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, 2018
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o 
 
Smaller reporting company o
 
Emerging growth company o
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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 30, 2018, the last business day of the registrant's most recently completed second quarter, was $55,804,979,945 based on the last reported sale price of the registrant's Common Stock on the NASDAQ Global Select Market on that date.
There were 702,164,345 shares of Common Stock outstanding as of February 21, 2019.
Documents Incorporated by Reference
Specified portions of the registrant’s proxy statement, which will be filed with the Commission pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2018 in connection with the registrant’s 2019 Annual Meeting of Stockholders, are incorporated by reference into Part III of this annual report on Form 10-K.





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




PART I
ITEM 1.    BUSINESS

Celgene Corporation, together with its subsidiaries (collectively “we,” “our,” “us,” “Celgene” or the “Company”), is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases through next-generation solutions in protein homeostasis, immuno-oncology, epigenetics, immunology and neuro-inflammation. Celgene Corporation was incorporated in the State of Delaware in 1986.

On January 2, 2019, we entered into a definitive merger agreement with Bristol-Myers Squibb Company (Bristol-Myers Squibb) under which Bristol-Myers Squibb will acquire Celgene in a cash and stock transaction with an equity value of approximately $74 billion, based on the closing price of Bristol-Myers Squibb shares of $52.43 on January 2, 2019, subject to the terms and conditions set forth therein. The transaction is subject to approval by Bristol-Myers Squibb and Celgene shareholders and the satisfaction of customary closing conditions and regulatory approvals. Bristol-Myers Squibb and Celgene expect to complete the transaction in the third quarter of 2019. See Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and Note 22 of the Notes to Consolidated Financial Statements included in this report for additional information regarding the transaction.

Our primary commercial stage products include REVLIMID®, POMALYST®/IMNOVID®, OTEZLA®, ABRAXANE®, and VIDAZA®.

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 product candidates. Our clinical trial activity includes trials across the disease areas of hematology, oncology, and inflammation and immunology. REVLIMID® is being evaluated in phase III trials covering a range of hematological malignancies that include lymphomas. In July 2018, the phase III trial (AUGMENTTM) for REVLIMID® in combination with rituximab (R2), for the treatment of relapsed and/or refractory follicular or marginal zone lymphoma achieved its primary endpoint. In December 2018, we submitted a U.S. supplemental New Drug Application (NDA) for REVLIMID® in combination with rituximab in relapsed and/or refractory indolent non-Hodgkin lymphoma (NHL) and in January 2019 we submitted an application with the European Medicines Agency (EMA) for approval in Europe. Also, within hematological malignancies, POMALYST® is in phase III and post-approval trials for relapsed and/or refractory multiple myeloma (RRMM). In solid tumors, ABRAXANE® is currently being investigated in pancreatic cancer, breast and non-small cell lung cancers. In inflammation and immunology in 2018, we submitted a U.S. supplemental NDA and Japan NDA for OTEZLA® in Behçet’s disease following positive results from the phase III trial (RELIEFTM). Patients with active Behçet’s disease showed statistically significant reductions in oral ulcers with OTEZLA® when compared to placebo. Also in 2018, the phase IIIb study (STYLETM) for OTEZLA® in patients with moderate to severe scalp psoriasis showed statistically significant improvement of the Scalp Physician’s Global Assessment (ScPGA) response compared with placebo. OTEZLA® is also being evaluated in a phase III trial in pediatric psoriasis (SPROUT®), while continuing to be studied in psoriatic arthritis and plaque psoriasis.

We also have a growing number of potential products in phase III trials or that have completed phase III across multiple diseases. In the inflammation and immunology therapeutic area, we completed two phase III trials (RADIANCETM and SUNBEAMTM) for ozanimod in relapsing multiple sclerosis (RMS). Both RADIANCETM and SUNBEAMTM achieved their primary endpoints in reducing the annualized relapse rate in patients with RMS. Enrollment is currently ongoing for the phase III TRUENORTHTM trial in ulcerative colitis (UC) and the phase III YELLOWSTONETM trial in Crohn’s Disease (CD). In hematology, we submitted a U.S. NDA for fedratinib for the treatment of patients with myelofibrosis in January 2019. In June and July 2018, Celgene and Acceleron Pharma, Inc. (Acceleron) announced that luspatercept achieved all primary and key secondary endpoints in the phase III MEDALISTTM and BELIEVETM trials in patients with low-to-intermediate risk myelodysplastic syndromes (MDS) and transfusion-dependent beta-thalassemia, respectively. In collaboration with bluebird bio, the pivotal study (KarMMaTM) evaluating bb2121 in RRMM is ongoing and enrollment was completed in the fourth quarter. The clinical program evaluating bb2121 in earlier lines of multiple myeloma (MM) is also advancing. In the second quarter of 2018 we initiated the pivotal TRANSCEND WORLD trial evaluating liso-cel (lisocabtagene maraleucel) (JCAR017) in relapsed and/or refractory diffuse large B-cell lymphoma (DLBCL). Phase III trials are also underway for CC-486 in MDS, acute myeloid leukemia (AML), and angioimmunoblastic T-Cell lymphoma (AITL). In solid tumors, we are supporting a phase III study of marizomib in newly diagnosed glioblastoma, sponsored by the European Organization for Research and the Treatment of Cancer (EORTC) in collaboration with the Canadian Cancer Trials Group (CCTG). In 2018, our partner BeiGene, Ltd. (BeiGene) initiated phase III trials for tislelizumab (BGB-A317) in 1L hepatocellular carcinoma, 2L/3L hepatocellular carcinoma, and 2L/3L non-small cell lung cancer.

Beyond our phase III programs, we have access to a growing early-to-mid-stage pipeline of novel potential therapies to address significant unmet medical needs that consists of new product candidates and cell therapies developed in-house, licensed from

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other companies or able to be optioned from collaboration partners. We believe that continued use of our primary commercial stage products, participation in research and development collaboration arrangements, depth of our product pipeline, potential regulatory approvals of new products and new indications for existing products will provide the catalysts for future growth.

Our primary commercial stage products are approved to treat the diseases described below for the major markets of the United States, the European Union and Japan. Approvals in other international markets are indicated in the aggregate for the disease indication that most closely represents the majority of the other international approvals.

REVLIMID® (lenalidomide): REVLIMID® is an oral immunomodulatory drug approved in the United States and many international markets for the following uses:
Disease
Geographic Approvals
Multiple myeloma (MM)
 
MM in combination with dexamethasone, in patients who have received at least one prior therapy
- United States
- European Union
- Japan
- Other international markets
MM in combination with dexamethasone for newly diagnosed patients
- United States
- Japan
- Other international markets
Adult patients with previously untreated multiple myeloma who are not eligible for transplant
- European Union
- Other international markets
Monotherapy for the maintenance treatment of patients with Newly Diagnosed Multiple Myeloma (NDMM) after autologous stem cell transplant (ASCT)
- United States
- European Union
- Other international markets
Myelodysplastic syndromes (MDS)
 
Transfusion-dependent anemia due to low- or intermediate-1-risk MDS associated with a deletion 5q abnormality with or without additional cytogenetic abnormalities
- United States
- Other international markets
Transfusion-dependent anemia due to low- or intermediate-1-risk MDS in patients with isolated deletion 5q cytogenetic abnormality when other options are insufficient or inadequate
- European Union
MDS with a deletion 5q cytogenetic abnormality. The efficacy or safety of REVLIMID® for International Prognostic Scoring System (IPSS) intermediate-2 or high risk MDS has not been established.
- Japan
Mantle cell lymphoma (MCL) in patients whose disease has relapsed or progressed after two prior therapies, one of which included bortezomib
- United States
- European Union
- Other international markets
Relapsed or refractory Adult T-cell leukemia/lymphoma (ATLL)
- Japan


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POMALYST®/IMNOVID® (pomalidomide)1: POMALYST®/IMNOVID® is a proprietary, distinct, small molecule that is administered orally and modulates the immune system and other biologically important targets. POMALYST®/IMNOVID® is approved for the following uses:
Disease
Geographic Approvals
MM, in combination with dexamethasone, for patients who have received at least two prior therapies, including lenalidomide and a proteasome inhibitor and have demonstrated disease progression on or within 60 days of completion of the last therapy
- United States
RRMM, 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
- Other international markets
RRMM for patients who have received REVLIMID® and bortezomib
- Japan
1 We received regulatory approval for pomalidomide under the trade name POMALYST® in the United States and Japan and under the trade name IMNOVID® in the European Union.

