Celgene Corporation
CELGENE CORP /DE/ (Form: 10-Q, Received: 05/02/2012 16:10:44)

 

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 March 31, 2012

 

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

 

(I.R.S. Employer Identification

or organization)

 

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 April 25, 2012, 440,497,817 shares of Common Stock, par value $.01 per share, were outstanding.

 



 

CELGENE CORPORATION

 

FORM 10-Q TABLE OF CONTENTS

 

 

 

Page No.

PART I

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

Financial Statements

 

 

 

 

 

Consolidated Statements of Income -
Three-Month Periods Ended March 31, 2012 and 2011

2

 

 

 

 

Consolidated Statements of Comprehensive Income –
Three-Month Periods Ended March 31, 2012 and 2011

3

 

 

 

 

Consolidated Balance Sheets -
As of March 31, 2012 and December 31, 2011

4

 

 

 

 

Consolidated Statements of Cash Flows -
Three-Month Periods Ended March 31, 2012 and 2011

5

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

39

 

 

 

Item 4

Controls and Procedures

41

 

 

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

42

 

 

 

Item 1A

Risk Factors

42

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

58

 

 

 

Item 3

Defaults Upon Senior Securities

59

 

 

 

Item 4

Mine Safety Disclosures

59

 

 

 

Item 5

Other Information

59

 

 

 

Item 6

Exhibits

59

 

 

 

Signatures

 

60

 

1



 

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three-Month Periods Ended

 

 

March 31,

 

 

2012

 

2011

 

 

 

 

 

 

Revenue:

 

 

 

 

 

Net product sales

 

   $

1,245,499

 

   $

1,083,609

 

Collaborative agreements and other revenue

 

2,631

 

9,303

 

Royalty revenue

 

25,158

 

32,369

 

Total revenue

 

1,273,288

 

1,125,281

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

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

 

72,520

 

127,268

 

Research and development

 

362,044

 

435,478

 

Selling, general and administrative

 

325,778

 

302,261

 

Amortization of acquired intangible assets

 

41,760

 

69,050

 

Acquisition related (gains) charges and restructuring, net

 

(11,070)

 

(96,744

)

Total costs and expenses

 

791,032

 

837,313

 

 

 

 

 

 

 

Operating income

 

482,256

 

287,968

 

 

 

 

 

 

 

Other income and expense:

 

 

 

 

 

Interest and investment income, net

 

3,708

 

4,522

 

Equity in gains (losses) of affiliated companies

 

1,187

 

(556

)

Interest (expense)

 

(11,385)

 

(11,750

)

Other income (expense), net

 

(1,764)

 

6,624

 

 

 

 

 

 

 

Income before income taxes

 

474,002

 

286,808

 

 

 

 

 

 

 

Income tax provision

 

72,465

 

31,722

 

 

 

 

 

 

 

Net income

 

401,537

 

255,086

 

Less: Net loss attributable to non-controlling interest

 

-

 

504

 

Net income attributable to Celgene

 

  $

 401,537

 

   $

 255,590

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to Celgene:

 

 

 

 

 

Basic

 

  $

0.92

 

   $

0.55

 

Diluted

 

  $

0.90

 

   $

0.54

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

Basic

 

438,349

 

465,993

 

Diluted

 

448,598

 

472,235

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

2



 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three-Month Periods Ended

 

 

March 31,

 

 

2012

 

2011

 

 

 

 

 

 

Net income

 

  $

401,537

 

  $

255,086

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

Foreign currency translation adjustments

 

18,357

 

13,837

 

Change in functional currency of a foreign subsidiary

 

13,144

 

-

 

Unrealized gains (losses) related to cash flow hedges:

 

 

 

 

 

Unrealized holding gains (losses), net of taxes of $249 and $39 for the three-months ended March 31, 2012 and 2011, respectively

 

23,285

 

(25,994

)

Reclassification adjustment for (gains) losses included in net income, net of taxes of $2,618 and $506 for the three-months ended March 31, 2012 and 2011, respectively

 

(16,438)

 

(4,063

)

Net unrealized gains on marketable securities available for sale:

 

 

 

 

 

Unrealized holding gains, net of tax (expense) benefit of $24 and ($1,794) for the three-months ended March 31, 2012 and 2011, respectively

 

2,461

 

1,889

 

Reclassification adjustment for (gains) losses included in net income, net of tax (expense) benefit of $0 and $326 for the three-months ended March 31, 2012 and 2011, respectively

 

(352)

 

1,029

 

Total other comprehensive income (loss)

 

40,457

 

(13,302

)

 

 

 

 

 

 

Comprehensive income

 

441,994

 

241,784

 

Comprehensive loss attributable to non-controlling interest

 

-

 

504

 

Comprehensive income attributable to Celgene

 

  $

441,994

 

  $

242,288

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

3



 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)

 

 

 

March 31,

 

December 31,

 

 

2012

 

2011

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

  $

1,861,065

 

  $

1,859,464

 

Marketable securities available for sale

 

408,302

 

788,690

 

Accounts receivable, net of allowances of $22,689 and $18,855 at March 31, 2012 and December 31, 2011, respectively

 

1,035,471

 

945,531

 

Inventory

 

215,637

 

189,573

 

Deferred income taxes

 

133,501

 

116,751

 

Other current assets

 

322,657

 

395,094

 

Assets held for sale

 

58,239

 

58,122

 

Total current assets

 

4,034,872

 

4,353,225

 

 

 

 

 

 

 

Property, plant and equipment, net

 

519,126

 

506,042

 

Investment in affiliated companies

 

28,526

 

26,597

 

Intangible assets, net

 

3,339,230

 

2,844,698

 

Goodwill

 

2,031,876

 

1,887,220

 

Other assets

 

393,909

 

388,128

 

Total assets

 

  $

10,347,539

 

  $

10,005,910

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term borrowings

 

  $

150,528

 

  $

526,684

 

Accounts payable

 

100,415

 

121,525

 

Accrued expenses

 

601,925

 

701,707

 

Income taxes payable

 

30,820

 

30,042

 

Current portion of deferred revenue

 

18,031

 

14,346

 

Other current liabilities

 

178,978

 

138,424

 

Liabilities of disposal group

 

7,217

 

7,244

 

Total current liabilities

 

1,087,914

 

1,539,972

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

13,799

 

12,623

 

Income taxes payable

 

644,321

 

616,465

 

Deferred income taxes

 

811,170

 

775,022

 

Other non-current liabilities

 

438,766

 

273,516

 

Long-term debt, net of discount

 

1,273,850

 

1,275,585

 

Total liabilities

 

