, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, Clinical Studies, regulatory affairs, and Regulatory Approvals (and specifically excluding activities directed to obtaining pricing and reimbursement approvals).
1.16      Development Budget ” means the budget for conducting Development pursuant to the Global Development Plan during [***] , as developed by the JDC and approved by the JSC in accordance with Section 5.2(b), which budget will be updated and amended concurrently with the Global Development Plan with Section 5.2(c).
1.17      Distributor ” means a Third Party bona fide wholesaler or distributor engaged by Licensee only to market, distribute and sell a Licensed Product in a particular jurisdiction (but, for clarity, not to Develop or Manufacture any Licensed Product in any way).
1.18      Divest ” or “ Divestiture ” means, with respect to a compound or product, the sale, exclusive (even with respect to Licensee and its Affiliates) license, or other delegation, assignment or transfer by Licensee or its Affiliates of all of their respective Development, Manufacture and Commercialization rights or obligations with respect such compound or product to a Third Party without the retention or reservation of any Commercialization interest or participation rights (other than solely an economic interest or the right to enforce customary terms and conditions contained in the relevant agreements effectuating such Divestiture, including rights of access and review in connection therewith).
1.19      EMA ” means the European Medicines Agency and any successor agency thereto.
1.20      European Union ” or “ EU ” means the countries of the European Economic Area, as it is constituted on the Execution Date and as it may be expanded from time to time after the Execution Date.
1.21      Executive Officers ” means (a) for Nogra, [***] ; and (b) for Licensee, [***] . In the event that the position of any of the Executive Officers identified in this Section 1.21 no longer exists due to a corporate reorganization, corporate restructuring or the like that results in the elimination of the identified position, the applicable Executive Officer will be replaced with another executive officer with responsibilities and seniority comparable to the eliminated Executive Officer.
1.22      Exploratory Indications ” means the following Indications: [***] .
1.23      FDA ” means the United States Food and Drug Administration or any successor agency thereto.

4


LICENSE AGREEMENT


1.24      Field ” means any and all indications for all uses.
1.25      First Commercial Sale ” means, with respect to any Licensed Product in a given country or region in the Territory, the first sale of such Licensed Product in such country. Notwithstanding the foregoing, sales for Clinical Studies purposes or compassionate or similar use will not be considered to constitute a First Commercial Sale. For clarity, First Commercial Sale will be determined on a Licensed Product-by-Licensed Product and country-by-country (or region-by-region) basis, as applicable.
1.26      Follow-On Product ” means any oligonucleotide acting as an inhibitor of SMAD7 function/expression and all improvements thereof, in each case that would constitute an Alternative Product, and all compounds or products containing any such oligonucleotide or improvements, other than any Licensed Compounds or Licensed Products, which oligonucleotide is either (a) first created, conceived or made in the performance of the Research Program by one or more employees, consultants or contractors of Nogra or its Affiliates, or one or more employees, consultants or contractors of Licensee or its Affiliates, whether solely or jointly, (b) first created, conceived or made by or on behalf of (i) one or more employees of Licensee or its Affiliates or consultants or contractors on behalf of Licensee or its Affiliates, or (ii) any of their respective Sublicensees in the practice of the intellectual property licensed to such Sublicensee pursuant to Section 3.2, or (iii) any of their respective licensees of any Research Program IP in the practice of such Research Program IP, in each case, whether solely or jointly, within [***] after the end of the Research Program, or (c) claimed by any of the Nogra Patent Rights or any patent rights arising from the Research Program.
1.27      Generic Product ” means, with respect to a particular Licensed Product in a country, a generic pharmaceutical product that: (a) (i) contains the same or substantially the same active ingredient (including an active moiety that has the identical nucleic acid sequence and composition) as the Licensed Compound in such Licensed Product; and (ii) is approved for use in such country by a Regulatory Authority through an Abbreviated New Drug Application as defined in the United States of America Federal Food, Drug, and Cosmetic Act, as amended, and the regulations promulgated thereunder, pursuant to Article 10.1 of Directive 2001/83/EC of the European Parliament and Council of 6 November 2001, or any enabling legislation thereof, or pursuant to any similar abbreviated route of approval in any other countries in the Territory; or (b) (i) contains the same or substantially the same active ingredient (including an active moiety) as the Licensed Compound in such Licensed Product; and (ii) is approved for use in such country by a Regulatory Authority through a regulatory pathway referencing clinical data first submitted by Licensee or its Affiliates or Sublicensees for obtaining Regulatory Approval for such Licensed Product.
1.28      Global Development Plan ” means the plan setting forth the activities and timelines relating to the Development of the Licensed Compounds and Licensed Products in the Field in the Territory. An initial draft of the Global Development Plan is set forth on Exhibit A-1.
1.29      Good Clinical Practice ” means the current standards for clinical trials for pharmaceuticals, as set forth in the ICH guidelines and applicable regulations promulgated thereunder, as amended from time to time, and such standards of good clinical practice as are required by the EU and other organizations and Governmental Authorities in countries in which a Licensed Product is intended to be sold to the extent such standards are not less stringent than United States Good Clinical Practice.
1.30      Good Laboratory Practice ” means the current standards for laboratory activities for pharmaceuticals, as set forth in the FDA’s Good Laboratory Practice regulations or the Good Laboratory Practice principles of the Organization for Economic Co-Operation and Development, as amended from time to time, and such standards of good laboratory practice as are required by the EU and other organizations and Governmental Authorities in countries in which a Licensed Product is intended to be sold, to the extent such standards are not less stringent than United States Good Laboratory Practice.

5


LICENSE AGREEMENT


1.31      Good Manufacturing Practice ” means the part of quality assurance which ensures that products are consistently produced and controlled in accordance with the quality standards appropriate to their intended use as defined in 21 C.F.R. § 210 and 211, European Directive 2003/94/EC, Eudralex 4, Annex 16 (in each case as amended), and applicable United States, EU, Canadian and ICH Guidance or regulatory requirements for a Licensed Product.
1.32      Governmental Authority ” means any United States federal, state or local or any foreign government, or political subdivision thereof, or any multinational organization or authority or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department, bureau or division thereof), or any governmental arbitrator or arbitral body.
1.33      ICH ” means the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use.
1.34      Implementation Date ” means the later of (a) the Execution Date, (b) if a determination is made pursuant to Section 13.5 that a notification of this Agreement is not required to be made under the HSR Act, the date of such determination, or (c) if notification of this Agreement is required to be made under the HSR Act, the Antitrust Clearance Date.
1.35      IND ” means an Investigational New Drug application, Clinical Study Application, Clinical Trial Exemption, or similar application or submission for approval to conduct human clinical investigations filed with or submitted to a Regulatory Authority in conformance with the requirements of such Regulatory Authority.
1.36      Indication ” means an application for a label or label expansion indicating the applicable drug for an initial, expanded or additional patient populations, or indicating the drug for use in combination with another treatment or drug, in each case that requires a Pivotal Clinical Study for Regulatory Approval for such label or label expansion. Without limiting the generality of the foregoing, each of the two Primary Indications will be treated hereunder as a separate Indication. Notwithstanding the foregoing, different lines of treatment of an Indication will not be considered a separate Indication; the treatment and prevention of separate varieties of an Indication or precursor condition will not be a separate Indication; and the treatment or prevention of an Indication in a different population will not be a separate Indication ( e.g. , adult and pediatric), provided that a combination product comprising the Licensed Compound or Licensed Product and another product for the treatment of an Indication may be a separate Indication as compared to treatment of such Indication solely with such Licensed Compound or Licensed Product, if the requirements of the first sentence of this definition are satisfied.
1.37      Know-How ” means know-how, trade secrets, chemical and biological materials, formulations, information, documents, studies, results, data and regulatory approvals, data (including from Clinical Studies), filings and correspondence (including DMFs), including biological, chemical, pharmacological, toxicological, pre-clinical, clinical and assay data, manufacturing processes and data, specifications, sourcing information, assays, and quality control and testing procedures, whether or not patented or patentable.
1.38      Law ” means any federal, state, provincial, local, international or multinational law, statute, standard, ordinance, code, rule, regulation, resolution or promulgation, or any order, writ, judgment, injunction, decree, stipulation, ruling, determination or award entered by or with any Governmental Authority, or any license, franchise, permit or similar right granted under any of the foregoing, or any similar provision having the force or effect of law.
1.39      Licensed Compound ” means the compound known as GED-0301, as further described on Exhibit B, any other compound claimed or disclosed in the patents and patent applications included in

6


LICENSE AGREEMENT


clause (a) of Nogra Patent Rights that targets SMAD7 , and any existing or future improved or modified versions of such compounds that targets SMAD7 .
1.40      Licensed Product ” means any pharmaceutical product containing any Licensed Compound (alone or with other active ingredients), in all forms, presentations, formulations and dosage forms. For clarification, Licensed Product will include any Combination Product.
1.41      MAA ” means (a) a marketing authorization application filed with (i) the EMA under the centralized EMA filing procedure or (ii) a Regulatory Authority in any country of the EU if the centralized EMA filing procedure is not used or (b) any other equivalent or related regulatory submission, in either case to gain approval to market a Licensed Product in any country in the European Union, in each case including, for clarity, amendments thereto and supplemental applications.
1.42      Major European Country ” means any of [***] .
1.43      Manufacture ” or “ Manufacturing ” means activities related to the manufacture, formulation and packaging of any compound or product, including any Licensed Compounds and Licensed Products, including related quality control and quality assurance activities.
1.44      NDA ” means a New Drug Application filed with the FDA (including amendments and supplements thereto) to obtain Regulatory Approval in the U.S., or any corresponding applications or submissions filed with the relevant Regulatory Authorities to obtain Regulatory Approvals in any other country or region in the Territory (including any MAA).
1.45      Net Sales ” means, with respect to any Licensed Product, the gross amounts invoiced on sales of such Licensed Product by Licensee or any of its Affiliates or Sublicensees to a Third Party, less the following customary deductions, determined in accordance with the Accounting Standards, to the extent allocated to the sale of such Licensed Product and actually taken, paid, accrued, allowed, or included in the gross sales prices or specifically allocated in its financial statements with respect to such sales:
(a)      discounts (including cash, quantity and patient program discounts), retroactive price reductions, charge-back payments and rebates granted to managed health care organizations or to federal, state and local governments, their agencies, and purchasers and reimbursers or to trade customers;
(b)      credits or allowances actually granted upon claims, damaged goods, rejections or returns of such Licensed Product, including such Licensed Product returned in connection with recalls or withdrawals, and amounts written off by reason of uncollectible debt, provided that if the debt is thereafter paid, the corresponding amount will be added to the Net Sales of the period during which it is paid;
(c)      freight out, postage, customs charges, shipping and insurance charges for delivery of such Licensed Product; and
(d)      taxes or duties levied on, absorbed or otherwise imposed on the sale of such Licensed Product, including value-added taxes, or other governmental charges otherwise imposed upon the billed amount, as adjusted for rebates and refunds, to the extent not paid by the Third Party, and annual fees due under Section 9008 of the United States Patient Protection and Affordable Care Act of 2010 (Pub. L. No. 111-48) and other comparable Laws.
Sales and other transfer of Licensed Product between any of Licensee, its Affiliates and Sublicensees will not give rise to Net Sales, but rather the subsequent sale of Licensed Product to Third Parties. Net Sales will be determined in accordance with the Accounting Standards. Net Sales for any Combination Product will be calculated on a country-by-country basis by multiplying actual Net Sales of such Combination Product by the fraction A/B, where A is the gross invoice price for the Licensed Product contained in such

7


LICENSE AGREEMENT


Combination Product if such License Product is sold separately in finished form in such country, and B is the gross invoice price for such Combination Product in such country. If such Licensed Product is not sold separately in finished form in such country, the Parties will determine Net Sales for such Licensed Product by mutual agreement based on the relative contribution of such Licensed Product and each such other active ingredients in such Combination Product in accordance with the above formula, and will take into account in good faith any applicable allocations and calculations that may have been made for the same period in other countries.
1.46      Nogra Know-How ” means all Know-How, existing as of the Execution Date or arising during the Term, Controlled by Nogra or any of its Affiliates, that is reasonably necessary for the manufacture, use, sale, offer for sale, importation, Development or Commercialization of any Licensed Compounds or Licensed Products.
1.47      Nogra Patent Rights ” means (a) the issued patents and patent applications listed in Exhibit C attached hereto, plus (i) all divisionals, continuations, continuations-in-part thereof or any other patent rights claiming priority directly or indirectly to any of the issued patents or patent applications identified on Exhibit C, and (ii) all patents issuing on any of the foregoing, together with all registrations, reissues, re-examinations, renewals, supplemental protection certificates and extensions of any of the foregoing, and all foreign counterparts thereof, and (b) any other issued patents and patent applications, existing as of the Execution Date or arising during the Term, Controlled by Nogra or any of its Affiliates, that is reasonably necessary for the Manufacture, use, sale, offer for sale, importation, Development or Commercialization of any Licensed Compounds or Licensed Products.
1.48      Patent Challenge ” means any challenge in a legal or administrative proceeding to the patentability, validity or enforceability of any of the Nogra Patent Rights (or any claim thereof), including by: (a) filing or pursuing a declaratory judgment action in which any of the Nogra Patent Rights is alleged to be invalid or unenforceable; (b) citing prior art against any of the Nogra Patent Rights (other than art required to be cited under a duty of candor to a patent office), filing a request for or pursuing a re-examination of any of the Nogra Patent Rights (other than with Nogra’s written agreement), or becoming a party to or pursuing an interference; or (c) filing or pursuing any re-examination, opposition, cancellation, nullity or other like proceedings against any of the Nogra Patent Rights; but excluding any challenge raised as a defense against a claim, action or proceeding asserted by Nogra or its Affiliates against Licensee or its Affiliates or Sublicensees.
1.49      Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, beneficiary or trustee of any trust, incorporated association, joint venture, or similar entity or organization, including a government or political subdivision or department or agency of a government.
1.50      Phase 3 Clinical Study ” means a clinical trial of a product on a sufficient number of subjects that is designed to establish that a pharmaceutical product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such pharmaceutical product in the dosage range to be prescribed, which trial is intended to support Regulatory Approval of such product, as described in 21 C.F.R. 312.21(c) (as amended or any replacement thereof), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country.
1.51      Pivotal Clinical Study ” means (i) a Phase 3 Clinical Study that is intended by Licensee or its Affiliates or Sublicensees to be submitted (together with any other registration trials that are prospectively planned when such Phase 3 Clinical Study is initiated) for Regulatory Approval in the U.S. or the EU, or (ii) any other Clinical Study that is intended by Licensee or its Affiliates or Sublicensees to establish that a pharmaceutical product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such pharmaceutical product in the

8


LICENSE AGREEMENT


dosage range to be prescribed, which Clinical Study is a registration trial intended by Licensee or its Affiliates or Sublicensees to be sufficient for filing an application for a Regulatory Approval for such product in the U.S. or another country or some or all of an extra-national territory, solely as evidenced by the acceptance for filing for a Regulatory Approval for such product after completion of such Clinical Study.
1.52      Primary Indications ” means the two following Indications: Crohn’s Disease and Ulcerative Colitis.
1.53      Prosecute ” or “ Prosecution ” means in relation to any patent rights, (a) to prepare and file patent applications, including re-examinations or re-issues thereof, and represent applicants or assignees before relevant patent offices or other relevant Governmental Authorities during examination, re-examination and re-issue thereof, in appeal processes and interferences, or any equivalent proceedings, (b) to defend all such applications against Third Party oppositions or other challenges, (c) to secure the grant of any patents arising from such patent application, (d) to maintain in force any issued patent (including through payment of any relevant maintenance fees), (e) obtain and maintain patent term extension or supplemental protection certificates or their equivalents, and (f) to make all decisions with regard to any of the foregoing activities.
1.54      Regulatory Approval ” means, with respect to a country or region in the Territory, approvals, licenses, registrations or authorizations from the relevant Regulatory Authority necessary in order to import, distribute, market or sell a pharmaceutical product (including any Licensed Product) in such country or region, but not including any pricing or reimbursement approvals.
1.55      Regulatory Authority ” means the FDA, the EMA, and any other analogous government regulatory authority or agency involved in granting approvals (including any required pricing or reimbursement approvals) for the Development, Manufacture or Commercialization of any pharmaceutical product (including any Licensed Product) in the Territory.
1.56      Regulatory Filing ” means any documentation comprising or relating to or supporting any filing or application with any Regulatory Authority with respect to any compound or product (including any Licensed Compound or Licensed Product), or its use or potential use in humans, including any documents submitted to any Regulatory Authority and all supporting data, including INDs and NDAs, and all correspondence with any Regulatory Authority with respect to such compound or product (including minutes of any meetings, telephone conferences or discussions with any Regulatory Authority).
1.57      ROFN Product ” means the first compound or product that Nogra or its Affiliate reasonably intends to be administered by prescription and that (a) is Controlled by Nogra or its Affiliates and has been developed in any [***] , (b) has not been Commercialized by Nogra or its Affiliates or any Third Party prior to the Execution Date, and (c) Nogra or its Affiliate decides to sell, license or otherwise transfer or grant any rights in all or any portion of such compound or product to a Third Party. Notwithstanding the foregoing, any compound or product that Nogra or its Affiliate reasonably intends to be administered by prescription and that is committed pursuant to agreements with Third Parties in existence as of the Execution Date will be excluded from this definition of “ROFN Product”.
1.58      Segregate ” means, with respect to a compound or product, to use diligent efforts to segregate the Development, Manufacture and Commercialization activities relating to such compound or product from Development, Manufacture and Commercialization with respect to any Licensed Compounds or Licensed Products under this Agreement, including using diligent efforts to ensure that: (a) no personnel involved in performing the Development, Manufacture or Commercialization of such compound or product have access to non-public plans or information relating to the Development, Manufacture or Commercialization of any Licensed Compounds or Licensed Products (provided that

9


LICENSE AGREEMENT


management personnel may review and evaluate plans and information regarding the Development, Manufacture and Commercialization of any Licensed Compounds or Licensed Products in connection with portfolio decision-making); and (b) no personnel involved in performing the Development, Manufacture or Commercialization of any Licensed Compounds or Licensed Products have access to non-public plans or information relating to the Development, Manufacture or Commercialization of such compound or product (provided that management personnel may review and evaluate plans and information regarding the Development, Manufacture and Commercialization of such compound or product in connection with portfolio decision-making).
1.59      SMAD7 ” (also known as CRCS3, FLJ16482, MADH7, MADH8, MAD (mothers against decapentaplegic, Drosophila) homolog 7, MAD homolog 8, SMAD, mothers against DPP homolog 7, mothers against DPP homolog 8) means the gene identified by Entrez GeneID No. 4092 and allelic and other naturally occurring variants thereof.
1.60      Sublicensee ” means any Affiliate of Licensee or any Third Party that is granted a sublicense by Licensee in accordance with Section 3.2, but will not include any Distributor.
1.61      Sublicense Payments ” means all consideration in any form, including upfront, marketing, distribution, franchise, option, license or documentation payments, fees, bonuses or milestone payments, received by Licensee or its Affiliates from any non-Affiliated Sublicensees or other Third Parties (excluding Distributors) in consideration of a grant of Development or Commercialization rights by Licensee to any Licensed Compounds or Licensed Products. The following payments will be excluded from the calculation of Sublicense Payments: [***].
1.62      Territory ” means worldwide.
1.63      Third Party ” means any Person other than Licensee or Nogra or any of their respective Affiliates.
1.64      [***] IP ” means the “Licensed IP” as such term is defined in the [***] License Agreement.
1.65      [***] License Agreement ” means [***].
1.66      United States ” or “ U.S. ” means the United States of America, including its territories and possessions, and the District of Columbia.
1.67      [***] Research Agreement ” means [***] .
The following additional defined terms have the meanings set forth in the section indicated:
Defined Term
Section
AAA
Section 13.7(b)
Acquisition Third Party
Section 3.3(c)
Acquisition Transaction
Section 3.3(c)
Affected Party
Section 12.3
Agreement
Introductory Paragraph
Alliance Manager
Section 2.8
Alternative Product
Section 3.3(e)
Antitrust Clearance Date
Section 13.15(b)
Audited Site
Section 5.4(d)
Bankruptcy Event
Section 12.3