OTEZLA® (apremilast): OTEZLA® is an oral small-molecule inhibitor of phosphodiesterase 4 (PDE4) specific for cyclic adenosine monophosphate (cAMP). PDE4 inhibition results in increased intracellular cAMP levels. OTEZLA® is approved for the following uses:
Disease
Geographic Approvals
Psoriatic arthritis
 
Adult patients with active psoriatic arthritis
- United States
- Japan
- Other international markets
Adult patients with active psoriatic arthritis who have had an inadequate response or who have been intolerant to a prior disease-modifying antirheumatic drug (DMARD) therapy
- European Union
Psoriasis
 
Patients with moderate to severe plaque psoriasis who are candidates for phototherapy or systemic therapy
- United States
- Other international markets
Adult patients with moderate to severe chronic plaque psoriasis who failed to respond to or who have a contraindication to, or are intolerant to other systemic therapy including cyclosporine, methotrexate or psoralen and ultraviolet-A light
- European Union
Adult patients with plaque psoriasis with inadequate response to topical therapies
- Japan


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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 following uses:
Disease
Geographic Approvals
Breast Cancer
 
Metastatic breast cancer, after failure of combination chemotherapy for metastatic disease or relapse within six months of adjuvant chemotherapy. Prior therapy should have included an anthracycline unless clinically contraindicated.
- United States
- Other international markets

Metastatic breast cancer in adult patients who have failed first-line treatment for metastatic disease for whom standard, anthracycline containing therapy is not indicated
- European Union
Breast cancer
- Japan
Non-Small Cell Lung Cancer (NSCLC)
 
Locally advanced or metastatic NSCLC, as first-line treatment in combination with carboplatin, in patients who are not candidates for curative surgery or radiation therapy
- United States
- European Union
- Other international markets
NSCLC
- Japan
Pancreatic Cancer
 
Metastatic adenocarcinoma of the pancreas, a form of pancreatic cancer, as first line treatment in combination with gemcitabine
- United States
- European Union
- Other international markets
Unresectable pancreatic cancer
- Japan
Gastric Cancer
- Japan

VIDAZA® (azacitidine for injection): VIDAZA® is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. The U.S. regulatory exclusivity for VIDAZA® expired in May 2011. After the launch of a generic version of VIDAZA® in the United States by a competitor in September 2013, we experienced a significant reduction in our U.S. sales of VIDAZA®. In 2013, we contracted with Sandoz AG (Sandoz) to sell a generic version of VIDAZA® in the United States, which we supply, and we recognize net product sales from our sales to Sandoz. Regulatory exclusivity for VIDAZA® is expected to continue in Europe through 2019. VIDAZA® is approved in the United States and many international markets for the following uses:
Disease
Geographic Approvals
MDS
 
All French-American-British (FAB) subtypes
- United States
Intermediate-2 and high-risk MDS
- European Union
- Other international markets
MDS
- Japan
Chronic myelomonocytic leukemia with 10% to 29% marrow blasts without myeloproliferative disorder
- European Union
- Other international markets
AML with 20% to 30% blasts and multi-lineage dysplasia
- European Union
- Other international markets
Acute myeloid leukemia with >30% bone marrow blasts according to the World Health Organization (WHO) classification in patients aged 65 years or older who are not eligible for haematopoietic stem cell transplantation
- European Union

REVLIMID® and POMALYST® are distributed in the United States primarily through contracted pharmacies under the REVLIMID® Risk Evaluation and Mitigation Strategy (REMS) and POMALYST REMS® programs, respectively. These are proprietary risk-management distribution programs tailored specifically to provide for the safe and appropriate distribution and use of REVLIMID® and POMALYST®. Internationally, REVLIMID® 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

4



program, the product may be sold through hospitals or retail pharmacies. OTEZLA®, ABRAXANE® and VIDAZA® are distributed through the more traditional pharmaceutical industry supply chain and are not subject to the same risk-management distribution programs as REVLIMID® and POMALYST®/IMNOVID®.

PRECLINICAL AND CLINICAL-STAGE PIPELINE

Our preclinical and clinical-stage pipeline of new product candidates includes small molecules, biologics and cell therapies. These product candidates are at various stages of preclinical and clinical development. Below we describe our significant clinical programs for new indications for our existing products, as well as new product candidates.

Immune-Inflammatory Diseases: OTEZLA® (apremilast) a novel PDE4 inhibitor, was submitted for approval to the U.S. Food and Drug Administration (FDA) and the Japanese Pharmaceuticals and Medical Devices Agency (PMDA) for the treatment of oral ulcers associated with Behçet’s disease, and is being studied in phase III trials for pediatric psoriasis and mild to moderate plaque psoriasis, phase IIIb trials in scalp psoriasis and moderate to severe genital psoriasis and continues to be studied in phase IV trials in psoriatic arthritis and plaque psoriasis. Differentiated oral therapies are advancing through mid- to late-stage trials in inflammatory diseases, including ozanimod, a potential best-in-class S1P receptor modulator in phase III trials in UC and CD. Other potential oral therapies include iberdomide (CC-220), a CELMoD® in development for systemic lupus erythematosus (SLE) and CC-90001, a JNK inhibitor in development for idiopathic pulmonary fibrosis. Additionally, we are evaluating RPC4046, a monoclonal antibody against IL-13 in eosinophilic esophagitis.

A phase Ib trial in psoriasis patients is underway with CC-90006, an injectable PD-1 agonist antibody for autoimmune disorders. In Inflammation and Immunology, phase I trials were initiated evaluating CC-92252 an IL-2 mutein Fc protein and CC-99677 an MK2 inhibitor.

Myeloid Diseases: In collaboration with Acceleron, we are developing luspatercept for patients with myeloid diseases. In June and July 2018, Celgene and Acceleron announced that luspatercept achieved all primary and key secondary endpoints in the phase III MEDALISTTM and BELIEVETM trials in patients with low-to-intermediate risk MDS and transfusion-dependent beta-thalassemia, respectively. In addition, the phase III COMMANDS™ front-line trial evaluating luspatercept in erythropoiesis-stimulating agent (ESA)-naïve, very low, low or intermediate risk MDS patients initiated in the third quarter. The phase II BEYONDTM trial in non-transfusion dependent beta-thalassemia and the phase II trial in myelofibrosis are currently enrolling.

Epigenetics: The current insights into molecular regulation of genetic information (Epigenetics) have the potential to transform human diseases. We currently market three epigenetic modifiers, VIDAZA®, ISTODAX® and IDHIFA®. We have two phase III trials of CC-486 (oral 5-azacitidine) currently enrolling to evaluate its efficacy in the treatment of MDS and AML. We are currently evaluating ivosidenib or IDHIFA® combined with standard induction chemotherapy (7+3 regimen) in patients with newly diagnosed AML with an isocitrate dehydrogenase (IDH)-1 or IDH-2 mutation from a phase I trial.

A phase I trial of a lysine-specific histone demethylase inhibitor (LSD1i, CC-90011) is under way in solid tumors. Additionally, two bromodomain and extra-terminal motif (BET) inhibitors CC-90010, and FT-1101 in collaboration with FORMA Therapeutics, Inc. (FORMA), are in phase I dose escalation trials under investigation in NHL, solid tumors and acute leukemia indications.

Protein Homeostasis: We are currently developing novel CELMoD® compounds to address unmet needs in myeloma, AML, lymphoma and lupus. These assets have been developed based on our scientific understanding of Cereblon-mediated protein homeostasis and are differentiated from previous compounds (such as thalidomide, lenalidomide and pomalidomide) based on their enhanced speed and efficiency of degrading critical substrate proteins using Cereblon as a tool to achieve this degradation. Iberdomide (CC-220) is a CELMoD® compound currently being evaluated in a phase I/II trial in patients with RRMM and a phase II trial in patients with SLE. CC-90009, whose activity is related to the depletion of the novel substrate GSPT1 is currently in phase I in patients with relapsed or refractory AML. CC-92480 is a novel CELMoD® with a differentiated preclinical profile, currently being investigated in a phase I trial in patients with RRMM. In addition, an Investigational New Drug (IND) application and a Clinical Trial Application (CTA) were submitted in December 2018 for a novel CELMoD® in development for NHL.

Immuno-Oncology: bb2121, a B-cell maturation antigen (BCMA) chimeric antigen receptor (CAR) T cell therapy, is being developed in collaboration with bluebird bio. The pivotal KarMMaTM study in RRMM is currently ongoing. Also in collaboration with bluebird bio, bb21217, a second anti-BCMA CAR T cell therapy, is currently in phase I development in RRMM. JCARH125, a BCMA CAR T cell therapy, being developed by Juno Therapeutics, a Celgene Company, is in a phase I trial (EVOLVE) in patients with RRMM. Liso-cel (JCAR017), an anti-CD19 CAR T cell therapy is being developed in patients with NHL, including the ongoing pivotal TRANSCEND trial in 3L DLBCL and the TRANSFORM trial in patients with 2L transplant-eligible DLBCL. In addition, the pivotal phase II portion of the phase I/II trial (TRANSCEND CLL-004) in patients with relapsed or refractory chronic lymphocytic leukemia initiated in January 2019.

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In addition to the BCMA-targeted CAR T cell therapies in development, our BCMA campaign in MM includes CC-93269, a T cell engager currently in a phase I trial in RRMM and an antibody drug conjugate (ADC) in collaboration with Sutro Biopharma.

Our anti-CD47 antibody targeting macrophage activity, CC-90002, is currently in phase I trials being evaluated for the treatment of NHL and we are initiating a phase I study in solid tumors with CC-95251, a monoclonal antibody directed against SIRPα in the macrophage activity pathway.