4,269,820

 

4,493,183

 

 

 

 

 

 

 

Commitments and Contingencies (Note 16)

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value per share, 5,000,000 shares authorized; none outstanding at March 31, 2012 and December 31, 2011

 

-

 

-

 

Common stock, $.01 par value per share, 575,000,000 shares authorized; issued 492,399,133 and 487,381,255 shares at March 31, 2012 and December 31, 2011, respectively

 

4,924

 

4,874

 

Common stock in treasury, at cost; 52,263,981 and 49,889,078 shares at March 31, 2012 and December 31, 2011, respectively

 

(2,931,399)

 

(2,760,705

)

Additional paid-in capital

 

7,058,121

 

6,764,479

 

Retained earnings

 

1,967,953

 

1,566,416

 

Accumulated other comprehensive income (loss)

 

(21,880)

 

(62,337

)

Total stockholders’ equity

 

6,077,719

 

5,512,727

 

 

 

 

 

 

 

Total liabilities and equity

 

  $

10,347,539

 

  $

10,005,910

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

4



 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Three-Month Periods Ended

 

 

March 31,

 

 

2012

 

2011

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

 $

401,537

 

 $

255,086

 

 

 

 

 

 

 

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

 

 

 

 

 

Depreciation

 

18,574

 

17,281

 

Amortization

 

42,016

 

69,677

 

Allocation of prepaid royalties

 

430

 

9,624

 

Provision for accounts receivable allowances

 

2,674

 

191

 

Deferred income taxes

 

(166,490)

 

(64,914

)

Impairment of acquired in-process research and development

 

22,152

 

118,000

 

Change in value of contingent consideration

 

(12,433)

 

(99,535

)

Share-based compensation expense

 

57,188

 

59,153

 

Equity in (gains) losses of affiliated companies

 

(1,187)

 

556

 

Share-based employee benefit plan expense

 

3,826

 

4,413

 

Unrealized change in value of foreign currency forward contracts

 

(9,934)

 

2,435

 

Realized (gains) losses on marketable securities available for sale

 

(351)

 

1,346

 

Other, net

 

(3,794)

 

(715

)

 

 

 

 

 

 

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

 

 

 

 

 

Accounts receivable

 

(79,324)

 

(76,139

)

Inventory

 

(25,521)

 

40,762

 

Other operating assets

 

101,061

 

26,128

 

Assets held for sale, net

 

(144)

 

(7,820

)

Accounts payable and other operating liabilities

 

(74,518)

 

(97,394

)

Income tax payable

 

30,465

 

24,088

 

Deferred revenue

 

4,291

 

(6,953

)

Net cash provided by operating activities

 

310,518

 

275,270

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sales of marketable securities available for sale

 

485,497

 

799,346

 

Purchases of marketable securities available for sale

 

(105,758)

 

(498,720

)

Payments for acquisition of business, net of cash acquired

 

(352,246)

 

-

 

Capital expenditures

 

(28,118)

 

(23,161

)

Investment in affiliated companies

 

(742)

 

(1,310

)

Purchases of investment securities

 

(5,000)

 

(533

)

Net cash provided by (used in) investing activities

 

(6,367)

 

275,622

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Payment for treasury shares

 

(168,866)

 

(450,014

)

Proceeds from short-term borrowing

 

1,045,904

 

-

 

Principal repayments on short-term borrowing

 

(1,421,312)

 

-

 

Net proceeds from exercise of common stock options and warrants

 

215,527

 

18,305

 

Excess tax benefit from share-based compensation arrangements

 

18,612

 

4,781

 

Net cash (used in) financing activities

 

(310,135)

 

(426,928

)

 

 

 

 

 

 

Effect of currency rate changes on cash and cash equivalents

 

7,585

 

11,900

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

1,601

 

135,864

 

Cash and cash equivalents at beginning of period

 

1,859,464

 

1,351,128

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

 $

1,861,065

 

 $

1,486,992

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

5



 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(Unaudited)

(Dollars in thousands)

 

 

 

 

Three-Month Periods Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activity:

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized (gain) loss on marketable securities available for sale

 

  $

(2,437)

 

  $

(3,683

)

 

 

 

 

 

 

Matured shares tendered in connection with stock option exercises

 

  $

(155)

 

  $

-

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

  $

959

 

  $

-

 

 

 

 

 

 

 

Income taxes paid

 

  $

85,432

 

  $

32,953

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

6



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In all accompanying tables, amounts of dollars expressed in thousands,

except per share amounts, unless otherwise indicated)

 

 

1.  Nature of Business and Basis of Presentation

 

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

 

Our primary commercial stage products include REVLIMID ® , VIDAZA ® , ABRAXANE ® , THALOMID ®  and ISTODAX ® .  Additional sources of revenue include a licensing agreement with Novartis, which entitles us to royalties on FOCALIN XR ®  and the entire RITALIN ®  family of drugs, the sale of services through our Cellular Therapeutics subsidiary and other miscellaneous licensing and collaboration 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.  We record net income (loss) attributable to non-controlling interest, if any, in our Consolidated Statements of Income equal to the percentage of ownership interest retained in the respective operations by the non-controlling parties.

 

The preparation of these unaudited 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 product development, regulatory approval, market acceptance, scope of patent and proprietary rights, competition, 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 the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011, or the 2011 Annual Report on Form 10-K. There were no changes during the three months ended March 31, 2012.

 

3.    Acquisitions and Divestitures

 

On March 7, 2012, or the Acquisition Date, we acquired all of the outstanding common stock of Avila Therapeutics, Inc., or Avila.  The acquisition resulted in Avila becoming our wholly owned subsidiary.  The results of operations for Avila are included in our consolidated financial statements from the date of acquisition and the assets and liabilities of Avila have been recorded at their respective fair values on the acquisition date and consolidated with our other assets and liabilities.   Avila’s results of operations prior to the acquisition were determined to be immaterial to us; therefore, pro forma financial statements are not required to be presented.

 

We paid $352.2 million in cash, net of cash acquired, and may make additional payments of up to an estimated maximum of $615.0 million in contingent developmental and regulatory milestone payments.

 

7



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

Prior to the acquisition, Avila was a clinical-stage biotechnology company focused on the design and development of targeted covalent drugs to achieve best-in class outcomes.  Avila’s product pipeline has been created using its proprietary Avilomics™ platform for developing targeted covalent drugs that treat diseases through protein silencing. Avila’s most advanced product candidate, AVL-292, a potential treatment for cancer and autoimmune diseases, is currently in phase I clinical testing.  We acquired Avila to enhance our portfolio of therapies for patients with life-threatening illnesses worldwide.

