Celgene Corporation
CELGENE CORP /DE/ (Form: 10-K, Received: 02/13/2014 16:02:53)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or
o
 
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
(State or other jurisdiction of
incorporation or organization)
 
22-2711928
(I.R.S. Employer Identification No.)
86 Morris Avenue
Summit, New Jersey
(Address of principal executive offices)
 
07901
(Zip Code)
(908) 673-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $.01 per share
 
NASDAQ Global Select Market
Contingent Value Rights
 
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x     No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o     No  x
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  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x     No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  o
 
Non-accelerated filer  o  
 
Smaller reporting company  o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes  o     No  x
The aggregate market value of voting stock held by non-affiliates of the registrant on June 28, 2013 , the last business day of the registrant's most recently completed second quarter, was $48,096,964,775 based on the last reported sale price of the registrant's Common Stock on the NASDAQ Global Select Market on that date.
There were 406,020,079 shares of Common Stock outstanding as of February 7, 2014 .
Documents Incorporated by Reference
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2013. The proxy statement is incorporated herein by reference into the following parts of the Form 10-K:
Part II, Item 5.(d)
Equity Compensation Plan Information.
Part III, Item 10.
Directors, Executive Officers and Corporate Governance.
Part III, Item 11.
Executive Compensation.
Part III, Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Part III, Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Part III, Item 14.
Principal Accountant Fees and Services.


Table of Contents

CELGENE CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Item No.
 
Page
 


Table of Contents

PART I

ITEM 1.     BUSINESS
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 that may 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. Celgene Corporation was incorporated in the State of Delaware in 1986.
Our primary commercial stage products include REVLIMID ® , VIDAZA ® , ABRAXANE ® , POMALYST ® /IMNOVID ® , THALOMID ® (inclusive of Thalidomide Celgene TM ), ISTODAX ® and azacitidine for injection (generic version of VIDAZA ® ). 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 services through our Celgene Cellular Therapeutics (CCT) subsidiary and other licensing agreements.
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 myelodysplastic syndromes (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 refractory multiple myeloma. Phase III trials are also underway for VIDAZA ® and CC-486 in MDS and acute myeloid leukemia (AML) and ISTODAX ® in first-line peripheral T-cell lymphoma (PTCL).  In solid tumors, we are evaluating ABRAXANE ® in phase III trials for breast, pancreatic and non-small cell lung cancers.  Our lead product candidate in inflammation and immunology, OTEZLA ® (apremilast), is being evaluated in a broad phase III program for psoriatic arthritis, psoriasis and ankylosing spondylitis.
In addition to our phase III programs, we have a growing early-to-mid-stage pipeline of novel therapies to address significant unmet medical needs consisting of in-house developed compounds, compounds licensed from other companies and compounds we have options to acquire from collaboration partners.
We believe that continued use of our primary commercial stage products, ongoing internal and external collaborative research and development efforts, depth of our product pipeline, regulatory approvals of new products and expanded use of existing products will provide the catalysts for future growth.

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Table of Contents

COMMERCIAL STAGE PRODUCTS
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 (Approved June 2013)
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 (Approved June 2013)
REVLIMID ®  is distributed in the United States through contracted pharmacies under the REVLIMID ® Risk Evaluation and Mitigation Strategy (REMS) program, which is a proprietary risk-management distribution program tailored specifically to provide for the safe and appropriate distribution and use of REVLIMID ® . Internationally, REVLIMID ® is distributed under mandatory risk-management distribution programs tailored to meet local authorities' specifications to provide for the safe and appropriate distribution and use of REVLIMID ® . 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.
REVLIMID ®  continues to be evaluated in numerous clinical trials worldwide either alone or in combination with one or more other therapies in the treatment of a broad range of hematological malignancies, including multiple myeloma, MDS, various lymphomas, CLL, other cancers and other diseases.
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 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.  As the result of 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 ® , which we supply. In Europe, VIDAZA ® is marketed for the treatment of intermediate-2 and high-risk MDS, chronic myelomonocytic leukemia with 10% to 29% marrow blasts without myeloproliferative disorder, as well as AML with 20% to 30% blasts and multi-lineage dysplasia and has been granted orphan drug designation for the treatment of MDS and AML.  Regulatory exclusivity for VIDAZA ® is expected to continue in Europe through 2018.

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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

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
* Other international markets
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 (Approved February 2013)

Metastatic adenocarcinoma of the pancreas, a form of pancreatic cancer, as first line treatment in combination with gemcitabine
* United States (Approved September 2013)
* European Union (Approved December 2013)
Gastric cancer
* Japan (Approved February 2013)
During 2013, applications for marketing authorizations for ABRAXANE ® for the treatment of patients with advanced pancreatic cancer were also submitted in other countries and regions. ABRAXANE ® is currently in various stages of investigation for breast, pancreatic and non-small cell lung cancers.
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 U.S. Food and Drug Administration (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 (Approved February 2013)
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 (Approved August 2013)
1 We received FDA approval for pomalidomide under the trade name POMALYST ® . We received EC approval for pomalidomide under the trade name IMNOVID ® .

POMALYST ® /IMNOVID ® is also being evaluated in multiple trials in various phases for expanded usage in multiple myeloma and in a phase II trial for systemic sclerosis. POMALYST ®  is distributed in the United States through contracted pharmacies under the POMALYST REMS TM program, which is a proprietary risk-management distribution program tailored specifically to provide for the safe and appropriate distribution and use of POMALYST ® . Internationally, POMALYST ® /IMNOVID ® is distributed under mandatory risk-management distribution programs tailored to meet local authorities' specifications to provide for the safe and appropriate distribution and use of POMALYST ® /IMNOVID ® . These programs may vary by country and, depending upon the country and the design of the risk-management program, the product is sold through hospitals or retail pharmacies.

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THALOMID ® (thalidomide):     In combination with dexamethasone, THALOMID ® is marketed in the United States for patients with newly diagnosed multiple myeloma and for the acute treatment of the cutaneous manifestations of moderate to severe erythema nodosum leprosum (ENL) an inflammatory complication of leprosy and as maintenance therapy for prevention and suppression of the cutaneous manifestation of ENL recurrence. Thalidomide Celgene TM in combination with melphalan and prednisone is marketed in the European Union 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.
THALOMID ®  is distributed in the United States under our THALOMID REMS TM program, which is a proprietary risk-management distribution program tailored specifically to provide for the safe and appropriate distribution and use of THALOMID ® . Internationally, THALOMID ® and Thalidomide Celgene TM are also distributed under mandatory risk-management distribution programs tailored to meet local authorities' specifications to provide for the safe and appropriate distribution and use of THALOMID ® and Thalidomide Celgene TM . These programs may vary by country and, depending upon the country and the design of the risk-management program, the products are sold through hospitals or retail pharmacies.
ISTODAX ® (romidepsin):   ISTODAX ®  is approved in the United States for the treatment of cutaneous T-cell lymphoma (CTCL) in patients who have received at least one prior systemic therapy and for the treatment of 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, including CTCL and PTCL.
azacitidine for injection (generic version of VIDAZA ® ): After the launch of a generic version of VIDAZA ® in the United States by a competitor in September 2013, we contracted with Sandoz AG to sell azacitidine for injection, which we supply. We recognize net product sales from sales of azacitidine for injection to Sandoz AG.
FOCALIN ® , FOCALIN XR ® and RITALIN LA ® : We licensed the worldwide rights (excluding Canada) regarding certain chirally pure forms of methylphenidate for FOCALIN ® and FOCALIN XR ® to Novartis. We also licensed to Novartis the rights related to long-acting formulations of methylphenidate and dex-methylphenidate products which are used in FOCALIN XR ® and RITALIN LA ® . As a result of the grant of these licenses we receive royalties on sales of these products.
PRECLINICAL AND CLINICAL STAGE PIPELINE
Our preclinical and clinical-stage pipeline of new drug candidates and cell therapies is highlighted by multiple classes of small molecule, therapeutic agents designed to selectively regulate disease-associated genes and proteins. These product candidates are at various stages of preclinical and clinical development.
Oral anti-inflammatory agents:     We are developing novel, orally administered small molecules that specifically target PDE4, an intracellular enzyme that modulates the production of multiple pro-inflammatory and anti-inflammatory mediators including interleukin-2 (IL-2), IL-10, IL-12, IL-23, INF-gamma, TNF-α, leukotrienes and nitric oxide synthase. OTEZLA ® (apremilast), our lead product candidate in inflammation and immunology, has demonstrated statistically significant and clinically meaningful benefits in recent phase III trials in the treatment of psoriasis (ESTEEM 1 and 2 trials), previously treated psoriatic arthritis (PALACE 1, 2 and 3 trials) and psoriatic arthritis in treatment-naïve patients (PALACE 4 trial). OTEZLA ® (apremilast) is also being evaluated in a phase III trial for ankylosing spondylitis and a phase II trial for Behçet's disease has recently been completed.
Next generation of thalidomide analogues: CC-122 and CC-220 represent novel compounds that are in phase I clinical trials for hematological and solid tumor cancers. They have been differentiated from previous compounds and have been developed based on our scientific understanding of thalidomide mechanism of action and protein homeostasis.
Cellular therapies:     At CCT we are conducting research with stem cells derived from the human placenta as well as from the umbilical cord. CCT is our research and development division dedicated to fulfilling the promise of cellular technologies by developing products and therapies to significantly benefit patients. Our goal is to develop proprietary cell therapy products for the treatment of unmet medical needs.
Stem cell based therapies offer the potential to provide disease-modifying outcomes for serious diseases that lack adequate therapy. We have developed proprietary technology for collecting, processing and storing placental stem cells with potentially broad therapeutic applications in cancer, auto-immune diseases, and other inflammatory diseases.
We are developing our cellular therapies, PDA-001 (IV formulation) and PDA-002 (IM/SC injectable formulation), with the initiation of phase I safety and dose finding studies for Crohn’s disease and peripheral arterial diseases. We are also continuing research to define the potential of placental-derived stem cells and to characterize other placental-derived products.
CC-486:     We have initiated two phase III trials of CC-486 that are currently enrolling to evaluate CC-486 in the treatment of MDS and AML. In addition, a phase I trial of CC-486 for the treatment of solid tumors is currently in progress.