A number of additional programs from our collaboration partners are in phase I clinical testing in multiple solid tumor indications, including JTX-2011, an ICOS-agonist, (Jounce Therapeutics, Inc), AG-270, a MAT2a inhibitor (Agios), GEM-333, a bispecific antibody directed against CD33 (GEMoaB), Etigilmab (OncoMed), an anti-TIGIT antibody and MSC-1, a leukemia factor inhibitor (Northern Biologics). TRPH-222 (Triphase), a CD-22 ADC, is also being investigated in a phase I study in NHL.

PRODUCT DEVELOPMENT

We devote significant resources to research and development programs in an effort to discover and develop potential future product candidates. The product candidates in our pipeline are at various stages of preclinical and clinical development. The path to regulatory approval ordinarily 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-marketing events or developments. 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 will obtain 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. These 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 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 the clinical data necessary to submit an application for marketing approval to regulatory agencies. Phase III clinical trial testing varies by disease state, but can often last from two to seven years.

Regulatory Review
If a product candidate successfully completes clinical trials and trial data is submitted to governmental regulators, such as the FDA in the United States or the European Commission (EC) in the European Union (EU), 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, 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 regulatory 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.


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The current stage of development of our commercial stage products and new product candidates in various areas of research are outlined in the following table:
Area of Research
 
Status1
 
Entered Current Status
Multiple Myeloma (MM)
 
 
 
 
IMiD: REVLIMID®
 
RRMM
 
Post-approval research
 
2006
 
 
Newly diagnosed transplant ineligible
 
Post-approval research
 
2015
 
 
Newly diagnosed multiple myeloma (NDMM) post-ASCT maintenance
 
Post-approval research
 
2017
IMiD: POMALYST®/IMNOVID®
 
RRMM
 
Post-approval research
 
2013
IMiD: THALOMID®/Thalidomide Celgene®
 
NDMM
 
Post-approval research
 
2006
BCMA CAR T: (bb2121)3
 
RRMM
 
Phase II/Pivotal
 
2017
BCMA CAR T: (bb21217)3
 
RRMM
 
Phase I
 
2017
BCMA CAR T: (JCARH125)
 
RRMM
 
Phase I
 
Q1 2018
CELMoD®: CC-220
 
RRMM
 
Phase I/II
 
2016
CELMoD®: CC-92480
 
RRMM
 
Phase I
 
2017
BCMA TCE: CC-93269
 
RRMM
 
Phase I
 
Q2 2018
 
 
 
 
 
 
 
Myelodysplastic Syndromes (MDS)
 
 
 
 
DNMT inhibitor: VIDAZA®
 
MDS
 
Post-approval research
 
2004
IMiD: REVLIMID®
 
Deletion 5q
 
Post-approval research
 
2005
DNMT inhibitor: CC-486
 
Lower-risk
 
Phase III
 
2013
 
 
Post hypomethylating agent (HMA) failure
 
Phase II
 
2015
BET inhibitor: FT-1101
 
MDS
 
Phase I
 
2015
TGF-β inhibitor:
luspatercept (ACE-536)4
 
MDS
 
Phase III
 
2016
 
 
 
 
 
 
 
Acute Myeloid Leukemia (AML)
 
 
 
 
DNMT inhibitor: VIDAZA®
 
AML (20%-30% blasts) (EU)
 
Post-approval research
 
2008
 
 
AML (>30% blasts) (EU)
 
Post-approval research
 
2015
BET inhibitor: FT-1101
 
AML
 
Phase I
 
2015
IDH2 inhibitor: IDHIFA®
 
AML
 
Post-approval research
 
2017
CELMoD®: CC-90009
 
Relapsed refractory AML
 
Phase I
 
2016
DNMT inhibitor: CC-486
 
Post-induction AML maintenance
 
Phase III
 
2013
CD3xCD33: GEM333
 
AML
 
Phase I
 
Q2 2018
 
 
 
 
 
 
 
Lymphoma
 
 
 
 
IMiD: REVLIMID®
 
Mantle cell lymphoma: Relapsed and/or refractory (US)
 
Post-approval research
 
2013
 
 
Mantle cell lymphoma: Relapsed and/or refractory (EU)
 
Post-approval research
 
2016
 
 
Diffuse large B-cell (ABC-subtype): first line
 
Phase III
 
2015
 
 
Indolent lymphoma: Relapsed and/or refractory
 
Regulatory submission
 
Q4 2018
 
 
Adult T-cell leukemia-lymphoma (Japan)
 
Post-approval research
 
2017

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Area of Research
 
Status1
 
Entered Current Status
HDAC inhibitor: ISTODAX® 
 
Cutaneous T-cell lymphoma (US)5
 
Post-approval research
 
2009
 
 
Peripheral T-cell lymphoma: Relapsed and/or refractory (US)5
 
Post-approval research
 
2011
 
 
Peripheral T-cell lymphoma: Relapsed and/or refractory (Japan)
 
Post-approval research
 
2017
 
 
Peripheral T-cell lymphoma: first-line
 
Phase III
 
2013
CELMoD®: avadomide (CC-122)
 
Diffuse large B-cell lymphoma
 
Phase I
 
2014
 
 
Indolent lymphoma: Relapsed and/or refractory
 
Phase I
 
2014
DNMT inhibitor: CC-486
 
Diffuse large B-cell lymphoma
 
Phase I
 
2015
 
 
AITL
 
Phase III
 
Q4 2018
Liso-cel (CD19 CAR T) JCAR017
 
Aggressive large B-cell lymphoma: Relapsed and/or refractory
 
Phase I/II Pivotal
 
2015
Anti-CD47 antibody: CC-90002
 
NHL
 
Phase I
 
2015
BET inhibitor: CC-90010
 
NHL
 
Phase I
 
2017
 
 
 
 
 
Chronic Lymphocytic Leukemia (CLL)
 
 
 
 
Liso-cel (CD19 CAR T) JCAR017
 
Relapsed and/or refractory CLL
 
Phase I/II
 
Q1 2018
 
 
 
 
 
 
 
Beta Thalassemia
 
 
 
 
TGF-β inhibitor:
luspatercept (ACE-536)4
 
Beta-thalassemia
 
Phase III
 
2016
 
 
 
 
 
 
 
Myelofibrosis
 
 
 
 
TGF-β inhibitor:
luspatercept (ACE-536)4
 
Myelofibrosis
 
Phase II
 
2017
JAK2 kinase inhibitor: fedratinib
 
Myelofibrosis
 
Regulatory submission
 
Q1 2019
 
 
 
 
 
 
 
Solid Tumors
 
 
 
 
nab-paclitaxel: ABRAXANE®
 
Breast: Metastatic
 
Post-approval research
 
2005
 
 
Non-small cell lung: Advanced (first-line)
 
Post-approval research
 
2012
 
 
Pancreatic: Metastatic (first-line)
 
Post-approval research
 
2013
 
 
Pancreatic: Adjuvant
 
Phase III
 
2014
 
 
Gastric: Metastatic (Japan)6
 
Post-approval research
 
2013
Proteasome inhibitor: Marizomib
 
Glioblastoma
 
Phase III
 
Q3 2018
Anti-CD47 Antibody: CC-90002
 
Solid tumors
 
Phase I
 
2015
LSD1 Inhibitor: CC-90011
 
Solid tumors
 
Phase I
 
2016
BET Inhibitor: CC-90010
 
Glioblastoma
 
Phase I
 
2017
Anti-PD-1: Tislelizumab (BGB-A317)
 
Hepatocellular carcinoma (HCC)
 
Phase III
 
Q1 2018
 
 
Non-small cell lung cancer (NSCLC)
 
Phase III
 
Q1 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Inflammation and Immunology
 
 
 
 

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Area of Research
 
Status1
 
Entered Current Status
PDE4 inhibitor: OTEZLA® (apremilast)
 
Psoriatic arthritis
 
Post-approval research
 
2014
 
 
Plaque psoriasis
 
Post-approval research
 
2014
 
 
Behçet's disease
 
Regulatory submission
 
Q3 2018
 
 
Scalp psoriasis
 
Phase IIIb
 
2017
 
 
Pediatric psoriasis
 
Phase III
 
Q4 2018
S1P1/5 agonist: ozanimod
 
Relapsing multiple sclerosis
 
Regulatory submission2
 
Q1 2018
 
 
Ulcerative colitis
 
Phase III
 
2015
 
 
Crohn's disease
 
Phase III
 
Q2 2018
MK2 inhibitor: CC-99677
 
Inflammation
 
Phase Ib
 
Q2 2018
IL-2 mutein: CC-92252
 
Inflammation
 
Phase Ib
 
Q3 2018
Anti-IL-13: RPC-4046
 
Eosinophilic esophagitis
 
Phase II
 
2014
CELMoD®: CC-220
 
SLE
 
Phase IIb
 
2017
JNK inhibitor: CC-90001
 
Idiopathic pulmonary fibrosis (IPF)
 
Phase II
 
2017
Anti-PD-1 agonist: CC-90006
 
Psoriasis
 
Phase I
 
2016
1 "Regulatory submission" indicates US and/or EU submission unless another country or region is indicated under Area of Research.  
2 Initial regulatory submission in Q4 2017; received Refusal to File from FDA in Q1 2018. Anticipating regulatory resubmission in Q1 2019.
3 In collaboration with bluebird bio, Inc.
4 In collaboration with Acceleron Pharma, Inc.
5 Regulatory approval based on pivotal phase II data.
6 Trial conducted by licensee partner, Taiho Pharmaceuticals Co. Ltd.