 

The fair value of consideration transferred in the acquisition of Avila is shown in the table below:

 

 

 

Fair Value at the
Acquisition Date

 

 

 

 

 

 

 

 

 

Cash

 

   $

363,405

 

Contingent consideration

 

179,135

 

Total fair value of consideration transferred

 

   $

542,540

 

 

Our potential contingent consideration payments are classified as liabilities, which were measured at fair value as of the acquisition date.  The range of potential milestone payments is from no payment if none of the milestones are achieved to an estimated maximum of $615.0 million if all milestones are achieved.  The potential milestones consist of developmental and regulatory achievements, including milestones for the initiation of phase II and III studies, IND filings, and regulatory events.

 

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 input not observable in the market and thus represents a Level 3 liability within the fair value hierarchy. The resulting probability weighted cash flows were discounted using a discount rate based on a market participant assumption.

 

Subsequent to the acquisition date, we will measure the contingent consideration arrangements at fair value each period with changes in fair value recognized in operating earnings unless changes pertain to facts and circumstances that existed as of the acquisition date, in which case changes will be recognized as adjustments to goodwill.  Changes in fair values will reflect new information about the in-process research and development, or IPR&D, assets and the passage of time.  In the absence of new information, changes in fair value will only reflect the passage of time as development work towards the achievement of the milestones progresses and will be accrued based on an accretion schedule.

 

The acquisition has been accounted for using the acquisition method of accounting which requires that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and requires the fair value of acquired IPR&D to be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts.  A preliminary purchase price allocation has been made and the recorded amounts are subject to change. The following items are subject to change:

 

·                The amount recorded for the fair value of contingent consideration.

·                Amounts for intangible assets, goodwill and associated deferred tax liabilities pending finalization of valuation efforts.

·                Amounts for income tax assets, receivables and liabilities, pending the filing of Avila pre-acquisition tax returns.

 

The amounts recognized will be finalized as the information necessary to complete the analyses is obtained, but no later than one year from the acquisition date.  Material adjustments, if any, could require retrospective application if they impact amortization amounts.

 

8



 

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 and liabilities assumed at the acquisition date based upon their respective preliminary fair values summarized below:

 

 

 

 

March 7, 2012

 

 

 

 

 

Working capital (1)

 

  $

11,876

 

Property, plant and equipment

 

2,559

 

Platform technology intangible asset (2)

 

356,800

 

In-process research and development product rights

 

201,900

 

Net deferred tax liability (3)

 

(175,673)

 

Total identifiable net assets

 

397,462

 

Goodwill

 

145,078

 

Net assets acquired

 

  $

542,540

 

 

 

(1)       Includes cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities.

(2)       Platform technology related to the Avilomics™ discovery platform which is being amortized over a useful life of seven years based on the estimated useful life of the underlying process.

(3)       Includes current deferred income tax asset of $14.7 million and non-current deferred tax liability of $190.4 million.

 

The fair values of current assets, current liabilities and property, plant and equipment were determined to approximate their book values.

 

The fair value of the platform technology intangible asset was based primarily on expected cash flows from future product candidates to be developed from the Avilomics™ platform and the fair value assigned to acquired IPR&D was primarily based on expected cash flows from the AVL-292 product candidate which is in phase I testing .  The values assigned to the platform technology intangible asset and the IPR&D asset were determined by estimating the costs to develop AVL-292 and future product candidates into commercially viable products, estimating the resulting revenue from the potential products, and discounting the net cash flows to present value.  The revenue and costs projections used were reduced based on the probability of developing new drugs. Additionally, the projections considered the relevant market sizes and growth factors and the nature and expected timing of new product introductions. The resulting net cash flows from such potential products are based on 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 projects and uncertainties in the economic estimates used in the projections described above.  Acquired IPR&D will be accounted for as an indefinite-lived intangible asset until regulatory approval in specified markets or discontinuation.

 

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition.  The goodwill recorded as part of the acquisition is largely attributable to full ownership rights to the Avilomics™ platform .  We do not expect any portion of this goodwill to be deductible for tax purposes.  The goodwill attributable to the acquisition has been recorded as a non-current asset in our Consolidated Balance Sheets and is not amortized, but is subject to review for impairment annually.

 

Prior to the acquisition, Avila had a number of collaboration agreements in place which we are now party to.  These agreements entitle us to receive potential milestone payments and reimbursement of expenses for research and development expenses incurred under the collaborations and our collaboration partners may receive intellectual property rights or options to purchase such rights related to products developed under the collaborations.   We do not consider these collaboration arrangements to be material.

 

9



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

Assets Held For Sale

 

The remaining balances in the assets held for sale and liabilities of disposal group line items on the Consolidated Balance Sheets at March 31, 2012 relate to two facilities that were acquired in the purchase of Abraxis.  We intend to sell these assets as we rationalize certain manufacturing facilities.  No material gain or loss is expected to result from the sale.

 

4.    Earnings Per Share

 

 

 

 

Three-Month Periods Ended

 

 

March 31,

(Amounts in thousands, except per share)

 

2012

 

2011

 

 

 

 

 

 

 

Net income attributable to Celgene

 

  $

401,537

 

  $

255,590

 

 

 

 

 

 

 

Weighted-average shares:

 

 

 

 

 

Basic

 

438,349

 

465,993

 

Effect of dilutive securities:

 

 

 

 

 

Options, restricted stock units, warrants and other incentives

 

10,249

 

6,242

 

Diluted

 

448,598

 

472,235

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

Basic

 

  $

0.92

 

  $

0.55

 

Diluted

 

  $

0.90

 

  $

0.54

 

 

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 5,233,808 and 26,149,808 shares for the three-month periods ended March 31, 2012 and 2011, respectively.

 

Our Board of Directors has approved an open-ended common share repurchase program up to an aggregate of $4.0 billion of our common stock.  As of March 31, 2012, an aggregate of 48,179,385 shares of common stock were repurchased under the program, including 2,350,000 shares of common stock repurchased during the three-month period ended March 31, 2012.

 

10



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

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, which includes changes in a subsidiary’s functional currency and net asset transfers of common control subsidiaries.