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Sotatercept (ACE-011) and ACE-536:    We have collaborated with Acceleron Pharma, Inc. (Acceleron) to develop sotatercept and ACE-536 to treat anemia in patients with rare blood disorders. Several phase II trials are in progress to evaluate the use of sotatercept or ACE-536 in the treatment of anemia in patients with rare blood disorders and chronic kidney disease, beta-thalassemia and MDS.
mTOR pathway inhibitors: CC-223 and CC-115 target the important cancer pathway that is dysregulated in a large proportion of cancers. In particular, activity is being investigated in lymphomas, hepatocellular and prostate cancers in phase I/II trials.
Epigenetics: The current insights into molecular regulation of genetic information (Epigenetics) has the potential to transform human diseases. Celgene has two epigenetic modifiers on the market, VIDAZA ® and ISTODAX ® . In addition, we are collaborating with Epizyme Inc. (Epizyme) to develop EPZ-5676 for AML.
CC-292: CC-292 is in phase I clinical trials for the treatment of CLL and lymphomas. CC-292 is also in phase II combination studies with REVLIMID ® and Rituxan in CLL’s.
PRODUCT DEVELOPMENT
We devote significant resources to research and development programs in an effort to discover and develop potential future product candidates. Research and development expenses amounted to $2.226 billion in 2013, $1.724 billion in 2012 and $1.600 billion in 2011. The product candidates in our pipeline are at various stages of preclinical and clinical development. The path to regulatory approval includes three phases of clinical trials in which we collect data to support an application to regulatory authorities to allow us to market a product for treatment of a specified disease. There are many difficulties and uncertainties inherent in research and development of new products, resulting in a high rate of failure. To bring a drug from the discovery phase to regulatory approval, and ultimately to market, takes many years and significant cost. Failure can occur at any point in the process, including after the product is approved, based on post-market factors. New product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved uses, reimbursement challenges, difficulty or excessive costs of manufacture, alternative therapies or infringement of the patents or intellectual property rights of others. Uncertainties in the FDA approval process and the approval processes in other countries can result in delays in product launches and lost market opportunities. Consequently, it is very difficult to predict which products will ultimately be submitted for approval, which have the highest likelihood of obtaining approval and which will be commercially viable and generate profits. Successful results in preclinical or clinical studies may not be an accurate predictor of the ultimate safety or effectiveness of a drug or product candidate.
Phase I Clinical Trials
Phase I clinical trials begin when regulatory agencies allow initiation of clinical investigation of a new drug or product candidate and usually involve up to 80 healthy volunteers or subjects. The trials study a drug's safety profile, and may include a preliminary determination of a drug or product candidate's safe dosage range. The phase I clinical trial also determines how a drug is absorbed, distributed, metabolized and excreted by the body, and therefore the potential duration of its action. Phase I clinical trials generally take from one to three years to complete.
Phase II Clinical Trials
Phase II clinical trials are conducted on a limited number of subjects with the targeted disease. An initial evaluation of the drug's effectiveness on subjects is performed and additional information on the drug's safety and dosage range is obtained. Phase II clinical trials normally include up to several hundred subjects and may take as many as two to three years to complete.
Phase III Clinical Trials
Phase III clinical trials are typically controlled multi-center trials that involve a larger target patient population that normally consists of from several hundred to several thousand subjects to ensure that study results are statistically significant. During phase III clinical trials, physicians monitor subjects to determine efficacy and to gather further information on safety. These trials are generally global in nature and are designed to generate all of the clinical data necessary to submit an application for marketing approval to regulatory agencies. Phase III testing varies by disease state, but can often last from two to seven years.
Regulatory Review
If a product candidate successfully completes phase III clinical trials and is submitted to governmental regulators, such as the FDA in the United States or the EC in the European Union, the time to final marketing approval can vary from six months (for a U.S. filing that is designated for priority review by the FDA) to several years, depending on a number of variables,

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such as the disease state, the strength and complexity of the data presented, the novelty of the target or compound, risk-management approval and whether multiple rounds of review are required for the agency to evaluate the submission. There is no guarantee that a potential treatment will receive marketing approval, or that decisions on marketing approvals or treatment indications will be consistent across geographic areas.
The current stage of development of our commercial stage products and new drug candidates in various areas of research are outlined in the following table:
Area of Research
 
Status
 
Entered Current Status
Multiple Myeloma (MM)
 
 
 
 
REVLIMID ®
 
Relapsed/refractory
 
Post-approval research 1
 
2006
 
 
Newly diagnosed
 
Phase III
 
2008
 
 
Maintenance
 
Phase III
 
2004
POMALYST ® /IMNOVID ®
 
Relapsed/refractory 2
 
Post-approval research 1
 
February 2013
THALOMID ® /Thalidomide Celgene TM
 
Newly diagnosed
 
Post-approval research 1
 
2006
Anti-CD38 Antibody: MOR202 3
 
Relapsed/refractory
 
Phase I
 
2011
 
 
 
 
 
 
 
Myelodysplastic Syndromes (MDS)
 
 
 
 
VIDAZA ®
 
.
 
Post-approval research 1
 
2004
REVLIMID ®
 
Deletion 5q
 
Post-approval research 1
 
2005
 
 
Non-deletion 5q
 
Phase III
 
2010
CC-486
 
Lower-risk
 
Phase III
 
May 2013
 
 
Post HSC transplant
 
Phase I/II
 
October 2013
 
 
 
 
 
 
 
Acute Myeloid Leukemia (AML)
 
 
 
 
VIDAZA ®
 
AML (20%-30% blasts) (EU)
 
Post-approval research 1
 
2008
 
 
AML (>30% blasts) (EU)
 
Phase III
 
2010
REVLIMID ®  & VIDAZA ®
 
.
 
Phase II
 
September 2013
CC-486
 
Post-induction AML maintenance
 
Phase III
 
May 2013
 
 
Post HSC transplant
 
Phase I/II
 
October 2013
DOT 1L Inhibitor: EPZ-5676 4
 
.
 
Phase I
 
2012

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Area of Research
 
Status
 
Entered Current Status
Lymphoma
 
 
 
 
ISTODAX ®  
 
Cutaneous T-cell lymphoma (US) 5
 
Post-approval research 1
 
2009
 
 
Peripheral T-cell lymphoma: Relapsed/refractory (US) 5
 
Post-approval research 1
 
2011
 
 
Peripheral T-cell lymphoma: Relapsed/refractory (Japan)
 
Phase II
 
March 2013
 
 
Peripheral T-cell lymphoma: First-line
 
Phase III
 
January 2013
REVLIMID ®
 
Mantle cell lymphoma: Relapsed/refractory (US)
 
Post-approval research 1
 
June 2013
 
 
Mantle cell lymphoma: Relapsed/refractory (EU)
 
Phase II
 
2009
 
 
Diffuse large B-cell: Maintenance
 
Phase III
 
2009
 
 
Diffuse large B-cell: Relapsed/refractory
 
Phase II/III
 
2010
 
 
Relapsed/refractory indolent lymphoma
 
Phase III
 
September 2013
 
 
Follicular lymphoma: First-line
 
Phase III
 
2011
 
 
Adult T-cell leukemia-lymphoma (Japan)
 
Phase II
 
2012
CC-292
 
.
 
Phase I
 
2012
CC-122
 
Diffuse large B-cell lymphoma
 
Phase Ib
 
January 2014
 
 
 
 
 
Chronic Lymphocytic Leukemia (CLL)
 
 
 
 
REVLIMID ®
 
Maintenance
 
Phase III
 
2009
CC-292
 
.
 
Phase I
 
2012
 
 
 
 
 
 
 
Anemias
 
 
 
 
sotatercept (ACE-011) 6
 
Renal anemia with metabolic bone disease
 
Phase II
 
2010
 
 
Diamond blackfan anemia
 
Phase II
 
2012
 
 
Beta-thalassemia
 
Phase II
 
2012
 
 
MDS
 
Phase II
 
2012
ACE-536 6
 
Beta-thalassemia
 
Phase II
 
January 2013
 
 
MDS
 
Phase II
 
January 2013
 
 
 
 
 
 
 
Solid Tumors
 
 
 
 
ABRAXANE ®
 
Breast: Metastatic
 
Post-approval research 1
 
2005
 
 
Breast: Metastatic (first-line, triple negative)
 
Phase II/III
 
September 2013
 
 
Non-small cell lung: Advanced (first-line) (US, Japan)
 
Post-approval research 1
 
2012
 
 
Pancreatic: Advanced (first-line) (US)
 
Post-approval research 1
 
September 2013
 
 
Pancreatic: Advanced (first-line) (EU)
 
Post-approval research 1
 
December 2013
 
 
Gastric: Metastatic (Japan) 8
 
Post-approval research 1,7
 
February 2013
CC-223
 
.
 
Phase I
 
2012
CC-115
 
.
 
Phase I
 
2011
CC-122
 
.
 
Phase I
 
2011
CC-486
 
.
 
Phase I
 
2011

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Area of Research
 
Status
 
Entered Current Status
Anti-Inflammatory
 
 
 
 
OTEZLA ®  (apremilast)
 
Psoriatic arthritis
 
Regulatory filing and approval
 
March 2013
 
 
Psoriasis
 
Regulatory filing and approval
 
September 2013
 
 
Ankylosing spondylitis
 
Phase III
 
2012
 
 
Behçet's disease
 
Phase II
 
2009
 
 
Rheumatoid arthritis
 
Phase II
 
2010
POMALYST ® /IMNOVID ®
 
Systemic sclerosis
 
Phase II
 
March 2013
CC-220
 
.
 
Phase I
 
January 2013
 
 
 
 
 
 
 
Cellular Therapies
 
 
 
 
PDA-001
 
Crohn's disease
 
Phase I
 
February 2013
PDA-002
 
Peripheral artery disease/Diabetic foot ulcers
 
Phase I
 
June 2013
UCB+HPDSC ®
 
Transplants
 
Phase I
 
April 2013
1 Includes Celgene-sponsored and Celgene-supported studies.
2 In the United States, regulatory approval is based on pivotal phase II data; phase III program ongoing.
3 In collaboration with MorphoSys AG.
4 In collaboration with Epizyme.
5 Filing for regulatory approval based on pivotal phase II data.
6 In collaboration with Acceleron Pharma, Inc.
7 For information on approved uses, please refer to approved product labeling.
8 Trial conducted by licensee partner, Taiho Pharmaceuticals Co. Ltd.