10


LICENSE AGREEMENT


Defined Term
Section
CAPA
Section 5.4(d)
Celgene Alpine
Introductory Paragraph
Celgene Corp.
Introductory Paragraph
Claim
Section 11.5(c)
Competition Laws
Section 13.15(b)
Competition Law Filing
Section 13.15(b)
CREATE Act
Section 9.1(g)
CRE Considerations
Section 1.8
Disclosing Party
Section 10.1(a)
DOJ
Section 13.15(b)
Execution Date
Introductory Paragraph
Existing Manufacturing Contracts
Section 7.2(b)
FTC
Section 13.15(b)
Group
Section 1.5
Hatch-Waxman Time Period
Section 9.2(b)
HSR Act
Section 13.15(b)
HSR Filing
Section 13.15(b)
Incumbent Board
Section 1.5
Indemnitee
Section 11.5(c)
Indemnitor
Section 11.5(c)
Issuing Party
Section 10.2(c)
JCC
Section 2.3(a)
JDC
Section 2.2(a)
JRC
Exhibit D
JSC
Section 2.1(a)
Knowledge
Section 11.1(h)
Licensee
Introductory Paragraph
Licensee Indemnitees
Section 11.5(b)
Licensee ROFN Notice
Section 3.7
Litigation Conditions
Section 11.5(c)
Losses
Section 11.5(a)
Milestone Events
Section 8.2(a)
Milestone Payments
Section 8.2(a)
Nogra
Introductory Paragraph
Nogra Indemnitees
Section 11.5(a)
Nogra RI Notice
Section 3.6
Nogra ROFN Notice
Section 3.7
Party
Introductory Paragraph
Pre-Acquisition Agreement
Section 3.3(c)
Receiving Party
Section 10.1(a)
Release
Section 10.2(c)
Research Collaboration Agreement
Exhibit D

11


LICENSE AGREEMENT


Defined Term
Section
Research Plan
Exhibit D
Research Program
Exhibit D
Research Program IP
Exhibit D
Research Term
Exhibit D
Research Program Patents
Exhibit D
Revenue Interests
Section 3.6
Reversion IP
Section 12.6(f)
Reversion License
Section 12.6(f)
Reviewing Party
Section 10.2(c)
ROFN Negotiation Period
Section 3.7
ROFN Product Assets
Section 3.7
SEC
Section 1.5
Sublicense
Section 3.2(b)
Term
Section 12.1
Third Party Offer
Section 3.7
Third Party Patent Counsel
Section 9.1(d)
Third Party RI Agreement
Section 3.6
[***]
Section 1.67
Working Group
Section 2.4

Section 2.
Management of Development and Commercialization .
2.1      Joint Steering Committee .
(a)      Formation; Purposes and Principles . Within thirty (30) days after the Implementation Date, Nogra and Licensee will establish a joint steering committee (the “ JSC ”) to provide high-level oversight and decision-making regarding the activities of the Parties under this Agreement. The Parties anticipate that the JSC will not be involved in day-to-day implementation of activities under this Agreement. The purposes of the JSC will be (i) to review and oversee the overall global Development, Manufacture and Commercialization of the Licensed Compounds and Licensed Products in each of the Indications in the Field in the Territory pursuant to this Agreement and (ii) to oversee the JDC and JCC and resolve matters on which the JDC or JCC unable to reach consensus. In conducting its activities, the JSC will operate and make its decisions consistent with the terms of this Agreement.
(b)      Specific Responsibilities . In addition to its overall responsibility for the collaboration established by this Agreement, the JSC will in particular:
(i)      review and approve substantive amendments and updates to the Global Development Plan presented by the JDC, including the Development Budget;
(ii)      review and approve the global regulatory strategy (and substantive amendments and updates thereto) included in the Global Development Plan and presented by the JDC;
(iii)      review and comment on regulatory submissions relating to the Licensed Products in each of the Indications in the Field in accordance with Section 5.4(c);

12


LICENSE AGREEMENT


(iv)      review and discuss, as necessary, performance of each Party or Affiliate, including compliance with applicable Laws and any agreed-upon standards for conduct of such activities;
(v)      review and approve the Commercialization Plan, including the initial Commercialization Budget, and any substantive amendments and updates to the Commercialization Plan, including the Commercialization Budget, in each case presented to the JSC by the JCC; and
(vi)      perform such other functions as are assigned to it in this Agreement or as appropriate to further the purposes of this Agreement as agreed in writing by the Parties, including periodic evaluations of performance against goals.
2.2      Joint Development Committee .
(a)      Formation; Purposes . Within thirty (30) days after the Implementation Date, Nogra and Licensee will establish a joint development committee (the “ JDC ”), which will report to the JSC and have responsibility for (i) coordinating and providing oversight to various Working Groups that report to the JDC, (ii) monitoring and facilitating the overall progress of Development and Manufacturing activities under this Agreement with respect to Licensed Products in each of the Indications in the Field, including oversight of the various budgets and activities, (iii) overseeing the implementation of all Development operational aspects of the collaboration established by this Agreement, and (iv) forming additional Working Group(s) from time to time and delegating to such Working Group(s) such operational responsibilities as the JDC may determine necessary or desirable, which may include Working Groups for clinical/regulatory, and safety review, as the JDC determines appropriate or the JSC directs. In conducting its activities, including in the allocation of activities to the Parties under the Global Development Plan, the JDC will operate and make its decisions consistent with the terms of this Agreement.
(b)      Specific Responsibilities . In particular, the JDC will:
(i)      oversee the initial transfer of the Nogra Know-How and designated Development activities related to the Licensed Compounds and Licensed Products from Nogra to Licensee in accordance with the terms of this Agreement;
(ii)      oversee the implementation of the Global Development Plan within the JSC-approved Development Budget for the Development of the Licensed Compounds and Licensed Products once they have been approved by the JSC;
(iii)      review and update the Global Development Plan, including the Development Budget set forth therein, on an annual basis and, from time to time, present to the JSC for review and approval proposed substantive amendments to the Global Development Plan, including the Development Budget, in accordance with Section 5.2(c);
(iv)      develop and propose to the JSC a global regulatory strategy with respect to seeking and obtaining Regulatory Approval of the Licensed Products in each of the Indications in the Field to be included in the Global Development Plan;
(v)      oversee the implementation of the global regulatory strategy for the Regulatory Approval of the Licensed Products in each of the Indications in the Field once it has been approved by the JSC;
(vi)      review, approve and oversee performance of non-clinical research or development of the Licensed Compounds and Licensed Products in the Field;

13


LICENSE AGREEMENT


(vii)      review and approve clinical study design, including clinical study endpoints, clinical methodology and monitoring requirements for the Clinical Studies included in the Global Development Plan; and
(viii)      perform such other functions as are assigned to it in this Agreement or as are appropriate to further the purposes of this Agreement as agreed in writing by the Parties.
2.3      Joint Commercialization Committee .
(a)      Formation; Purposes . Within ninety (90) days after the Implementation Date, Nogra and Licensee will establish a joint commercialization committee (the “ JCC ”), which will report to the JSC and have responsibility for (i) overseeing the implementation of all Commercialization operational aspects of the collaboration established by this Agreement and (ii) forming Working Group(s) from time to time and delegating to such Working Group(s) such operational responsibilities as the JCC may from time to time determine necessary or desirable. The JCC will include an equal number of designated compliance officers from both Nogra and Licensee to advise the JCC on compliance with relevant Laws and policies. In conducting its activities, including the allocation of activities to the Parties under the Commercialization Plan, the JCC will operate and make its decisions consistent with the terms of this Agreement.
(b)      Specific Responsibilities . In particular, the JCC will:
(i)      review and present to the JSC for approval the Commercialization Plan for the Licensed Products prepared by Licensee, including the Commercialization Budget, in accordance with Sections 6.2(a) and 6.2(c);
(ii)      review Licensee’s and its Affiliates’ performance under the Commercialization Plan, make recommendations to Licensee regarding potential updates or amendments to the Commercialization Plan including the Commercialization Budget (which Licensee will reasonably consider in preparing proposals for updates and amendments to the Commercialization Plan including the Commercialization Budget), and review proposed updates and amendments to the Commercialization Plan including the Commercialization Budget submitted by Licensee, on a quarterly basis, and present to the JSC for review and approval proposed updates and substantive amendments to the Commercialization Plan, including the Commercialization Budget, in accordance with Section 6.2(c);
(iii)      oversee the implementation of the Commercialization Plan within the Commercialization Budget once they have been approved by the JSC;
(iv)      share planning and budgeting information with the JDC and coordinate with the JDC in preparing comprehensive planning and budgeting proposals, as applicable, to the JSC; and
(v)      perform such other functions as are assigned to it in this Agreement or as are appropriate to further the purposes of this Agreement as agreed in writing by the Parties.
2.4      Working Groups . From time to time, the JDC and JCC may establish various working groups (each, a “ Working Group ”) to oversee particular projects or activities, and each such Working Group will be constituted and will operate as the JDC or JCC determines.
2.5      Membership . Each of the JSC, JDC and JCC will be composed of an equal number of representatives appointed by each of Nogra and Licensee. The JSC, JDC and JCC will each be initially comprised of three (3) representatives of each Party. Each Party will have the right, but not be obligated, to appoint the same number of representatives to the various Working Groups as are appointed by the other Party; however, each Party will have collectively one vote, as set forth in Section 2.6(a), regardless

14


LICENSE AGREEMENT


of the number or representatives from each Party. The JSC may from time to time change the size of the JSC, JDC, JCC or any of the various Working Groups, and the JDC may from time to time change the size of the JDC or any of the various Working Groups. Each Party may replace JSC, JDC, JCC and any Working Group representatives at any time upon written notice to the other Party. The JSC, JDC, JCC and the various Working Groups will be co-chaired by one designated representative of each Party. The co-chairpersons of each committee and Working Group will not have any greater authority than any other representative on the committee or Working Group. The co-chairperson of Licensee will be responsible for (a) calling meetings; (b) preparing and circulating an agenda in advance of each meeting, provided that the co-chairperson will include any agenda items proposed by either Party on such agenda; (c) ensuring that all decision-making is carried out in accordance with the voting and dispute resolution mechanisms set forth in this Agreement; and (d) preparing and issuing minutes of each meeting within thirty (30) days thereafter. Each Party may designate the same individual as a representative on more than one committee or Working Group, and such individual may be an employee or consultant of such Party or any of its Affiliates. Each Party will be responsible for all costs and expenses incurred by it in participating in the JSC, JDC and JCC and any Working Groups.
2.6      Decision-Making .
(a)      The JSC, JDC, JCC and the various Working Groups will each operate by consensus, and all decisions will be made by unanimous consent. With respect to decisions of the JSC, JDC, JCC and the various Working Groups, the representatives of each Party will have collectively one (1) vote on behalf of such Party. Should the members of any Working Group maintain for more than fifteen (15) business days their disagreement on any matter that is within its authority under this Agreement for which consensus has been sought and Nogra or Licensee requests a resolution, the matter will be referred to the committee to which such Working Group reports for discussion and resolution, and then referred to the JSC for resolution if such matter is not resolved by the applicable committee within fifteen (15) business days after referral thereto. Should the members of the JCC or JDC maintain any disagreement on any matter that is within its authority under this Agreement for which consensus has been sought and Nogra or Licensee requests a resolution, the matter will be referred to the JSC for resolution.
(b)      Should the members of the JSC maintain for more than fifteen (15) business days their disagreement, either with respect to any matter referred to it by the JDC or JCC, or with respect to a matter initially arising within the JSC, such matter will be resolved pursuant to Section 13.7(a) by referral directly to a senior executive of each Party designated by such Party’s Executive Officer (but not Section 13.7(b)). If such matter is not resolved pursuant to the dispute resolution process set forth in Section 13.7(a), then Licensee will have the tie-breaking vote, provided that no decision by Licensee may be in conflict with any of the terms of this Agreement (including by amending or increasing any obligations on Nogra or any of its Affiliates or by granting any licenses or other rights to Licensee or any of its Affiliates that, in each case, are not specified in this Agreement).
(c)      Notwithstanding anything herein to the contrary, with respect to any decision to be made by any of the JSC, JDC, JCC and the various Working Groups, each Party will exercise its voting right (including Licensee’s tie-breaking vote of Section 2.6(b)) in a manner consistent with its obligations under this Agreement, including Sections 5.3(a) and 6.1(a).
(d)      None of the JSC, JDC, JCC or any Working Group will have the authority to amend or modify this Agreement.
2.7      Meetings of the JSC, JDC, JCC and Working Groups . The JSC will hold meetings at such times as the JSC will determine, and the JDC and JCC will hold meetings at such times as the applicable committee determines (or as directed by the JSC), but in no event will such meetings of the

15


LICENSE AGREEMENT


JSC, JDC and JCC be held less frequently than once every Calendar Quarter during the Term for so long as each such committee exists. Each Working Group will hold meetings at such times as the Working Group agrees, or as the JDC, JCC or the JSC directs. Each of the JSC, JDC, JCC and the Working Groups may meet in person or by audio or video conference as the Parties may mutually agree, provided that the JSC, JDC and JCC meet in person at least [***] during the Term for so long as such committee exists. With respect to in-person meetings of the committees and Working Groups, the representatives will meet alternately at a location(s) designated by Nogra and Licensee. Other representatives of the Parties, their Affiliates and Third Parties involved in the Development, Manufacture or Commercialization of the Licensed Compounds and Licensed Products may attend such meetings of the JSC, JDC, JCC or Working Groups as nonvoting observers. The JSC, JDC, JCC and Working Groups may upon agreement meet on an ad hoc basis between regularly scheduled meetings in order to address and resolve time-sensitive issues within their purview that may arise from time to time. No action taken at a meeting of the JSC, JDC, JCC or any Working Group will be effective unless a representative of each Party is present or participating. Neither Party will unreasonably withhold attendance of at least one representative of such Party at any meeting of a committee or Working Group for which reasonable advance notice was provided.
2.8      Alliance Managers . Each Party will designate a single alliance manager for all of the activities contemplated under this Agreement (“ Alliance Manager ”). Such Alliance Managers will be responsible for the day-to-day worldwide coordination of the collaboration contemplated by this Agreement and will serve to facilitate communication between the Parties. Such Alliance Managers will have experience and knowledge appropriate for managers with such project management responsibilities. Each Party may change its designated Alliance Manager from time to time upon notice to the other Party.
Section 3.
License Grants .
3.1      Exclusive License Grants .
(a)      Subject to the terms and conditions of this Agreement, Nogra hereby grants to Licensee a non-transferable (except in accordance with Section 13.1), exclusive (even as to Nogra), worldwide license, with the right to sublicense in accordance with Section 3.2 only, under the Nogra Patent Rights and Nogra Know-How, to make, have made, use, sell, offer to sell, import, Develop, Manufacture and Commercialize the Licensed Compounds and Licensed Products in the Field in the Territory. In addition, subject to the terms and conditions of this Agreement, Nogra hereby grants to Licensee a non-transferable (except in accordance with Section 13.1) right of reference to any INDs and other Regulatory Filings Controlled by Nogra or any of its Affiliates as of the Execution Date or during the Term for the Licensed Compounds and Licensed Products. The license granted to Licensee by Nogra under the [***] IP will be subject to the terms and conditions of the [***] License Agreement, provided that, for clarity, Nogra will be responsible for all payment obligations under the [***] License Agreement.
(b)      Nogra and its Affiliates will retain the non-exclusive right to make, have made, use and have used Licensed Compounds and Licensed Products for non-clinical research purposes only. The licenses granted in this Section 3.1 will not grant or create (by implication, estoppel or otherwise) any license or right under any Nogra Patent Rights or Nogra Know-How to Develop, Manufacture or Commercialize any molecule that is not a Licensed Compound or Licensed Product. The foregoing retained rights will be (i) sublicensable to the [***] , provided that Nogra will ensure that each of the [***] (as applicable) is obligated to assign or exclusively license (with the right to grant sublicenses through multiple tiers (provided that such sublicenses shall be fully paid-up and royalty free with respect only to GED-0301 for the Primary Indications)) to Nogra or its Affiliates all rights, title, and interests in or to any patent rights, Know-How or other intellectual property rights created, conceived or made by such sublicensee in the course of exercising its rights under such sublicense, subject to any reasonable, non-commercial retained rights that are reserved for such sublicensee in such sublicense; and (ii) sublicensable

16


LICENSE AGREEMENT


to other Third Parties only with the prior written consent of Licensee, which consent will not be unreasonably withheld, conditioned or delayed, provided that Nogra will ensure that each such sublicensee is obligated to assign or exclusively license (with the right to grant fully paid-up, royalty free sublicenses through multiple tiers) to Nogra or its Affiliates all rights, title, and interests in or to any patent rights, Know-How or other intellectual property rights created, conceived or made by such sublicensee in the course of exercising its rights under such sublicense, subject to any reasonable, non-commercial retained rights that are reserved for such sublicensee in such sublicense.
3.2      Sublicenses .
(a)      Licensee may grant sublicenses (or any options to a sublicense) of the rights granted by Nogra to Licensee hereunder:
(i)      to any Affiliate of Licensee, provided such sublicense only remains in effect for as long as such Sublicensee remains an Affiliate of Licensee;
(ii)      to non-Affiliated Third Parties that are clinical research organizations, contract manufacturers, contract laboratory organizations, and other similar organizations that support the Development and Commercialization of the Licensed Compounds and Licensed Products on a fee-for-service basis as Sublicensees hereunder, provided that such sublicenses include obligations of confidentiality and non-use of Nogra Patent Rights, Nogra Know-How and Nogra Confidential Information substantially in accordance with the terms of this Agreement; and
(iii)      to other non-Affiliated Third Parties as a Distributor or Sublicensee hereunder after reasonable consultation with Nogra (which consultation will not be deemed to be a consent or approval right).
(b)      Each sublicense (or any option to a sublicense) granted by a Licensee to a Third Party pursuant to this Section 3.2 (each a “ Sublicense ”) will (i) be in writing; (ii) be subject and subordinate to, and consistent with, the terms and conditions of this Agreement; and (iii) require the applicable Sublicensee to comply with all applicable terms of this Agreement (except for the payment obligations, for which Licensee will remain responsible). Licensee will provide Nogra with a copy of each agreement containing any Sublicense granted under clause (a)(iii) above within ninety (90) days of execution, provided that, with respect to sublicenses to Distributors, Licensee will be permitted to redact all proprietary or other sensitive information from such agreement to the extent that such redaction does not impact Nogra’s ability to confirm Licensee’s compliance with this Agreement, and with respect to sublicenses to Sublicensees, without redactions of any kind. No Sublicense will diminish, reduce or eliminate any obligation of Licensee under this Agreement, and Licensee will remain responsible for its obligations under this Agreement and will be responsible for the performance of the relevant Sublicensee as if such Sublicensee were “Licensee” hereunder. Each Sublicense granted by Licensee to any rights licensed to it hereunder will terminate immediately upon the termination of the license from Nogra to Licensee with respect to such rights.
3.3      Exclusivity and Alternative Products .
(a)      Nogra Exclusivity . During the Term, except pursuant to the terms of this Agreement (including Section 3.1(b)), neither Nogra nor any of its Affiliates will directly or indirectly Develop, Manufacture or Commercialize, nor collaborate with, license, enable or otherwise authorize, license or grant any right to any Third Party to Develop, Manufacture or Commercialize, any Alternative Product anywhere in the Territory.
(b)      Licensee Exclusivity . During the Term, except pursuant to the terms of this Agreement, neither Licensee nor any of its Affiliates will directly or indirectly Develop, Manufacture or Commercialize, nor collaborate with, enable or otherwise authorize, license or grant any right to any