 

The accumulated balances related to each component of other comprehensive income (loss), net of tax, is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

Foreign

 

Accumulated

 

 

 

 

Net Unrealized

 

Net Unrealized

 

Currency

 

Other

 

 

Pension

 

Gains (Losses) From

 

Gains (Losses)

 

Translation

 

Comprehensive

 

 

Liability

 

Marketable Securities

 

From Hedges

 

Adjustment

 

Income (Loss)

Balance December 31, 2011

 

  $

(5,382)

 

  $

4,707

 

  $

5,713

 

  $

(67,375)

 

  $

(62,337

)

Other comprehensive income (loss)

 

-

 

2,109

 

6,847

 

31,501

 

40,457

 

Balance March 31, 2012

 

  $

(5,382)

 

  $

6,816

 

  $

12,560

 

  $

(35,874)

 

  $

(21,880

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2010

 

  $

(3,836)

 

  $

3,102

 

  $

(15,556)

 

  $

(57,477)

 

  $

(73,767

)

Other comprehensive income (loss)

 

-

 

2,918

 

(30,057)

 

13,837

 

(13,302

)

Balance March 31, 2011

 

  $

(3,836)

 

  $

6,020

 

  $

(45,613)

 

  $

(43,640)

 

  $

(87,069

)

 

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 March 31, 2012 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, non-U.S. government, agency and Supranational securities and global corporate debt securities.  Fair values determined based on Level 3 inputs utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity.  We do not have any Level 3 assets.  Our Level 1 liability relates to our publicly traded CVRs.  The Level 3 liability consists of contingent consideration related to undeveloped product rights resulting from the Gloucester acquisition and the undeveloped product rights and technology platform acquired from the Avila acquisition.  The estimated maximum potential payments related to the contingent consideration from the acquisitions of Gloucester and Avila are $120.0 million and $615.0 million, respectively.

 

11



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

 

 

Quoted Price in

 

Significant

 

Significant

 

 

 

 

 

Active Markets for

 

Other Observable

 

Unobservable

 

 

 

Balance at

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

March 31, 2012

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 $

408,302

 

 $

496

 

 $

407,806

 

 $

-

 

Forward currency contracts

 

62,974

 

-

 

62,974

 

-

 

Total assets

 

 $

471,276

 

 $

496

 

 $

470,780

 

 $

-

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Contingent value rights

 

 $

(84,384)

 

 $

(84,384)

 

 $

-

 

 $

-

 

Other acquisition related contingent consideration

 

 

(219,791)

 

 

-

 

 

-

 

 

(219,791

)

Total liabilities

 

 $

(304,175)

 

 $

(84,384)

 

 $

-

 

 $

(219,791

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Price in

 

Significant

 

Significant

 

 

 

 

 

Active Markets for

 

Other Observable

 

Unobservable

 

 

 

Balance at

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

December 31, 2011

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 $

788,690

 

 $

560

 

 $

788,130

 

 $

-

 

Forward currency contracts

 

48,561

 

-

 

48,561

 

-

 

Total assets

 

 $

837,251

 

 $

560

 

 $

836,691

 

 $

-

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Contingent value rights

 

 $

(60,583)

 

 $

(60,583)

 

 

 

 

 

Other acquisition related contingent consideration

 

(76,890)

 

-

 

-

 

(76,890

)

 

 

 $

(137,473)

 

 $

(60,583)

 

 $

-

 

 $

(76,890

)

 

There were no security transfers between Levels 1 and 2 in the three-month period ended March 31, 2012. Level 3 liabilities issued during the three-month period ended March 31, 2012 consist of contingent consideration related to the acquisition of Avila. The following tables represent a roll-forward of the fair value of Level 3 instruments (significant unobservable inputs):

 

 

 

Three-Month Periods Ended March 31,

 

 

2012

 

2011

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

Balance at beginning of period

 

  $

 -

 

  $ 

23,372

 

Amounts acquired or issued

 

-

 

-

 

Net realized and unrealized gains

 

-

 

1,165

 

Settlements

 

-

 

(4,982

)

Transfers in and/or out of Level 3

 

-

 

-

 

Balance at end of period

 

  $ 

-

 

  $

 19,555

 

 

12



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

Three-Month Periods Ended March 31,

 

 

2012

 

2011

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Balance at beginning of period

 

  $

 (76,890)

 

  $

 (252,895

)

Amounts acquired or issued

 

(179,135)

 

-

 

Net change in fair value

 

36,234 

 

(6,053

)

Settlements

 

-

 

-

 

Transfers in and/or out of Level 3

 

-

 

-

 

Balance at end of period

 

  $

(219,791)

 

  $

 (258,948

)

 

 

7.    Derivative Instruments and Hedging Activities

 

Foreign Currency Forward Contracts:   We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies and to reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.

 

We enter into foreign currency forward contracts to protect against changes in anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with non-functional currency denominated revenues and expenses of foreign subsidiaries.  The foreign currency forward hedging contracts outstanding at March 31, 2012 and December 31, 2011 had settlement dates within 36 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), or OCI, and reclassified to operations in the same periods during which the underlying hedged transactions affect operations.  Foreign currency forward contracts for Japanese Yen with a notional amount of approximately $498.0 million, which had previously been designated as cash flow hedges, were de-designated and closed out during the three month period ended March 31, 2012.  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 March 31, 2012 and December 31, 2011:

 

 

 

Notional Amount

Foreign Currency

 

March 31, 2012

 

December 31, 2011

 

 

 

 

 

 

Australian Dollar

$

33,102

$

17,169

 

British Pound

 

40,980

 

53,764

 

Canadian Dollar

 

84,425

 

67,281

 

Euro

 

791,522

 

714,446

 

Japanese Yen

 

36,864

 

606,538

 

Swiss Franc

 

43,882

 

49,182

 

Total

$

1,030,775

$

1,508,380

 

 

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 March 31, 2012, credit risk did not materially change the fair value of our foreign currency forward contracts.

 

We also enter into foreign currency forward contracts to reduce exposures to foreign currency fluctuations of certain recognized assets and liabilities denominated in foreign currencies.  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 March 31, 2012 and December 31, 2011 were $877.4 million and $916.9 million, respectively.

 

13



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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 swaps are recorded on the Consolidated Balance Sheets with no net impact recorded in the Consolidated Statements of Income.  Additionally, any net interest payments made or received are recognized as interest expense.  There were no interest rate swap contracts outstanding at March 31, 2012 or December 31, 2011.