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PATENTS AND PROPRIETARY TECHNOLOGY
We consider intellectual property protection to be critical to our operations. For many of our products, in addition to compound ( e.g. , drug substance) and composition ( e.g. , drug product) patents, we hold polymorph, formulation, methods of treatment or use, and methods of manufacture patents that may extend exclusivity beyond the expiration of the compound patent or composition patent.
Key product exclusivities:
The following table shows the expected expiration dates in the United States and Europe of the last-to-expire period of exclusivity (primary regulatory approval or patent) related to the following drugs:
 
 
U.S. 1
 
Europe
REVLIMID ®  brand drug
 
2027
 
2024
(U.S. and European Patent Office (EPO) drug substance patents)
 
 
 
 
THALOMID ®  brand drug
 
2023
 
2019
(Use and/or drug product patents)
 
 
 
 
VIDAZA ®  brand drug
 
2011
 
2018
(U.S. and EMA regulatory exclusivities only)
 
 
 
 
ABRAXANE ®  brand drug
 
2026
 
2022
(U.S. use and EPO use/drug product patents)
 
 
 
 
ISTODAX ®  brand drug
 
2021
 
*
(U.S. drug substance patents)
 
 
 
 
POMALYST ® /IMNOVID ®  brand drug
 
2024 2
 
2023 3
(U.S. use patent)
 
 
 
 
(EMA regulatory exclusivity)
 
 
 
 
FOCALIN ®  brand drug
 
2015
 
N/A
(U.S. use patents)
 
 
 
 
FOCALIN XR ®  brand drug
 
2015
 
2018
(U.S. use patents)
 
 
 
 
(EPO drug product patent)
 
 
 
 
OTEZLA ®  brand drug
 
2024 4
 
2024 5
_____________________
* Generally, 10 years regulatory exclusivity upon approval of submitted application for an orphan indication.

1  
The patents covering these drugs include patents listed in the U.S. Orange Book. The date provided reflects the last-to-expire patent as listed in the U.S. Orange Book, which may not be the last date on which all relevant patents ( e.g. , polymorph and manufacturing patents) expire.
2  
Application for patent term extension through June 2025 pending.
3  
Patent application pending, receipt of which would likely extend exclusivity beyond 2023.
4  
Application for patent term extension of up to five years will be made upon marketing approval.
5  
Patent grant pending, receipt of which would extend exclusivity through 2024.


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The term of individual patents and patent applications will depend upon the legal term of the patents in the countries in which they are obtained. In the United States, the patent term is 20 years from the date of filing of the patent application although term extensions are available. We may obtain patents for certain products many years before marketing approval is obtained for those products. Because of the limited life of patents, which ordinarily commences prior to the commercial sale of the related product, the commercial value of the patent may be limited. However, we may be able to obtain patent term extensions upon marketing approval. For example, supplementary protection certificates (SPCs) on some of our products have been granted in a number of European countries, compensating in part for delays in obtaining marketing approval. Also, under the Hatch-Waxman Act, the term of a patent that covers an FDA-approved drug may also be eligible for patent term extension (for up to five years, but not beyond a total of 14 years from the date of product approval) as compensation for patent term lost during the FDA regulatory review process. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new drug application (NDA) with the FDA, we expect to apply for patent term extensions for patents covering our drug products and their use in treating various diseases.

In most cases, our drugs are also covered in foreign countries by patents and patent applications that correspond to certain of those listed in the U.S. Orange Book. For example, patents related to the active pharmaceutical ingredient, uses and pharmaceutical compositions for most of our drugs have been granted in Europe. Although certain of the patents granted by the regulatory authorities of the European Union may expire at specific dates, patents granted in certain European countries, such as Spain, France, Italy, Germany and the United Kingdom, will extend beyond such European Union patent expiration date due to the SPCs granted in these countries for many of our drugs. The table above may also reflect patents in Europe that relate to certain polymorphic forms of the active pharmaceutical ingredient of our drugs.

Patent term extensions have been granted in other markets as well, including Australia and Korea, relative to certain of our patents related to REVLIMID ® . Patent term extensions relative to lenalidomide have been granted in Japan. Further, patent term extensions relative to ABRAXANE ® have been secured and/or are actively being sought in Australia, Japan, Russia and Korea. We are also considering alternative exclusivity strategies, mostly through international treaties, in a variety of countries throughout Latin America.

The existence of issued patents does not guarantee our right to practice the patented technology or commercialize the patented product. Third parties may have or obtain rights to patents which could be used to prevent or attempt to prevent us from commercializing the patented product candidates. Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes, such as those that cover our existing compounds, products and processes and those that we will likely file in the future, do not always provide complete or adequate protection. Future litigation or re-examination proceedings (including oppositions and invalidity proceedings) regarding the enforcement or validity of our existing patents or any future patents could invalidate such patents or substantially reduce their protection.

In total, we own or have exclusively licensed 480 issued U.S. patents. In addition, approximately 530 additional pending U.S. patent applications are owned by or exclusively licensed to us. We have a policy to seek broad global patent protection for our inventions and have foreign patent rights corresponding to most of our U.S. patents.

Our patents are subject to challenge by generic drug companies and others for a variety of reasons. For more information regarding challenges to certain of our patents, see Item 1A. "Risk Factors” and Item 3. "Legal Proceedings."

Trade secret strategies and intellectual property rights in our brand names, logos and trademarks are also important to our business. We maintain both registered and common law trademarks. Common law trademark protection typically continues where and for as long as the mark is used. Registered trademarks continue in each country for as long as the trademark is registered.
GOVERNMENTAL REGULATION
General:     Regulation by governmental authorities in the United States and other countries is a significant factor in the manufacture and marketing of pharmaceuticals and in our ongoing research and development activities. Our therapeutic products require regulatory approval by governmental agencies. Human therapeutic products are subject to rigorous preclinical testing and clinical trials and other pre-marketing and post-marketing approval requirements of the FDA and regulatory authorities in other countries. In the United States, various federal and, in some cases, state statutes and regulations also govern, or impact the manufacturing, testing for safety and effectiveness, labeling, storage, record-keeping and marketing of such products. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations, require the expenditure of substantial resources. Regulatory approval, if and when obtained, may be limited in scope which may significantly limit the uses for which a product may be promoted. Further, approved drugs, as well as their manufacturers, are subject to ongoing post-marketing review, inspection and discovery of previously unknown problems with such products or the manufacturing or quality control procedures used in their production, which may result in restrictions on their manufacture, sale or use or in their withdrawal

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from the market. Any failure or delay by us, our suppliers of manufactured drug product, collaborators or licensees, in obtaining regulatory approvals could adversely affect the marketing of our products and our ability to receive product revenue, license revenue or profit sharing payments. For more information, see Item 1A. “Risk Factors.”

Clinical Development:   Before a product may be administered to human subjects, it must undergo preclinical testing. Preclinical tests include laboratory evaluation of a product candidate's chemistry and biological activities and animal studies to assess potential safety and efficacy. The results of these studies must be submitted to the FDA as part of an Investigational New Drug (IND) application which must be reviewed by the FDA primarily for safety considerations before clinical trials in humans can begin.

Typically, clinical trials in humans involve a three-phase process as previously described under “- Product Development.”

In some cases, further studies beyond the three-phase clinical trial process described above are required as a condition for an NDA or biologics license application (BLA) approval. The FDA requires monitoring of all aspects of clinical trials and reports of all adverse events must be made to the FDA. The FDA may also require the conduct of pediatric studies for the drug and indication either before or after submission of an NDA.

FDA Review and Approval:     The results of the preclinical testing and clinical trials are submitted to the FDA as part of an NDA or BLA for evaluation to determine if there is substantial evidence that the product is sufficiently safe and effective to warrant approval. In responding to an NDA or BLA, the FDA may grant marketing approval, deny approval, or request additional information, including data from new clinical trials.

Expedited Programs for Serious Conditions:     The FDA has developed four distinct approaches to make new drugs available as rapidly as possible in cases where there is no available treatment or there are advantages over existing treatments.

The FDA may grant “accelerated approval” to products that have been studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit to patients over existing treatments. For accelerated approval, the product must have an effect on a surrogate endpoint or an intermediate clinical endpoint that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on irreversible morbidity and mortality. When approval is based on surrogate endpoints or clinical endpoints other than survival or morbidity, the sponsor will be required to conduct additional post-approval clinical studies to verify and describe clinical benefit. These studies are known as confirmatory trials. Approval of a drug may be withdrawn or the labeled indication of the drug changed if these trials fail to verify clinical benefit or do not demonstrate sufficient clinical benefit to justify the risks associated with the drug.

The FDA may grant “fast track” status to products that treat serious diseases or conditions and fill an unmet medical need. Fast track is a process designed to facilitate the development and expedite the review of such products by providing, among other things, more frequent meetings with the FDA to discuss the product's development plan, more frequent written correspondence from the FDA about trial design, eligibility for accelerated approval if relevant criteria are met, and rolling review, which allows submission of individually completed sections of an NDA or BLA for FDA review before the entire submission is completed. Fast track status does not ensure that a product will be developed more quickly or receive FDA approval.

“Breakthrough Therapy” designation is a process designed to expedite the development and review of drugs that are intended to treat a serious condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy on a clinically significant endpoint. For drugs and biologics that have been designated as Breakthrough Therapies, robust FDA-sponsor interaction and communication can help to identify the most efficient and expeditious path for clinical development while minimizing the number of patients placed in ineffective control regimens.

The FDA may grant “priority review” status to products that, if approved, would provide significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of serious conditions. Priority review is intended to reduce the time it takes for the FDA to review an NDA or BLA, with the goal to take action on the application within six months.

Orphan Drug Act: Pursuant to the United States Orphan Drug Act, a sponsor may request that the FDA designate a drug intended to treat a “rare disease or condition” as an “orphan drug.” A “rare disease or condition” is defined as one which affects less than 200,000 people in the United States, or which affects more than 200,000 people, but for which the cost of developing and making available the product is not expected to be recovered from sales of the product in the United States. Upon the approval of the first NDA or BLA for a drug designated as an orphan drug for a specified indication, the sponsor of that NDA or BLA is entitled to seven years of exclusive marketing rights in the United States unless the sponsor cannot assure the availability of sufficient quantities to meet the needs of persons with the disease. However, orphan drug status is particular to the approved indication and does not prevent another company from seeking approval of an off-patent drug that has other labeled indications that are not under orphan or other exclusivities. Orphan drugs may also be eligible for federal income tax credits for costs associated with

11


the drugs' development. In order to increase the development and marketing of drugs for rare disorders, regulatory bodies outside the United States have enacted regulations similar to the Orphan Drug Act.