17


LICENSE AGREEMENT


Third Party to Develop, Manufacture or Commercialize, any Alternative Product anywhere in the Territory. Notwithstanding the foregoing, nothing in this Section 3.3(b), or this Agreement, will be construed to prevent Licensee or any of its Affiliates from developing or commercializing any compound or product that Licensee or any of its Affiliates is developing in Clinical Trials, or commercializing, as of the Execution Date. [***].
(c)      Acquisition of Alternative Product Rights . Notwithstanding the provisions of Section 3.3, during the Term, in the event Licensee or any of its Affiliates acquires or otherwise obtains rights to Develop, Manufacture or Commercialize any Alternative Product as the result of any license, merger, acquisition, reorganization, consolidation or combination with or of a Third Party or a Change of Control of Licensee or any other transaction (each, an “ Acquisition Transaction ”, and the Third Party involved in such transaction or Change of Control, the “ Acquisition Third Party ”) and, on the date of the completion of such Acquisition Transaction, such Alternative Product is being Developed, Manufactured or Commercialized or such Development, Manufacture or Commercialization would, but for the provisions of this Section 3.3(c), constitute a breach of Section 3.3, then Licensee or such Affiliate will, within [***] after the closing of such Acquisition Transaction provide written notice to Nogra that Licensee or such Affiliate has acquired rights to Develop, Manufacture or Commercialize an Alternative Product as a result of an Acquisition Transaction. Within [***] after the receipt of such notice, Nogra will provide written notice to Licensee or such Affiliate that Nogra elects to [***]. If Nogra provides notice as described in clause (i) of the preceding sentence, Licensee, and its Affiliates if applicable, will [***] , and if Nogra provides notice as described in clause (ii) of the preceding sentence, Licensee, and its Affiliates if applicable, will [***] . Notwithstanding the foregoing, Nogra may not elect to [***] to the extent that such [***] would result in Licensee or its Affiliates violation of applicable Law or breach of any agreement which the Acquisition Third Party executed with a Third Party (or any Affiliate thereof) prior to signing the definitive agreement for the Acquisition Transaction (a “ Pre-Acquisition Agreement ”). If Licensee or its Affiliates is unable to (x) [***] or (y) [***] because doing so would violate applicable Law or breach a Pre-Acquisition Agreement, then such Alternative Product will be [***] . Licensee and its Affiliates will Segregate the Alternative Product prior to the time of [***] pursuant to clause (i) or [***] pursuant to clause (ii) above.
(d)      The Parties may agree to develop an Alternative Product as a backup compound to the Licensed Product. Upon written mutual agreement of the Parties, including any adjustment to the terms of this Agreement that would apply to such Alternative Product, the restrictions imposed by this Section 3.3 will not apply to such Alternative Product.
(e)      For purposes hereof, “ Alternative Product ” means any compound or product (other than any Licensed Compound or Licensed Product) that has as a consequence to any of (i) [***] SMAD7, or (ii) targeting any portion of (A) any [***] SMAD7 or (B) any [***] SMAD7, [***], in each case of (i) and (ii), with the result of [***] SMAD7, [***] SMAD7 [***] , and such compound or product is [***] in the foregoing clauses (i) or (ii) (optionally against other target(s) as well). Representative “Alternative Products” include: [***] , in each case targeting any portion of SMAD7 or any [***] SMAD7, in each case with the result of [***] SMAD7 [***] , and such representative compound or product is as set forth in clauses (i) or (ii) above (optionally against other target(s) as well). References to any chemical matter in this definition will include naturally occurring and non-naturally occurring forms thereof.
3.4      Research Collaboration Agreement and Follow-On Products . As set forth in Exhibit D, within ninety (90) days after the Implementation Date, the Parties will enter into a Research Collaboration Agreement for the conduct of a Research Program as described in Exhibit D. As described in Exhibit D, certain milestone and royalty payments will be payable for Follow-On Products under the Research Collaboration Agreement.

18


LICENSE AGREEMENT


3.5      Maintenance of Third Party Agreements; Stand-By License .
(a)      Nogra (i) will duly perform and observe all of its obligations under the [***] License Agreement in all material respects and maintain in full force and effect the [***] License Agreement, including payment of royalties and other amounts to the counterparty of the [***] License Agreement, and (ii) will not, without Licensee’s prior written consent (such consent not to be unreasonably withheld, conditioned or delayed), (A) amend, modify, restate, cancel, supplement or waive any provision of the [***] License Agreement, or grant any consent thereunder, or agree to do any of the foregoing, in each case in a manner that would materially affect Licensee’s rights hereunder, and in any event without giving Licensee at least ten (10) business days prior written notice of any amendment, modification, restatement, cancellation, supplement or waiver of any provision of the [***] License Agreement, or (B) exercise any right to terminate the [***] License. Nogra will provide Licensee with written notice as promptly as practicable (and in any event within ten (10) business days) after becoming aware of any of the following: (1) any material breach or default by Nogra or any of its Affiliates of any covenant, agreement or other provision of the [***] License Agreement, (2) any notice or claim from the counterparty to the [***] License Agreement terminating or providing notice of termination of the [***] License Agreement, (3) any notice or claim alleging any breach of default under the [***] License Agreement, or (4) the existence of any facts, circumstances or events which alone or together with other facts, circumstances or events would reasonably be expected (with or without the giving of notice or passage of time or both) to give rise to a breach of or default under or right to terminate the [***] License Agreement. If Nogra fails to pay any amounts due under the [***] License Agreement and if such nonpayment would permit the counterparty to the [***] License Agreement to terminate or suspend the same or any rights thereunder, Licensee will have the right, but not the obligation, in its sole discretion, to pay such amounts on Nogra’s behalf, and any amounts so paid by Licensee may be taken by Licensee as a credit against the payments to be made by Licensee under Sections 8.2 and 8.3. Nogra’s obligations under this Section 3.5(a) shall continue for the term of the [***] License Agreement, unless this Agreement is terminated pursuant to Section 12.2, Section 12.3, Section 12.4 or Section 12.5.
(b)      Promptly after the Implementation Date, Nogra will reasonably cooperate with Licensee in obtaining a stand-by license from [***] in respect of the [***] IP, which stand-by license would provide Licensee with a direct license from [***] to the [***] IP in the event that the [***] License Agreement, or Nogra’s sublicense of the [***] IP to Licensee, is terminated prior to the termination (but not expiration) of this Agreement. Any amounts payable to [***] by Licensee under such stand-by license (but not, for clarity, consideration paid to [***] to enter into such stand-by license with Licensee or in connection with a breach of such stand-by license by Licensee or its Affiliates or sublicensees) will be creditable against the payments to be made by Licensee under Sections 8.2 and 8.3.
3.6      Revenue Interests . If at any time during the Term, Nogra (which, for clarity, includes its successors and assigns) negotiates a definitive agreement with a Third Party (“ Third Party RI Agreement ”) to, directly or indirectly, sell, assign or otherwise transfer to such Third Party any of Nogra’s rights to receive all or any portion of any payments under this Agreement, including Section 8 (“ Revenue Interests ”), Nogra will promptly (but no later than five (5) business days after such Third Party RI Agreement is in substantially final form prior to execution) provide written notice thereof (“ Nogra RI Notice” ) to Licensee, which written notice will be provided together with a copy of the Third Party RI Agreement. Licensee will have the right to acquire at least [***] and with the agreement of Nogra up to [***] , of the Revenue Interests proposed to be sold, assigned or transferred under the Third Party RI Agreement by providing written notice to Nogra, within fifteen (15) business days after the Nogra RI Notice, of its election to acquire such interest, which notice will specify the percentage of the Revenue Interests that Licensee wishes to acquire. If Licensee so elects, the Parties promptly will enter into a definitive agreement (the “ Definitive Agreement ”) on the same economic terms as the Third Party RI Agreement for the acquisition by Licensee of the percentage of the Revenue Interests elected by Licensee

19


LICENSE AGREEMENT


in its notice to Nogra, which in no event will be less than fifty percent (50%) of the Revenue Interests but may be a greater percentage if mutually agreed by the Parties, it being understood that (a) the consideration payable by Licensee for such Revenue Interests will, in the case where Licensee has elected to acquire fifty percent (50%) of such Revenue Interests, be equal to the consideration payable by the Third Party for the other fifty percent (50%) of such Revenue Interests and, in the case where the Parties have mutually agreed to a greater percentage of such Revenue Interests, be equal to a proportional amount of the consideration paid by the Third Party under the Third Party RI Agreement in respect of the percentage of such Revenue Interests being acquired by the Third Party, (b) such sale of Revenue Interests will be free and clear of all liens, claims and other encumbrances, and (c) the Definitive Agreement in all cases will contain (x) customary representations and warranties from Nogra regarding authority, absence of conflict and ownership of the relevant Revenue Interests free and clear of all liens, claims and other encumbrances, and (y) customary “true sale” provisions for royalty interests of this type (including fall-back provisions granting Licensee a first lien on the Revenue Interests in the event the transaction is not respected as a “true sale”). For clarity, Licensee’s rights under this Section 3.6 will apply with respect to each and every sale, assignment or other transfer of Revenue Interests to a Third Party, but this Section 3.6 will not apply to any permitted assignment of this Agreement under Section 13.1(a). Notwithstanding anything to the contrary in this Agreement (other than the preceding sentence), it is understood and agreed that Nogra will not be entitled to consummate any sale, assignment or other transfer of any Revenue Interests under a Third Party RI Agreement until such time as (i) Licensee has either declined to purchase any portion of the Revenue Interest it is entitled to purchase under this Section 3.6 or failed to provide notice timely as required by this Section 3.6, or (ii) Licensee has consummated the purchase, assignment or transfer of such Revenue Interest.
3.7      Right of First Negotiation .
(a)      During the Term, Licensee will have an exclusive right of first negotiation to purchase or license, on an exclusive and worldwide basis, the ROFN Product from Nogra or its Affiliates. Nogra promptly will notify Licensee in writing (the “ Nogra ROFN Notice ”) if Nogra or any of its Affiliates makes a bona fide decision to sell, license or otherwise transfer or grant any rights to any Third Party in all or any portion of the ROFN Product, or receives a bona fide offer from a Third Party (the “ Third Party Offer ”) for the sale, license or other transfer or grant of any rights in all or any portion of the ROFN Product. Together with such notice, Nogra will provide to Licensee all material information in Nogra’s or its Affiliates’ control relating to the ROFN Product (including all information provided to any Third Parties relating to the ROFN Product). Licensee will have [***] from the date of the Nogra ROFN Notice to deliver a written notice to Nogra of Licensee’s desire to engage in negotiations for the purchase or license of the ROFN Product and all intellectual property rights, data, materials and other assets relating thereto (the “ ROFN Product Assets ”). If Licensee does not provide such written notice to Nogra within such [***] period, it will be deemed that Licensee has declined to enter into such negotiations. If Licensee does provide written notice to Nogra within such [***] period indicating Licensee wishes to engage in such negotiations (the “ Licensee ROFN Notice ”), the Parties will negotiate in good faith on an exclusive basis, for at least sixty (60) days after the Licensee ROFN Notice (unless otherwise agreed by the Parties) (the “ ROFN Negotiation Period ”) an agreement for the purchase or exclusive license of the ROFN Product Assets by Licensee. In the event that a mutually acceptable agreement for the purchase or license of the applicable ROFN Product Assets has not been entered into between the Parties prior to the expiration of the ROFN Negotiation Period, Nogra or its Affiliates will be free to negotiate an agreement (if any) with any Third Party for the purchase or license of such ROFN Product Assets, provided that Nogra and its Affiliates will not enter into any agreement with a Third Party with respect to the ROFN Product Assets that includes an upfront purchase price or upfront license payment that is less than or equal to the upfront purchase price or upfront license payment (inclusive of amounts placed into an escrow account concurrently with such upfront purchase price payment or license payment) last offered

20


LICENSE AGREEMENT


by Licensee to Nogra therefor, unless Nogra first offers Licensee the opportunity to enter into an agreement with Nogra or its Affiliates on the same terms as such agreement. If Licensee notifies Nogra within [***] after receiving such notice that Licensee has decided it wishes to accept such terms, the Parties promptly thereafter will negotiate and enter into an agreement on such terms. If Licensee does not provide such notice within such [***] period, Nogra or its Affiliates will be free to enter into an agreement with such Third Party on such terms. Notwithstanding the foregoing, if Nogra or its Affiliates does not enter into a definitive agreement with a Third Party with respect to the ROFN Assets within [***] following Licensee’s failure to respond to the Nogra ROFN Notice within the time period set forth above, rejection of the Nogra ROFN Notice or the end of the ROFN Negotiation Period, as applicable, then the ROFN Product Assets will again become subject to Licensee’s right of first negotiation under this Section 3.7. Except as expressly set forth in the previous sentence, once the Nogra ROFN Notice has been provided to Licensee, whether the Parties enter into a definitive agreement or otherwise, no other compounds or products of Nogra or its Affiliates will be subject to this Section 3.7.
(b)      In all events, this Section 3.7 will not apply to (a) any permitted assignment of this Agreement under Section 13.1(a), (b) any bona fide agreement with a contractor, contract research organization or contract manufacturer, under which such Third Party performs contract services on behalf of Nogra or any of its Affiliates for the research, Development or Manufacture of any ROFN Product on a fee-for-services basis, it being understood that under an agreement for such fee-for-services, fees paid to the Third Party for such services may include milestones or royalties, or (c) any agreement with any academic institution or other not-for-profit Third Party regarding any ROFN Product, provided that Nogra will ensure that any such academic institution or other not-for-profit Third Party is obligated to assign or exclusively license (with the right to grant sublicenses through multiple tiers) to Nogra or its Affiliates all rights, title, and interests in or to any patent rights, Know-How or other intellectual property rights created, conceived or made by such academic institution or other not-for-profit Third Party in the course of working with any ROFN Product, subject to any reasonable retained rights that are reserved by such academic institution or other not-for-profit Third Party.
3.8      License Limitations . Except as expressly set forth in this Agreement, no licenses or other rights are granted or created hereunder to use any patent right, Know-How or other intellectual property rights owned or in-licensed by Nogra or any of its Affiliates. All licenses and other rights are or will be granted only as expressly provided in this Agreement, and no other licenses or other rights is or will be created or granted hereunder by implication, estoppel or otherwise.
Section 4.
Transfer of Nogra Know-How .
4.1      Documentation . During the thirty (30) day period following the Implementation Date, Nogra will provide to Licensee one (1) electronic copy of all documents, data or other information in Nogra’s or its Affiliates possession or Control as of the Execution Date to the extent that such documents, data or other information describe or contain Nogra Know-How (including any Clinical Studies on the Licensed Compounds). Nogra will provide and transfer to Licensee in the same manner all additional Nogra Know-How that may from time to time become available to or Controlled by Nogra or its Affiliates.
4.2      Technical Assistance . During the period following the Implementation Date and ending upon NDA approval for the first Licensed Product, Nogra will reasonably cooperate with Licensee to (a) provide (i) up to [***] of technical assistance without charge to Licensee with travel and accommodation expenses to be borne by Licensee and (ii) any additional hours of technical assistance as Licensee may reasonably request, for which Licensee will pay Nogra a rate of [***] per hour of such technical assistance, and (b) transfer to Licensee any additional Nogra Know-How licensed under Section 3.1, in each case to facilitate the transfer of Development efforts related to the Licensed Compounds and Licensed Products. Such cooperation will include providing Licensee with reasonable access by

21


LICENSE AGREEMENT


teleconference or in-person at Nogra’s facilities to Nogra personnel involved in the Development of the Licensed Compounds and Licensed Products to provide Licensee with a reasonable level of technical assistance and consultation in connection with the transfer of Nogra Know-How.
Section 5.
Development .
5.1      General .
(a)      Current Development Status . Prior to the Execution Date, Nogra has independently initiated Clinical Studies of the Licensed Product as further described in Exhibit E. The Parties have agreed that Licensee will exercise Commercially Reasonable Efforts to continue the Development of the Licensed Products in the Field in the Territory in accordance with the Global Development Plan, at Licensee’s sole cost and expense.
(b)      JDC Oversight . The JDC will coordinate the global Development of the Licensed Products for the Indications covered by the Global Development Plan. The JDC will, subject to the JSC’s oversight, direct the clinical and regulatory program for the Licensed Products.
5.2      Global Development Plan; Amendments; Development Responsibilities .
(a)      Global Development Plan . The global Development of the Licensed Products, including pre-clinical Development activities, will be governed by the Global Development Plan, and Licensee agrees to exercise Commercially Reasonable Efforts to conduct all of Licensee’s Development activities relating to the Licensed Products in accordance with the Global Development Plan at [***] ; without limiting the generality of the foregoing, Licensee will use Commercially Reasonable Efforts to implement the initial Global Development Plan in the form attached hereto as Exhibit A-1, and will not conduct lesser overall Development activities than those Development activities set forth in such initial Global Development Plan, unless Licensee reasonably concludes it would not be consistent with Commercially Reasonable Efforts to conduct those Development activities set forth in such initial Global Development Plan, it being understood that the foregoing does not restrict Licensee’s final decision making authority as provided in Section 2.6(b). Such initial Global Development Plan includes overall total estimated budget figures for the initial Development Budget as described in Section 5.2(b), and budget forecasts for subsequent periods as described in Section 5.2(c). The Global Development Plan will include [***] in the Global Development Plan, and will be consistent with the terms of this Agreement. [***] are included in the Global Development Plan. The terms of and activities set forth in the Global Development Plan will at all times be designed to be in compliance with all applicable Laws and to be conducted in accordance with professional and ethical standards customary in the pharmaceutical industry.
(b)      Development Budget . The Development Budget included in the Global Development Plan will set forth the estimated budgeted amounts for Development costs and expenses under the Global Development Plan during the [***] thereafter, broken down by Calendar Quarter. The Development Budget also will include a breakout of costs by functional area or category as determined by the JDC. The budget amounts indicated in Exhibit A-2 will constitute the initial estimated budget amounts for the initial Development Budget. Concurrently with the annual update of the Global Development Plan in accordance with Section 5.2(c), the JDC also will prepare, and the JSC will review and approve, an updated Development Budget covering the next [***] thereafter and a forecast of the annual development budgets through receipt of Regulatory Approval for the Primary Indications reflected in such Development Budget in the United States, Japan, and each Major European Country.
(c)      Updating and Amending the Global Development Plan .
(i)      The JDC will review the Global Development Plan at least [***] per Calendar Year and will develop detailed and specific Global Development Plan updates, which

22


LICENSE AGREEMENT


will include the Development Budget for the subsequent [***] thereafter. The JDC will submit all such updates to the JSC for review and approval, such that JSC approval would occur no later than is necessary for Licensee’s customary budgeting process. Any updates will be appended to the Global Development Plan. The JDC may also develop and submit to the JSC from time to time other proposed substantive amendments to the Global Development Plan. The JDC also will review Licensee’s performance under the then-current Global Development Plan (including the Development Budget) on a quarterly basis, and will develop detailed and specific updates and substantive amendments to the Development Budget that reflect such performance. The JSC will review proposed amendments presented by the JDC and may approve such proposed amendments or any other proposed amendments that the JSC may consider from time to time in its discretion and, upon such approval by the JSC, the Global Development Plan will be amended accordingly. Amendments and updates to the Global Development Plan, including the Development Budget, will not be effective without the approval of the JSC. In the event that the JSC does not approve an updated Global Development Plan, including the Development Budget, prior to the start of the next Calendar Year, either Party may initiate procedures to resolve the issue pursuant to Section 2.6, and the then-current Global Development Plan, together with the budgeted amounts set forth in the then-current Development Budget, will continue to apply until the Global Development Plan is determined by the JSC.
(ii)      Exhibit A-2 includes a high-level forecast of anticipated budget amounts and associated timelines for Development of Licensed Products. In reviewing and approving annual updates or amendments to the Development Budget, the JSC will consider the budget amounts and timelines reflected in Exhibit A-2.
(d)      Development Plan to Explore Additional Indications . Unless otherwise agreed by the Parties, the JDC will review available clinical and scientific literature to explore the feasibility of Developing the Licensed Product for additional Indications beyond the Primary Indications, with the goal of identifying at least [***] additional Indications for pre-clinical Development work. If the JDC identifies suitable additional Indications, the JDC will prepare and submit a proposal containing a general description of the study design and applicable Clinical Study endpoints, clinical methodology and monitoring requirements and the funding budget for each stage of clinical development for the relevant additional Indication to the JSC for the JSC’s review. Upon approval by the JSC, the Global Development Plan will be deemed to be amended to include the relevant activities for the additional Indication and the associated budget. The Parties may elect to conduct portions of such work under the Research Collaboration Agreement.
5.3      Development Efforts; Manner of Performance; Reports .
(a)      Development Efforts . Licensee will use Commercially Reasonable Efforts to Develop, and seek Regulatory Approval for, Licensed Products in [***] and the remainder of the Territory in at least the Primary Indications, it being understood and agreed that the foregoing will not be construed to require Development in each country of the Territory nor in any country of the Territory (other than [***] (as and to the extent required in this sentence)) where it would not be consistent with Commercially Reasonable Efforts to do so. Without limiting the generality of the foregoing, (i) Licensee will use Commercially Reasonable Efforts to execute and perform, or cause to be performed, the Global Development Plan, in accordance with the timelines set forth therein, and (ii) Licensee will use Commercially Reasonable Efforts to [***] of the Licensed Product for Crohn’s Disease (the granting of which would trigger a Milestone Payment in Section 8.2(a)). Licensee will conduct its Development activities in good scientific manner and in compliance with applicable Law, including Laws regarding environmental, safety and industrial hygiene, and Good Laboratory Practice, Good Clinical Practice,