 

The following table summarizes the fair value and presentation in the consolidated balance sheets for derivative instruments as of March 31, 2012 and December 31, 2011:

 

 

 

March 31, 2012

 

 

Asset Derivatives

 

Liability Derivatives

 

 

Balance Sheet

 

 

 

Balance Sheet

 

 

Instrument

 

Location

 

Fair Value

 

Location

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts designated as hedging instruments*

 

Other current assets

Other current liabilities

Other non-current assets

Other non-current liabilities

 

$

36,811

606

5,837

83

 

Other current assets

Other current liabilities

Other non-current assets

Other non-current liabilities

 

$

16,331

1,663

2,757

2,934

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts not designated as hedging  instruments*

 

Other current assets

Other current liabilities

Other non-current assets

 

55,574

349

19,045

 

Other current assets

Other current liabilities

Other non-current assets

 

8,411

7,478

15,757

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

118,305

 

 

 

55,331

 

 

 

 

 

 

December 31, 2011

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet

 

 

 

Balance Sheet

 

 

Instrument

 

Location

 

Fair Value

 

Location

 

Fair Value

 

 

 

 

 

 

 

 

 

Foreign currency
forward contracts
designated as
hedging
instruments*

 

Other current assets

Other current liabilities

Other non-current liabilities

 

$

68,889

 

129

 

 

Other current assets

Other current liabilities

Other non-current liabilities

 

$

32,430

3,940

24,832

 

 

 

 

 

 

 

 

 

Foreign currency
forward contracts
not designated as
hedging
instruments*

 

Other current assets

Other current liabilities

Other non-current assets

 

66,639

2,462

36,684

 

Other current assets


Other current liabilities

Other non-current assets

 

10,395

22,289

32,356

 

 

 

 

 

 

 

 

 

 

 

 

 

$

174,803

 

 

 

$

126,242

Total

 

 

 

 

 

 

 

 

 

*        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.

 

14



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

The following tables summarize the effect of derivative instruments designated as hedging instruments on the Consolidated Statements of Income for the three-month periods ended March 31, 2012 and 2011, respectively:

 

 

 

March 31, 2012

 

 

 

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 currency forward contracts

$

23,534

(1)

Net product sales

$

19,056

 

  Other income, net

$

(1,878)

(2)

 

(1)        Gains of $27,612 are expected to be reclassified from Accumulated OCI into operations in the next 12 months.

(2)        The amount of net losses recognized in income represents $4,445 in losses related to the ineffective portion of the hedging relationships and $2,567 of gains related to amounts excluded from the assessment of hedge effectiveness.

 

 

 

March 31, 2011

 

 

 

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)

 

(Amount Excluded
From Effectiveness
Testing)

 

(Amount Excluded
From Effectiveness
Testing)

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

$

(25,955)

 

Net product sales

$

4,569

 

  Other income, net

$

3,160

(1)

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

-

 

Interest expense

$

984

 

 

 

 

 

 

(1)        The amount of net gain recognized in income represents $80 in losses related to the ineffective portion of the hedging relationships and $3,240 of gains related to amounts excluded from the assessment of hedge effectiveness.

 

15



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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 March 31, 2012 and 2011:

 

 

 

Location of Gain (Loss)

 

Amount of Gain (Loss)

 

 

Recognized in Income

 

Recognized in Income on Derivative March 31,

Instrument

 

on Derivative

 

2012

 

2011

 

 

 

 

 

 

 

Foreign currency forward contracts

 

  Other income, net

 

  $

(7,883)

 

$

(28,951)

 

The impact of gains and losses on derivatives not designated as hedging instruments 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.

 

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

 

Money market funds of $632.0 million and $738.7 million at March 31, 2012 and December 31, 2011, 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 March 31, 2012 and December 31, 2011 were as follows:

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

March 31, 2012

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

134,309

 

$

11

 

$

(288)

 

$

134,032

 

U.S. government-sponsored agency securities

 

72,297

 

126

 

 

72,423

 

U.S. government-sponsored agency MBS

 

123,656

 

959

 

(376)

 

124,239

 

Non-U.S. government, agency and

 

 

 

 

 

 

 

 

 

Supranational securities

 

2,667

 

32

 

-  

 

2,699

 

Corporate debt - global

 

73,714

 

702

 

(4)

 

74,412

 

Marketable equity securities

 

407

 

90

 

-  

 

497

 

Total available-for-sale marketable securities

 

$

407,050

 

$

1,920

 

$

(668)

 

$

408,302

 

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

December 31, 2011

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

228,996

 

$

58

 

$

(38)

 

$

229,016

 

U.S. government-sponsored agency securities

 

196,833

 

81

 

(69)

 

196,845

 

U.S. government-sponsored agency MBS

 

256,440

 

600

 

(1,901)

 

255,139

 

Non-U.S. government, agency and

 

 

 

 

 

 

 

 

 

Supranational securities

 

2,666

 

19

 

-  

 

2,685

 

Corporate debt - global

 

104,181

 

497

 

(233)

 

104,445

 

Marketable equity securities

 

407

 

153

 

-  

 

560

 

Total available-for-sale marketable securities

 

$

789,523

 

$

1,408

 

$

(2,241)

 

$

788,690

 

 

16



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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 mortgage-backed securities, or 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.  Net unrealized gains in the marketable debt securities primarily reflect the impact of decreased interest rates at March 31, 2012 and December 31, 2011.

 

Duration periods of available-for-sale debt securities at March 31, 2012 were as follows:

 

 

 

Amortized

 

Fair

 

 

Cost

 

Value

 

 

 

 

 

Duration of one year or less

 

$

73,525

 

$

74,084

Duration of one through three years

 

314,525

 

314,887

Duration of three through five years

 

18,593

 

18,834

Total

 

$

406,643

 

$

407,805

 

9.    Inventory

 

A summary of inventories by major category at March 31, 2012 and December 31, 2011 follows:

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Raw materials

 

$

55,479

 

$

50,533

 

Work in process

 

129,266

 

115,170

 

Finished goods

 

30,892

 

23,870

 

Total

 

$

215,637

 

$

189,573

 

 

17



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

10.    Investment in Affiliated Companies

 

As of March 31, 2012, we held four equity method investments, including three limited partnership investment funds.  We contributed an aggregate $0.7 million to these investments during the three-month period ended March 31, 2012.  A summary of our equity method investments follows:

 

 

 

March 31,

 

December 31,

 

Investment in Affiliated Companies

 

2012

 

2011

 

 

 

 

 

 

 

Investment in affiliated companies (1) 

 

$

27,559

 

$

25,587

 

Excess of investment over share of equity (2)

 

967

 

1,010

 

Investment in affiliated companies

 

$

28,526

 

$

26,597

 

 

 

 

Three-Month Periods Ended March 31,

 

Equity in Gains (Losses) of Affiliated Companies

 

2012

 

2011

 

 

 

 

 

 

Affiliated companies gains (losses) (1) (3)

 

$

1,187

 

$

(556)

 

 

(1)  We record our interest and share of losses based on our ownership percentage.

(2)  Consists of goodwill.