Review and Approval Outside of the United States:     Approval procedures must be undertaken in virtually every other country comprising the market for our products. The approval procedure and the time required for approval vary from country to country and may involve additional testing. In certain countries such as the EU countries, Switzerland, Canada and Australia, regulatory requirements and approval processes are similar to those in the United States, where approval decisions by regulators are based on the regulators’ review of the results of clinical trials performed for specific indications. Other countries may have a less comprehensive review process in terms of data requirements and may rely on prior marketing approval from a foreign regulatory authority in the United States or the EU.

Manufacturing Quality Control:     Among the conditions for NDA or BLA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures continually conform with the FDA’s current Good Manufacturing Practice (cGMP) regulations (which are regulations established by the FDA governing the manufacture, processing, packing, storage and testing of drugs and biologics intended for human use). In complying with cGMP, manufacturers must devote substantial time, money and effort in the areas of production, quality control and quality assurance to maintain compliance. Material changes in manufacturing equipment, location or process, may result in additional regulatory review and approval. The FDA, the EC and other regulatory agencies conduct periodic visits to inspect equipment, facilities, and processes following the initial approval of a product. If a manufacturing facility is not in substantial compliance with the applicable regulations and requirements imposed when the product was approved, regulatory enforcement action may be taken, which may include a warning letter or an injunction against shipment of products from the facility and/or recall of products previously shipped.

Post-approval Review and Enforcement:     Regulatory authorities closely review and regulate the marketing and promotion of drug and biologic products. In most countries, regulatory approval is granted for a specified indication and is required before marketing or promoting a product for that indication. Regulatory authorities may take enforcement action against a company for promoting unapproved uses of a product ("off-label promotion") or for other violations of advertising and labeling laws and regulations.

When an NDA or BLA is approved, the NDA or BLA holder must, among other things, (a) employ a system for obtaining reports of drug adverse events and side effects associated with the drug and make appropriate submissions to the FDA and (b) timely advise the FDA if any marketed product fails to adhere to specifications established by the NDA or BLA. If the FDA concludes that a drug previously shown to be effective can be safely used only if distribution or use is restricted, the FDA will require post-marketing restrictions as necessary to assure safe use. The sponsor may be required to establish systems to assure use of the product under safe conditions. The FDA may require the drug sponsor to implement REMS to ensure that benefits of a drug outweigh risks and that safety protocols are adhered to.

In addition, a sponsor of a drug product has ongoing reporting obligations concerning assessment of serious risks associated with the drug. Following assessment of these reports, regulatory authorities can require product label updates to reflect new safety data or warnings. If the FDA or other regulatory authorities become aware of new safety information, they can also require us to conduct studies or clinical trials to assess the potential for a serious risk. The FDA and other regulatory authorities can also impose marketing restrictions, including the suspension of marketing or complete withdrawal of a product from the market.

The FDA may issue publicly available warning letters and non-compliance letters, which may require corrective actions, including modification of advertising or other corrective communications to consumers or healthcare professionals.

Failure to comply with applicable FDA or other regulatory agency requirements can result in enforcement actions, such as license revocation or suspension; orders for retention, recall, seizure or destruction of product; cessation of manufacturing; injunctions; inspection warrants; search warrants; civil penalties, including fines based on disgorgement; restitution; and criminal prosecution.
Other Regulations: We are also subject to various federal and state laws, as well as foreign laws, pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal to solicit, offer, receive or pay any remuneration in exchange for or to induce the referral of business, including the purchase or prescription of a particular drug that is reimbursed by a state or federal program. False claims laws prohibit knowingly and willingly presenting, or causing to be presented for payment to third-party payers (including Medicare and Medicaid) any claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. Our activities related to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid).

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We are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal, state and local laws, rules and regulations. Our research and development activities may involve the controlled use of hazardous materials, chemicals, biological materials and various radioactive compounds. We believe our procedures comply with the standards prescribed by federal, state or local laws, rules and regulations; however, the risk of injury or accidental contamination cannot be completely eliminated.
Additionally, the U.S. Foreign Corrupt Practices Act (FCPA) prohibits U.S. corporations and their representatives from offering, promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate, in an attempt to obtain or retain business abroad. The scope of the FCPA includes interactions with certain healthcare professionals in many countries. Other countries have enacted similar anti-corruption laws and regulations to which our activities are subject.
COMPETITION
Our current products and products under development face competition from other innovative drugs and, in some cases, generic drugs. The relative speed with which we develop new products, complete clinical trials, obtain regulatory approvals, receive pricing and reimbursement approvals, and finalize manufacturing and distribution arrangements, and market our products are critical factors in gaining a competitive advantage. Competition among approved products depends, among other things, on product efficacy, safety, convenience, reliability, availability, price, third-party reimbursement, sales and promotional activities, product liability issues and patent and non-patent exclusivity. For additional information, see Item 1A. "Risk Factors.”

SIGNIFICANT ALLIANCES

We have entered into a variety of alliances in the ordinary course of our business. Although we do not consider any individual alliance to be material, a brief description of certain of the more notable alliances are identified in Note 17 of Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

MANUFACTURING

We own and operate an FDA approved manufacturing facility in Zofingen, Switzerland which produces the active pharmaceutical ingredient (API) for REVLIMID ® and THALOMID ® and have contracted with FDA approved third-party contract manufacturers to provide backup API manufacturing services for these products. Manufacturing services for REVLIMID ® and THALOMID ® , which consist of formulation, encapsulation, packaging, warehousing and distribution, are performed at our FDA approved drug product manufacturing facility in Boudry, Switzerland. We have contracted with a number of third-party drug product manufacturing service providers and packaging service providers to provide backup manufacturing and packaging services. All of our third-party service providers are approved by the regulatory authorities for the geographies that they serve.
The API for ABRAXANE ® is generally available from multiple sources and is normally available in quantities adequate to meet our needs. Manufacturing services for ABRAXANE ® are performed at our manufacturing facility in Arizona and by an approved third party contract manufacturing facility.
The API for VIDAZA ® is supplied by three suppliers. Manufacturing and packaging services are provided by a number of third-party service providers.
The API for the azacitidine for injection (generic version of VIDAZA ® ) is supplied by a single -source supplier. Manufacturing and packaging services are provided by a single manufacturer.
The API for POMALYST ® /IMNOVID ® is supplied by a single-source supplier with primary manufacturing services being performed at our Boudry manufacturing facility.We have contracted with a number of third-party drug product manufacturing service providers and packaging service providers to provide backup manufacturing and packaging services for this product.
The API for ISTODAX ® is supplied by a single-source supplier. Manufacturing and packaging services are provided by a number of third-party service providers.
The API for OTEZLA ® (apremilast) is supplied by two suppliers with manufacturing services being performed at our Boudry manufacturing facility. We expect to utilize third-party service providers for backup manufacturing and packaging services for this product.
The API for FOCALIN ® and FOCALIN XR ® is currently obtained from two suppliers, and we rely on a single manufacturer for the tableting and packaging of FOCALIN ® finished product.

13


CCT currently operates an FDA registered facility in Cedar Knolls, New Jersey for the recovery and storage of cord blood and placental stem cells for LifeBankUSA ® . In addition, our Warren, New Jersey facility is FDA registered for production of PDA-001 and PDA-002, which are culture-expanded placenta-derived stem cell products, under cGMP to supply clinical studies. This is a multi-purpose facility capable of supporting other products.
INTERNATIONAL OPERATIONS
We have significant operations outside the United States conducted both through our subsidiaries and through distributors. Revenues from operations outside the United States were $2.632 billion, or 40.5% of total revenues in 2013, $2.338 billion, or 42.4% of total revenues in 2012 and $1.981 billion, or 40.9% of total revenues in 2011. The decrease in the percentage of total revenues from outside of the United States in 2013 compared to 2012 was primarily due to increased U.S. sales of ABRAXANE ® resulting from the October 2012 and September 2013 FDA approvals for treatment of NSCLC and pancreatic cancer, respectively, as well as the U.S. launch of POMALYST ® resulting from the February 2013 FDA approval for treatment of relapsed and refractory multiple myeloma.
Our international headquarters and a drug product manufacturing facility which performs formulation, encapsulation, packaging, warehousing and distribution are located in Boudry, Switzerland. We continue to expand our international regulatory, clinical and commercial infrastructure and currently conduct our international operations in over 50 countries and have sales in over 70 countries and regions including Europe, Latin America, Middle East, Asia/Pacific and Canada.
Our international operations are subject to risks associated with operating on an international basis including currency fluctuations, price and exchange controls and other restrictive governmental actions. Our international operations are also subject to government-imposed constraints, including laws on pricing, reimbursement and access to our products. Depending on the direction of change relative to the U.S. dollar, foreign currency values can increase or decrease the reported dollar value of our net assets and results of operations. While we cannot predict with certainty future changes in foreign exchange rates or the effect they will have, we attempt to mitigate their impact through operational means and by using foreign currency derivative instruments. See the discussions under Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."
SALES AND COMMERCIALIZATION
We promote our brands globally through our commercial organization which supports our currently marketed brands and prepares for the launches of new products, as well as new indications for existing products. We have a team of dedicated market access professionals to help physicians, patients and payers understand the value our products deliver. Given our goal to ensure that patients who might benefit from our therapies have the opportunity to do so and given the complex reimbursement environment in the United States, we offer the services of Celgene Patient Support ® or similar outside services to serve as a dedicated, central point of contact for patients and healthcare professionals who use or prescribe Celgene products. Celgene Patient Support ® is a free service that helps patients and healthcare professionals navigate the challenges of reimbursement, providing information about co-pay assistance and answering questions about obtaining Celgene products.
In most countries, we promote our products through our own sales organizations. In some countries, particularly in Latin America, we partner with third-party distributors. Generally, we distribute our products through commonly used channels in local markets. However, REVLIMID ® , POMALYST ® /IMNOVID ® and THALOMID ® /Thalidomide Celgene TM are distributed under mandatory risk-management distribution programs tailored to meet local authorities' specifications to provide for their safe and appropriate distribution and use.
EMPLOYEES
As of December 31, 2013, we had 5,100 full-time employees, of whom 2,110 were engaged primarily in research and development activities, 1,690 engaged primarily in sales and commercialization activities, 470 engaged primarily in manufacturing, and the remaining 830 engaged primarily in executive and general and administrative activities. The number of full-time employees in our international operations has grown from 1,834 at the end of 2012 to 1,933 at the end of 2013. We also employ a number of part-time employees and maintain consulting arrangements with a number of researchers at various universities and other research institutions around the world.
AVAILABLE INFORMATION
Our Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K are electronically filed with or furnished to the Securities and Exchange Commission (SEC), and all such reports and amendments to such reports have been and will be made available, free of charge, through our website (http://www.celgene.com) as soon as reasonably practicable after such submission to the SEC. Such reports will remain available on our website for at least 12 months. The contents of our website are not incorporated by reference into this Annual Report on Form 10-K. The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F Street, NW, Washington, D.C. 20549.