23


LICENSE AGREEMENT


current standards for pharmacovigilance practice, and all applicable requirements relating to the protection of human subjects.
(b)      Cost and Expense . Licensee will be responsible, [***] , for all Development activities under this Agreement or the Global Development Plan and will keep Nogra reasonably informed as to the progress of such activities, as determined by the JDC.
(c)      Development Reports . At each meeting of the JDC, Licensee will report on the Development activities Licensee has performed or caused to be performed since the last meeting of the JDC, evaluate the work performed in relation to the goals of the Global Development Plan and provide such other information as may be reasonably requested by the JDC with respect to such Development activities. If Licensee fails to adequately provide such report at a meeting of the JDC, Nogra may request, and Licensee will provide to Nogra, a written progress report that includes information regarding accrual, site initiation, progress on protocol writing, meeting requests and briefing documents, in the case of clinical or regulatory activities, and in other cases such information as is reasonably necessary to convey a reasonably comprehensive understanding of the status of the applicable Development activity. In addition to the foregoing, Licensee will provide notice to Nogra (through the JDC) if Licensee elects to suspend or no longer proceed with Developing or Commercializing any Licensed Compounds or Licensed Products or any of the Primary Indications.
(d)      Compliance Audits . With respect to any facility or site at which Licensee conducts Development activities pursuant to this Agreement or the Global Development Plan, Nogra will have the right, at its expense, upon reasonable written notice to Licensee (and if applicable, such Affiliate), and during normal business hours, to inspect such site and facility and any records relating thereto once per year, or more often with reasonable cause, to verify Licensee’s compliance with the terms of this Agreement pertaining to Development of the Licensed Product pursuant to all applicable Laws, including Good Laboratory Practices, Good Clinical Practices and current standards for pharmacovigilance practice. Such inspection will be subject to the confidentiality provisions set forth in Section 10.
(e)      Development Standards . The JDC may establish standards applicable to Licensee’s performance of Development activities in accordance with the Global Development Plan and this Agreement. The Parties may review and discuss Licensee’s performance against such standards at each meeting of the JDC. If the JDC determines that Licensee has failed to comply with such standards and such failure could adversely affect the Development or Commercialization of any Licensed Product in the Field, or if the JDC does not agree and Nogra believes such is the case, the JDC will (or Nogra may) so notify the JSC and the JSC will discuss whether any remedial action is desirable.
5.4      Regulatory Submissions and Regulatory Approvals .
(a)      Regulatory Responsibilities . Subject to the JDC’s oversight, Licensee will be responsible, [***] , for exercising Commercially Reasonable Efforts to seek and attempt to obtain all Regulatory Approvals for the Licensed Products in the Field in the Territory in accordance with the Global Development Plan, it being understood and agreed that the foregoing will not be construed to require obtaining Regulatory Approval in each country of the Territory nor in any country of the Territory (other than [***] (as and to the extent required in this sentence)) where it would not be consistent with Commercially Reasonable Efforts to do so.
(b)      Ownership of Regulatory Approvals . Licensee will own all regulatory submissions, including all applications, for Regulatory Approvals for the Licensed Products in the Field in the Territory filed after the Implementation Date.

24


LICENSE AGREEMENT


(c)      Regulatory Cooperation . Subject to applicable Law, Nogra will have the right to fully participate in all material meetings, conferences and discussions by Licensee with Regulatory Authorities pertaining to Development of the Licensed Products in the Field or Regulatory Approval. Unless circumstances otherwise prevent, Licensee will provide Nogra with reasonable advance notice of all such meetings and other contact and advance copies of all related documents and other relevant information relating to such meetings or other contact. Licensee will provide the JSC with advance drafts of any material documents or other material correspondence pertaining to Regulatory Approvals, including any proposed labeling, that Licensee plans to submit to any Regulatory Authority. The JSC may provide comments regarding such documents and other correspondence prior to their submission, which comments Licensee will consider in good faith. Licensee will provide Nogra with copies of all material submissions it makes to, and all material correspondence it receives from, a Regulatory Authority pertaining to a Regulatory Approval. Notices, copies of submissions and correspondence, and other materials to be given in advance as provided in this Section 5.4(c)will be provided at least ten (10) days in advance unless circumstances necessitate a shorter time period, and in any event not less than a reasonable time in advance under the circumstances.
(d)      Regulatory Audits . The Parties will cooperate in good faith with respect to Regulatory Authority inspections of any site or facility where Clinical Studies or Manufacturing of Licensed Products in the Field are conducted pursuant to this Agreement, whether such site or facility is Licensee’s or its Affiliate’s or a permitted subcontractor’s (each an “ Audited Site ”). Subject to applicable Law, Nogra will be given a reasonable opportunity to attend any inspection by any Regulatory Authority of the Audited Sites, and the summary, or wrap-up, meeting with a Regulatory Authority at the conclusion of such inspection. If such attendance would result in the disclosure to Nogra of Confidential Information unrelated to the subject matter of this Agreement, the Parties will enter into a confidentiality agreement covering such unrelated subject matter. In the event that any Audited Site is found to be non-compliant with one or more Good Laboratory Practice, Good Clinical Practice, Good Manufacturing Practice or current standards for pharmacovigilance practice, Licensee will submit to Nogra a proposed recovery plan or Corrective and Preventative Actions (“ CAPA ”) as soon as reasonably practicable after Licensee, its Affiliate or its permitted subcontractor receives notification of such non-compliance from the relevant Regulatory Authority and Licensee will use reasonable efforts to implement such recovery plan or CAPA promptly after submission. Licensee agrees, to the maximum extent reasonably possible, to include in any contract or other written arrangement with its permitted subcontractors, a clause permitting Nogra to exercise its rights under this Section 5.4(d).
(e)      Pricing and Reimbursement Approvals . Licensee will be responsible for and have the exclusive right to seek and attempt to obtain pricing and reimbursement approvals for the Licensed Products in the Field in the Territory, in consultation with Nogra, and provided that Licensee will keep Nogra reasonably informed with regard to any pricing or reimbursement approval proceedings for the Licensed Products in the Field in the Territory.
Section 6.
Commercialization .
6.1      Commercialization Efforts; Manner of Performance; Reports .
(a)      Commercialization Efforts . Licensee will use Commercially Reasonable Efforts to Commercialize Licensed Products in the Territory in those countries and for those Indications for which Regulatory Approval and pricing and reimbursement approval has been obtained. Without limiting the generality of the foregoing, Licensee will use Commercially Reasonable Efforts to execute and to perform, or cause to be performed, the Commercialization Plan.

25


LICENSE AGREEMENT


(b)      Cost and Expense . Licensee will be responsible, [***] , for all Commercialization activities under this Agreement or the Commercialization Plan and will keep Nogra reasonably informed as to the progress of such activities, as determined by the JCC.
(c)      Commercialization Standards . The JCC may establish standards applicable to Licensee’s performance of Commercialization activities in accordance with the Commercialization Plan and this Agreement. The Parties may review and discuss Licensee’s performance against such standards at each meeting of the JCC. If the JCC determines that Licensee has failed to comply with such standards and such failure could adversely affect the Development or Commercialization of any Licensed Product in the Field, or if the JCC does not agree and Nogra believes such is the case, the JCC will (or Nogra may) so notify the JSC and the JSC will discuss whether any remedial action is desirable.
(d)      Commercialization Reports . At each meeting of the JCC, Licensee will report on the Commercialization activities Licensee has performed or caused to be performed in the Territory since the last meeting of the JCC, evaluate the work performed in relation to the goals of the Commercialization Plan and provide such other information as may be required by the Commercialization Plan or reasonably requested by the JCC with respect to such Commercialization activities. If Licensee fails to adequately provide such report at a meeting of the JCC, Nogra may request, and Licensee will provide to Nogra, a written progress report that describes Commercialization activities that Licensee has performed or caused to be performed since the last meeting of the JCC, evaluate the work performed in relation to the goals of the Commercialization Plan and provide such other information as may be required by the Commercialization Plan or reasonably requested by Nogra to permit Nogra to obtain a reasonably comprehensive understanding of the status and performance of the applicable Commercialization activities with respect to Licensed Products in the Territory. The JCC will evaluate Licensee’s performance each Calendar Quarter during which Commercialization activities with respect to the Licensed Products in the Field are performed in the Territory against the Commercialization Plan and provide a report of such progress to the JSC at each quarterly meeting of the JSC. In addition, Licensee will regularly meet with Nogra prior to the date [***] after First Commercial Sale of a Licensed Product in the Territory (and thereafter at Nogra’s reasonable request, up to [***] per year), to review the activities that Licensee has undertaken with regard to Commercializing the Licensed Products in the Field in the Territory. Further, Licensee will provide notice to Nogra (through the JCC) if Licensee elects to suspend or no longer proceed with Commercializing any Licensed Compounds or Licensed Products or any of the Primary Indications.
(e)      Commercialization Markings . All promotional materials, packaging and product labeling for Licensed Products will contain to the extent not prohibited by applicable Law, [***].
6.2      Commercialization Plan and Budget .
(a)      Commercialization Plan . Licensee will develop, the JCC will review, and the JSC will review and approve, a Commercialization Plan that sets forth the Commercialization activities to be undertaken with respect to Licensed Products in the Field in the Territory (which may set forth Commercialization activities in the Territory on a regional basis, rather than a country-by-country basis, defining the regions in a manner consistent with Licensee’s internal procedures). Nogra will be permitted to consult with Licensee in the development of such Commercialization Plan, provided that such consultation will not delay Licensee from developing such Commercialization Plan in accordance with its internal schedule for such development. The Commercialization of the Licensed Products in the Field in the Territory will be governed by the Commercialization Plan. The Commercialization Plan will be an [***] written plan, updated annually as provided in Section 6.2(c). Licensee will have responsibility for determining strategy and overall guidelines regarding the marketing, market access, medical affairs, and sales for Licensed Products in the Field in the Territory. The initial Commercialization Plan will be submitted to the JCC for review and approval no later than [***] prior to anticipated First Commercial

26


LICENSE AGREEMENT


Sale in the Territory. The Commercialization Plan will include an overall strategy for the Commercialization of the Licensed Products in the Field throughout the Territory, a tactical plan to accomplish such strategy, the Commercialization Budget, and annual Net Sales forecasts for the Territory. The terms of and activities set forth in the Commercialization Plan will at all times be designed to be in compliance with all applicable Laws and to be conducted in accordance with professional and ethical standards customary in the pharmaceutical industry.
(b)      Commercialization Budget . The Commercialization Budget included in the Commercialization Plan will be a written budget setting forth the budgeted amounts for costs with respect to activities set forth in the Commercialization Plan during the [***] thereafter, broken down by Calendar Quarter. The Commercialization Budget also will include [***]. Concurrently with the annual preparation of the Commercialization Budget in accordance with Section 6.2(a), the JCC also will prepare, and the JSC will review and approve, an updated Commercialization Budget covering the [***] thereafter.
(c)      Amendments and Updates . Licensee will develop and submit to the JCC for review, an updated Commercialization Plan for Commercializing the Licensed Products in the Territory for each [***] thereafter, which will include an updated Commercialization Budget for such [***] period. The JCC will submit each such Commercialization Plan to the JSC for review and approval in time to permit the JSC’s preliminary approval of the Commercialization Budget to occur no later than [***] of the prior Calendar Year. Upon the JSC’s preliminary approval, such plan will be submitted to Licensee for its internal budgeting process with a target for final approval by the JSC no later than [***] of the prior Calendar Year, and after final approval by the JSC, such Commercialization Plan will take effect on the first day of the Calendar Year to which such Commercialization Plan applies. The JCC will review Licensee’s performance under the Commercialization Plan (including the Commercialization Budget) on a quarterly basis, and will develop detailed and specific updates and substantive amendments to the Commercialization Plan that reflect such performance. The JSC will review such proposed amendments presented by the JCC and may approve such proposed amendments or any other proposed amendments that the JSC may consider from time to time in its discretion and, upon such approval by the JSC, the Commercialization Plan will be amended accordingly. Amendments and updates to the Commercialization Plan, including the Commercialization Budget, will not be effective without the approval of the JSC. In the event that the JSC does not approve an updated Commercialization Plan, including the Commercialization Budget, prior to the start of the next Calendar Year, either Party may initiate procedures to resolve the issue pursuant to Section 2.6, and the then-current Commercialization Plan, together with the budgeted amounts set forth in the then-current Commercialization Budget, will continue to apply until the Commercialization Plan is determined by the JSC.
Section 7.
Manufacturing .
7.1      JCC Oversight; Efforts . The JCC will oversee and have authority regarding CMC development, establishment of Manufacturing sources and supply chains, and Manufacture of the Licensed Compounds and Licensed Products in the Field and in the Territory, subject to the provisions of this Section 7. Licensee will use Commercially Reasonable Efforts to execute and to perform, or cause to be performed through its Affiliates and permitted subcontractors, the Manufacturing activities assigned to it in this Agreement and by the JCC.
7.2      Manufacturing Provisions .
(a)      Licensee will be solely responsible, [***] , for Manufacturing and supplying the worldwide requirements for the Development and Commercialization of the Licensed Compounds and Licensed Products in the Territory.

27


LICENSE AGREEMENT


(b)      Nogra has entered into the contracts listed on Exhibit F with Third Party contract manufacturers in connection with the Manufacture of API of the Licensed Compounds and Licensed Products (the “ Existing Manufacturing Contracts ”). Promptly after the Implementation Date, Nogra will use reasonable efforts to assign the Existing Manufacturing Contracts to Licensee, and Licensee hereby accepts any such assignment. After such assignment, Licensee will be solely responsible for the performance of the obligations under the Existing Manufacturing Contracts.
Section 8.
Licensee Payments .
8.1      Initial License Fee . Licensee will pay to Nogra within five (5) days after the Implementation Date a one-time payment of seven hundred and ten million US dollars (US$710,000,000). Celgene Corp. will pay [***] of such amount and Celgene Alpine will pay [***] of such amount. Such payment will be non-refundable and non-creditable and not subject to set-off.
8.2      Milestone Payments .
(a)      As set forth in the following table, Licensee will make the following payments (the “ Milestone Payments ”) to Nogra upon achievement of each of the milestone events set forth in the tables below (the “ Milestone Events ”) by License or its Affiliates or Sublicensees. Each Milestone Payment will be payable by Licensee to Nogra within [***] after the achievement of the corresponding Milestone Event. Such payments will be non-refundable and non-creditable and not subject to set-off (except as provided in Section 3.5 and Section 12.8).
[***]
Milestone Event
Milestone Payment
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]

[***]
For purposes of the Milestone Events, “Crohn’s Disease” means Crohn’s Disease as defined by the FDA, EMA or other Regulatory Authority, as applicable, at the time of such Milestone Event. For purposes of the Milestone Events, “Ulcerative Colitis” means Ulcerative Colitis as defined by the FDA, EMA or other Regulatory Authority, as applicable, at the time of such Milestone Event.

28


LICENSE AGREEMENT


Sales Milestones
Milestone Event
Milestone Payment
Total Net Sales of Licensed Products in the Territory in a Calendar Year equal to or greater than US$500 million
[***]
Total Net Sales of Licensed Products in the Territory in a Calendar Year equal to or greater than [***]
[***]
Total Net Sales of Licensed Products in the Territory in a Calendar Year equal to or greater than [***]
[***]
Total Net Sales of Licensed Products in the Territory in a Calendar Year equal to or greater than [***]
[***]
Total Net Sales of Licensed Products in the Territory in a Calendar Year equal to or greater than US$4 billion
[***]

(b)      Each of the Milestone Payments will be payable only once upon the first achievement of the corresponding Milestone Event, regardless of the number of Licensed Products that achieve such Milestone Events or the number of times the Milestone Event is achieved.
8.3      Royalties .
(a)      Royalties . Licensee will pay to Nogra royalties at the graduated royalty rates specified in the following table with respect to the aggregate annual worldwide Net Sales of all Licensed Products in the Territory in a Calendar Year:
Aggregate Annual Worldwide Net Sales of All Licensed Products in a Calendar Year
Royalty Rate
Portion of aggregate Annual Net Sales by Licensee, its Affiliates and Sublicensees up to and including US$ [***]
[***]
Portion of aggregate Annual Net Sales by Licensee, its Affiliates and Sublicensees greater than US$ up to and including US$ [***]
[***]
Portion of aggregate Annual Net Sales by Licensee, its Affiliates and Sublicensees greater than US$ [***]
[***]

The applicable royalty rate will be calculated as provided in this Section 8.3(a) by reference to the aggregate annual worldwide Net Sales of all Licensed Products. By way of example, in a given Calendar Year, if the aggregate annual worldwide Net Sales of all Licensed Products for which royalties are due under this Section 8.3(a) were [***].
(b)      Royalty Term . The royalties due under Section 8.3(a) will be payable on Net Sales from the First Commercial Sale of a particular Licensed Product until the later of, on a country-by-country basis, (i) the date of expiration of any issued patent or pending patent application (for no more than [***] (or [***] in the case of [***] ) from the date of filing of the earliest priority patent application in the applicable country or under the Patent Cooperation Treaty or European Patent Convention) of any Research Program Patents or Nogra Patent Right (including any applicable patent term extension) claiming the use, sale, offer for sale or importation of such Licensed Product in such country, or (ii) [***] after the commercial launch of a Generic Product in such country (provided such Generic Product

29


LICENSE AGREEMENT


continues to be sold commercially in such country as of such [***] ), but, in any event, at least [***] from such First Commercial Sale of such Licensed Product in such country.
(c)      [***] Sales . If royalties are payable under this Section 8.3 on Net Sales of a particular Licensed Product for use in [***] after the expiration of all [***] Nogra Patent Rights (including any applicable patent term extension) claiming the use, sale, offer for sale or importation of such Licensed Product, then the royalties payable on Net Sales of such Licensed Product for use in [***] will be calculated as set forth in Section 8.3(a), provided that the portion of the royalties payable on Net Sales of such Licensed Product for use in [***] will be reduced by [***] after the date of expiration of all such [***] Nogra Patent Rights. The royalty rate tier applicable to the Net Sales of such Licensed Product for use in [***] will be applied pro rata on a Calendar Quarter-by-Calendar Quarter basis with reference to the aggregate annual worldwide Net Sales of all Licensed Products in the Territory. For clarity, there will be no reduction on royalties payable on Net Sales of Licensed Products for use in any country or region in the Territory other than in [***] .
(d)      Only One Royalty . Only one royalty will be due with respect to the sale of the same unit of Licensed Product. Only one royalty will be due hereunder on the sale of a Licensed Product even if the manufacture, use, sale, offer for sale or importation of such Licensed Product infringes more than one claim of the Nogra Patent Rights.
(e)      No Deductions . There will be no deductions or other reductions to any royalties payable to Nogra hereunder, except to the extent provided by Section 8.3(c). All royalty payments will be non-refundable and non-creditable and not subject to set-off (except as provided in Section 3.5 and Section 12.8).
8.4      Sublicense Payments . Licensee will pay Nogra an amount equal to [***] of all Sublicense Payments. Such amounts will be due to Nogra within [***] after receipt of the applicable Sublicense Payment. Such amounts will be non-refundable and non-creditable and not subject to set-off (except as provided in Section 12.8).
8.5      Payment Terms .
(a)      Manner of Payment . All payments to be made by Licensee hereunder will be made in United States dollars by wire transfer to such bank account as Nogra may designate.
(b)      Reports and Royalty Payments . For as long as royalties are due under Section 8.3(a), Licensee will furnish to Nogra a written report, within [***] after the end of each Calendar Quarter, showing the amount of Net Sales of Licensed Products and royalty due for such Calendar Quarter. Royalty payments for each Calendar Quarter will be due at the same time as such written report for the Calendar Quarter. The report will include, at a minimum, the following information for the applicable Calendar Quarter, each listed by product and by country of sale: (i) the number of units of Licensed Products sold by Licensee and its Affiliates and Sublicensees on which royalties are owed Nogra hereunder; (ii) the gross amount received for such sales; (iii) deductions taken from Net Sales as specified in the definition thereof; (iv) Net Sales; (v) the royalties and Milestone Payments owed to Nogra, listed by category; and (vi) the computations for any applicable currency conversions pursuant to Section 8.5(d). All such reports will be treated as Confidential Information of Licensee.
(c)      Records and Audits . Licensee will keep, and will cause each of its Affiliates and Sublicensees, as applicable, to keep adequate books and records of accounting for the purpose of calculating all amounts due to Nogra hereunder. For the [***] next following the end of the Calendar Year to which each will pertain, such books and records of accounting (including those of Licensee’s Affiliates and Sublicensees, as applicable) will be kept at each of their principal place of business and will be open for inspection at reasonable times and upon reasonable notice by an independent certified accountant