(3)  Affiliated companies losses in 2011 included losses related to former Abraxis equity method investments.

 

11.    Intangible Assets and Goodwill

 

Intangible Assets:   Our intangible assets consist of developed product rights from the Pharmion, Gloucester and Abraxis acquisitions, IPR&D product rights from the Gloucester, Abraxis and Avila acquisitions, technology obtained primarily from the Avila acquisition, contract-based licenses and other miscellaneous intangibles.  The amortization periods related to non-IPR&D intangible assets range from one to 17 years.  The following summary of intangible assets by category includes intangibles currently being amortized and intangibles not yet subject to amortization:

 

 

 

Gross

 

 

 

Intangible

 

Weighted

 

 

 

Carrying

 

Accumulated

 

Assets,

 

Average

 

March 31, 2012

 

Value

 

Amortization

 

Net

 

Life (Years)

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

Acquired developed product rights

 

 $

2,186,000

 

 $

(700,207)

 

 $

1,485,793

 

11.9

 

Technology

 

359,334

 

(6,201)

 

353,133

 

7.0

 

Licenses

 

64,250

 

(7,067)

 

57,183

 

16.8

 

Other

 

40,615

 

(11,242)

 

29,373

 

8.8

 

 

 

2,650,199

 

(724,717)

 

1,925,482

 

11.2

 

 

 

 

 

 

 

 

 

 

 

Non-amortized intangible assets:

 

 

 

 

 

 

 

 

 

Acquired IPR&D product rights

 

1,413,748

 

-  

 

1,413,748

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

 $

4,063,947

 

 $

(724,717)

 

 $

3,339,230

 

 

 

 

18



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

Gross

 

 

 

Intangible

 

Weighted

 

 

 

Carrying

 

Accumulated

 

Assets,

 

Average

 

December 31, 2011

 

Value

 

Amortization

 

Net

 

Life (Years)

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

Acquired developed product rights

 

  $

2,186,000

 

  $

(666,142)

 

  $

1,519,858

 

11.9

 

Technology

 

 

2,534

 

 

(190)

 

2,344

 

10.0

 

Licenses

 

64,250

 

(6,108)

 

58,142

 

16.8

 

Other

 

40,600

 

(10,246)

 

30,354

 

8.8

 

 

 

2,293,384

 

(682,686)

 

1,610,698

 

11.9

 

 

 

 

 

 

 

 

 

 

 

Non-amortized intangible assets:

 

 

 

 

 

 

 

 

 

Acquired IPR&D product rights

 

1,234,000

 

-  

 

1,234,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

  $

3,527,384

 

  $

(682,686)

 

  $

2,844,698

 

 

 

 

The increase in gross carrying value of intangible assets at March 31, 2012 compared to December 31, 2011 was primarily due to the acquisition of Avila, which resulted in increases of $356.8 million in technology and $201.9 million in IPR&D product rights.  The net change in the gross carrying value of IPR&D product rights during the three-month period ended March 31, 2012 included a $22.1 million impairment charge to the Gloucester intangible asset related to a change in the estimated timing of approval of ISTODAX ®  for peripheral T-cell lymphoma, or PTCL, in Europe.  In addition, the contingent consideration liability from the acquisition of Gloucester relating to the approval of ISTODAX ®  for PTCL approval in Europe was reduced by $47.0 million, resulting in the recognition of a gain during the three months ended March 31, 2012.

 

Amortization expense was $42.0 million and $69.4 million for the three-month periods ended March 31, 2012 and 2011, respectively.  Assuming no changes in the gross carrying amount of intangible assets, the amortization of intangible assets for the next five years is estimated to be approximately $199.3 million for 2012, $209.8 million for 2013, $205.3 million for 2014, $201.4 million for 2015 and $201.1 million for 2016.

 

Goodwill:  At March 31, 2012, our goodwill related to 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 change in carrying value of goodwill is summarized as follows:

 

Balance at December 31, 2011

 

$

1,887,220

 

Acquisition of Avila

 

 

145,078

 

Tax benefit on the exercise of Pharmion converted stock options

 

(422)

 

Balance at March 31, 2012

 

$

2,031,876

 

 

19



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

12.   Debt

 

Senior Notes: Summarized below are the carrying values of our senior notes at March 31, 2012 and December 31, 2011:

 

 

 

March 31, 2012      

 

December 31, 2011

 

2.450% senior notes due 2015

 

525,428

 

$

527,191

 

 

 

 

 

 

 

 

 

3.950% senior notes due 2020

 

 

498,881

 

 

498,854

 

 

 

 

 

 

 

 

 

5.700% senior notes due 2040

 

 

249,541

 

 

249,540

 

Total long-term debt

 

1,273,850

 

$

1,275,585

 

 

At March 31, 2012, the fair value of our outstanding Senior Notes was $1.296 billion and represented a Level 2 measurement within the fair value measurement hierarchy.

 

Commercial Paper:  The carrying value of Commercial Paper as of March 31, 2012 and December 31, 2011 was $150.5 and $401.4 million, respectively, and approximated its fair value.  The effective interest rate on the outstanding Commercial Paper balance at March 31, 2012 was 0.5%.

 

Senior Unsecured Credit Facility:  We maintain a senior unsecured revolving credit facility, or the Credit Facility, that provides revolving credit in the aggregate amount of $1.0 billion.  Amounts may be borrowed in U.S. dollars for working capital, capital expenditures and other corporate purposes. The Credit Facility serves as backup liquidity for our Commercial Paper borrowings.  As of March 31, 2012, 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 financial debt covenants as of March 31, 2012.

 

Credit Facility:   In November 2011, we entered into an uncommitted facility, or the Facility, not exceeding an aggregate $125.0 million.  As of December 31, 2011, $125.0 million was outstanding under the Facility and accounted for as short-term borrowings.  The outstanding balance was repaid in January 2012 and there was no outstanding borrowing under the Facility as of March 31, 2012.

 

13.    Share-Based Compensation

 

The following table summarizes the components of share-based compensation expense in the Consolidated Statements of Income for the three-month periods ended March 31, 2012 and 2011:

 

 

 

Three-Month Periods Ended
March 31,

 

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cost of good sold

 

$

2,876

 

$

2,008

 

 

 

 

 

 

 

 

 

Research and development

 

 

25,028

 

 

32,592

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

26,816

 

 

23,093

 

 

 

 

 

 

 

 

 

Total share-based compensation expense

 

 

54,720

 

 

57,693

 

 

 

 

 

 

 

 

 

Tax benefit related to share-based compensation expense

 

 

14,619

 

 

15,452

 

Reduction in income

 

$

40,101

 

$

42,241

 

 

Share-based compensation cost included in inventory was $1.7 million and $2.0 million at March 31, 2012 and December 31, 2011, respectively.