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The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHRA) added Section 13(r) to the Securities Exchange Act of 1934, as amended, which requires, among other things, disclosure by an issuer, in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly conducted, without specific authority from a U.S. federal department or agency, any transaction or dealing with the Government of Iran, which includes, without limitation, any person or entity owned or controlled, directly or indirectly, by the Government of Iran or any of its political subdivisions, agencies or instrumentalities. Neither Celgene nor, to its knowledge, any of its affiliates engaged in activities during 2013 that are required to be disclosed pursuant to ITRSHRA.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Annual Report on Form 10-K are considered forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning our business, results of operations, economic performance and/or financial condition, based on management's current expectations, plans, estimates, assumptions and projections. Forward-looking statements are included, for example, in the discussions about:
strategy;
new product discovery and development;
current or pending clinical trials;
our products' ability to demonstrate efficacy or an acceptable safety profile;
actions by the FDA and other regulatory authorities;
product manufacturing, including our arrangements with third-party suppliers;
product introduction and sales;
royalties and contract revenues;
expenses and net income;
credit and foreign exchange risk management;
liquidity;
asset and liability risk management;
the outcome of litigation and other proceedings;
intellectual property rights and protection;
economic factors;
competition; and
operational and legal risks.
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," "predict," "potential," "outlook," "guidance," "target," "forecast," "probable," "possible" or the negative of such terms and similar expressions. Forward-looking statements 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 herein, under "Risk Factors" and elsewhere in this Annual Report and in our other public reports filed with the SEC. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. 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.

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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 ®  and POMALYST ® /IMNOVID ® .
 
Currently, our business is largely dependent on the commercial success of REVLIMID ® , VIDAZA ® , THALOMID ® , ABRAXANE ® and POMALYST ® /IMNOVID ® . 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 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 by pregnant women. 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.
 
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.
 

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Table of Contents

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 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 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.
 

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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 will affect our profitability.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, the Affordable Care Act), was enacted in the United States. The provisions of the Affordable Care Act became effective over various periods from 2010 through 2014. We expect that the rebates, discounts, taxes and other costs resulting from the Affordable Care Act will have a significant effect on our profitability in the future. In addition, potential reductions of the per capita rate of growth in Medicare spending under the Affordable Care Act, could potentially limit access to certain treatments or mandate price controls for our products. Similarly, the promulgation of new regulations concerning rebates, discounts, taxes and other costs, or the interpretation and enforcement of new or existing regulations by government agencies could affect our profitability in ways that are difficult to predict.
 
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 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

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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 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 for our products.
 
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:

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

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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 18 of Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.
 
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;
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.
While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all adverse resolutions and settlements of claims and liabilities. It also is not possible to obtain insurance to protect against all potential risks and liabilities. For more information, see Note 18 of Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.
 

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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 ® and ISTODAX ® .  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. 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.


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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 could subject us to civil or criminal investigations, monetary and injunctive penalties and could adversely impact our ability to conduct business, our results of operations and our reputation.
 
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.


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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 5 of Notes to Consolidated Financial Statements, and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” contained in this Annual Report on Form 10-K.
 
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;
public announcements regarding medical advances in the treatment of the disease states that we are targeting;

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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 versions of our products, which do not meet our rigorous manufacturing and testing standards. A patient who receives a counterfeit drug may be at risk for a number of dangerous health consequences. Our reputation and business could suffer harm as a result of counterfeit 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.

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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.

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ITEM 1B.     UNRESOLVED STAFF COMMENTS
None.
ITEM 2.     PROPERTIES
Our corporate headquarters are located in Summit, New Jersey and our international headquarters are located in Boudry, Switzerland. Summarized below are the locations, primary usage and approximate square footage of the facilities we own worldwide:
Location
 
Primary Usage
 
Approximate
Square Feet
Summit, New Jersey
 
Administration, marketing, research
 
400,000

Boudry, Switzerland
 
Manufacturing, administration and warehousing
 
266,500

Phoenix, Arizona
 
Manufacturing and warehousing
 
247,000

Zofingen, Switzerland
 
Manufacturing
 
12,000

We occupy the following facilities, located in the United States, under operating lease arrangements, none of which are individually material to us. Under these lease arrangements, we may be required to reimburse the lessors for real estate taxes, insurance, utilities, maintenance and other operating costs. All leases are with unaffiliated parties.
Location
 
Primary Usage
 
Approximate
Square Feet
Berkeley Heights, New Jersey
 
Office space
 
337,800

Warren, New Jersey
 
Office space and research
 
177,600

San Diego, California
 
Research
 
171,900

Basking Ridge, New Jersey
 
Office space
 
95,900

San Francisco, California
 
Office space and research
 
55,900

Durham, North Carolina
 
Clinical trial management
 
36,000

Overland Park, Kansas
 
Office space
 
29,600

Cedar Knolls, New Jersey
 
Office space and stem cell recovery
 
25,300

Bedford, Massachusetts
 
Office space
 
23,000

Los Angeles, California
 
Office space
 
9,900

Dallas, Texas
 
Office space
 
3,000

Destin, Florida
 
Office space
 
1,600

We also lease a number of offices under various lease agreements outside of the United States for which the minimum annual rents may be subject to specified annual rent increases. At December 31, 2013, the non-cancelable lease terms for our operating leases expire at various dates between 2014 and 2023 and in some cases include renewal options. The total amount of rent expense recorded for all leased facilities in 2013 was $42.5 million.
ITEM 3.     LEGAL PROCEEDINGS
See Note 18 of Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.
ITEM 4.     MINE SAFETY DISCLOSURES
Not applicable.

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PART II
ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a)   MARKET INFORMATION
Our common stock is traded on the NASDAQ Global Select Market under the symbol "CELG." The following table sets forth, for the periods indicated, the intra-day high and low prices per share of common stock on the NASDAQ Global Select Market:
 
 
High
 
Low
2013:
 
 
 
 
Fourth Quarter
 
$
173.80

 
$
142.10

Third Quarter
 
156.04

 
118.15

Second Quarter
 
131.82

 
110.53

First Quarter
 
116.95

 
79.75

2012:
 
 
 
 
Fourth Quarter
 
$
82.78

 
$
71.23

Third Quarter
 
78.63

 
61.89

Second Quarter
 
80.42

 
58.53

First Quarter
 
78.83

 
66.28

 
 
Cumulative Total Return
 
 
12/08
 
12/09
 
12/10
 
12/11
 
12/12
 
12/13
Celgene Corporation
 
$
100.00

 
$
100.72

 
$
106.98

 
$
122.29

 
$
141.95

 
$
305.66

S&P 500
 
100.00

 
125.92

 
144.58

 
147.60

 
171.04

 
225.85

NASDAQ Composite
 
100.00

 
145.05

 
171.14

 
169.83

 
199.89

 
279.63

NASDAQ Biotechnology
 
100.00

 
115.93

 
134.42

 
150.63

 
199.91

 
331.72

* $100 Invested on 12/31/08 in Stock or Index – Including Reinvestment of Dividends, Fiscal Year Ended December 31.

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(b)   HOLDERS
The closing sales price per share of common stock on the NASDAQ Global Select Market on February 6, 2014 was $149.91. As of February 6, 2014, there were approximately 468 holders of record of our common stock.
(c)   DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and have no present intention to pay a cash dividend on our common stock.
(d)   EQUITY COMPENSATION PLAN INFORMATION
We incorporate information regarding the securities authorized for issuance under our equity compensation plan into this section by reference from the section entitled "Equity Compensation Plan Information" to be included in the proxy statement for our 2014 Annual Meeting of Stockholders.
(e)   REPURCHASE OF EQUITY SECURITIES
During the period April 2009 through December 2013, our Board of Directors approved repurchases of up to an aggregate of $9.500 billion of our common stock, including the June 2013 authorization to repurchase an additional $3.000 billion of our common stock. Approved amounts exclude share repurchase transaction fees.

As part of our share repurchase program, in February 2013 we entered into an Accelerated Share Repurchase (ASR) agreement with an investment bank to repurchase an aggregate of $600.0 million of our common stock. The total number of shares repurchased under the ASR agreement was 5,249,137 shares at a weighted average price of $114.30 per share.
As of December 31, 2013, an aggregate 96,774,120 common shares were repurchased under the program at an average price of $76.80 per common share and an aggregate cost of $7.432 billion, excluding share repurchase transaction fees.
The following table presents the total number of shares purchased during the three-month period ended December 31, 2013, 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 program:
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
Still Could Be Purchased
Under the Plans or
Programs
October 1 - October 31
 
975,000

 
$
154.86

 
975,000

 
$
2,638,566,036

November 1 - November 30
 
1,627,900

 
$
152.22

 
1,627,900

 
$
2,390,759,137

December 1 - December 31
 
1,950,800

 
$
165.47

 
1,950,800

 
$
2,067,961,325

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.