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, delivery mechanism and methods of manufacture patents, as well as manufacturing trade secrets, that may extend exclusivity beyond the expiration of the compound patent or composition patent.


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Key patent expirations and exclusivities:

The following table shows the expected expiration dates in the United States and Europe of the last-to-expire period of exclusivity (primary patent or regulatory approval) related to our primary marketed drug products. In some instances, there are later-expiring patents relating to particular forms or compositions, methods of manufacturing, or use of the drug in the treatment of particular diseases or conditions. However, such additional patents may not protect our drug products from generic competition after the expiration of the primary patent.
 
 
U.S.1
 
Europe
REVLIMID® brand drug
 
20272
 
20243
(U.S. and European use patents)
 
 
 
 
POMALYST®/IMNOVID® brand drug
 
2025
 
20234
(U.S. drug substance/use patent)
 
 
 
 
OTEZLA® brand drug
 
2028
 
2028
(U.S./European drug substance patent)
 
 
 
 
ABRAXANE® brand drug
 
20265
 
20226
(U.S. use patent and European use/formulation patents)
 
 
 
 
VIDAZA® brand drug
 
20117
 
2019
(U.S. use patent and EMA regulatory exclusivities only)
 
 
 
 
_____________________
1 
The patents covering these drugs include patents listed in the U.S. Orange Book.
2 
In December 2015, we announced the settlement of litigations with Natco Pharma Ltd. (Natco) and its partners and affiliates, relating to certain patents for REVLIMID®. As part of the settlement, we agreed to provide Natco with a volume-limited license to sell generic lenalidomide in the U.S. commencing in March 2022. Natco’s ability to market generic lenalidomide in the U.S. will be contingent on its obtaining approval of an Abbreviated New Drug Application (ANDA). See Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.
3  
In June 2018, we announced the settlement of litigations with Accord Healthcare Ltd. (Accord) relating to patents for REVLIMID®. As part of the settlement, we granted Accord the ability to market a generic lenalidomide product for certain conditions prior to expiry of Celgene’s patent and supplementary protection certificate (SPC) rights in the U.K. beginning on January 18, 2022, and in various other European countries where Celgene’s SPC is in force beginning on February 18, 2022. In addition, subject of ongoing European Patent Office (EPO) opposition proceedings. See Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.
4 
Based on ten years regulatory exclusivity.
5 In January 2018, we entered into a settlement with Actavis LLC to terminate patent litigation and Inter Partes Review (IPR) challenges between the parties relating to certain patents for ABRAXANE®. As part of the settlement, we have agreed to provide Actavis with a license to certain patents required to manufacture and sell a generic paclitaxel protein-bound particles for injectable suspension product in the United States beginning on March 31, 2022. See Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.
6 
Subject of ongoing SPC appeal proceedings in the UK and the Court of Justice for the European Union that may result in patent extension until 2022. See Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report for more information.
7 
We contracted with Sandoz to sell azacitidine for injection, which they launched after the introduction of a generic version of VIDAZA® in the United States by a competitor in September 2013.

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, 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 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.


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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 for certain of our patents related to REVLIMID®. Patent term extensions for certain of our patents related to lenalidomide have been granted in Europe, Australia, Japan and Russia. Further, patent term extensions for certain of our patents related to ABRAXANE® have been secured and/or are actively being sought in Europe, 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 such as interparty reviews) regarding the enforcement or validity of our existing patents or any future patents could invalidate such patents or substantially reduce their protection.

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 Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.

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 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 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.


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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. Modifications to an approved drug or biologic, including new indication or changes to labeling or manufacturing processes or facilities, may require the submission and approval of a supplemental NDA or BLA before modifications can be implemented, which may require that we develop additional data or conduct additional preclinical and 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 demonstrate the potential to address 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, compared to ten months for a standard review.

Orphan Drug Act: Under 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 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 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 other countries such as the United States or the EU.


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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 and/or reimbursement of unapproved uses of a product 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 adverse events and side effects associated with the drug and make appropriate submissions to the FDA and (b) timely advise the FDA if any approved 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 programs similar to our REMS programs 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 an ongoing obligation to update product labels with new information and to report to regulatory authorities 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 or to update the product label. 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 generally 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).

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 or providing anything of value to any foreign government official, government staff member, political party or political candidate, with corrupt intent for the purpose of obtaining or retaining an improper business advantage. 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.

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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 18 of Notes to Consolidated Financial Statements contained elsewhere in this report.

MANUFACTURING

We own and operate a manufacturing facility in Zofingen, Switzerland which produces the active pharmaceutical ingredient (API) for OTEZLA®, REVLIMID® and THALOMID®. In addition, we contract with several third-party organizations to provide back-up API manufacturing services for certain products.

We have contracted with several third-party API and drug product manufacturing and packaging service providers, to provide primary and/or back-up sources for ABRAXANE®, POMALYST®/IMNOVID®, IDHIFA®, ISTODAX® and VIDAZA® (azacitidine for injection).

Manufacturing for REVLIMID®, POMALYST®/IMNOVID®, THALOMID® and OTEZLA® which consists of bulk production, packaging, warehousing and distribution, is performed at our facilities in Boudry, Switzerland and Couvet, Switzerland. Manufacturing for ABRAXANE®, which consists of bulk production, packaging, warehousing and distribution, is performed at our facility in Phoenix, Arizona, U.S. In addition, we have contracted with several third-party drug product manufacturing and packaging organizations to provide back-up sources for these products.

We have established primary and back-up manufacturing sites for late-phase development programs. For luspatercept, we have contracted third-party manufacturing organizations to supply drug substance and drug product manufacturing and packaging services. We are leveraging a combination of Celgene-owned and third-party manufacturing organizations for fedratinib, CC-486 and ozanimod. We have invested in our own manufacturing network, including facilities in Bothell, Washington and Summit, New Jersey, as well as contracted with third-party organizations, for cellular therapy product candidates, including bb2121 and liso-cel (JCAR017).

All of our owned manufacturing facilities and third-party organizations that manufacture Celgene products are approved by the regulatory authorities for the geographies that they serve.

SALES AND COMMERCIALIZATION

We promote our brands globally through our hematology, oncology, and inflammation and immunology commercial organizations which support our currently marketed brands and prepare for the launches of new products, as well as new indications for existing products. For OTEZLA®, we also provide information about the appropriate use of our products to consumers in the U.S. through direct-to-consumer print and television advertising. We have a team of dedicated market access professionals to help physicians 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® and Otezla SupportPlus® to serve as dedicated, central points of contact for patients and healthcare professionals who use or prescribe our products. Celgene Patient Support® and Otezla SupportPlus® are free services that help patients and healthcare professionals navigate the challenges of reimbursement by providing information regarding insurance coverage, prior authorization requirements, appeals processes and financial assistance programs.

In most countries, we promote our products through our own sales organizations. In some regions, particularly in some countries in Latin America, we partner with third-party distributors. Generally, we distribute our products through commonly used channels in local markets. However, certain of our products, including REVLIMID® and POMALYST®/IMNOVID®, are distributed under mandatory risk-management distribution programs (such as REMS) tailored to meet local authorities' specifications to provide for their safe and appropriate distribution and use.

14




EMPLOYEES

As of December 31, 2018, we had 8,852 full-time employees, of whom 3,990 were engaged primarily in research and development activities, 2,497 were engaged primarily in sales and commercialization activities, 742 were engaged primarily in manufacturing, and the remaining 1,623 were engaged primarily in management and general and administrative activities. The number of full-time employees in our international operations has grown from 3,091 at the end of 2017 to 3,212 at the end of 2018. 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.

SEASONALITY

Our worldwide product sales do not reflect any significant degree of seasonality in end-user demand. Several other factors, including government rebates, distributor buying patterns and government tender timing impact the dollar value of product sales recorded in any particular quarter. In the United States, manufacturers of pharmaceutical products are responsible for 50 percent of the patient’s cost of branded prescription drugs related to the Medicare Part D Coverage Gap (70 percent beginning in 2019). We fulfill this obligation by providing rebates to the government, resulting in a reduction in the dollar value of U.S. net product sales in the quarter in which the rebates are provided. Historically, these rebates are higher during the first quarter primarily due to the larger volume of patient deductibles at the beginning of a calendar year. In addition, in the U.S., the timing of net product sales may be affected by fluctuations in wholesaler inventory levels. Outside of the U.S., the timing of governmental tenders for product may also impact net product sales in a particular quarter.

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 submission to the SEC. Such reports will remain available on our website for at least 12 months. The contents of our website or any other website are not incorporated by reference into this Annual Report on Form 10-K.