 

20



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

We utilize share-based compensation in the form of stock options, restricted stock units, or RSUs, and performance-based restricted stock units, or PSUs.  The following table summarizes the activity for stock options, RSUs and PSUs for the three-month period ended M arch 31, 2012:

 

 

 

 

 

 

 

Performance-

 

 

 

 

 

Restricted

 

Based Restricted

 

 

 

Stock

 

Stock

 

Stock

 

 

 

Options

 

Units

 

Units

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2011

 

44,526,748

 

3,019,943 

 

28,500

 

 

 

 

 

 

 

 

 

Changes during the Year:

 

 

 

 

 

 

 

Granted

 

2,398,800

 

71,963 

 

-   

 

Exercised / Released

 

(4,672,377)

 

(48,750)

 

-   

 

Forfeited

 

(242,178)

 

(27,530)

 

(1,500)

 

Expired

 

(21,537)

 

N/A

 

N/A

 

Outstanding at March 31, 2012

 

41,989,456

 

3,015,626 

 

27,000

 

 

Total compensation cost related to nonvested awards not yet recognized and the weighted-average periods over which the awards are expected to be recognized at March 31, 2012 were as follows (dollars in thousands):

 

 

 

 

 

Restricted

 

Performance-

 

 

 

Stock

 

Stock

 

Based Restricted

 

 

 

Options

 

Units

 

Stock Units

 

Unrecognized compensation cost

 

$

282,769

 

$

91,000

 

$

1,181

 

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

 

2.3

 

1.6

 

1.8

 

 

14.    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 U.S. federal income tax returns have been audited by the U.S. Internal Revenue Service, or the IRS, through the year ended December 31, 2005. Tax returns for the years ended December 31, 2006, 2007 and 2008 are currently under examination by the IRS and scheduled to be completed within the next 12 months. 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

 

21



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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.  Increases to the amount of unrecognized tax benefits from January 1, 2012 of approximately $27.9 million relate primarily to current year operations.  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.  Any settlements of examinations with taxing authorities or statute of limitations expirations would likely result in a significant decrease in our unrecognized tax benefits.  It is reasonably possible that the amount of the liability for unrecognized tax benefits, exclusive of interest, could decrease by as much as $450.0 million during the next 12-month period as a result of settlements with taxing authorities and statute of limitations expirations in various taxing jurisdictions.  Our estimates of unrecognized 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.

 

15.    Collaboration Agreements

 

We have entered into a number of alliances in the ordinary course of business, as is customary in our industry.  See Note 19 of the Notes to the Consolidated Financial Statements included in our 2011 Annual Report on Form 10-K for a more comprehensive description of existing collaboration agreements.

 

16.    Commitments and Contingencies

 

Collaboration Arrangements:   We have entered into certain research and development collaboration agreements, as identified in Note 15, with third parties that include the funding of certain development, manufacturing and commercialization efforts with the potential for future milestone and royalty payments upon the achievement of pre-established developmental, regulatory and/or commercial targets.  Our obligation to fund these efforts is contingent upon continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the programs.  Due to the nature of these arrangements, the future potential payments are inherently uncertain, and accordingly no amounts have been recorded in our accompanying Consolidated Balance Sheets at March 31, 2012 and December 31, 2011.

 

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.

 

22



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

17.  Legal Proceedings

 

We and certain of our subsidiaries are involved in various patent, trademark, commercial and other claims; government investigations; and other legal proceedings that arise from time to time in the ordinary course of business.  These legal proceedings and other matters are complex in nature and have outcomes that are difficult to predict and could have a material adverse effect on us.

 

Patent proceedings include challenges to scope, validity or enforceability of our patents relating to our various products or processes. Although we believe we have substantial defenses to these challenges with respect to all our material patents, there can be no assurance as to the outcome of these matters, and a loss in any of these cases could result in a loss of patent protection for the drug at issue, which could lead to a significant loss of sales of that drug and could materially affect future results of operations.

 

Among the principal matters pending to which we are party to are the following:

 

In the fourth quarter of 2009, we received a Civil Investigative Demand, or CID, from the U.S. Federal Trade Commission, or the FTC. The FTC requested documents and other information relating to requests by generic companies to purchase our patented REVLIMID ®   and THALOMID ®  brand drugs in order to evaluate whether there is reason to believe that we have engaged in unfair methods of competition.  In the first quarter of 2010, the State of Connecticut referenced the same issues as those referenced in the 2009 CID and issued a subpoena. In the fourth quarter of 2010, we received a second CID from the FTC relating to this matter.  We continue to respond to requests for information.

 

In the first quarter of 2011, the United States Attorney for the Central District of California informed us that we were under investigation relating to our promotion of the drugs THALOMID ®  and REVLIMID ®  regarding alleged off-label marketing and improper payments to physicians.  We are cooperating with the United States Attorney in connection with this investigation.

 

REVLIMID ® We have publicly announced that we have received a notice letter dated August 30, 2010, sent from Natco Pharma Limited of India (“Natco”) notifying us of  Natco’s Abbreviated New Drug Application, or ANDA, which contains Paragraph IV certifications alleging that certain claims of certain patents listed for REVLIMID ®  in the FDA’s Approved Drug Products With Therapeutic Equivalence Evaluations (the “Orange Book”) are invalid, unenforceable, and/or not infringed (the “Notice Letter”).  The Notice Letter was sent pursuant to Natco having filed an ANDA seeking permission from the FDA to market a generic version of 25mg, 15mg, 10mg and 5mg capsules of REVLIMID ® .  Under the federal Hatch-Waxman Act of 1984, any generic manufacturer may file an ANDA containing a certification (a “Paragraph IV certification”) challenging the validity or infringement of a patent listed in the Orange Book.  On October 8, 2010, we filed an infringement action in the United States District Court of New Jersey against Natco in response to the Notice Letter with respect to United States Patent Nos. 5,635,517 (the “’517 patent”), 6,045,501 (the “’501 patent”), 6,281,230 (the “’230 patent”), 6,315,720 (the “’720 patent”), 6,555,554 (the “’554 patent”), 6,561,976 (the “’976 patent”), 6,561,977 (the “’977 patent”), 6,755,784 (the “’784 patent”), 7,119,106 (the “’106 patent”), and 7,465,800 (the “’800 patent”).  If Natco is successful in challenging our patents listed in the Orange Book, and the FDA were to approve the ANDA with a comprehensive education and risk management program for a generic version of lenalidomide, sales of REVLIMID ®   could be significantly reduced in the United States by the entrance of a generic lenalidomide product, potentially reducing our revenue.