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ITEM 6.     SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in conjunction with our Consolidated Financial Statements and the related Notes thereto, Management's Discussion and Analysis of Financial Condition and Results of Operations and other financial information included elsewhere in this Annual Report on Form 10-K. The data set forth below with respect to our Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011 and the Consolidated Balance Sheet data as of December 31, 2013 and 2012 are derived from our Consolidated Financial Statements which are included elsewhere in this Annual Report on Form 10-K and are qualified by reference to such Consolidated Financial Statements and related Notes thereto. The data set forth below with respect to our Consolidated Statements of Income for the years ended December 31, 2010 and 2009 and the Consolidated Balance Sheet data as of December 31, 2011, 2010 and 2009 are derived from our Consolidated Financial Statements, which are not included elsewhere in this Annual Report on Form 10-K (amounts in millions, except per share data).
 
 
Years ended December 31,
 
 
2013
 
2012
 
2011
 
2010
 
2009
Consolidated Statements of Income:
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
6,493.9

 
$
5,506.7

 
$
4,842.1

 
$
3,625.7

 
$
2,689.9

Costs and operating expenses
 
4,685.0

 
3,760.3

 
3,399.4

 
2,636.1

 
1,848.4

Operating income
 
1,808.9

 
1,746.4

 
1,442.7

 
989.6

 
841.5

Interest and investment income, net
 
22.0

 
15.3

 
25.9

 
44.7

 
76.8

Interest (expense)
 
(91.6
)
 
(63.2
)
 
(42.7
)
 
(12.6
)
 
(2.0
)
Other income (expense), net
 
(73.9
)
 
(17.0
)
 
(6.4
)
 
(9.1
)
 
59.4

Income before income taxes
 
1,665.4

 
1,681.5

 
1,419.5

 
1,012.6

 
975.7

Income tax provision
 
215.5

 
225.3

 
102.1

 
132.4

 
199.0

Net income
 
$
1,449.9

 
$
1,456.2

 
$
1,317.4

 
$
880.2

 
$
776.7

Less: Net loss attributable to non-controlling interests
 

 

 
0.7

 
0.3

 

Net income attributable to Celgene
 
$
1,449.9

 
$
1,456.2

 
$
1,318.1

 
$
880.5

 
$
776.7

Net income per share attributable to Celgene:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
3.50

 
$
3.38

 
$
2.89

 
$
1.90

 
$
1.69

Diluted
 
$
3.37

 
$
3.30

 
$
2.85

 
$
1.88

 
$
1.66

Weighted average shares:
 
 
 
 
 
 
 
 
 
 
Basic
 
413.8

 
430.9

 
455.3

 
462.3

 
459.3

Diluted
 
430.3

 
440.8

 
462.7

 
469.5

 
467.4

 
 
As of December 31,
 
 
2013
 
2012
 
2011
 
2010
 
2009
Consolidated Balance Sheets Data:
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and marketable securities
 
$
5,687.0

 
$
3,900.3

 
$
2,648.2

 
$
2,601.3

 
$
2,996.8

Total assets
 
13,378.2

 
11,734.3

 
10,005.9

 
10,177.2

 
5,389.3

Short-term borrowings
 
544.8

 
308.5

 
526.7

 

 

Long-term debt, net of discount
 
4,196.5

 
2,771.3

 
1,275.6

 
1,247.6

 

Retained earnings (accumulated deficit)
 
4,472.5

 
3,022.6

 
1,566.4

 
248.3

 
(632.2
)
Total equity
 
5,589.9

 
5,694.5

 
5,512.7

 
5,995.5

 
4,394.6


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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 that may 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 ® , VIDAZA ® , ABRAXANE ® , POMALYST ® /IMNOVID ® , THALOMID ® (inclusive of Thalidomide Celgene TM ), ISTODAX ® and azacitidine for injection (generic version of VIDAZA ® ). 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 services through our Celgene Cellular Therapeutics (CCT) subsidiary and other licensing agreements.
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 (Approved June 2013)
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 (Approved June 2013)
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 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.  As the result of 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 ® , which we supply. In Europe, VIDAZA ® is marketed for the treatment of intermediate-2 and high-risk MDS, chronic myelomonocytic leukemia with 10% to 29% marrow blasts without myeloproliferative disorder, as well as acute myeloid leukemia (AML) with 20% to 30% blasts and multi-lineage dysplasia and has been granted orphan drug designation for the treatment of MDS and AML.  Regulatory exclusivity for VIDAZA ® is expected to continue in Europe through 2018.

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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

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
* Other international markets
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 (Approved February 2013)
Metastatic adenocarcinoma of the pancreas, a form of pancreatic cancer, as first line treatment in combination with gemcitabine
* United States (Approved September 2013)
* European Union (Approved December 2013)
Gastric cancer
* Japan (Approved February 2013)
During 2013, applications for marketing authorizations for ABRAXANE ® for the treatment of patients with advanced pancreatic cancer were also submitted in other countries and regions. ABRAXANE ® is currently in various stages of investigation for breast, pancreatic and non-small cell lung cancers.
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 U.S. Food and Drug Administration (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 (Approved February 2013)
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 (Approved August 2013)
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):     In combination with dexamethasone, THALOMID ® is marketed in the United States for patients with newly diagnosed multiple myeloma and for the acute treatment of the cutaneous manifestations of moderate to severe erythema nodosum leprosum (ENL) an inflammatory complication of leprosy and as maintenance therapy for prevention and suppression of the cutaneous manifestation of ENL recurrence. Thalidomide Celgene TM in combination with melphalan and prednisone is marketed in the European Union 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.
ISTODAX ® (romidepsin):   ISTODAX ®  is approved in the United States for the treatment of cutaneous T-cell lymphoma (CTCL) in patients who have received at least one prior systemic therapy and for the treatment of peripheral T-cell lymphoma (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, including CTCL and PTCL.

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azacitidine for injection (generic version of VIDAZA ® ): After the launch of a generic version of VIDAZA ® in the United States by a competitor in September 2013, we contracted with Sandoz AG to sell azacitidine for injection, which we supply. We recognize net product sales from sales of azacitidine for injection to Sandoz AG.
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 refractory multiple myeloma. Phase III trials are also underway for VIDAZA ® and CC-486 in MDS and acute myeloid leukemia (AML) and ISTODAX ® in first-line peripheral T-cell lymphoma (PTCL).  In solid tumors, ABRAXANE ® is currently in various stages of investigation for breast, pancreatic and non-small cell lung cancers. Our lead product candidate in inflammation and immunology, OTEZLA ® (apremilast) is being evaluated in a broad phase III program for psoriatic arthritis, psoriasis and ankylosing spondylitis.
Beyond our phase III programs, we have access to a growing early-to-mid-stage pipeline of novel 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. For more information, see Item 1 "Preclinical and Clinical Stage Pipeline."
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 years ended December 31, 2013, 2012 and 2011 (dollar amounts in millions, except per share data):
 
 
 
 
 
 
 
 
% Change
 
 
Years Ended December 31,
2013
versus
2012
 
2012
versus
2011
 
 
2013
 
2012
 
2011
 
Total revenue
 
$
6,493.9

 
$
5,506.7

 
$
4,842.1

 
17.9
 %
 
13.7
%
Net income attributable to Celgene
 
$
1,449.9

 
$
1,456.2

 
$
1,318.1

 
(0.4
)%
 
10.5
%
Diluted earnings per share attributable to Celgene
 
$
3.37

 
$
3.30

 
$
2.85

 
2.1
 %
 
15.8
%

Revenue increased by $987.2 million to $6.494 billion in 2013 compared to 2012 primarily due to the continued growth in unit sales of REVLIMID ® and ABRAXANE ® as well as the FDA and EC approvals of POMALYST ® / IMNOVID ® in February 2013 and August 2013, respectively, as noted above.  The $6.3 million decrease in net income to $1.450 billion in 2013 compared to 2012 was primarily due to a $446.3 million increase in payments made related to research and development collaboration arrangements, a $61.9 million increase in ABRAXANE ® amortization expense due to the October 2012 FDA approval of ABRAXANE ® for treatment of NSCLC, a $94.8 million increase in share-based compensation expense and increased spending in support of our currently marketed products and those that we plan to launch. The increases in expense were nearly offset by the favorable impact from a higher level of net product sales. The $0.07 increase in diluted earnings per share in 2013 compared to 2012 was favorably impacted by the repurchase of 22.3 million common shares under our common share repurchase program, reducing our outstanding share base.


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Results of Operations:
Fiscal Years Ended December 31, 2013, 2012 and 2011
Total Revenue:     Total revenue and related percentages for the years ended December 31, 2013, 2012 and 2011 were as follows (dollar amounts in millions, except per share data):
 
 
 
 
 
 
 
 
% Change
 
 
2013
 
2012
 
2011
 
2013
versus
2012
 
2012
versus
2011
Net product sales:
 
 
 
 
 
 
 
 
 
 
REVLIMID ®
 
$
4,280.3

 
$
3,766.6

 
$
3,208.2

 
13.6
 %
 
17.4
 %
VIDAZA ®
 
803.3

 
823.2

 
705.3

 
(2.4
)%
 
16.7
 %
ABRAXANE ®
 
648.9

 
426.7

 
385.9

 
52.1
 %
 
10.6
 %
POMALYST ® /IMNOVID ®
 
305.4

 
12.0

 
0.6

 
N/M

 
N/M

THALOMID ®
 
244.5

 
302.1

 
339.1

 
(19.1
)%
 
(10.9
)%
ISTODAX ®
 
54.0

 
50.0

 
30.9

 
8.0
 %
 
61.7
 %
azacitidine for injection
 
23.3

 

 