30


LICENSE AGREEMENT


selected by Nogra, and which is reasonably acceptable to Licensee, for the sole purpose of inspecting the amounts due to Nogra under this Agreement. In no event will such inspections be conducted hereunder more frequently than once every [***] . Such accountant must have executed and delivered to Licensee and its Affiliates and Sublicensees, as applicable, a confidentiality agreement as reasonably requested by Licensee, which will include provisions limiting such accountant’s disclosure to Nogra to only the results and basis for such results of such inspection. The results of such inspection, if any, will be binding on both Parties. Any underpayments will be paid by Licensee within [***] of notification of the results of such inspection. Any overpayments will be fully creditable against amounts payable in subsequent payment periods. Nogra will pay for such inspections, except that in the event there is any upward adjustment in amounts payable for any Calendar Year shown by such inspection of more than [***] of the amount paid, Licensee will reimburse Nogra for any reasonable out-of-pocket costs of such accountant. Any underpayments or overpayments under this Section 8.5(c) will be subject to the currency exchange provisions set forth in Section 8.5(d) as applied to the Calendar Quarter during which the payment obligations giving rise to such underpayment or overpayment were incurred by Licensee.
(d)      Currency Exchange . With respect to Net Sales invoiced in United States dollars, the Net Sales and the amounts due to Nogra hereunder will be expressed in United States dollars. With respect to Net Sales invoiced in a currency other than United States dollars, the Net Sales will be expressed in the domestic currency of the entity making the sale, together with the United States dollars equivalent, calculated based on standard methodologies employed by Licensee for consolidation purposes for the Calendar Quarter for which remittance is made for royalties. For purposes of calculating the Net Sales thresholds set forth in Section 8.3(a), the aggregate Net Sales with respect to each Calendar Quarter within a Calendar Year will be calculated based on the currency exchange rates for the Calendar Quarter in which such Net Sales occurred, in a manner consistent with the exchange rate procedures set forth in the immediately preceding sentence.
(e)      Taxes . If Licensee (or any other permitted payor hereunder) is required by the Law of any jurisdiction to make any deduction, or withhold from any sum payable to Nogra hereunder, then [***] . Notwithstanding the foregoing, the requirement that [***] will not apply: [***]. The Parties will cooperate with each other in seeking relief or reduction in the deduction or withholding of any tax under any double taxation or other similar treaty or agreement from time to time in force and in seeking to receive a refund of any withholding tax or to claim a foreign tax credit. In addition, the Parties will cooperate in accordance with applicable Laws to minimize indirect taxes (such as value added tax, sales tax, consumption tax and other similar taxes) in connection with this Agreement.
(f)      Blocked Payments . In the event that, by reason of applicable Law in any country, it becomes impossible or illegal for Licensee to transfer, or have transferred on its behalf, payments owed Nogra hereunder, Licensee will promptly notify Nogra of the conditions preventing such transfer and such payments will be deposited in local currency in the relevant country to the credit of Nogra in a recognized banking institution designated by Nogra or, if none is designated by Nogra within a period of thirty (30) days, in a recognized banking institution selected by Licensee, as the case may be, and identified in a written notice given to Nogra.
(g)      Interest Due . Licensee will pay Nogra interest on any payments that are not paid on or before the date such payments are due under this Agreement at a rate of [***] or the maximum applicable legal rate, if less, calculated on the total number of days payment is delinquent.
8.6      Mutual Convenience . The royalty and other payment obligations set forth hereunder have been agreed to by the Parties for the purpose of reflecting and advancing their mutual convenience, including the ease of calculating and paying royalties and other amounts to Nogra. Licensee hereby stipulates to the fairness and reasonableness of such royalty and other payments obligations and covenants not to allege or assert, nor to allow any of its Sublicensees or Affiliates to allege or assert, nor further to

31


LICENSE AGREEMENT


cause or support any other Third Parties to allege or assert, that any such royalty or other payments obligations are unenforceable or illegal in any way.
Section 9.
Patent Prosecution, Infringement and Extensions .
9.1      Prosecution and Maintenance .
(a)      By the Parties Jointly . Promptly after the Implementation Date, Nogra will provide Licensee with copies of the prosecution files for all patents and patent applications listed on Exhibit C. The Parties will jointly Prosecute the Nogra Patent Rights, and Licensee will have final decision making authority for those Prosecution activities, provided that if Nogra disagrees with any final decision made by Licensee, Nogra may submit the dispute for resolution to an independent patent expert pursuant to Section 9.1(d). Nogra will act as the party of record with each applicable Governmental Authority, and Nogra will select counsel in the Territory for those Prosecution activities (which counsel, for clarity, will represent Nogra but not the Parties jointly). Each Party will provide to the other Party copies of any papers relating to the Prosecution of Nogra Patent Rights promptly upon receipt, or reasonably in advance of their filing, for the other Party to review and comment thereon. Nogra and its counsel will prepare the first draft of all papers for submission. Each Party (and its counsel) will have the right to review, and all reasonable comments will be accepted on, those papers. [***]. In Prosecuting the Nogra Patent Rights, the Parties will endeavor to the extent practicable to maximize the patent term and patent protection for the Licensed Compounds and Licensed Products.
(b)      By Nogra . In no event will any of the Nogra Patent Rights fail to be filed or be permitted to lapse or be abandoned in any country, or no new patent application be filed claiming priority to a patent application with the Nogra Patent Rights before such patent application’s issuance, or extended, without Nogra first being given an opportunity to assume full responsibility for the continued Prosecution of such Nogra Patent Rights, unless such failure to file, lapse, abandonment or filing is jointly agreed upon by the Parties. In the event that the Parties acting jointly cannot agree on whether or not to file or continue the Prosecution of or extend a patent application or patent within the Nogra Patent Rights in any country at least forty-five (45) days prior to any filing deadline or pending lapse or abandonment thereof (including because any dispute resolution process under Sections 13.7(a) and 13.7(b) has not yet been completed), Nogra will have the right, but not the obligation, to assume sole responsibility for the Prosecution of such patent rights, with counsel of Nogra’s own choice, by delivery by Nogra of written notice to Licensee of its election to assume such sole responsibility. Any such patent application(s) and patent(s) will remain a “Nogra Patent Right” hereunder, [***].
(c)      Prosecution Budget . Within thirty (30) days after the Implementation Date with respect to the current Calendar Year, and at least thirty (30) days prior to the end of the third Calendar Quarter of each Calendar Year thereafter with respect to the following Calendar Year, the Parties will meet to discuss and agree upon an estimated budget for Prosecution activities to be undertaken pursuant to Sections 9.1(a) and 9.1(b) for such Calendar Year [***]. The Parties will endeavor to stay within the budget, acting reasonably. If during any Calendar Year circumstances arise that require an adjustment to such budget or if the anticipated Prosecution activities will exceed the budget (including filing a patent application for a new invention), then upon either Party’s request, the Parties will meet in good faith to discuss and agree upon a reasonable adjustment to the budget, and the Parties will amend the estimated budget if they mutually agree on any such adjustment. If the Parties are unable to agree upon a budget, or if the Parties disagree on any adjustment to the budget, the matter may be submitted to the Third Party Patent Counsel pursuant to Section 9.1(d) for resolution at the request of either Party.
(d)      Prosecution Disputes. If Nogra disputes any Prosecution related decision made by Licensee pursuant to Section 9.1(a), if Licensee disputes any Prosecution related decision made by Nogra pursuant to Section 9.1(b), if the Parties are unable to agree upon a Prosecution budget pursuant to

32


LICENSE AGREEMENT


Section 9.1(c), if the Parties disagree on any adjustment to the Prosecution budget pursuant to Section 9.1(c), [***] , the disputing Party may submit such dispute for resolution by a Third Party patent counsel mutually selected by the Parties who (and whose firm) is not, and was not at any time during the five (5) years prior to such dispute, an employee, consultant, legal advisor, officer, director or stockholder of, and does not have any conflict of interest with respect to, either Party (the “ Third Party Patent Counsel ”). Such Third Party Patent Counsel will resolve the dispute in accordance with the principles set forth in this Section 9.1. Any decision by the Third Party Patent Counsel will be made in a manner consistent, and not otherwise in conflict, with the terms of this Agreement. The Parties will equally share in the costs and expenses of retaining such Third Party Patent Counsel for any Prosecution disputes.
(e)      Patent Extensions; Orange Book Listings; Patent Certifications .
(i)      Patent Term Extension . If elections with respect to obtaining patent term extension or supplemental protection certificates or their equivalents in any country with respect to any Licensed Product becomes available, upon Regulatory Approval or otherwise, [***] . In addition, the Parties will seek the maximum patent term extension available for all Nogra Patent Rights in accordance with this Section 9.1(e)(i). The Prosecution activities related to the foregoing will be governed by Sections 9.1(a), 9.1(b) and 9.1(d).
(ii)      Data Exclusivity and Orange Book Listings . With respect to data exclusivity periods (such as those periods listed in the Orange Book (including any available pediatric extensions) or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, and all equivalents in any country), Licensee, in consultation with Nogra, will seek and maintain all such data exclusivity periods that may be available for any of the Licensed Products. Licensee will determine which Nogra Patent Rights, if any, will be listed in the Orange Book or any similar patent listing in any country with respect to the Licensed Products.
(iii)      Notification of Patent Certification . Nogra will notify and provide Licensee with copies of any allegations of alleged patent invalidity, unenforceability or non-infringement of a Nogra Patent Right pursuant to a Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application, an application under §505(b)(2) of the United States Federal Food, Drug, and Cosmetic Act (as amended or any replacement thereof), or any other similar patent certification by a Third Party, and any foreign equivalent thereof. Such notification and copies will be provided to Licensee within five (5) days after Nogra receives such certification, and will be sent to the address set forth in Section 13.6.
(f)      Cooperation . Each Party will reasonably cooperate with the other Party in the Prosecution of the Nogra Patent Rights. Such cooperation includes promptly executing all documents, or requiring inventors, subcontractors, employees and consultants and agents of such Party and its Affiliates, and for Licensee, Sublicensees, to execute all documents, as reasonable and appropriate so as to enable the Prosecution of any such Nogra Patent Rights in any country.
(g)      CREATE Act . Notwithstanding anything to the contrary in this Agreement, each Party will have the right to invoke the Cooperative Research and Technology Enhancement Act of 2004, 35 U.S.C. § 103(c)(2)-(c)(3) (the “ CREATE Act ”) when exercising its rights under this Agreement, but only with the prior written consent of the other Party in its sole discretion. In the event that a Party intends to invoke the CREATE Act, once agreed to by the other Party as required by the preceding sentence, it will notify the other Party and the other Party will cooperate and coordinate its activities with such Party with respect to any filings or other activities in support thereof. The Parties acknowledge and agree that this Agreement is a “joint research agreement” as defined in the CREATE Act.

33


LICENSE AGREEMENT


9.2      Enforcement and Defense .
(a)      By Licensee . In the event that Nogra or Licensee becomes aware of a suspected infringement of any Nogra Patent Right within the scope of the license grant in Section 3.1, or any such Nogra Patent Right is challenged in any action or proceeding (other than any interferences, oppositions, reissue proceedings or reexaminations, which are addressed in Section 9.1), such Party will notify the other Party promptly, and following such notification, the Parties will confer. Licensee will have the right, but will not be obligated, to defend any such action or proceeding or bring an infringement action with respect to such infringement at its own expense, in its own name and entirely under its own direction and control, or settle any such action or proceeding by sublicense. Nogra will reasonably assist Licensee in any action or proceeding being defended or prosecuted if so requested, and will be named in or join such action or proceeding if requested by Licensee or if Nogra so requests. [***]. Nogra may participate in any such action or proceeding at its election and expense [***] , whether or not Nogra is a named party to any such action or proceeding, and Licensee will reasonably cooperate with Nogra in such participation (including providing copies of filings and other submissions before their filing or submission for Nogra’s review and comment) . No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a Nogra Patent Right may be entered into by Licensee without the prior written consent of Nogra.
(b)      By Nogra . If Licensee elects not to settle, defend or bring any action for infringement described in Section 9.2(a) within six (6) months after the becoming aware of such suspected infringement or action or proceeding, (and in all events at least ten (10) days before the end of the applicable Hatch-Waxman Time Period, as defined below), then Nogra may defend or bring such action at its own expense, in its own name and entirely under its own direction and control, subject to the following: Licensee will reasonably assist Nogra in any action or proceeding being defended or prosecuted if so requested, and will join such action or proceeding if requested by Nogra. Licensee will have the right to participate in any such action or proceeding with its own counsel at its own expense and without reimbursement. For purposes of this Agreement, “ Hatch-Waxman Time Period ” means the applicable period of time during which a patent holder or licensee has the right to file an infringement suit to maintain certain rights and privileges upon receipt of Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application or an application under § 505(b)(2) of the United States Food, Drug, and Cosmetic Act (as amended), or any other similar patent certification by a Third Party, or any foreign equivalent thereof.
(c)      Withdrawal . If either Party brings an action or proceeding under this Section 9.2 and subsequently ceases to pursue or withdraws from such action or proceeding, it will promptly notify the other Party and the other Party may substitute itself for the withdrawing Party under the terms of this Section 9.2.
(d)      Damages . In the event that either Party exercises the rights conferred in this Section 9.2 and recovers any damages or other sums in such action or proceeding or in settlement thereof, such damages or other sums recovered will first be applied to all out-of-pocket costs and expenses incurred by the Parties in connection therewith (including attorney’s fees), unless not reimbursable hereunder. If such recovery is insufficient to cover all such costs and expenses of both Parties, the controlling Party’s costs will be paid in full first before any of the other Party’s costs. If after such reimbursement any funds will remain from such damages or other sums recovered, such funds will be retained by the Party that controlled the action or proceeding under this Section 9.2; provided, however, that (i) if Licensee is the Party that controlled such action or proceeding, the remaining recovery will be [***] , and (ii) if Nogra is the Party that controlled such action or proceeding [***] .

34


LICENSE AGREEMENT


9.3      Patent Marking . Licensee will mark, and will cause all of its Affiliates and Sublicensees to mark, Licensed Products with all Nogra Patent Rights in accordance with applicable Law, which marking obligation will continue for as long as required under applicable Law.
Section 10.
Confidential Information and Publicity .
10.1      Confidentiality .
(a)      Confidential Information . Except as expressly provided herein, each of the Parties agrees that, for itself and its Affiliates, and during the Term and for a period of [***] thereafter, a Party and its Affiliates (the “ Receiving Party ”) receiving Confidential Information of the other Party or its Affiliates (the “ Disclosing Party ”) will (i) not disclose such Confidential Information to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted below, and (ii) not use such Confidential Information for any purpose except those licensed or otherwise authorized or permitted by this Agreement.
(b)      Exceptions . The obligations in Section 10.1(a) will not apply with respect to any portion of the Confidential Information that the Receiving Party can show by competent proof:
(i)      is publicly disclosed by the Disclosing Party, either before or after it is disclosed to the Receiving Party hereunder;
(ii)      was known to the Receiving Party or any of its Affiliates, without any obligation to keep it confidential or any restriction on its use, prior to disclosure by the Disclosing Party;
(iii)      is subsequently disclosed to the Receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof and without any obligation to keep it confidential or any restriction on its use;
(iv)      is published by a Third Party or otherwise becomes publicly available or enters the public domain, either before or after it is disclosed to the Receiving Party; or
(v)      has been independently developed by employees or contractors of the Receiving Party or any of its Affiliates without the aid, application or use of Confidential Information of the Disclosing Party.
(c)      Authorized Disclosures . The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the extent (and only to the extent) such disclosure is reasonably necessary in the following instances:
(i)      subject to Section 10.2, by either Party in order to comply with applicable Laws (including any securities Laws or regulation or rules of a securities exchange) or with a legal or administrative proceeding;
(ii)      by either Party, in connection with prosecuting or defending litigation, making regulatory filings, and Prosecuting Nogra Patent Rights in accordance with Section 9;
(iii)      by Licensee, to its Affiliates, potential and future Sublicensees, permitted acquirers or assignees under Section 13.1, subcontractors, investment bankers, investors, lenders, and their and each of Licensee and its Affiliates’ respective directors, employees, contractors and agents; and
(iv)      by Nogra to its Affiliates, permitted acquirers or assignees under Section 13.1, subcontractors, investment bankers, investors (including royalty purchasers), lenders, and their and each of Nogra and its Affiliates’ respective directors, employees, contractors and agents,

35


LICENSE AGREEMENT


provided that (A) with respect to Section 10.1(c)(i) or 10.1(c)(ii), where reasonably possible, the Receiving Party will notify the Disclosing Party of the Receiving Party’s intent to make any disclosure pursuant thereto sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information to be disclosed, and (B) with respect to Sections 10.1(c)(iii) and 10.1(c)(iv), each of those named people and entities must be bound prior to disclosure by confidentiality and non-use restrictions at least as restrictive as those contained in this Section 10 (other than investment bankers, investors and lenders, who must be bound prior to disclosure by commercially reasonable obligations of confidentiality). Further, with respect to Section 10.1(c)(i) , in the event either Party intends to make a disclosure pursuant thereto, the other Party will have a reasonable time period to review and comment on the proposed disclosure or filing that relates to this Agreement (including the right to request redaction of material terms to the extent permitted by any applicable Laws), and the Party intending to make such disclosure will consider in good faith any reasonable comments thereon provided by the other Party.
10.2      Terms of this Agreement; Publicity .
(a)      Terms of this Agreement . The Parties agree that the terms of this Agreement will be treated as Confidential Information of both Parties, and thus may be disclosed only as permitted by this Section 10.
(b)      Restrictions . No Party to this Agreement will originate any publicity, news release or other public announcement, written or oral, relating to this Agreement, the transactions contemplated hereby or the terms hereof, or the existence of any arrangement between the Parties, without the prior written consent of the other Party, whether named in such publicity, news release or other public announcement or not, except as required by applicable Laws.
(c)      Review . In the event either Party (the “ Issuing Party ”) desires to issue any publicity, new release or other public announcement relating to this Agreement or the transactions contemplated hereby or the terms hereof, the Issuing Party will provide the other Party (the “ Reviewing Party ”) with a copy of the proposed release, announcement or statement (the “ Release ”). The Issuing Party will specify with each such Release, taking into account the urgency of the matter being disclosed, a reasonable period of time within which the Reviewing Party may provide any comments on such Release and if the Receiving Party fails to provide any comments during the response period called for by the Issuing Party, the Reviewing Party will be deemed to have consented to the issuance of such Release; provided, however, that as it relates to the disclosure of the results of any clinical trial conducted by Licensee or any health or safety matter related to a Licensed Product, Nogra acknowledges that announcements may need to be made on extremely short notice, and although Licensee will endeavor to provide Nogra adequate time for such a review, Licensee will be free to make necessary public disclosures as promptly as it deems necessary and appropriate. If the Reviewing Party provides any comments, the Parties will consult on such Release and work in good faith to prepare a mutually acceptable Release. If the Reviewing Party does not provide its consent, not to be unreasonably withheld, conditioned or delayed, to the issuance of the Release, the Issuing Party will not issue the Release except as required by Law or as otherwise expressly set forth herein. Each Party may subsequently publicly disclose any information previously contained in any Release so consented to. Each Party acknowledges and agrees that the other Party may submit this Agreement to the SEC and if a Party does submit this Agreement to the SEC, such Party agrees to consult with the other Party with respect to the preparation and submission of, a confidential treatment request for this Agreement. If a Party is required by Law to make a disclosure of the terms of this Agreement in a filing with or other submission to the SEC, and (i) such Party has provided copies of the disclosure to the other Party as far in advance of such filing or other disclosure as is reasonably practicable under the circumstances, (ii) such Party has promptly notified the other Party in writing of such requirement and any respective timing constraints, and (iii) such Party has