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 2018 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:
the proposed transaction with Bristol-Myers Squibb;
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;

15



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 protections;
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 on Form 10-K 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.

ITEM 1A. RISK FACTORS

The following describes 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.
 
Risks Related to our Business

Our operating results may be 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, amortization of acquired intangibles and other acquisition related charges, and impairment charges. Several other factors, including government rebates, distributor buying patterns and government tender timing, impact the dollar value of product sales recorded in any particular quarter.

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, a combination of foreign currency put and call options, and occasionally purchased put options 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. For more information, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" contained elsewhere in this report.

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We are dependent on the continued commercial success of our primary products, REVLIMID®, POMALYST®/IMNOVID®, OTEZLA®, ABRAXANE®, and VIDAZA®.
 
Our business is largely dependent on the commercial success of REVLIMID®, POMALYST®/IMNOVID®, OTEZLA®, ABRAXANE®, and VIDAZA®. REVLIMID® currently accounts for over half of our total revenue. As new products, such as POMALYST®/IMNOVID® and OTEZLA®, have obtained regulatory approval and gained market acceptance, our dependence on REVLIMID® has decreased, a trend that we expect to continue. A significant decline in REVLIMID® net revenue, in the absence of offsetting increases in revenue from our other marketed products, would have a material adverse effect on our results of operations, cash flows and financial condition. 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 the imposition of costly post-approval clinical studies or revisions to our approved labeling which could limit the indications or patient population for a product or could even lead to the withdrawal of a product from the market. THALOMID® is known to be toxic to the human fetus and exposure to the drug during pregnancy could result in significant deformities. REVLIMID® and POMALYST®/IMNOVID® are also considered toxic to the human fetus and their respective labels contain warnings against use which could result in embryo-fetal exposure. While we have restricted distribution systems for THALOMID®, REVLIMID®, and POMALYST®/IMNOVID®, and endeavor to educate patients regarding the potential known adverse events, including pregnancy risks, we cannot ensure that all such warnings and recommendations will be complied with or that adverse events resulting from non-compliance will not occur.

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. Our future growth would be negatively impacted if we fail to obtain timely, or at all, requisite regulatory approvals in the United States and internationally for products in development and approvals for our existing products for additional indications.

The principal risks to obtaining and maintaining regulatory approvals are as follows:

In general, preclinical tests and clinical trials can take many years and require the expenditure of substantial resources, and the data obtained from these tests and trials may not lead to regulatory approval;
Delays or rejections may be encountered during any stage of the regulatory process if the clinical or other data fails to demonstrate compliance with a regulatory agency’s requirements for safety, efficacy and quality;
Delays in the acceptance, review and approval of products by the FDA may result from government shutdowns due to the failure by Congress to enact regular appropriations;

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 or the patient population 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 similar bodies in other countries 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;

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Products, such as REVLIMID® and POMALYST®/IMNOVID®, that receive 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 or marketing 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 or private litigants may assert claims on behalf of the government against us that could inhibit our commercial capabilities and/or result in significant damage awards and 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
mandated disclosures of clinical trial or other data, such as the EMA’s policy on publication of clinical data.
Sales of our products will be significantly reduced if access to and reimbursement for our products by governmental and other third-party payers are 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 (HCMOs), or reimbursed by government health administration authorities, private health coverage insurers and other third-party payers.

The influence of HCMOs has increased in recent years due to the growing number of patients receiving coverage through a few large HCMOs as a result of industry consolidation. One objective of HCMOs is to contain and, where possible, reduce healthcare expenditures. HCMOs typically use formularies (lists of approved medicines available to members of a particular HCMO), clinical protocols, volume purchasing, long-term contracts and other methods to negotiate prices with pharmaceutical providers. Due to their lower cost generally, generic medicines are typically placed in preferred tiers of HCMO formularies. Additionally, many formularies include alternative and competitive products for treatment of particular medical problems. Exclusion of our products from a formulary or HCMO-implemented restrictions on the use of our products can significantly impact drug usage in the HCMO patient population, and consequently our revenues.

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

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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 in low cost markets for resale in higher cost markets.

Federal and state legislation may affect our pricing policies and government reimbursement of our products which may adversely impact our revenues and profitability.

In the U.S. there have been and are likely to continue to be a number of legislative and regulatory proposals and enactments (e.g., the President's American Patients First Blueprint and related regulatory proposals) related to drug pricing and reimbursement at both the federal and state level that could impact our profitability. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or the ACA, were signed into law in March 2010, and are referred to collectively as the Healthcare Reform Acts. Since its enactment, there have been judicial and congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, in December 2018, a U.S. district court held that the ACA was unconstitutional, although the ruling is stayed pending the appeals process. In addition, the Tax Cuts and Jobs Act of 2017, which includes a provision that entered into effect on January 1, 2019, that repeals the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Since the enactment of the Tax Cuts and Jobs Act of 2017, there have been additional amendments to certain provisions of the ACA, and we expect the Trump Administration and Congress may continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. It is uncertain the extent to which any such changes may impact our business or financial condition.

Moreover, changes could be made to governmental healthcare and insurance reimbursement programs that could significantly impact the profitability of our products. Building from the President’s American Patients First Blueprint, the Centers for Medicare & Medicaid Services (CMS) released an Advanced Notice of Proposed Rulemaking in October 2018, seeking comments on possible changes to certain Medicare Part B reimbursement mechanisms. Notably, one such proposal would introduce international reference pricing for pharmaceuticals in setting reimbursement for those medicines. As these proposals are just at the beginning of the regulatory process, we cannot predict what the final rules (if any) will be, or the impacts on our products.

Additionally, the pricing and reimbursement of pharmaceutical products, in general and specialty drugs in particular, have received the attention of U.S. policymakers, state legislators and others. In January 2019, as part of an inquiry sent to twelve companies representing many of the most significant Part D drugs, we received a letter from the House Oversight and Government Reform Committee (“Committee”) inquiring into certain matters relating to the pricing and commercialization practices for REVLIMID®, as well as other information relating to company operations. We are cooperating with the Committee to respond; however, at this time, we cannot predict the impact of this request or the increased policy focus on the pricing or reimbursement of our products or pharmaceutical products generally. Other committees in the House or Senate have held hearings or announced plans to consider a variety of legislative initiatives relating to pricing and access for pharmaceutical products.

The Healthcare Reform Acts, among other things, made significant changes to the Medicaid rebate program by increasing the minimum rebates that manufacturers like us are required to pay. These changes also expanded the government’s 340B drug discount program by expanding the category of entities qualified to participate in the program and benefit from its deeply discounted drug pricing. The Healthcare Reform Acts also obligate the Health Resources and Services Administration (HRSA), which administers the 340B program, to update the agreement that each manufacturer must sign to participate in the 340B program to require each manufacturer to offer the 340B price to covered entities if the manufacturer makes the drug product available to any other purchaser at any price, and to report the ceiling prices for its drugs to the government. HRSA issued this update in late 2016, and we signed an amendment to our agreement on December 29, 2016.

Furthermore, the Trump Administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to, among other things, allow some states to exclude coverage for some prescription drugs under Medicaid. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump Administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform measures could be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures.

HRSA also issued proposed regulations to implement an administrative dispute resolution (ADR) process for certain disputes arising under the 340B program, including (1) claims by covered entities that they have been overcharged for covered outpatient drugs by manufacturers; and (2) claims by manufacturers, after a manufacturer has conducted an audit, that a covered entity has violated the prohibition on diversion of covered outpatient drugs to ineligible patients or duplicate discounts. The exact timing

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and content of final action on these matters is uncertain at this time. Depending on their final form, these actions could affect our obligations under the 340B program in ways that may have an adverse impact on our business. Additionally, in early 2016, HRSA finalized a regulation regarding the 340B pricing methodology and providing guidelines for when civil monetary penalties may be issued for “knowing and intentional” manufacturer overcharges of 340B covered entities. The effective date of this regulation was January 1, 2019. Following the effective date, manufacturers who are found to have knowingly and intentionally overcharged 340B covered entities could be subject to significant monetary penalties. Such findings could also result in negative publicity that could harm the manufacturer’s reputation or cause business disruption.

Over the course of the past few years, we have received inquiries from HRSA regarding our limited distribution networks for REVLIMID®, POMALYST®, and THALOMID® and our compliance with the 340B program. We have cooperated fully in responding to those inquiries and believe that we have complied with applicable legal requirements.

If we are ultimately required to change our sales or pricing practices with regard to the distribution of these drugs under the 340B program, or if we were required to pay penalties under the applicable regulations, there would be an adverse effect on our revenues and profitability.

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

Many existing and potential customers for our products become members of group purchasing organizations (GPOs). GPOs negotiate pricing arrangements and contracts, sometimes on an exclusive basis, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. If we are not one of the providers selected by a GPO, affiliated hospitals and other members may be less likely to purchase our products, and if the GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’s products, we may be precluded from 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 (through, for example, litigation or post grant review in the United States Patent and Trademark Office (USPTO) or EPO), a court or patent authority ruling on such challenge will ultimately determine, after all opportunities for appeal have been exhausted, 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 such products or processes, be subject to significant liabilities to such third party and/or be required to obtain license rights 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 and settlement of certain of these challenges, see Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.