 
N/M

 
N/M

Other
 
2.6

 
5.0

 
29.7

 
(48.0
)%
 
(83.2
)%
Total net product sales
 
$
6,362.3

 
$
5,385.6

 
$
4,699.7

 
18.1
 %
 
14.6
 %
Collaborative agreements and other revenue
 
14.7

 
10.7

 
19.5

 
37.4
 %
 
(45.1
)%
Royalty revenue
 
116.9

 
110.4

 
122.9

 
5.9
 %
 
(10.2
)%
Total revenue
 
$
6,493.9

 
$
5,506.7

 
$
4,842.1

 
17.9
 %
 
13.7
 %
The increase in total revenue of $987.2 million in 2013 compared to 2012 reflected increases of $693.0 million, or 21.9%, in the United States, and $294.2 million, or 12.6%, in international markets. The increase in total revenue of $664.6 million in 2012 compared to 2011 reflected increases of $308.2 million, or 10.8%, in the United States, and $356.4 million, or 18.0%, in international markets.
Net Product Sales:     Total net product sales for 2013 increased by $976.7 million, or 18.1%, to $6.362 billion compared to 2012. The increase was comprised of net volume increases of $950.3 million and price increases of $117.0 million, partly offset by an unfavorable impact from foreign exchange of $90.6 million. The increase in volume was driven by increased unit sales of REVLIMID ® , the favorable impact from increased U.S. sales of ABRAXANE ® resulting from the October 2012 and September 2013 FDA approvals for treatment of NSCLC and pancreatic cancer, respectively, as well as the February 2013 FDA and August 2013 EC approvals of POMALYST ® /IMNOVID ® for treatment of multiple myeloma. The increase in price was primarily due to price increases on REVLIMID ® , VIDAZA ® and THALOMID ® in the U.S. market.
Total net product sales for 2012 increased by $685.9 million, or 14.6%, to $5.386 billion compared to 2011. The increase was comprised of net volume increases of $559.1 million and price increases of $162.2 million, partly offset by an unfavorable impact from foreign exchange of $35.4 million. The increase in price was primarily due to price increases on REVLIMID ® , VIDAZA ® and THALOMID ® in the U.S. market.
REVLIMID ® net sales increased by $513.7 million, or 13.6%, to $4.280 billion in 2013 compared to 2012, primarily due to increased unit sales in both international and U.S. markets in addition to price increases in the U.S. market. These increases were partially offset by unfavorable changes in price in international markets and unfavorable foreign exchange impacts, including the impact of foreign exchange hedging activity. Increases in market penetration and treatment duration of patients using REVLIMID ® in multiple myeloma contributed to the increase in United States unit sales. The growth in international markets resulted from volume increases, primarily driven by increased duration of use and market share gains.
Net sales of REVLIMID ® increased by $558.4 million, or 17.4%, to $3.767 billion in 2012 compared to 2011, primarily due to increased unit sales in both U.S. and international markets. Increases in market penetration, treatment duration of patients using REVLIMID ® in multiple myeloma and price increases contributed to U.S. growth. The growth in international markets resulted from volume increases, primarily driven by increased duration of use and market share gains.

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VIDAZA ® net sales decreased by $19.9 million, or 2.4%, to $803.3 million in 2013 compared to 2012, reflecting volume decreases in the U.S. market due to the launch of a generic version of VIDAZA ® by a competitor in September 2013 and the launch of a generic version of VIDAZA ® (azacitidine for injection) by Sandoz AG in the fourth quarter of 2013, which we supply. Foreign exchange also unfavorably impacted sales. These decreases were partly offset by price increases in the U.S. market and volume increases in international markets. VIDAZA ® retains orphan drug exclusivity in Europe through the end of 2018.
Net sales of VIDAZA ® increased by $117.9 million, or 16.7%, to $823.2 million in 2012 compared to 2011, reflecting increases in both U.S. and international markets. The U.S. growth reflects an increase in volume and price. The growth in international markets was partly due to the increase in treatment duration of patients using VIDAZA ® and launches of VIDAZA ® in new markets, including the United Kingdom and Japan.
ABRAXANE ® net sales increased by $222.2 million, or 52.1%, to $648.9 million in 2013 compared to 2012, primarily due to increased unit volumes in both U.S. and international markets, reflecting increased acceptance of the product in the treatment of metastatic breast cancer, the October 2012 FDA approval for treatment of NSCLC and the September 2013 FDA approval for treatment of pancreatic cancer.
Net sales of ABRAXANE ® increased by $40.8 million, or 10.6%, to $426.7 million in 2012 compared to 2011, primarily due to increased unit volumes in both U.S. and international markets, reflecting increased acceptance of the product in the treatment of metastatic breast cancer and the October 2012 FDA approval for NSCLC.
Net sales of POMALYST ® /IMNOVID ® totaled $305.4 million in 2013, reflecting the approval of POMALYST ® by the FDA in February 2013 for patients with multiple myeloma 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. IMNOVID ® (the non-U.S. trade name) in combination with dexamethasone was approved by the EC in August 2013 for adult patients with relapsed and refractory multiple myeloma who have received at least two prior therapies, including both lenalidomide and bortezomib, and have demonstrated disease progression on the last therapy. Net sales of POMALYST ® totaled $246.0 million in the United States and IMNOVID ® net sales totaled $59.4 million in international markets.
THALOMID ® net sales decreased by $57.6 million, or 19.1%, to $244.5 million in 2013 compared to 2012, primarily due to lower unit volumes in the U.S. and international markets and an increase in estimated returns related to the transition of THALOMID ®  distribution from retail to specialty pharmacies.  The reductions in volume were partially offset by price increases in the United States.
Net sales of THALOMID ® decreased by $37.0 million, or 10.9%, to $302.1 million in 2012 compared to 2011,primarily due to lower unit volumes in the United States, partly resulting from the increased use of REVLIMID ® , partially offset by an increase in price and lower gross to net adjustments.
ISTODAX ® net sales increased by $4.0 million, or 8.0%, to $54.0 million in 2013 compared to 2012, primarily due to increases in price in the United States.
Net sales of ISTODAX ® increased by $19.1 million, or 61.7%, to $50.0 million in 2012 compared to 2011, primarily due to increased unit sales in the treatment of CTCL and the June 2011 FDA approval of ISTODAX ® for the treatment of PTCL in patients who have received at least one prior therapy.
Net sales of azacitidine for injection, which is a generic version of VIDAZA ® , reached $23.3 million after its launch in the second half of 2013. We have entered into an agreement with Sandoz AG to sell azacitidine, which we supply.
The "other" net product sales category, which includes LENADEX ® and FOCALIN ® , decreased by $2.4 million, or 48.0%, to $2.6 million in 2013 compared to 2012. The "other" net product sales category decreased by $24.7 million, or 83.2%, to $5.0 million in 2012 compared to 2011. That decrease was primarily due to the April 2011 sale of Abraxis non-core assets, resulting in the elimination of further Abraxis non-core product sales. Sales of Abraxis non-core products totaled $21.3 million in 2011.
Collaborative Agreements and Other Revenue:     Revenue from collaborative agreements and other sources increased by $4.0 million to $14.7 million in 2013 compared to 2012. The increase was primarily due to a $5.0 million milestone payment received in 2013 related to ABRAXANE ® in Japan. Revenue from collaborative agreements and other sources decreased by $8.8 million to $10.7 million in 2012 compared to 2011. The decrease was primarily due to a $2.4 million reduction in certain manufacturing and management fees and a $6.3 million milestone payment received in 2011 related to VIDAZA ® in Japan which was not repeated in 2012.
Royalty Revenue:     Royalty revenue increased by $6.5 million to $116.9 million in 2013 compared to 2012, due to an increase in royalties earned from Novartis based upon its sales of both RITALIN ® and FOCALIN XR ® . Royalty revenue decreased by $12.5 million to $110.4 million in 2012 compared to 2011, primarily due to reduced royalties earned from Novartis based upon

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its sales of RITALIN ® , which was negatively impacted by generic competition in certain markets, partly offset by an increase in royalties from sales of FOCALIN XR ® .
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 ®  and ISTODAX ®  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 ® , 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 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 ® , 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 have also analyzed 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 only recently begun submitting partial Medicaid Managed Care Organization bills.  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 as 2013 progressed, the accruals for certain states were reduced from the elevated levels at December 31, 2012 as a result of both the payments made being applied to the accrual and a $20.3 million favorable change in estimate of the ultimate obligation.  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

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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 below for further discussion of gross to net sales accruals.
Gross to net sales accruals and the balance in the related allowance accounts for the years ended December 31, 2013, 2012 and 2011 were as follows (in millions):
 
 
Returns
and
Allowances
 
Discounts
 
Government
Rebates
 
Chargebacks
and Distributor
Service Fees
 
Total
Balance at December 31, 2010
 
$
4.8

 
$
8.3

 
$
84.9

 
$
47.4

 
$
145.4

Allowances for sales during prior periods
 

 

 
(5.4
)
 
2.1

 
(3.3
)
Allowances for sales during 2011
 
16.7

 
56.1

 
192.1

 
191.8

 
456.7

Credits/deductions issued for prior year sales
 
(5.7
)
 
(4.2
)
 
(34.3
)
 
(38.2
)
 
(82.4
)
Credits/deductions issued for sales during 2011
 
(6.8
)
 
(51.5
)
 
(100.3
)
 
(138.8
)
 
(297.4
)
Balance at December 31, 2011
 
$
9.0

 
$
8.7

 
$
137.0

 
$
64.3

 
$
219.0

Allowances for sales during prior periods
 
(7.5
)
 

 
(13.3
)
 
(2.4
)
 
(23.2
)
Allowances for sales during 2012
 
15.0

 
64.9

 
208.7

 
212.6

 
501.2

Credits/deductions issued for prior year sales
 
1.7

 
(4.3
)
 
(60.2
)
 
(54.8
)
 
(117.6
)
Credits/deductions issued for sales during 2012
 
(4.9
)
 
(58.1
)
 
(146.4
)
 
(158.5
)
 
(367.9
)
Balance at December 31, 2012
 
$
13.3

 
$
11.2

 
$
125.8

 
$
61.2

 
$
211.5

Allowances for sales during prior periods
 
(1.1
)
 

 
(27.8
)
 
(1.9
)
 
(30.8
)
Allowances for sales during 2013
 
10.7

 
74.3

 
262.1

 
290.8

 
637.9

Credits/deductions issued for prior year sales
 
(3.1
)
 
(5.2
)
 
(53.4
)
 
(42.0
)
 
(103.7
)
Credits/deductions issued for sales during 2013
 
(4.3
)
 
(68.2
)
 
(172.6
)
 
(224.9
)
 
(470.0
)
Balance at December 31, 2013
 
$
15.5

 
$
12.1

 
$
134.1

 
$
83.2

 
$
244.9

A comparison of provisions for allowances for sales within each of the four categories noted above for 2013 and 2012 follows:
2013 compared to 2012:    Returns and allowances increased by $2.1 million in 2013 compared to 2012, partly due to a first quarter 2012 reversal of approximately $7.5 million in reserves established for certain products with quality issues which were resolved in 2012. In addition, during 2013 we recorded a sales returns reserve of $7.9 million for estimated returns related to the transition of THALOMID ®  distribution from retail to specialty pharmacies. The increases were partly offset by a $12.5 million net reduction in the VIDAZA ® returns provision, which included a $7.5 million reduction in the returns allowance related to inventory levels held by distributors in early 2013 and a $2.8 million increase in the returns allowance related to inventory held by distributors at the end of 2013 given the launch of a generic version of VIDAZA ® in September 2013.
Discounts increased by $9.4 million in 2013 compared to 2012, primarily due to sales increases in the United States.
 