36


LICENSE AGREEMENT


given the other Party a reasonable time under the circumstances from the date of notice by such Party of the required disclosure to comment upon, request confidential treatment or approve such disclosure, then such Party will have the right to make such public disclosure at the time and in the manner reasonably determined by its counsel to be required by Law. Notwithstanding anything to the contrary herein, it is hereby understood and agreed that if a Party seeking to make a disclosure to the SEC as set forth in this Section 10.2, and the other Party provides comments within the respective time periods or constraints specified herein or within the respective notice, the Party seeking to make such disclosure or its counsel, as the case may be, will in good faith (A) consider incorporating such comments and (B) use reasonable efforts to incorporate such comments, limit disclosure or obtain confidential treatment to the extent reasonably requested by the other Party.
(d)      Press Release Regarding Execution of the Agreement . The Parties agree to issue the joint press release in Exhibit G promptly following the Implementation Date.
10.3      Relationship to the Confidentiality Agreement . This Agreement supersedes the Confidentiality Agreement, provided that all “Confidential Information” disclosed or received by the Parties thereunder will be deemed “Confidential Information” hereunder and will be subject to the terms and conditions of this Agreement.
10.4      Publications . Licensee recognizes that Nogra may wish to publish or present information relating to a Licensed Compound or Licensed Product. All publications involving a Licensed Compound or Licensed Product will first be submitted to Licensee’s Alliance Manager, and Licensee’s Alliance Manager will route the publication to the appropriate reviewer(s) within Licensee’s organization. Licensee will have sixty (60) days to review the publication for potential patent right or other intellectual property rights protection. If Licensee identifies subject matter in such publication which, if published would adversely affect either Party’s patent rights, then upon Licensee’s written request, Nogra will delay submission of its publication for an additional period, not to exceed [***] , in order to allow for the filing of a patent application or other appropriate intellectual property protection. Further, Nogra may not publish Confidential Information of Licensee or its Affiliates or Sublicensees without Licensee’s prior written consent. [***].
Section 11.
Warranties; Limitations of Liability; Indemnification .
11.1      Nogra Representations and Warranties . Except as set forth on Schedule 11.1, Nogra covenants, represents and warrants to Licensee that as of the Execution Date:
(a)      Nogra is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized, and it has full right and authority to enter into this Agreement and to grant the licenses and other rights to Licensee as herein described.
(b)      This Agreement has been duly authorized by all requisite corporate action, and when executed and delivered will become a valid and binding contract of Nogra enforceable against Nogra in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other Law affecting creditors’ rights generally from time to time in effect, and to general principles of equity.
(c)      The execution, delivery and performance of this Agreement does not conflict with any other agreement, contract, instrument or understanding, oral or written, to which Nogra is a party, or by which it is bound, nor will it violate any applicable Laws.
(d)      All necessary consents, approvals and authorizations of all Governmental Authorities and other Persons required to be obtained by Nogra in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.

37


LICENSE AGREEMENT


(e)      Except as set forth on Schedule 11.1(e), Nogra represents and warrants to Licensee that as of the Execution Date:
(i)      Attached hereto as Exhibit C is a complete and accurate list of all patent rights owned or in-licensed by Nogra or any of its Affiliates as of the Execution Date that the manufacture, use, sale, offer for sale or importation of any Licensed Compound or Licensed Product would infringe.
(ii)      All Nogra Patent Rights as of the Execution Date are listed on Exhibit C, are exclusively owned by Nogra, and are free and clear of any (i) liens, charges, security interests, and encumbrances or licenses and (ii) claims or covenants that would conflict with or limit the scope of any of the rights or licenses granted to Licensee hereunder, or would give rise to any Third Party claims for payment against Licensee or its Affiliates.
(iii)      [***], the Nogra Patent Rights are in full force and effect, have been duly applied for and registered in accordance with applicable Law, and have no unsatisfied past maintenance or annuity obligation.
(iv)      Nogra or its Affiliates have secured from all employees, consultants, contractors and other Persons who have contributed to the creation or invention of any of the Nogra Patent Rights and Nogra Know-How a written agreement assigning to Nogra or its Affiliates all rights to such creations, inventions, Nogra Patent Rights, or Nogra Know-How, and such Affiliates have assigned all such rights to Nogra. None of Nogra or any of its Affiliates has received any written communication challenging Nogra’s ownership of or right to use the Nogra Patent Rights or Nogra Know-How.
(v)      None of Nogra nor any of its Affiliates has entered into any agreement or otherwise licensed, granted, assigned, transferred, conveyed or otherwise encumbered or disposed of any right, title or interest in or to any of its assets, including any intellectual property rights or any Licensed Compound or Licensed Product, that would conflict with or impair the scope of any rights or licenses granted hereunder. None of Nogra nor any of its Affiliates is a party to any license, sublicense or other agreement pursuant to which Nogra or such Affiliate has received a license or other rights relating to any Licensed Compound or Licensed Product.
(vi)      No Third Party action or proceeding has been commenced or threatened in writing, alleging that any of the issued claims included in the Nogra Patent Rights are invalid or unenforceable, or that Development or Manufacture of the Nogra Patent Rights, Nogra Know-How, Licensed Compound or Licensed Product prior to the Execution Date infringed or misappropriated, or would infringe or misappropriate, the intellectual property rights of such Third Party.
(vii)      [***] and notwithstanding 35 USC §271(e)(2) or any comparable Laws, the research, Development and Commercialization [***] of GED-0301 does not infringe or misappropriate any patent rights, Know-How or other intellectual property rights of any Third Party.
(f)      Nogra has furnished or made available to Licensee all material information that is in Nogra’s or its Affiliates’ possession concerning the Nogra Patent Rights, Nogra Know-How, Licensed Compounds and Licensed Products relevant to the safety or efficacy thereof, and all material Regulatory Materials and other material correspondence with Regulatory Authorities relating to the Licensed Compounds and Licensed Products, and to Nogra’s Knowledge, such information is accurate, complete and true in all material respects.

38


LICENSE AGREEMENT


(g)      GED-0301 is the only compound directed to SMAD7 Controlled by Nogra or any of its Affiliates that is known by Nogra through human clinical trials to have a potential therapeutic, prophylactic or palliative application in humans as of the Execution Date.
(h)      Neither Nogra nor any of its Affiliates has received any written notice alleging any material breach (and neither Nogra nor any of its Affiliates is currently in material breach, nor will it be in material breach as a result of the delivery and execution of this Agreement) of the [***] License Agreement, the [***] Research Agreement or any Existing Manufacturing Contract.
(i)      The [***] License Agreement, the [***] Research Agreement and the Existing Manufacturing Contracts all either have been entered into by Nogra or have been validly assigned to Nogra.
For purposes of this Agreement, “ Knowledge ” means the [***] knowledge of a Party or any of its Affiliates [***] .
11.2      Licensee Representations and Warranties . Licensee covenants, represents and warrants to Nogra that as of the Execution Date:
(a)      Each of Celgene Corp. and Celgene Alpine is duly organized, validly existing and in good standing under the laws of the state or jurisdiction in which it is organized, and it has full right and authority to enter into this Agreement and to accept the rights and licenses granted as herein described.
(b)      This Agreement has been duly authorized by all requisite corporate action, and when executed and delivered will become a valid and binding contract of Licensee enforceable against Licensee in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other Law affecting creditors’ rights generally from time to time in effect, and to general principles of equity.
(c)      The execution, delivery and performance of this Agreement does not conflict with any other agreement, contract, instrument or understanding, oral or written, to which Licensee is a party, or by which it is bound, nor will it violate any applicable Laws.
(d)      All necessary consents, approvals and authorizations of all Governmental Authorities and other Persons required to be obtained by Licensee in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.
11.3      Disclaimer . EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER NOGRA NOR LICENSEE MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO ANY NOGRA PATENT RIGHTS OR NOGRA KNOW-HOW, ANY LICENSED COMPOUNDS, OR ANY LICENSED PRODUCTS, INCLUDING ANY WARRANTIES OF VALIDITY OR ENFORCEABILITY OF ANY PATENTS, TITLE, QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, PERFORMANCE OR NONINFRINGEMENT OF ANY THIRD PARTY PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS.
11.4      Performance by Affiliates and Subcontractors . Each Party will have the right to utilize the services of its Affiliates or Third Party subcontractors in connection with the performance of the activities for which it is responsible under the Global Development Plan or the Commercialization Plan; provided, however, that such Party will remain responsible under this Agreement for the performance and compliance of such Affiliates and Third Party subcontractors. The Party utilizing such subcontractors also will ensure that such Affiliate or Third Party is subject to obligations protecting and limiting use and

39


LICENSE AGREEMENT


disclosure of Confidential Information, the Licensed Compounds, Licensed Products, patent rights and Know-How at least to the same extent as set forth under this Agreement.
11.5      Indemnification .
(a)      Licensee Indemnity . Licensee hereby agrees to indemnify, defend and hold Nogra and its Affiliates, and their respective employees, directors, agents and consultants, and their respective successors, heirs and assigns and representatives (“ Nogra Indemnitees ”) harmless from and against all claims, liability, threatened claims, damages, expenses (including reasonable attorneys’ fees), suits, proceedings, losses or judgments, whether for money or equitable relief, of any kind, including but not limited to death, personal injury, illness, product liability or property damage or the failure to comply with applicable Law (collectively, Losses ”), arising from any Third Party claim due to (i) the Development, Commercialization (including promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, Manufacture, labeling, handling or storage, or use of, or exposure to, any Licensed Compound or Licensed Products by or for Licensee or any of its Affiliates, Sublicensees, subcontractors, agents and consultants; or (ii) Licensee’s (or its Affiliates’ and Sublicensees’) use or practice of Nogra Patent Rights and Nogra Know-How; or (iii) any material breach of any obligation, representation or warranty of Licensee hereunder; or (iv) Licensee’s (or its Affiliates’ and Sublicensees’) gross negligence, recklessness or willful misconduct, except, in each case, to the extent that such Losses arise from (a) infringement or misappropriation of patent or other intellectual property rights or know-how by any Nogra Indemnitees, (b) the gross negligence, recklessness or willful misconduct of any Nogra Indemnitees, or (c) any material breach of any obligation, representation or warranty of Nogra hereunder. It is understood and agreed that the Nogra Indemnitees will not have any recourse with respect to any Taxing Authority claim to the extent relating to taxes (other than as set forth in Section 8.5(e)). “ Taxing Authority ” for purposes of this Agreement means any Governmental Authority having jurisdiction over the assessment, determination, collection or imposition of any taxes (domestic or foreign).
(b)      Nogra Indemnity . Nogra hereby agrees to indemnify, defend and hold Licensee, its Affiliates and Sublicensees, and their respective employees, directors, agents and consultants, and their respective successors, heirs and assigns and representatives (“ Licensee Indemnitees ”) harmless from and against all Losses arising from any Third Party claim due to (i) the Development, transfer, importation or exportation, Manufacture, labeling, handling or storage, or use of, or exposure to, any Licensed Compounds or Licensed Products by or for Nogra or any of its Affiliates, sublicensees, subcontractors, agents and consultants, in each case occurring prior to the Implementation Date; or (ii) Nogra’s (or its Affiliates’ and sublicensees) use or practice of Nogra Patent Rights and Nogra Know-How, in each case occurring prior to the Implementation Date; or (iii) any material breach of any obligation, representation or warranty of Nogra hereunder; or (iv) Nogra’s (or its Affiliates’ and sublicensees’) gross negligence, recklessness or willful misconduct, except, in each case, to the extent that such Losses arise from (A) infringement or misappropriation of patent or other intellectual property rights or know-how by any Licensee Indemnitees, (B) the gross negligence, recklessness or willful misconduct of any Licensee Indemnitees, or (C) any material breach of any obligation, representation or warranty of Licensee hereunder. It is understood and agreed that the Licensee Indemnitees will not have any recourse with respect to any Taxing Authority claim to the extent relating to taxes (other than as set forth in Section 8.5(e)).
(c)      Indemnification Procedure . A claim to which indemnification applies under Section 11.5(a) or Section 11.5(b) will be referred to herein as a “ Claim ”. If any Person (each, an “ Indemnitee ”) intends to claim indemnification under this Section 11.5, the Indemnitee will notify the other Party (the “ Indemnitor ”) in writing promptly upon becoming aware of any claim that may be a Claim (it being understood and agreed, however, that the failure by an Indemnitee to give such notice will

40


LICENSE AGREEMENT


not relieve the Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a result of such failure to give notice). Subject to Section 12.8, the Indemnitor will have the right to assume and control the defense of such Claim at its own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee; provided however that (i) the Claim solely seeks monetary damages and (ii) the Indemnitor expressly agrees in writing that as between the Indemnitor and the Indemnitee, the Indemnitor will be solely obligated to satisfy and discharge the Claim in full and is able to reasonably demonstrate that it has sufficient financial resources (the matters described in (i) and (ii), the “ Litigation Conditions ”). The Indemnitee will have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, 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. If the Indemnitor does not assume the defense of such Claim as aforesaid, the Indemnitee may defend such Claim but will have no obligation to do so. The Indemnitee will not settle or compromise any Claim without the prior written consent of the Indemnitor, and the Indemnitor will not settle or compromise any Claim in any manner which would have an adverse effect on the Indemnitee’s interests, without the prior written consent of the Indemnitee, which consent, in each case, will not be unreasonably withheld. The Indemnitee will reasonably cooperate with the Indemnitor at the Indemnitor’s expense and will make available to the Indemnitor all pertinent information under the control of the Indemnitee, which information will be subject to Section 10.
11.6      Insurance . During the Term and for at least [***] thereafter, Licensee will maintain at its sole cost and expense, an adequate liability insurance or self-insurance program (including product liability insurance) to protect against potential liabilities and risk arising out of activities to be performed under this Agreement and upon such terms (including coverages, deductible limits and self-insured retentions) as are customary in the U.S. pharmaceutical industry for the activities to be conducted by Licensee under this Agreement. The coverage limits set forth herein will not create any limitation on Licensee’s liability to Nogra under this Agreement.
Section 12.
Term, Termination and Survival .
12.1      Term . This Agreement will commence as of the Execution Date and, except for the terms and conditions of Section 1, Section 10 and Section 13.15 (which terms and conditions are effective as of the Execution Date), will become effective as of the Implementation Date, unless sooner terminated in accordance with the terms hereof or by mutual written agreement of the Parties, will continue on a country-by-country and Licensed Product-by-Licensed Product basis until the end of the period during which royalties are due hereunder on Net Sales of such Licensed Product in such country (the “ Term ”). Upon the end of such period for such Licensed Product in such country, the license grant contained in Section 3.1 will become perpetual, irrevocable, non-terminable and fully paid up with respect to such Licensed Product in such country.
12.2      Termination for Material Default . Either Party will have the right to terminate this Agreement upon delivery of written notice to the other Party in the event of any material default in the performance by such other Party of any term or condition under this Agreement in a manner that fundamentally frustrates the transactions contemplated by this Agreement, provided that such termination will not be effective if such breach has been cured within [***] after written notice thereof is given by the terminating Party to such other Party specifying the nature of the alleged breach (or, if such default cannot be cured within such [***] period, within [***] after such notice if such other Party commences actions to cure such default within such [***] and thereafter diligently continues such actions, but fails to cure the default by the end of such [***] ); provided, however, that to the extent such material breach involves the failure to make a payment when due, such breach must be cured within [***] after written notice thereof is given by the terminating Party to such other Party.

41


LICENSE AGREEMENT


12.3      Termination for Insolvency . To the extent permitted by Law, upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors (a “ Bankruptcy Event ”) by either Party, Nogra, in the case of a Bankruptcy Event by Licensee, or Licensee, in the case of a Bankruptcy Event by Nogra, may terminate this Agreement; provided, however, that, in the case of any involuntary bankruptcy proceeding, such right to terminate will only become effective if the subject Party consents to the involuntary bankruptcy or such proceeding is not dismissed within ninety (90) days after the filing thereof. Each Party will retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code and foreign equivalents, including that upon commencement of a bankruptcy proceeding by or against such Party undergoing a bankruptcy proceeding (the “ Affected Party ”) under the U.S. Bankruptcy Code or foreign equivalents, the non-Affected Party will be entitled to complete duplicates of or complete access to, as such non-Affected Party deems appropriate, any Know-How and patent and other intellectual property rights and all embodiments hereof licensed or to be transferred to such non-Affected Party hereunder by the Affected Party. Such Know-How, rights and embodiments will be promptly delivered to the non-Affected Party (a) upon any such commencement of a bankruptcy proceeding and upon written request thereof by the non-Affected Party, unless the Affected Party elects to continue to perform all of its obligations under this Agreement, or (b) if not delivered under the foregoing clause (a), upon the rejection of this Agreement by or on behalf of the Affected Party upon written request therefore by the non-Affected Party. This Section 12.3 is without prejudice to any rights the non-Affected Party may have arising under the U.S. Bankruptcy Code, foreign equivalents or other Law.
12.4      Termination by Nogra for Patent Challenge .
(a)      Nogra will have the right to terminate [***] upon written notice to Licensee in the event that Licensee or any of its Affiliates or Sublicensees directly or indirectly asserts a Patent Challenge; provided that with respect to any such Patent Challenge by any non-Affiliate Sublicensee, Nogra will not have the right to terminate [***] if Licensee (i) causes such Patent Challenge to be terminated or dismissed or (ii) terminates such Sublicensee’s sublicense to the Nogra Patent Rights being challenged by the Sublicensee, in each case within [***] of Nogra’s notice to Licensee under this Section 12.4. In the event Licensee or any of its Affiliates intends to assert a Patent Challenge in any forum, not less than [***] prior to making any such assertion, [***] . Notwithstanding the foregoing, Nogra’s [***] will not apply to any Affiliate of Licensee that first becomes an Affiliate of Licensee after the Implementation Date of this Agreement, where such Affiliate of Licensee was undertaking activities in connection with a Patent Challenge prior to such Affiliate first becoming an Affiliate of Licensee; provided however that Licensee causes such Patent Challenge to terminate within ninety (90) days of such Affiliate first becoming an Affiliate of Licensee.
(b)      In lieu of exercising its rights to terminate under this Section 12.4, Nogra may elect upon written notice to [***] all of the milestone payments due under Section 8.2 and royalties due under Section 8.3(a) by [***], which election will be effective retroactively to the date of the commencement of the Patent Challenge.
(c)      Licensee acknowledges and agrees that this Section ‎12.4 is reasonable, valid and necessary for the adequate protection of Nogra’s interest in and to the Nogra Patent Rights, and that Nogra would not have granted to Licensee the licenses under those Nogra Patent Rights, without this Section ‎12.4. Nogra will have the right, at any time in its sole discretion, to strike this Section ‎12.4 (or any portion thereof) from this Agreement, and Nogra will have no liability whatsoever as a result of the presence or absence of this Section ‎12.4 (or any struck portion thereof).
12.5      Discretionary Termination by Licensee . Licensee will have the right to terminate this Agreement in full at its discretion for any reason by delivering written notice to Nogra, such termination to be effective one hundred eighty days (180) days following the date of such notice, provided that (a) any