In addition, we do not know whether any of our owned or licensed pending patent applications 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 by certain provisions of the America Invents Act (AIA) enacted in 2011. For example, under the AIA, members of the public may seek to challenge an issued patent by petitioning the USPTO to institute a post grant proceeding, such as a Post Grant Review (PGR) or Inter Partes Review (IPR). Once a post grant proceeding is instituted, the USPTO may find grounds to revoke the challenged patent or specific claims therein. For more information with respect to IPRs, see Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report. A similar procedure (known as a patent opposition) has existed in Europe for many years and we have defended our European patents in certain of those proceedings. We cannot predict whether any other Celgene patents will ever become the subject of a post grant proceeding or patent opposition. If a significant product patent is successfully challenged in a post grant proceeding or patent opposition, it may be revoked, which would have a serious negative impact on our ability to maintain exclusivity in the market-place for our commercial products affected by such revocation and could adversely affect our future revenues and profitability.

On October 2, 2014, the EMA adopted its clinical transparency policy, "Policy on Publication of Clinical Data for Medicinal Products for Human Use" (Clinical Data Policy), which became effective on January 1, 2015. In general, under the Clinical Data

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Policy, clinical data is not deemed to be commercially confidential data. Therefore, there is a risk that unpublished proprietary information, including trade secrets that are incorporated into a marketing application before the EMA may be made publicly available. It is difficult to predict how any public disclosure of our trade secrets or other confidential and proprietary information made available under the Clinical Data Policy may adversely impact our patent rights and our competitive advantage in the marketplace.

Also, procedures for obtaining patents and the degree of protection against the use of a patented invention by others vary from country to country. 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 USPTO 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 technologies 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, which can result in significant costs if we are found to have improperly used the confidential or proprietary information of others. 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 of that product. In addition, manufacturers of innovative drugs as well as generic drug manufacturers may be able to design their products 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 and settlements of certain challenges, see Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.

Upon the expiration or loss of patent protection for a product, or upon the “at-risk” launch 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, as additional competitors enter the market, our patented products may face increased competition or pricing pressure.

Orphan exclusivity and regulatory data protection for REVLIMID®’s multiple myeloma indication in Europe expired in June 2017. The regulatory marketing protection for REVLIMID® in Europe expired in June 2018. Notwithstanding that our intellectual property rights for REVLIMID® in the major European markets are due to remain in force through at least 2022, we expect that some generic drug companies may attempt to market a generic version of REVLIMID® in such European markets before this time. We have recently been made aware of various generic drug manufacturers receiving regulatory clearance for generic versions of REVLIMID® in some European countries. Although we are confident in the strength of our intellectual property rights, it may be possible for generic drug companies to successfully challenge our rights and launch their generic versions of REVLIMID® into the market prior to the expiration of our intellectual property rights in Europe for REVLIMID®.


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Certain novel approaches to the treatment of diseases, such as CAR T cell therapy, may present significant challenges and risks for us.

The development of novel approaches for the treatment of diseases, such as our acquisition in the first quarter of 2018 of Juno’s CAR T cell immunotherapy and related technologies, presents many new challenges and risks due to the unique nature of genetic modification of patient cells ex vivo using certain viruses to reengineer these cells to ultimately treat diseases, including obtaining regulatory approval from the FDA and other regulatory agencies that have very limited experience with the development of cellular therapies involving genetic modification of patient cells; developing and deploying consistent and reliable processes, while limiting contamination, for engineering a patient’s cells ex vivo and infusing genetically modified cells back into the patient; developing processes for the safe administration of cellular therapies, including long-term follow-up for patients receiving cellular therapies; and sourcing additional clinical and, if approved, commercial supplies for the materials used to manufacture and process our potential CAR T products. The use of reengineered cells as a potential cancer treatment is a recent development and may not be broadly accepted by the regulatory, patient or medical communities. Further, we may not be able to satisfactorily establish the safety and efficacy or the reliability of these therapies or demonstrate the potential advantages and side effects compared to existing and future cellular therapies. Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. For instance, in February 2019, CMS issued a proposed coverage decision memo on CAR T cells that would apply to the entire Medicare program that, if finalized as drafted, includes requirements such as patient enrollment in a registry and certain capabilities required of the site to be eligible for Medicare payment for CAR T cell therapy. Furthermore, certain payment models could impact the interest of appropriate treatment sites in administering CAR T cell therapies, thereby limiting patient access. The CMS has opened a national coverage analysis on CAR T cells and may impose coverage limitations on such cellular therapies. These coverage limitations would apply to the entire Medicare program and could include, among other things, a requirement for patients to be enrolled in a registry in order for the provider to be paid for CAR T cell therapy.  To date, only a few products that involve the genetic modification of patient cells have been approved for commercial sale. Moreover, the safety profiles of cellular therapies may adversely influence public perception and may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians and payors to subscribe to these novel treatment approaches. If we fail to overcome these and other challenges, or if significant adverse events are reported from similar therapies, our development of these novel treatment approaches may be hampered or delayed, which could adversely affect our future anticipated revenues and/or profitability related to this therapeutic program.
 
Our business operates in an extremely competitive environment.
 
The pharmaceutical and biotechnology industries in which we operate are highly competitive and subject to rapid and significant technological change. Our present and potential competitors include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms, including, but not limited to:

Hematology and Oncology: AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eisai, Gilead, Johnson & Johnson, Merck, Novartis, Roche/Genentech, Sanofi and Takeda; and
Inflammation and Immunology: AbbVie, Amgen, Biogen, Eisai, Eli Lilly, Johnson & Johnson, Merck, Novartis, Pfizer and UCB S.A.
Some of these companies have considerably greater financial, technical and marketing resources than we have, enabling them, among other things, to make greater research and development investments. We also experience competition in drug development from universities and other research institutions, and we compete with others in acquiring technology from these sources. The pharmaceutical industry has undergone, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical advances are made and become more widely known. The development of products or processes by our competitors with significant advantages over those that we are developing could adversely affect our future revenues and profitability.

A decline in general economic conditions would adversely affect our results of operations.
 
Sales of our products are dependent, in large part, on third-party payers. As a result of global credit and financial market conditions, these organizations may be unable to satisfy their reimbursement obligations or may delay payment. For information about receivable balances relating to government-owned or -controlled hospitals in European countries, see Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in 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

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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.

While the ultimate outcomes 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 and additional costs 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.
For more information relating to governmental investigations and other legal proceedings and recent settlements of legal proceedings, see Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.

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;

the failure to obtain or maintain satisfactory drug reimbursement rates by governmental or third-party payers; and

the development of a competitive product or therapy.

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.


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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 or governmental 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 various distributors to distribute most of our branded products. 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.

We have limited experience manufacturing CAR T cell immunotherapies, and our processes may be more difficult or more expensive than the approaches taken by our current and future competitors. We cannot be sure that the manufacturing processes employed by us will result in CAR T cell immunotherapies that will be safe and effective.  Our ability to source supplies for materials used to manufacture our CAR T cell immunotherapies and to develop consistent and reliable manufacturing processes and distribution networks with an attractive cost of goods could impact future anticipated revenue and gross profit for our CAR T cell immunotherapies.  In addition, we may face challenges with sourcing supplies for clinical and, if approved commercial manufacturing.  Logistical and shipment delays and other factors not in our control could prevent or delay the delivery of our product candidates to patients. Additionally, we are required to maintain a complex chain of identity and custody with respect to patient material as such material moves through the manufacturing process, and failure to maintain such chain of identity and custody could result in adverse patient outcomes, loss of product or regulatory remedial action, which could adversely affect our future anticipated revenues and/or profitability related to this therapeutic program.

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.

Risks from the improper conduct of employees, agents, contractors or collaborators could adversely affect our business or reputation.

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

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

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

increased management, travel, infrastructure and legal compliance costs;

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longer payment and reimbursement cycles;
difficulties in enforcing contracts and collecting accounts receivable;
local marketing and promotional challenges;
lack of consistency, and unexpected changes, in foreign regulatory requirements and practices;
increased risk of governmental and regulatory scrutiny and investigations;
increased exposure to fluctuations in currency exchange rates;
the burdens of complying with a wide variety of foreign laws and legal standards;
operating in locations with a higher incidence of corruption and fraudulent business practices;
difficulties in staffing and managing foreign sales and development operations;
import and export requirements, tariffs, taxes and other trade barriers;
weak or no protection of intellectual property rights;
possible enactment of laws regarding the management of and access to data and public networks and websites;
possible future limitations on foreign-owned businesses;
increased financial accounting and reporting burdens and complexities; and
other factors beyond our control, including political, social and economic instability, popular uprisings, war, terrorist attacks and security concerns in general.
As we continue to expand our business into multiple international markets, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these risks could harm our international operations and reduce our sales, adversely affecting our business, results of operations, financial condition and growth prospects.

We may not realize the anticipated benefits of acquisitions and strategic initiatives.
 