 

Natco responded to our infringement action on November 18, 2010, with its Answer, Affirmative Defenses and Counterclaims.  Natco has alleged (through Affirmative Defenses and Counterclaims) that the patents are invalid, unenforceable and/or not infringed by Natco’s proposed generic products. After filing the infringement action, we learned the identity of Natco’s U.S. partner, Arrow International Limited, or Arrow, and filed an amended complaint on January 7, 2011, adding Arrow as a defendant.  On January 14, 2011, an

 

23



 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

amended complaint was filed identifying additional defendants including Watson Pharmaceuticals, Inc.(Arrow’s parent), Watson Pharma, Inc. (a wholly owned subsidiary of Watson Pharmaceuticals, Inc.) and Anda, Inc. (another wholly owned subsidiary of Watson Pharmaceuticals, Inc.).  On March 25, 2011, Celgene filed a second amended complaint naming only Natco, Arrow, and Watson Laboratories, Inc. (another wholly owned subsidiary of Watson Pharmaceuticals, Inc.) as Defendants.  Those three entities remain the current Defendants in this action.

 

We believe that Natco’s counterclaims are unlikely to be sustainable and intend to vigorously defend our patent rights.  We believe it unlikely that Natco will prevail on each and every patent and patent claim subject to the lawsuit and that all of the patent claims would be deemed to be invalid, unenforceable and/or non-infringed.  Accordingly, we believe that the ultimate outcome is not expected to have a material adverse effect on our financial condition or results of operations.

 

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. We intend to vigorously defend against this infringement suit.  If the suit against us is successful, we may have to pay damages, ongoing royalties and may have to license rights from plaintiffs.  However, we believe (a) that it is unlikely that the plaintiffs in this matter will prevail and (b) that the ultimate outcome will not have a material adverse effect on our financial condition or results of operations.  We filed motions to dismiss on February 20, 2012.

 

18.  Subsequent Event

 

On April 2, 2012, we entered into a collaboration and license agreement with Epizyme, Inc., or Epizyme, to discover, develop and commercialize personalized therapeutics for patients with genetically defined cancers by inhibiting histone methyltransferases (HMTs), an important epigenetic target class.

 

Under the terms of the agreement, we made an upfront payment of $65.0 million to Epizyme and also made a $25.0 million equity investment in Epizyme Series C Preferred Stock.  Epizyme could receive up to $165.0 million in milestone payments associated with each Epizyme compound developed under the collaboration plus royalties on sales.  We have the right of first negotiation to acquire Epizyme compounds during the three-year option term and we have a $35.0 million option to extend the collaboration for a fourth year.  Epizyme will have the sole responsibility to develop and commercialize compounds in the United States while we will have sole responsibility to develop and commercialize compounds outside the United States.

 

24



 

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 2011 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the 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 and its subsidiaries (collectively “we,” “our,”  “us” 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 which is designed to bring new therapies to market, and we are involved in research in several scientific areas that may deliver proprietary next-generation therapies, targeting areas such as intracellular signaling pathways in cancer and immune cells, immunomodulation in cancer and autoimmune diseases, and therapeutic application of cell therapies.

 

Our primary commercial stage products include REVLIMID ® , VIDAZA ® , ABRAXANE ® ,  THALOMID ®  and ISTODAX ® .

 

·       REVLIMID ®  is an oral immunomodulatory drug marketed in the United States and many international markets, in combination with dexamethasone, for treatment of patients with multiple myeloma who have received at least one prior therapy. It is also marketed in the United States and certain international markets for the treatment of transfusion-dependent anemia due to low- or intermediate-1-risk myelodysplastic syndromes, or MDS, associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities.

 

·       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 is marketed in the United States for the treatment of all subtypes of MDS.  The U.S. regulatory exclusivity for VIDAZA ®  expired in May 2011.  If a

 

25



 

 

generic version of VIDAZA ®   is successfully launched, we may quickly lose a significant portion of our sales for this product in the United States. In Europe, VIDAZA ®   is marketed for the treatment of intermediate-2 and high-risk MDS as well as acute myeloid leukemia, or AML, with 30% blasts and has been granted orphan drug designation for the treatment of MDS and AML.

 

 

·

ABRAXANE ®  is a solvent-free chemotherapy treatment option for metastatic breast cancer which was developed using our proprietary nab ®  technology platform. This protein-bound chemotherapy agent combines paclitaxel with albumin. It is approved for the treatment of metastatic breast cancer in the United States and specific international markets. ABRAXANE ®  is currently in various stages of investigation for the treatment of the following cancers: expanded applications for metastatic breast, non-small cell lung, malignant melanoma, pancreatic, bladder and ovarian.

 

 

·

THALOMID ®  is marketed for patients with newly diagnosed multiple myeloma and for the acute treatment of the cutaneous manifestations of moderate to severe erythema nodosum leprosum, or ENL, an inflammatory complication of leprosy and as maintenance therapy for prevention and suppression of the cutaneous manifestation of ENL recurrence.

 

 

·

ISTODAX ®  is approved in the United States for the treatment of cutaneous T-cell lymphoma, or CTCL, in patients who have received at least one prior systemic therapy. Additionally, in June 2011, ISTODAX ®  received U.S. approval for the treatment of peripheral T-cell lymphoma, or PTCL, in patients who have received at least one prior therapy. ISTODAX ®  has received orphan drug designation for the treatment of non-Hodgkin’s T-cell lymphomas, which includes CTCL and PTCL. The European Medicines Agency, or EMA, has granted orphan drug designation for ISTODAX ®  for the treatment of both CTCL and PTCL.

 

Additional sources of revenue include a licensing agreement with Novartis, which entitles us to royalties on their sales of FOCALIN XR ®  and the entire RITALIN ®  family of drugs, the sale of services through our Cellular Therapeutics subsidiary and other miscellaneous licensing agreements.

 

We continue to invest substantially in research and development, and the drug candidates in our pipeline are at various stages of preclinical and clinical development.  These candidates include pomalidomide and apremilast, our leading oral anti-cancer and anti-inflammatory agents, PDA-001, our leading cellular therapy, oral azacitidine, CC-223 and CC-115 for hematological and solid tumor malignancies, CC-122, our anti-cancer pleiotropic pathway modifier, and ACE-011 and ACE-536 biological products for anemia in several clinical settings of unmet need.  We believe that continued acceptance 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 March 31, 2012 and 2011:

 

 

 

Three-Month Periods Ended
March 31,