42


LICENSE AGREEMENT


such termination will not be effective before the third (3 rd ) anniversary of the Implementation Date; and (b) Licensee has paid to Nogra all Milestone Payments and royalties due and payable up to the effective date of termination.
12.6      Effect of Termination . Upon termination of this Agreement pursuant to Section [***] :
(a)      Except as may otherwise be agreed in writing by the Parties, Licensee will be responsible [***] for an orderly wind-down, in accordance with accepted pharmaceutical industry norms and ethical practices, of any then on-going Clinical Studies hereunder for which it has responsibility.
(b)      Should Licensee or any of its Affiliates or Sublicensees have any inventory of any Licensed Product, each of them will have [***] thereafter in which to dispose of such inventory (subject to the payment to Nogra of any royalties or other amounts due hereunder thereon).
(c)      All licenses and other rights granted by Nogra to Licensee hereunder will terminate and such licenses and other rights will revert to Nogra, and Licensee and its Affiliates and Sublicensees will have no further rights to use any Nogra Patent Rights or Nogra Know-How (except as expressly set forth in Sections 12.6(a) and 12.6(b). Each Party will promptly return to the other Party (or as directed by such other Party destroy and certify to such other Party in writing as to such destruction) all of such other Party’s Confidential Information and any materials, Licensed Compound and Licensed Products provided by or on behalf of such other Party hereunder that are in such Party’s (or its Affiliates’ or in the case of Licensee’s Sublicensees’) possession or control, save that such Party will have the right to retain (A) one (1) copy of intangible Confidential Information of such other Party for legal purposes, and (B) any of the foregoing that such Party retains any license or other right hereunder. Licensee and its Affiliates and Sublicensees will not continue to Develop, Manufacture or Commercialize any Licensed Compounds or Licensed Products.
(d)      All Regulatory Approvals, Regulatory Filings, regulatory documents and regulatory communications owned (in whole or in part) or otherwise controlled by Licensee and its Affiliates and Sublicensees concerning any Licensed Compounds and Licensed Products will be assigned to Nogra, and Licensee will provide to Nogra one (1) copy of the foregoing and all documents contained in or referenced in any such items, together with the raw and summarized data for any Clinical Studies (and where reasonably available, electronic copies thereof). In the event of failure to obtain assignment, Licensee hereby consents and grants to Nogra the right to access and reference (without any further action required on the part of Licensee, whose authorization to file this consent with any Regulatory Authority is hereby granted) any such item.
(e)      At Nogra’s election, Licensee will use reasonable efforts to assign to Nogra or its designee all then-existing Manufacturing contracts with Third Party contract manufacturers in connection with the Manufacture of any Licensed Compounds and Licensed Products. After such assignment, Nogra will be solely responsible for the performance of the obligations under such Manufacturing contracts.
(f)      [***] will grant (without any further action required on the part of Licensee) to Nogra and its Affiliates a [***] license (the “ Reversion License ”), [***] , in the Territory, under all Reversion IP that (x) is Controlled by Licensee (or any of its Affiliates or Sublicensees) as of the date of notice of termination, (y) is actually used or incorporated in any Licensed Compounds or Licensed Products as of the date of notice of termination, and (z) only to the extent necessary to Develop, Manufacture and Commercialize, and for the sole purpose of Developing, Manufacturing, and Commercializing, in each case, any Licensed Compounds or any Licensed Products; in all cases in the Territory and in the Field. The Reversion License will be [***] , but in all cases is limited solely to the Development, Manufacture and Commercialization of Licensed Compounds and Licensed Products, as provided in the immediately preceding sentence. At Nogra’s written request, the Parties will enter into commercially reasonable Prosecution and enforcement and defense terms for the [***] Reversion IP, and

43


LICENSE AGREEMENT


Nogra will bear the costs of such Prosecution, enforcement and defense activities to the extent controlled by Nogra. For purposes hereof, “ Reversion IP ” means any patent rights or Know-How Controlled by Licensee or any its Affiliates or Sublicensees that [***] any Licensed Compounds or Licensed Products (subject to the last sentence of this Section 12.6(f)), or their method of manufacture or use, as such patent rights or Know-How exist as of the date of notice of termination (including any other patent right that claims priority, directly or indirectly, to any such patent right, no matter when any such other patent right is filed or issued). Notwithstanding anything to the contrary herein, in no event will any compound or product owned or controlled by Licensee or its Affiliates or Sublicensees (other than, for clarity, any Licensed Compounds or Licensed Products (solely to the extent that any such Licensed Product contains only a Licensed Compound as the sole active ingredient (i.e., excluding Combination Products)) be included or subject to the license set forth in this Section 12.6(f).
(g)      Upon Nogra’s request, Licensee agrees to discuss in good faith and reasonably cooperate with Nogra with respect to the assignment and transfer to Nogra of Licensee’s and its Affiliates’ right, title and interest in and to any agreements between Licensee or any of its Affiliates and Third Parties that relate solely to the Development, Manufacture or Commercialization of any Licensed Compound or Licensed Product (including any Third Party licenses or sublicenses) and for any such agreement that does not relate solely to the Development, Manufacture or Commercialization of Licensed Compounds or Licensed Products, the assignment (or license, if applicable) to Nogra of only such portions of such agreements relating thereto.
(h)      Licensee will assign (or, if applicable, will cause its Affiliates or Sublicensees to assign) to Nogra all of Licensee’s (and such Affiliates’ or Sublicensees’) worldwide right, title and interest in and to any registered or unregistered trademarks or internet domain names that are specific to and solely used for any Licensed Products (it being understood that the foregoing will not include any trademarks or internet domain names that contain the corporate or business name(s) of Licensee or any of its Affiliates or Sublicensees).
12.7      Survival . In addition to the termination consequences set forth in Section 12.6, the following provisions will survive expiration or termination of this Agreement for any reason: Sections 3.2 ( mutatis mutandis with respect to licenses granted to Nogra under Section 12.6(f)), 3.5 (in the case of expiration of this Agreement) 3.8, 8.5, 8.6, 11.3, 11.5, 11.6, 12.1 (last sentence, in the case of expiration of this Agreement) and 12.3 (excluding the first sentence thereof), this Section 12.7, the last sentence of Section 3.2(b), and all of Section 1, Section 10 and Section 13. Expiration or termination of this Agreement for any reason will not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity, with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation. All other rights and obligations will terminate upon termination or expiration of this Agreement.
12.8      Right to Set-off . Notwithstanding anything to the contrary in this Agreement (other than the last sentence of Section 8.1), each Party has the right at all times to retain and set off against all amounts due and owing to the other Party, as determined in a final judgment or award, any damages or awards recovered by such Party for any Losses incurred by such Party; provided that (a) [***] (any such claim, a “ Challenge Claim ”), determination in a final judgment or award shall not be required and, (b) for clarity, Licensee shall be entitled to withhold any and all amounts then due on or after the initial date of such Challenge Claim (subject to the resolution of any related arbitration brought in accordance with Section 13.7 by a Party hereunder) (i) during the period of time in which any Challenge Claim is being opposed or otherwise remains unsettled or unresolved, and/or (ii) in the event that Nogra does not oppose or does not otherwise approve settlement or compromise of such Challenge Claim, and (c) with respect to each Challenge Claim, (i) each of Licensee and Nogra shall reasonably cooperate with one another in the

44


LICENSE AGREEMENT


defense and control of such Challenge Claim (including any settlement and compromise and the opportunity for both Parties to attend all relevant meetings) and, (ii) in the event of any dispute between the Parties regarding the defense and control of such Challenge Claim, such matter will be resolved pursuant to Section 13.7(a) by referral directly to a senior executive of each Party designated by such Party’s Executive Officer (but not Section 13.7(b)), and (iii) if such matter is not resolved pursuant to the dispute resolution process set forth in Section 13.7(a), then Licensee will have the tie-breaking vote with respect to such matter (without regard to Section 11.5(c)), and provided further that any settlement or compromise of any such Challenge Claim will in all events require the prior written consent of Nogra, which consent will not be unreasonably withheld, conditioned or delayed.
Section 13.
General Provisions .
13.1      Assignment .
(a)      This Agreement may not be assigned by either Party, nor may either Party delegate its obligations or otherwise transfer licenses or other rights created by this Agreement, except as expressly permitted hereunder or otherwise without the prior written consent of the other Party, which consent will not be unreasonably withheld, delayed or conditioned; provided that without consent (i) Licensee may (x) assign this Agreement or any rights or obligations hereunder, in whole or in part, to an Affiliate (and an Affiliate of Licensee may assign, in whole or in part, this Agreement, or any rights or obligations hereunder, to another Affiliate of Licensee or to Licensee), provided that Licensee will remain fully liable for the performance of its obligations under this Agreement by such Affiliates, or (y) assign this Agreement in full to its successor in connection with a Change of Control of Licensee, and (ii) Nogra may assign this Agreement in full to (x) an Affiliate (and an Affiliate of Nogra may assign this Agreement in full to another Affiliate of Nogra or to Nogra) or (y) its successor in connection with a Change of Control of Nogra; provided however that, except in the case (1) where a Party is involved in a merger or consolidation where it is the surviving entity and no assets of such Party relevant to the Development, Manufacture or Commercialization of any Licensed Compounds or Licensed Products have been transferred as a result of such merger or consolidation or (2) of an assignment by and between Licensee and its Affiliates, that (A) such assigning Party provides the other Party to this Agreement with at least thirty (30) business days advance written notice of such assignment(s) and the assigning Party agrees in a written agreement delivered prior to such assignment(s) to the non-assigning Party (and upon which such non-assigning Party may rely) to remain fully liable for the performance of its obligations under this Agreement by its assignee(s), (B) the assignee(s) agree in a written agreement delivered prior to such assignment(s) to the non-assigning Party (and upon which such non-assigning Party may rely) to assume performance of all such assigned obligations, (C) in the case of any assignment(s) by Nogra, all Nogra Patent Rights and Nogra Know-How licensed to Licensee, along with all Licensed Compounds and Licensed Products, will be transferred to such assignee(s) effective as of such assignment(s), and (D) all of the matters referred to in clauses (A), (B) and (C), as applicable, will be set forth in reasonable documentation consistent with this Section 13.1 provided to the non-assigning Party prior to any such assignment(s) and in all cases will provide the non-assigning Party with the full benefits of its rights under this Agreement (after taking into account all risks involving applicable counter-party performance and bankruptcy and insolvency risks, including those involving contractual rejection under 11 USC §365) as if no such assignment(s) had occurred; and provided, further, that if Nogra wishes to assign any Nogra Patent Rights or Nogra Know-How to its Affiliates, it will be permitted to do so conditioned on such Affiliate becoming a party to this Agreement, in the form of an amendment to this Agreement executed by Licensee, Nogra and such Affiliate, and Licensee will not unreasonably object to any such amendment, pursuant to which such Affiliate would agree to assume all obligations hereunder, and grant to Licensee all rights hereunder, with respect to the Nogra Patent Rights and Nogra Know-How so assigned. Each Party will provide prompt written notice to the other Party of any such permitted assignment.

45


LICENSE AGREEMENT


(b)      Notwithstanding anything to the contrary in this Section 13.1 or elsewhere in this Agreement, Nogra may sell, transfer or assign its rights to any Third Party to receive payments under Section 8, and Nogra may disclose Confidential Information of Licensee to one or more Third Parties in connection with any such assignment to enable the Third Party(ies) to evaluate and monitor any such purchase, provided that such Third Party(ies) are subject to confidentiality obligations consistent with those set forth in Section 10. In no event may such Third Party(ies) seek to enforce any payment obligations under Section 8 against Licensee.
(c)      Any attempted assignment, delegation or transfer in violation of this Section 13.1 will be void ab initio . Any permitted assignee will assume all assigned obligations of its assignor under this Agreement. The terms and conditions of this Agreement will inure to the benefit of, and be binding upon, the legal representatives, successors and permitted assigns of the Parties.
13.2      Change of Control of Nogra . Notwithstanding anything to the contrary herein, (a) no patent rights, Know-How or other intellectual property rights not Controlled by Nogra or any of its Affiliates before a Change of Control of Nogra will be deemed Controlled for purposes of this Agreement after such Change of Control, provided that (i) any patent right that claims priority, directly or indirectly, to any other patent right first Controlled by Nogra or any of its Affiliates before such Change of Control will be Controlled thereafter no matter when such patent right is filed or issued and (ii) any patent right, Know-How or other intellectual property rights created, conceived or made by Nogra or any of its Affiliates or Sublicensees in connection with the exercise of their rights under Section 3.1(b) after such Change of Control will be Controlled by Nogra, and (b) no assets of Nogra or any of its Affiliates, including the items listed in clause (a) above, not owned or in-licensed by Nogra or any of its Affiliates before a Change of Control will be subject to Section 3.3(a).
13.3      Severability . If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein will not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the Parties. The Parties will in such an instance use their reasonable commercial efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.
13.4      Cumulative Remedies . All rights and remedies of the Parties hereunder will be cumulative and in addition to all other rights and remedies provided hereunder or available by agreement, at Law or otherwise.
13.5      Amendment; Waiver . This Agreement may not be modified, amended or rescinded, in whole or part, except by a written instrument signed by the Parties; provided that any unilateral undertaking or waiver made by one Party in favor of the other will be enforceable if undertaken in a writing signed by the Party to be charged with the undertaking or waiver. No delay or omission by either Party hereto in exercising any right or power occurring upon any noncompliance or default by the other Party with respect to any of the terms of this Agreement will impair any such right or power or be construed to be a waiver thereof. A waiver by either of the Parties of any of the covenants, conditions or agreements to be performed by the other will not be construed to be a waiver of any succeeding breach thereof or of any other covenant, condition or agreement herein contained.

46


LICENSE AGREEMENT


13.6      Notices . Except as otherwise provided herein, all notices under this Agreement will be sent by certified mail or by overnight courier service, postage prepaid, to the following addresses of the respective Parties:
If to Licensee, to:            Celgene Corporation
86 Morris Avenue
Summit, NJ 07901
Attention: Chief Executive Officer
With a required copy to:            Celgene Legal
86 Morris Avenue
Summit, NJ 07901
Attention: General Counsel
Dechert LLP
902 Carnegie Center
Suite 500
Princeton, NJ 08540
Attention:     James J. Marino, Esq.
David E. Schulman, Esq.

If to Nogra, to:                Nogra Pharma Limited
33 Sir John Rogerson’s Quay
Dublin 2
Ireland
Attention: Chairman of the Board
With a required copy to:            Goodwin Procter LLP
53 State Street
Boston, MA 02109
Attention: Kingsley L. Taft, Esq.
or to such address as each Party may hereafter designate by notice to the other Party. A notice will be deemed to have been given on the date it is received by all required recipients for the noticed Party.
13.7      Dispute Resolution .
(a)      In the event of any dispute between the Parties under this Agreement, the Parties will first attempt in good faith to resolve such dispute by negotiation and consultation between themselves. In the event that such dispute is not resolved on an informal basis within [***] , either Party may, by written notice to the other, have such dispute referred to a senior executive of each Party designated by such Party’s Executive Officer, which senior executives will meet in person if requested by either such senior executive and attempt in good faith to resolve such dispute by negotiation and consultation for a [***] period following receipt of such written notice. If such senior executives do not resolve such dispute within such [***] period, either Party may refer the matter to the Parties’ Executive Officers for attempted resolution, whereupon the Parties’ Executive Officers will meet in person if requested by either such Executive Officer and attempt in good faith to resolve such dispute by negotiation and consultation for a [***] period following such referral.
(b)      Subject to Sections 2.6(b) and 12.8, if the Executive Officers do not resolve such dispute within such [***] period, either Party may at any time thereafter submit such dispute to be finally settled by arbitration administered in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“ AAA ”) in effect at the time of submission. The arbitration will be heard and

47


LICENSE AGREEMENT


determined by three (3) arbitrators. Licensee and Nogra will each appoint one (1) arbitrator and the third arbitrator will be selected by the two (2) Party-appointed arbitrators, or, failing agreement within [***] following the date of receipt by the respondent of the claim, by the AAA. Such arbitration will take place in New York, NY. The arbitration award so given will be a final and binding determination of the dispute, and will be fully enforceable in any court of competent jurisdiction. Costs of arbitration are to be divided by the Parties in the following manner: Licensee will pay for the arbitrator it chooses, Nogra will pay for the arbitrator it chooses, and the costs of the third arbitrator will be divided equally between the Parties. Except in a proceeding to enforce the results of the arbitration or as otherwise required by Law, neither Party nor any arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written consent of both Parties.
(c)      Notwithstanding the dispute resolution procedures set forth in this Section 13.7, in the event of an actual or threatened breach hereunder, the aggrieved Party may seek equitable relief (including restraining orders, specific performance or other injunctive relief) in any court or other forum, without first submitting to any dispute resolution procedures hereunder.
(d)      The Parties agree that all applicable statutes of limitation and time-based defenses (such as estoppel and laches) will be tolled while the dispute resolution procedures set forth in this Section 13.7 are pending, and the Parties will cooperate in taking all actions reasonably necessary to achieve such a result. In addition, during the pendency of any dispute under this Agreement initiated before the end of any applicable cure period under Section 12.2, (i) this Agreement will remain in full force and effect, (ii) the provisions of this Agreement relating to termination for material breach will not be effective, (iii) the time periods for cure under Section 12 as to any termination notice given prior to the initiation of the arbitration proceeding will be tolled, and (iv) neither Party will issue a notice of termination pursuant to this Agreement based on the subject matter of the arbitration proceeding (and no effect will be given to previously issued termination notices), until the court has confirmed the existence of the facts claimed by a Party to be the basis for the asserted material breach.
13.8      Applicable Law . This Agreement will be governed by and construed in accordance with the laws of the State of New York, without regard to its conflicts of law provisions; provided that any dispute relating to the scope, validity, enforceability or infringement of any patent rights will be governed by, and construed and enforced in accordance with, the substantive laws of the jurisdiction in which such patent rights apply.
13.9      Relationship of the Parties . Each Party is an independent contractor under this Agreement. Nothing contained herein is intended or is to be construed so as to constitute Nogra and Licensee as partners, agents or joint venturers. Neither Party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party. There are no express or implied third party beneficiaries hereunder (except for Licensee Indemnitees other than Licensee and Nogra Indemnitees other than Nogra for purposes of Sections 11.5(a) or 11.5(b), as applicable).
13.10      Entire Agreement . This Agreement (along with the Exhibits) contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes and replaces any and all previous arrangements and understandings, including the Confidentiality Agreement, whether oral or written, between the Parties with respect to the subject matter hereof.
13.11      Headings . The captions to the several Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Sections hereof.
13.12      Waiver of Rule of Construction . Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule

48


LICENSE AGREEMENT


of construction that any ambiguity in this Agreement will be construed against the drafting Party will not apply.
13.13      Interpretation . Whenever any provision of this Agreement uses the term “including” (or “includes”), such term will be deemed to mean “including without limitation” (or “includes without limitations”). “Herein,” “hereby,” “hereunder,” “hereof” and other equivalent words refer to this Agreement as an entirety and not solely to the particular portion of this Agreement in which any such word is used. The term “or” means “and/or” hereunder. All definitions set forth herein will be deemed applicable whether the words defined are used herein in the singular or the plural. Unless otherwise provided, all references to Sections and Exhibits in this Agreement are to Sections and Exhibits of this Agreement. References to any Sections include Sections and subsections that are part of the related Section (e.g., a section numbered “Section 3.2” would be part of “Section 3”, and references to “Section 3.2” would also refer to material contained in the subsection described as “Section 3.2(a)”).
13.14      Counterparts; Facsimiles . This Agreement may be executed in one (1) or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. Facsimile or PDF execution and delivery of this Agreement by either Party will constitute a legal, valid and binding execution and delivery of this Agreement by such Party.
13.15      Government Approvals .
(a)      Each of Nogra and Licensee will use its commercially reasonable good faith efforts to eliminate any concern on the part of any court or government authority regarding the legality of this Agreement, including, if required by federal or state antitrust authorities, promptly taking all steps to secure government antitrust clearance, including cooperating in good faith with any government investigation including the prompt production of documents and information demanded by a second request for documents and of witnesses if requested. Notwithstanding anything to the contrary in this Agreement, this Section 13.15 and the term “commercially reasonable good faith efforts” do not require that either Party (i) offer, negotiate, commit to or effect, by consent decree, hold separate order, trust or otherwise, the sale, divestiture, license or other disposition of any capital stock, assets, rights, products or businesses of Nogra, Licensee or their respective Affiliates, (ii) agree to any restrictions on the businesses of Nogra, Licensee or their respective Affiliates, or (iii) pay any material amount or take any other action to prevent, effect the dissolution of, vacate, or lift any decree, order, judgment, injunction, temporary restraining order, or other order in any suit or proceeding that would otherwise have the effect of preventing or delaying the transactions contemplated by this Agreement.
(b)      Each of Nogra and Licensee will, within five (5) business days after the execution of this Agreement (or such later time as may be agreed to in writing by the Parties) file with the United States Federal Trade Commission (“ FTC ”) and the Antitrust Division of the United States of America Department of Justice (“ DOJ ”) any HSR Filing required of it under the HSR Act, together with all other applicable laws, rules and regulations relating to antitrust and competition law and compliance (such laws, rules and regulations, the “ Competition Laws ”), in the reasonable opinion of either Party with respect to the transactions contemplated by this Agreement. The Parties will cooperate with one another to the extent necessary in the preparation of any such HSR Filing and Competition Law Filings. Each Party will be responsible for its own costs and expenses associated with any HSR Filing and Competition Law Filing; provided, however, Licensee will be responsible for all fees (other than penalties that may be incurred as a result of actions or omissions on the part of Nogra, which penalties will be the sole financial responsibility of Nogra) required to be paid to any Government Authority in connection with making any such HSR Filing and Competition Law Filing. In the event that the Parties make an HSR Filing under this Section 13.15, this Agreement will terminate (i) at the election of either Party, immediately upon notice to the other Party, in the event that the FTC or the DOJ obtains a preliminary injunction under the HSR Act against the Parties to enjoin the transactions contemplated by this Agreement or (ii) at the