We may face significant challenges in effectively integrating entities and businesses that we acquire, including the acquisitions of Impact Biomedicines, Inc. and Juno Therapeutics, Inc. in the first quarter of 2018, 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 an 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.

In addition, we may not be able to realize the projected benefits of corporate strategic initiatives we may pursue in the future.

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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, medical, manufacturing, commercial and other professional 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.

We are subject to various legal proceedings, claims and investigative demands in the ordinary course of our business, the ultimate outcome of which may result in significant expense, payments and penalties.

We and certain of our subsidiaries are involved in various legal proceedings that include patent, product liability, consumer, commercial, antitrust and other claims that arise from time to time in the ordinary course of our business. Litigation is inherently unpredictable. Although we believe we have substantial defenses in these matters, we could in the future be subject to adverse judgments, enter into settlements of claims or revise our expectations regarding the outcomes of certain matters, and such developments could have a material adverse effect on our results of operations in the period in which such judgments are received or settlements occur. For more information regarding settlement of certain legal proceedings, see Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.

Our activities relating to the sale and marketing and the pricing of our products are subject to extensive regulation under the U.S. Federal Food, Drug, and Cosmetic Act, the Medicaid Drug Rebate Program, the False Claims Act, the Foreign Corrupt Practices Act and other federal and state statutes, including those discussed elsewhere in this report, as well as anti-kickback and false claims laws, and similar laws in international jurisdictions. Like many companies in our industry, we have from time to time received inquiries and subpoenas and other types of information demands from government authorities, and been subject to claims and other actions related to our business activities brought by governmental authorities, as well as by consumers, third-party payers, stockholders and others. There can be no assurance that existing or future proceedings will not result in significant expense, civil payments, fines or other adverse consequences. For more information relating to governmental investigations and other legal proceedings and recent settlements of legal proceedings, see Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.

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 contra-indications, warnings or precautions, which would have a material adverse effect on sales of such product. We have historically purchased product liability coverage from third-party carriers for a portion of our potential liability. Such insurance has become increasingly difficult and costly to obtain. In this context and in light of the strength of our balance sheet we now self-insure these risks beginning in 2016. Product liability claims, regardless of their merits or ultimate outcome, are costly, divert management's attention, may harm our reputation and can impact the demand for our products. There can be no assurance that we will be able to recover under any existing third-party insurance policy or that such coverage will be adequate to fully cover all risks or damage awards or settlements. Additionally, if we are unable to meet our self-insurance obligations for claims that are more than we estimated or reserved for that require substantial expenditures, there could be a material adverse effect on our financial statements and results of operations.

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

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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. See ‘Liquidity and Capital Resources’ within Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" as well as Note 17 of Notes to Consolidated Financial Statements contained elsewhere in this report.
 
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, a combination of foreign currency put and call options, and occasionally purchased put options, all of 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 6 of Notes to Consolidated Financial Statements and Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" contained elsewhere in this report.

We may experience an adverse market reaction if we are unable to meet our financial reporting obligations.
 
As we continue to expand at a rapid pace, the development of new and/or improved automated systems will remain an ongoing priority. During this expansion period, our internal control over financial reporting may not prevent or detect misstatements in our financial reporting. Such misstatements may result in litigation and/or negative publicity and possibly cause an adverse market reaction that may negatively impact our growth plans and the value of our common stock.

Impairment charges or write downs in our books and changes in accounting standards could have a significant adverse effect on our results of operations and financial condition.

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 investments. In addition, 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.

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 or anticipated 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;
patent or proprietary rights developments;
changes in pricing and third-party reimbursement policies for our products;

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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 and cyber security efforts could subject us to liability, reputational damage 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. We could also experience a business interruption, theft of confidential information, or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Similarly, data privacy breaches by those who access our systems may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to us, our patients, employees, customers or other business partners, may be exposed to unauthorized persons or to the public. Although the aggregate impact on our operations and financial condition has not been material to date, we have been the target of events of this nature and expect them to continue. We continuously monitor our data, information technology systems (and those of our third-party providers where appropriate) and our personnel's usage of these systems to reduce these risks and potential threats. However, cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. There can be no assurance that our efforts to protect our data and information technology systems will prevent breakdowns or breaches in our systems (or that of our third-party providers) that could adversely affect our business and result in financial and reputational harm to us, theft of trade secrets and other proprietary information, legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties.


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The illegal distribution and sale by third parties of counterfeit versions of our products or stolen products could have a negative impact on our reputation and business.

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

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

an active public market for the Abraxis CVRs may not continue to exist or the Abraxis CVRs may trade at low volumes, both of which could have an adverse effect on the market price of the Abraxis CVRs;
if the net sales targets specified in the Abraxis CVR Agreement are not achieved within the time periods specified, no payment will be made and the Abraxis CVRs will expire valueless;
since the U.S. federal income tax treatment of the Abraxis CVRs is unclear, any part of an Abraxis CVR payment could be treated as ordinary income and the tax thereon may be required to be paid prior to the receipt of the Abraxis CVR payment;
any payments in respect of the Abraxis CVRs are subordinated to the right of payment of certain of our other indebtedness;
we may under certain circumstances redeem the Abraxis CVRs; and
upon expiration of our obligations under the Abraxis 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 of the Abraxis CVRs.
Risks Related to our Proposed Acquisition by Bristol-Myers Squibb

Our proposed acquisition by Bristol-Myers Squibb is subject to various closing conditions, including regulatory and stockholder approvals as well as other uncertainties, and there can be no assurances as to whether and when it may be completed.
On January 2, 2019, we entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”), with Bristol-Myers Squibb and a wholly owned subsidiary of Bristol-Myers Squibb (which we refer to as the “merger sub”). Under the terms and subject to the conditions set forth in the merger agreement, merger sub will merge with and into Celgene (the “merger”) and Celgene will become a wholly-owned subsidiary of Bristol-Myers Squibb. Upon completion of the merger, each outstanding share of Celgene common stock, other than excluded stock or dissenting stock, will automatically be canceled and converted into the right to receive (i) $50.00 in cash without interest thereon, (ii) one share of Bristol-Myers Squibb common stock, and (iii) one Contingent Value Right (Bristol-Myers Squibb CVR), which will entitle the holder to receive a payment for the achievement of future regulatory milestones.

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Completion of the merger is subject to customary closing conditions, a number of which are not within our or Bristol-Myers Squibb’s control, and it is possible that such conditions may prevent, delay or otherwise materially adversely affect the completion of the merger. These conditions include, among other things: (i) adoption of the merger agreement by our stockholders, (ii) approval of the stock issuance by the stockholders of Bristol-Myers Squibb, (iii) approval for the listing on the New York Stock Exchange (NYSE) of the shares of Bristol-Myers Squibb common stock and Bristol-Myers Squibb CVRs to be issued in the merger, (iv) absence of any injunction or order that prohibits completion of the transaction, (v) accuracy of the representations and warranties made in the merger agreement by the other party, subject to certain materiality qualifications, (vi) performance in all material respects by the other party of the material obligations required to be performed by it at or prior to completion of the merger and (vii) no stop order suspending the effectiveness of the registration statement and no proceedings for such purpose are pending before the SEC.
In addition, completion of the merger is conditioned upon the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of approvals under the antitrust laws of certain specified foreign jurisdictions. The governmental authorities from which these authorizations are required have broad discretion in administering the governing laws and regulations, and may take into account various facts and circumstances in their consideration of the merger, including other potential transactions in the health care industry or other industries. These governmental authorities may initiate proceedings seeking to prevent, or otherwise seek to prevent, the merger. As a condition to authorization of the merger or related transactions, these governmental authorities also may impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of Bristol-Myers Squibb’s business after completion of the merger. Under the terms of the merger agreement, Bristol-Myers Squibb is not required, and we are not permitted without Bristol-Myers Squibb’s consent, to take any actions or agree to any terms or conditions that would have, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the financial condition, business or results of operations of Celgene, Bristol-Myers Squibb and their respective subsidiaries, taken as a whole, after giving effect to the completion of the merger.
We can provide no assurance that all required consents and approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, if all required consents and approvals are obtained and all closing conditions are satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions and timing of such consents and approvals or the timing of the completion of the merger. Many of the conditions to completion of the merger are not within either our or Bristol-Myers Squibb’s control, and neither company can predict when or if these conditions will be satisfied (or waived, if applicable). Any delay in completing the merger could cause us not to realize some or all of the benefits that we expect to achieve if the merger is successfully completed within its expected timeframe.
Failure to complete the merger could negatively impact our stock price and future business and financial results.
If the merger is not completed for any reason, including as a result of our stockholders failing to adopt the merger agreement or Bristol-Myers Squibb stockholders failing to approve the stock issuance, we will remain an independent public company. Our ongoing business may be materially and adversely affected and we would be subject to a number of risks, including the following:
we may experience negative reactions from the financial markets, including negative impacts on trading prices of our common stock and other securities, and from our customers, collaborators, suppliers, regulators and employees;

we may be required to pay Bristol-Myers Squibb a termination fee of $2.2 billion if the merger agreement is terminated under certain circumstances;

we will be required to pay certain transaction expenses and other costs incurred in connection with the merger, whether or not the merger is completed, including certain fees and expenses of Bristol-Myers Squibb, subject to a cap of $40 million, in connection with our fee reimbursement obligation;

the merger agreement places certain restrictions on the conduct of our business prior to completion of the merger, and such restrictions, the waiver of which is subject to the consent of Bristol-Myers Squibb, may prevent us from making certain acquisitions, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the merger that we would have made, taken or pursued if these restrictions were not in place; and

matters relating to the merger (including integration planning) will require substantial commitments of time and resources by our management and the expenditure of significant funds in the form of fees and expenses, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company.