Government rebates increased by $38.9 million in 2013 compared to 2012, partly due to an increase of approximately $21.1 million in government rebates related to U.S. governmental agencies, primarily attributable to volume increases and higher expense rates for the Medicare Part D Coverage Gap, partially offset by the refinement of the accrual for rebates to Medicaid Managed Care Organizations completed in the latter part of 2013. Rebates related to international markets increased by approximately $17.8 million, primarily due to a reduction in rebates recorded during 2012 for an amendment to a price/volume agreement for VIDAZA ®

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in a specific European country that resulted in a reduction in government rebates of approximately $10.9 million in 2012. Sales growth in multiple countries worldwide also contributed to higher rebates.

Chargebacks and distributor service fees increased by $78.7 million in 2013 compared to 2012.  Chargebacks and distributor service fees increased by approximately $46.2 million and $32.5 million, respectively, primarily due to higher sales volumes and contract eligible sales. Rebates specifically related to the TRICARE program increased by $6.8 million also due to higher sales volume.
2012 compared to 2011:     Returns and allowances decreased by $9.2 million in 2012 compared 2011, primarily due to the reversal of approximately $7.5 million in reserves established for certain products with quality issues which were resolved in 2012 and lower returns experience on all products, partially offset by a $7.6 million increase in the returns allowance related to increased levels of VIDAZA ® inventory held by distributors at the end of 2012.
Discounts increased by $8.8 million in 2012 compared to 2011, primarily due to revenue increases in the U.S. and international markets, both of which offer different discount programs, and expansion into new international markets. These amounts were partly offset by rebates related to VIDAZA ® sales in the Japanese market being included in the chargebacks and distributor service fees category in 2012.
Government rebates increased by $8.7 million in 2012 compared to 2011, primarily due to an increase of approximately $15.8 million in rebates related to various U.S. programs, partly offset by a $7.0 million decrease in rebates in certain international markets. The U.S. programs increase was primarily attributable to volume increases and the refinement of accrual rates for Medicaid Managed Care Organizations and Medicare Part D Coverage Gap. The decrease in government rebates of $7.0 million in international markets was primarily driven by the refinement of select government rebates during the third quarter of 2012.
Chargebacks and distributor service fees increased by $16.3 million in 2012 compared to 2011. Chargebacks increased by approximately $2.8 million and distributor service fees increased by approximately $13.5 million. Chargebacks primarily increased due to $7.7 million of rebates related to VIDAZA ® sales in the Japanese market which were included within discounts during the 2011 period, partially offset by a $4.1 million decrease in TRICARE rebates, reflecting lower utilization of THALOMID ® . The distributor service fees increase was primarily due to higher sales volumes, including $8.3 million associated with higher sales of ABRAXANE ® .
Cost of Goods Sold (excluding amortization of acquired intangible assets):     Cost of goods sold and related percentages for the years ended December 31, 2013, 2012 and 2011 were as follows (dollar amounts in millions):
 
 
2013
 
2012
 
2011
Cost of goods sold (excluding amortization of acquired intangible assets)
 
$
340.4

 
$
299.1

 
$
425.9

Increase (decrease) from prior year
 
$
41.3

 
$
(126.8
)
 
$
119.3

Percent increase (decrease) from prior year
 
13.8
%
 
(29.8
)%
 
38.9
%
Percent of net product sales
 
5.4
%
 
5.6
 %
 
9.1
%

Cost of goods sold (excluding amortization of acquired intangible assets) increased by $41.3 million to $340.4 million in 2013 compared to 2012.  The increase was primarily due to the higher level of REVLIMID ® and ABRAXANE ® sales, partly offset by the elimination of royalty payments on sales of REVLIMID ® resulting from the expiration of our royalty obligations to Children's Medical Center Corporation (CMCC) at the end of February 2013.  As a percent of net product sales, cost of goods sold (excluding amortization of acquired intangible assets) decreased to 5.4% in 2013 compared to 5.6% in 2012 primarily due to the increase in lower cost REVLIMID ® sales and the elimination of royalty payments on our sales of REVLIMID ® as noted above. See Note 18 of Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K for additional details related to a lawsuit filed by CMCC against us.
Cost of goods sold (excluding amortization of acquired intangible assets) decreased by $126.8 million to $299.1 million in 2012 compared to 2011. The net decrease was primarily due to the 2011 inclusion of the $90.3 million final inventory step-up amortization adjustment on sales of ABRAXANE ® related to the October 2010 acquisition of Abraxis, an aggregate $13.2 million in costs related to the sale of non-core Abraxis products which were divested in April 2011, a $15.3 million decrease in the allocation of prepaid royalties related to sales of VIDAZA ® and a $8.6 million decrease in costs related to former Pharmion products to be exited. These decreases were partly offset by an increase in 2012 product material costs resulting from a higher level of sales activity. As a percent of net product sales, cost of goods sold (excluding amortization of acquired intangible assets) decreased to 5.6% in 2012 compared to 9.1% in 2011. Excluding the inventory step-up amortization for ABRAXANE ® , the cost of goods sold ratio in 2011 was 7.1%. The cost of goods sold ratio in 2012 was favorably impacted by 0.3% from a reduction in prepaid royalties

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expensed in 2012 related to sales of VIDAZA ® and lower cost products, such as REVLIMID ® , comprising a larger portion of total net sales.
Research and Development:     Research and development costs are expensed as incurred and primarily include salary and benefit costs, third-party grants and fees paid to clinical research organizations, supplies and upfront and milestone payments resulting from collaboration arrangements.
Research and development expenses and related percentages for the years ended December 31, 2013, 2012 and 2011 were as follows (dollar amounts in millions):
 
 
2013
 
2012
 
2011
Research and development
 
$
2,226.2

 
$
1,724.2

 
$
1,600.3

Increase from prior year
 
$
502.0

 
$
123.9

 
$
471.8

Percent increase from prior year
 
29.1
%
 
7.7
%
 
41.8
%
Percent of total revenue
 
34.3
%
 
31.3
%
 
33.0
%

Research and development expenses increased by $502.0 million to $2.226 billion in 2013 compared to 2012. The increase was primarily due to a $446.3 million increase in payments made related to research and development collaboration arrangements as well as an increase in general research activity. The increases were partly offset by 2012 in-process research and development (IPR&D) asset impairment charges of $122.5 million, of which $53.4 million related to ISTODAX ®  for PTCL in Europe and $69.1 million related to an adjustment to the probability weighted forecasted sales of CC-292 compared to prior estimates. No IPR&D asset impairment charges were recorded in 2013.
Research and development expenses increased by $123.9 million to $1.724 billion in 2012 compared to 2011. The increase was primarily due to a $31.9 million increase in payments related to research and development collaboration arrangements, an increase in 2012 research and development project spending in support of multiple programs across a broad range of diseases and the inclusion of Avila expenses incurred subsequent to the March 2012 acquisition date. The expense for 2012 also included $122.5 million in IPR&D asset impairment charges related to ISTODAX ® and CC-292 as noted above.
The following table provides a breakdown of research and development expenses (in millions):
 
 
 
 
 
 
 
 
Increase (Decrease)
 
 
2013
 
2012
 
2011
 
2013
versus
2012
 
2012
versus
2011
Human pharmaceutical clinical programs
 
$
825.3

 
$
781.0

 
$
732.4

 
$
44.3

 
$
48.6

Other pharmaceutical programs 
 
530.9

 
428.3

 
406.1

 
102.6

 
22.2

Drug discovery and development
 
202.9

 
166.6

 
159.4

 
36.3

 
7.2

Cellular therapy
 
25.9

 
30.9

 
21.4

 
(5.0
)
 
9.5

Collaboration arrangements
 
641.2

 
194.9

 
163.0

 
446.3

 
31.9

IPR&D impairments
 

 
122.5

 
118.0

 
(122.5
)
 
4.5

Total
 
$
2,226.2

 
$
1,724.2

 
$
1,600.3

 
$
502.0

 
$
123.9


We make significant investments in research and development in support of multiple ongoing proprietary clinical development programs which support both our existing products and pipeline of new drug candidates. See Item 1. "Business" for a table summarizing the current stage of development of both our commercial stage products and new drug candidates. Expenses related to collaboration arrangements increased significantly during 2013 compared to 2012 as a result of an increased number of new collaboration arrangements entered into during 2013 as well as higher levels of upfront fees associated with those new collaboration agreements. Expenses for milestone payments related to collaboration arrangements was also higher in 2013 than in 2012. See Note 17 of Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K for additional details related to our collaboration arrangements.
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

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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.
The following table presents significant developments in our phase III clinical trials and regulatory approval requests that occurred during the three-month period ended December 31, 2013, 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
 
 
 
 
 
 
POMALYST ® /IMNOVID ®
 
Relapsed/Refractory Multiple Myeloma
 
 
 
 
 
 
Regulatory approval requests in major markets:
Product
 
Disease Indication
 
Major
Market
 
Regulatory
Agency
 
Date of Filing
OTEZLA ®  (apremilast)
 
Psoriasis
 
U.S.
 
FDA
 
November 2013
 
 
Psoriasis and Psoriatic Arthritis
 
E.U.
 
EC
 
December 2013
Regulatory agency actions:
Product
 
Disease Indication
 
Major
Market
 
Regulatory
Agency
 
Action
ABRAXANE ®
 
Pancreatic cancer
 
E.U.
 
EC
 
Approval

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 in the United States and facilities costs.
Selling, general and administrative expenses and related percentages for the years ended December 31, 2013, 2012 and 2011 were as follows (dollar amounts in millions):
 
 
2013
 
2012
 
2011
Selling, general and administrative
 
$
1,684.5

 
$
1,373.5

 
$
1,226.3

Increase from prior year
 
$
311.0

 
$
147.2

 
$
275.7

Percent increase from prior year
 
22.6
%