49


LICENSE AGREEMENT


election of either Party, immediately upon notice to the other Party, in the event that the Antitrust Clearance Date will not have occurred on or prior to seventy (70) days after the effective date of the HSR Filing. As used herein: (x) “ Antitrust Clearance Date ” means the earliest date on which the Parties have actual knowledge that all applicable waiting periods under the HSR Act and Competition Law with respect to the transactions contemplated by this Agreement have expired or have been terminated; (y) “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder; and (z) “ HSR Filing ” and “ Competition Law Filing ” means a filing by Nogra and Licensee with, and that has been accepted by, the FTC and DOJ of a Notification and Report Form for Certain Mergers and Acquisitions (as that term is defined in the HSR Act) and under Competition Law with respect to the matters set forth in this Agreement, together with all required documentary attachments thereto.
(c)      Each of Nogra and Licensee will, in connection with any HSR Filing, (i) reasonably cooperate with each other in connection with any communication, filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (ii) keep the other Party and/or its counsel informed of any communication received by such Party from, or given by such Party to, the FTC, the DOJ or any other U.S. or other Governmental Authority and of any communication received or given in connection with any proceeding by a private party, in each case regarding the transactions contemplated by this Agreement; (iii) consult with each other in advance of any meeting or conference with the FTC, the DOJ or any other Governmental Authority or, in connection with any proceeding by a private party, with any other Person, and to the extent permitted by the FTC, the DOJ or such other Governmental Authority or other Person, give the other Parties and/or their counsel the opportunity to attend and participate in such meetings and conferences; and (iv) permit the other Parties and/or their counsel to review in advance any submission, filing or communication (and documents submitted therewith) intended to be given by it to the FTC, the DOJ or any other Governmental Authority; provided, that materials may be redacted to remove references concerning the valuation of the business of Nogra. Nogra and Licensee, as each deems advisable and necessary, may reasonably designate any competitively sensitive material to be provided to the other under this Section 13.15(c) as “Antitrust Counsel Only Material.” Such materials and the information contained therein will be given only to the outside antitrust counsel of the recipient and will not be disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the source of the materials (Nogra or Licensee, as the case may be) or its legal counsel.
(d)      Nogra and Licensee will cooperate and use respectively all reasonable efforts to make all other registrations, filings and applications, to give all notices and to obtain as soon as practicable all governmental or other consents, transfers, approvals, orders, qualifications authorizations, permits and waivers, if any, and to do all other things necessary or desirable for the consummation of the transactions as contemplated hereby. Neither Party will be required, however, to divest or out-license products or assets or materially change its business if doing so is a condition of obtaining approval of the transactions contemplated by this Agreement.
(e)      If this Agreement is terminated pursuant to this Section 13.15, then, notwithstanding any provision in this Agreement to the contrary, neither Party will have any further obligation to the other Party with respect to the subject matter of this Agreement.
(f)      During the period commencing on the Execution Date and ending on the Antitrust Clearance Date or on the termination of this Agreement pursuant to this Section 13.15, as applicable, Nogra will not enter into any agreement that conflicts with the rights granted to Licensee hereunder, including assigning, transferring, conveying or otherwise encumbering or disposing of, or licensing or granting any right to, or entering into any agreement to assign, transfer, convey or otherwise encumber or dispose of, or license or grant any right to, the Licensed Compounds and Licensed Products.

50


LICENSE AGREEMENT


13.16      Licensee Parties . The Parties hereby acknowledge and agree that (a) Celgene Corp. is the party to this Agreement with respect to all rights and obligations (including payment obligations) under this Agreement in the United States; (b) Celgene Alpine is the party to this Agreement with respect to all rights and obligations (including payment obligations) under this Agreement outside of the United States; (c) by action of the foregoing clauses (a) and (b), all of Licensee’s obligations hereunder are the responsibility of one of either Celgene Corp. or Celgene Alpine (or any of their permitted assignee(s)); and (d) without limiting the foregoing clauses (a) through (c), as between Nogra, on the one hand, and Celgene Corp. and Celgene Alpine, on the other, Celgene Corp. may undertake all actions permitted or required to be taken by Celgene Corp. and/or Celgene Alpine.
[ Remainder of this Page Intentionally Left Blank ]


51


Exhibit 10.1

IN WITNESS WHEREOF, the Parties have caused this License Agreement to be executed by their respective duly authorized representatives as of the Execution Date.

NOGRA PHARMA LIMITED


By:    
/s/ David Hammond                  (Signature)

Name:    David Hammond
Title:    Director                    

    
CELGENE CORPORATION


By:    
/s/ Robert J. Hugin            
    (Signature)

Name:     Robert J. Hugin    


Title:    Chairman and CEO    

Solely with respect to the rights and obligations under this License Agreement outside of the United States (subject to Section 13.16)

CELGENE ALPINE INVESTMENT COMPANY II LLC
By: Celgene International Sàrl, sole member

By:    
/s/ Robert J. Hugin                 
    (Signature)

Name:     Robert J. Hugin    
    

Title:    Manager    

By:     /s/ Jürg Oehen                          (Signature)

Name:     Jürg Oehen    


Title:    Manager



Exhibit 10.1

EXHIBIT A-1

INITIAL GLOBAL DEVELOPMENT PLAN

[***]






Exhibit 10.1

EXHIBIT A-2

INITIAL DEVELOPMENT BUDGET

(Dollar amounts in thousands)
 
 
 
 
 
 
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]

[***]

[***]






Exhibit 10.1

EXHIBIT B

LICENSED COMPOUND

[***]





Exhibit 10.1

EXHIBIT C

NOGRA PATENT RIGHTS

[***]





Exhibit 10.1

EXHIBIT D

PRINCIPAL TERMS OF RESEARCH COLLABORATION AGREEMENT

Within [***] after the Implementation Date, the Parties will enter in a research collaboration agreement in a form mutually agreeable to the Parties having the provisions as outlined below (the “ Research Collaboration Agreement ”).
Under the Research Collaboration Agreement, the Parties will collaborate in carrying out a research program with the goals of expanding the understanding of the mechanism of action of GED-0301, developing pharmacodynamic assays, discovering and developing Follow-On Products, and exploring the role of such Follow-On Products in additional Indications, including the Exploratory Indications (the “ Research Program ”). The Research Program will be carried out in accordance with a research plan (that will be reviewed and updated at least on a yearly basis) detailing the responsibilities and activities of Nogra and Licensee with respect to performing the Research Program (the “ Research Plan ”). The initial Research Plan will be agreed to by the Parties at the same time as the Research Collaboration Agreement is entered into. The Research Plan will include a description of the specific activities to be performed by Nogra and Licensee in support of the Research Program, and projected timelines for completion of such activities.
The Research Program will be carried out during the [***] period after the execution of the Research Collaboration Agreement (the “ Research Term ”), with Licensee having the option to extend the Research Term for one (1) additional [***] period.
The Parties will form a joint research committee (the “ JRC ”) comprised of an equal number of representatives from each Party. The JRC will monitor and periodically review and discuss the status and results of work under the Research Program. Any modifications or amendments to the Research Plan that are proposed by either Nogra or Licensee will be subject to review and prior written approval by the JRC. Decisions of the JRC will be by consensus, provided that if the JRC is unable to reach a consensus agreement with respect to any such decision, Licensee will have the final decision-making authority; provided, however, that Licensee will not have the right to unilaterally alter, increase or expand the Parties’ rights or obligations under this Agreement or the Research Collaboration Agreement or otherwise be in conflict with the terms of this Agreement or the Research Collaboration Agreement (including those decisions hereunder expressly to be made by one or both of the Parties as opposed to the JRC).
Licensee will fund from [***] qualified FTEs of Nogra or its Affiliates per year during the Research Term to perform activities in support of the Research Program, in accordance with the then-current Research Plan. The Parties will mutually agree on the number of FTEs to fund each year of the Research Program. Each Party will use commercially reasonable efforts to perform its respective obligations as set forth in the Research Plan using appropriate personnel and resources. Licensee will fund such Nogra FTEs at a rate of $ [***] per FTE/year.
Each of Nogra and Licensee will have the right to utilize the services of its Affiliates or Third Party consultants or contractors in connection with the performance of the activities for which it is responsible under the Research Plan; provided, however, that such Party will (a) ensure that any such Affiliates and Third Party contractors are obligated to assign all rights, title, and interests in or to any patent rights, Know-How or other intellectual property rights created, conceived or made in the performance of the Research Program, and (b) remain responsible under the Research Collaboration Agreement for the



LICENSE AGREEMENT


performance and compliance of such Affiliates and Third Party contractors. The Party utilizing such subcontractors will also ensure that such Affiliate or Third Party is subject to obligations protecting and limiting use and disclosure of Confidential Information, Licensed Compounds, Licensed Products, Follow-on Products, and Know-How at least to the same extent as set forth under Section 10 of this Agreement.
Unless otherwise agreed by the Parties, Licensee will own all right, title and interest in and to all patent rights, Know-How and other intellectual property (including any other patent right that claims priority, directly or indirectly, to any such patent right, no matter when any such other patent right is filed or issued, collectively the “ Research Program IP ”, and all patent rights contained therein, the “ Research Program Patents ”) created, conceived or made in the performance of the Research Program by one or more employees, consultants or contractors of Nogra or its Affiliates, or one or more employees, consultants or contractors of Licensee or its Affiliates, whether solely or jointly; provided, that (a) any Research Program IP that is solely created, conceived or made by one or more employees, consultants or contractors of Nogra or its Affiliates will be [***] ; and (b) any Research Program IP that is jointly created, conceived or made by one or more employees, consultants or contractors of Nogra or its Affiliates, and one or more employees, consultants or contractors of Licensee or its Affiliates, will be [***] ; in each case of (a) and (b) solely for any and all compounds and products other than Licensed Compounds, Licensed Products and Alternative Products (including Follow-On Products). In the Research Collaboration Agreement, the Parties will enter into commercially reasonable Prosecution and enforcement and defense terms for the Research Program IP. In no event will any compound or product owned or controlled by Licensee or its Affiliates or Sublicensees be included or subject to the licenses described in this paragraph (unless such compound or product is first created, conceived or made under the Research Program).
Under the Research Collaboration Agreement, each Party will grant appropriate licenses and rights to enable the other Party to perform its obligations under the Research Program. In addition, upon reversion of Licensee’s rights in the Licensed Products and Licensed Compounds pursuant to Section 12.6 of this Agreement, [***] . Under the Research Collaboration Agreement, upon reversion of Licensee’s rights in Follow-On Products in the event of termination of the Research Program, Licensee will grant Nogra and its Affiliates [***] , under the Research Program IP solely for Alternative Products (including Follow-On Products), and [***] , for all other compounds and products (other than Licensed Compounds and Licensed Products). In no event will any compound or product owned or controlled by Licensee or its Affiliates or Sublicensees be included or subject to the licenses described in this paragraph (unless such compound or product is first created, conceived or made under the Research Program).
If the Parties continue with the research, development, manufacture and/or commercialization of a Follow-On Product after expiration of the Research Program, then termination of such research, development, manufacture and/or commercialization will be on a Follow-On Product-by-Follow-On Product basis.
The Parties will discuss and agree on termination provisions applicable to the Research Collaboration Agreement if this Agreement terminates.
Each Party will maintain, or cause to be maintained, complete and accurate records of all of its activities and results achieved under the Research Program and all results, data and developments made in furtherance thereof. Such records will be in sufficient detail and in good scientific manner appropriate for scientific, patent and regulatory purposes. Each Party will periodically provide the other Party with written reports of the work performed under the Research Program and the results, data and developments made in furtherance thereof.



LICENSE AGREEMENT


For any Follow-On Product, Licensee will pay to Nogra (A) a [***] Milestone Payment upon first administration of such Follow-On Product to a human, (B) a [***] Milestone Payment upon receipt of the first of (i) FDA approval of an NDA for such Follow-On Product or (ii) approval of an MAA for such Follow-On Product by the EMA or [***] of the Major European Countries, and (C) a [***] Milestone Payment upon total Net Sales of such Follow-On Product in the Territory in a Calendar Year equal to or greater than US$ [***] . In addition, such Follow-On Products will be deemed to be Licensed Products for the purposes of royalty calculations under Section 8.3 (including the royalty term thereunder), but at [***] of the royalty rates specified therein.
For clarity, an improved or modified version of GED-0301 or any other Licensed Compound created, conceived or made in the performance of the Research Program will be a Licensed Product for purposes of the Milestone Payments under Section 8.2 and royalty calculations under Section 8.3.
Other terms and conditions, usual and customary for an agreement of this type would be included in the Research Collaboration Agreement.




Exhibit 10.1

EXHIBIT E

DESCRIPTION OF NOGRA CLINICAL STUDIES

[***]





Exhibit 10.1

EXHIBIT F

EXISTING MANUFACTURING CONTRACTS

[***]





Exhibit 10.1

EXHIBIT G

PRESS RELEASE

Licensee will incorporate the following language in its earning release:

Business Update

In April, Celgene entered into a global license agreement with Nogra Pharma Limited, a private pharmaceutical company based in Dublin, Ireland, to develop and commercialize GED-0301, an oral antisense DNA oligonucleotide targeting Smad7 mRNA for the treatment of moderate-to-severe Crohn’s disease and other indications. A double-blind, placebo-controlled, multicenter phase II trial of three doses of GED-0301 in 166 patients with active Crohn’s disease has been completed. The data have been submitted to a major medical journal and will be presented at an upcoming medical congress. Based upon these results, Celgene plans to initiate a phase III registration program by year-end 2014. Under the terms of the license agreement, Nogra Pharma Limited will receive an upfront payment of $710 million, regulatory, development and net sales milestone payments and tiered royalties. Aggregate payments for regulatory and development milestones could potentially be $815 million for multiple indications. Starting from global annual net sales levels of $500 million, aggregate tiered sales milestones could total a maximum of $1,050 million if annual sales reach $4,000 million. The license agreement will become effective upon the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.



LICENSE AGREEMENT



    

Contacts:

Investors:     Media:
Patrick E. Flanigan III    Brian P. Gill
Vice President    Vice President
Investor Relations    Corporate Communications    
(908) 673-9969    (908) 673-9530


CELGENE ACQUIRES LATE-STAGE PRODUCT FOR CROHN’S DISEASE AND OTHER GASTROINTESTINAL DISORDERS


GED-0301 Is a First-in-Class, Oral Antisense Drug Targeting Smad7 mRNA

Phase III Program for Crohn’s Disease Targeted to Begin by Year-end 2014



SUMMIT, NJ – (April 24, 2014) – Celgene Corporation (NASDAQ: CELG) entered into a global license agreement with Nogra Pharma Limited, a private pharmaceutical company based in Dublin, Ireland, to develop and commercialize GED-0301, an oral antisense DNA oligonucleotide targeting Smad7 mRNA for the treatment of moderate-to-severe Crohn’s disease and other indications.

A double-blind, placebo-controlled, multicenter phase II trial of three doses of GED-0301 in 166 patients with active Crohn’s disease has been completed. The data have been submitted to a major medical journal and will be presented at an upcoming medical congress. Based upon these results, Celgene plans to initiate a phase III registration program by year-end 2014.

“GED-0301 is a potentially transformative therapy that demonstrated striking clinical activity in a phase II trial for Crohn’s disease,” said Scott Smith, Senior Vice President and Global Head of Inflammation and Immunology. “It strengthens our expanding pipeline of novel therapies intended to address significant unmet medical need in immune-mediated diseases.”

Under the terms of the license agreement, Nogra Pharma Limited will receive an upfront payment of $710 million, regulatory, development and net sales milestone payments and tiered royalties. Aggregate payments for regulatory and development milestones could potentially be $815 million for multiple indications.



LICENSE AGREEMENT


Starting from global annual net sales levels of $500 million, aggregate tiered sales milestones could total a maximum of $1,050 million if annual sales reach $4,000 million.


The license agreement will become effective upon the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

About Celgene
Celgene Corporation, headquartered in Summit, New Jersey, is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of novel therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation. For more information, please visit www.celgene.com.

Forward-Looking Statements

This press release contains forward-looking statements, which are generally statements that are not historical facts. Forward-looking statements can be identified by the words "expects," "anticipates," "believes," "intends," "estimates," "plans," "will," “outlook” and similar expressions. Forward-looking statements are based on management’s current plans, estimates, assumptions and projections, and speak only as of the date they are made. We undertake no obligation to update any forward-looking statement in light of new information or future events, except as otherwise required by law. Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Actual results or outcomes may differ materially from those implied by the forward-looking statements as a result of the impact of a number of factors, many of which are discussed in more detail in our Annual Report on Form 10-K and our other reports filed with the Securities and Exchange Commission.

In addition to financial information prepared in accordance with U.S. GAAP, this press release also contains adjusted financial measures that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information. These adjusted measures are non-GAAP and should be considered in addition to, but not as a substitute for, the information prepared in accordance with U.S. GAAP. We typically exclude certain GAAP items that management does not believe affect our basic operations and that do not meet the GAAP definition of unusual or non-recurring items. Other companies may define these measures in different ways. See the attached Reconciliations of GAAP to adjusted Net Income for explanations of the amounts excluded and included to arrive at Adjusted Net Income and Adjusted Earnings Per Share amounts for the three-month periods ended March 31, 2014 and 2013, and for the projected amounts for the year ending December 31, 2014.
# # #






Exhibit 10.1

SCHEDULE 11.1

DISCLOSURE SCHEDULE

[***]







Exhibit 31.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. Sec. 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Robert J. Hugin, certify that:
 
1.   I have reviewed this quarterly report on Form 10-Q of Celgene Corporation;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
 
a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
 
a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 

 
Date: July 29, 2014
/s/Robert J. Hugin
 
 
Robert J. Hugin
 
Chief Executive Officer




Exhibit 31.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. Sec. 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Jacqualyn A. Fouse, certify that:
 
1.   I have reviewed this quarterly report on Form 10-Q of Celgene Corporation;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
 
a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
 
a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
  
Date: July 29, 2014
/s/Jacqualyn A. Fouse
 
 
Jacqualyn A. Fouse, Ph.D.
 
Executive Vice President
 
Chief Financial Officer
 
(principal financial and accounting officer)




Exhibit 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the accompanying Quarterly Report on Form 10-Q of Celgene Corporation (“the Company”) for the period ended June 30, 2014 (“the Periodic Report”), I, Robert J. Hugin, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that the Periodic Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Date:
July 29, 2014
 
 
/s/Robert J. Hugin
 
 
 
 
Robert J. Hugin
 
 
 
 
Chief Executive Officer




Exhibit 32.2
 
  CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the accompanying Quarterly Report on Form 10-Q of Celgene Corporation (“the Company”) for the period ended June 30, 2014 (“the Periodic Report”),  I, Jacqualyn A. Fouse, Executive Vice President and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that the Periodic Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Date:
July 29, 2014
 
 
/s/Jacqualyn A. Fouse
 
 
 
 
Jacqualyn A. Fouse, Ph.D.
 
 
 
 
  Executive Vice President
  Chief Financial Officer
 
 
 
 
(principal financial and accounting officer)