30



In addition, we could be subject to litigation related to any failure to complete the merger or related to any proceeding to specifically enforce our performance obligations under the merger agreement.
If any of these risks materialize, they may materially and adversely affect our business, financial condition, financial results, ratings, stock prices and/or note prices.
If the merger agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Bristol-Myers Squibb.
If the merger agreement is terminated, in certain circumstances, we would be required to pay a termination fee of $2.2 billion and certain expenses to Bristol-Myers Squibb. If the merger agreement is terminated under such circumstances, the termination fee we may be required to pay under the merger agreement may require us to use available cash that would have otherwise been available for general corporate purposes and other uses. For these and other reasons, termination of the merger agreement could materially adversely affect our business operations and financial results, which in turn would materially and adversely affect the price of our common stock.
Because the exchange ratio is fixed and the market price of shares of Bristol-Myers Squibb common stock has fluctuated and will continue to fluctuate, and because of the uncertainty of the fair market value of, and the ultimate realization on, the Bristol-Myers Squibb CVRs, our stockholders cannot be sure of the value of the merger consideration they will receive in the merger.
Upon completion of the merger, each share of our common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive $50.00 in cash without interest thereon, one share of Bristol-Myers Squibb common stock and one Bristol-Myers Squibb CVR. Because the exchange ratio of one share of Bristol-Myers Squibb common stock is fixed, the value of the share consideration will depend on the market price of shares of Bristol-Myers Squibb common stock at the time the merger is completed. The market price of shares of Bristol-Myers Squibb common stock has fluctuated since the date of the announcement of the merger agreement and will continue to fluctuate from the date of this report until the date the merger is completed, which could occur a considerable amount of time after the date hereof. There is also uncertainty regarding the fair market value of the Bristol-Myers Squibb CVRs and whether any payment will ultimately be realized on the Bristol-Myers Squibb CVRs. Stock price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in Bristol-Myers Squibb’s and Celgene’s respective businesses, operations and prospects, risks inherent in their respective businesses, changes in market assessments of the likelihood that the merger will be completed and/or the value that may be generated by the merger, and changes with respect to expectations regarding the timing of the merger and regulatory considerations. Many of these factors are beyond our control.
While the merger is pending, we are subject to business uncertainties and contractual restrictions that could materially adversely affect our operating results, financial position and/or cash flows or result in a loss of employees, customers, collaborators or suppliers.

The definitive merger agreement includes restrictions on the conduct of our business prior to the completion of the merger or termination of the merger agreement, generally requiring us to conduct our business in the ordinary course consistent with past practice. Without limiting the generality of the foregoing, we are subject to a variety of specified restrictions. Unless we obtain Bristol-Myers Squibb’s prior written consent (which consent may not be unreasonably withheld, conditioned or delayed) and except (i) as required or expressly contemplated by the merger agreement, (ii) as required by applicable law or (iii) as set forth in the confidential disclosure schedule delivered by Celgene to Bristol-Myers Squibb, we may not, among other things, incur additional indebtedness, issue additional shares of our common stock outside of our equity incentive plans, repurchase our common stock, pay dividends, acquire assets, securities or property (subject to certain exceptions, including without limitation, acquisitions up to a specified individual amount and an aggregate limitation), dispose of businesses or assets, enter into material contracts or make certain additional capital expenditures. We may find that these and other contractual restrictions in the merger agreement delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management believes they may be advisable. The pendency of the proposed merger may also divert management’s attention and our resources from ongoing business and operations.

Our employees, customers, collaborators and suppliers may experience uncertainties about the effects of the merger. In connection with the pending merger, it is possible that some customers, collaborators, suppliers and other parties with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with us as a result of the merger. Similarly, current and prospective employees may experience uncertainty about their future roles with us following completion of the merger, which may materially adversely affect our ability to attract and retain key employees. If any of these effects were to occur, it could materially and adversely impact our operating results, financial position and/or cash flows and/or our stock price.

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Lawsuits have been filed against us and Bristol-Myers Squibb and other lawsuits may be filed against us and/or Bristol-Myers Squibb challenging the transactions contemplated by the merger agreement. An adverse ruling in any such lawsuit may delay or prevent the proposed acquisition from being completed.

Between February 4, 2019 and February 20, 2019, six putative class actions and three individual actions were filed against us, our board of directors, and in four cases, Bristol-Myers Squibb Company and/or Burgundy Merger Sub, Inc. Three complaints, Bernstein v. Celgene Corporation, et al., 2:19-cv-04804; Lowinger v. Celgene Corporation, et al., 2:19-cv-04752; and Wang v. Celgene Corporation, et al., 2:19-cv-04865, were filed in the U.S. District Court for the District of New Jersey. Three complaints, Gerold v. Celgene Corporation, et al., 1:19-cv-00233-UNA; Sbriglio v. Celgene Corporation, et al., 1:19-cv-00277-UNA; and Grayson v. Celgene Corporation, et al., No. 1:19-cv-00332, were filed in the U.S. District Court for the District of Delaware. Two complaints, Rogers v. Celgene Corporation, et al., 1:19-cv-01275; and Woods v. Celgene Corporation, et al., No. 1:19-cv-01597, were filed in the U.S. District Court for the Southern District of New York. One complaint, Ciavarella v. Alles, No. 2019-0133-AGB, was filed in the Court of Chancery of the State of Delaware. The federal complaints generally allege that defendants prepared and filed a false or misleading registration statement regarding the proposed merger in violation of Section 14(a) and Section 20(a) of the Exchange Act, and Rule 14a-9 promulgated under the Exchange Act. Specifically, the federal complaints allege that the registration statement misstated or omitted material information regarding the parties’ financial projections and the analyses performed by the parties’ financial advisors. Some of the federal complaints also allege that the registration statement misstated or omitted material information regarding potential conflicts of interest faced by Celgene directors and executives. The federal complaints further allege that our board of directors and/or Bristol-Myers Squibb are liable for these violations as “controlling persons” of Celgene under Section 20(a) of the Exchange Act. The federal complaints seek, among other relief, injunctive relief to prevent consummation of the merger until the alleged disclosure violations are cured, damages in the event the merger is consummated, and an award of attorney’s fees. The Ciavarella complaint alleges that Celgene’s directors breached their fiduciary duties by failing to maximize the value of Celgene and that Bristol-Myers Squibb aided and abetted those breaches. It seeks, among other things, injunctive relief to prevent consummation of the merger, damages in the event the merger is consummated, and an award of attorney’s fees.

In addition, a complaint, Landers, et al. v. Caforio, et al., No. 2019-0125-AGB, was filed in the Court of Chancery of the State of Delaware. Landers is styled as a putative class action on behalf of Bristol-Myers Squibb stockholders and names members of the Bristol-Myers Squibb board of directors as defendants, alleging that they breached their fiduciary duties by failing to disclose material information about the merger.

Additional lawsuits arising out of or relating to the definitive merger agreement, the registration statement and/or the proposed acquisition of us by Bristol-Myers Squibb may be filed in the future.

One of the conditions to completion of the proposed acquisition is the absence of any applicable injunction or other order being in effect that prohibits completion of the proposed acquisition. Accordingly, if a plaintiff is successful in obtaining an injunction, then such order may prevent the proposed acquisition from being completed, or from being completed within the expected timeframe.

We may have difficulty attracting, motivating and retaining executives and other key employees in light of the merger.

Uncertainty about the effect of the merger on our employees may have an adverse effect on our business. This uncertainty may impair our ability to attract, retain and motivate key personnel. Employee retention may be particularly challenging during the pendency of the merger, as our employees may experience uncertainty about their future roles in the combined business. No assurance can be given that we will be able to attract or retain key employees to the same extent that we have been able to attract or retain employees in the past.

Additional information on these risks
Additional information concerning these risks, uncertainties and assumptions can be found in the section entitled “Risk Factors” beginning on page 39 of our joint proxy statement/prospectus filed February 22, 2019 with the SEC.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.


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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 (two locations)
 
Administration, marketing, research
 
1,933,000

Phoenix, Arizona
 
Manufacturing and warehousing
 
254,000

Boudry, Switzerland
 
Manufacturing, administration and warehousing
 
253,000

Couvet, Switzerland
 
Manufacturing, administration and warehousing
 
191,000

Bothell, Washington
 
Manufacturing, administration and warehousing
 
68,000

Zofingen, Switzerland
 
Manufacturing
 
4,500

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
Seattle, Washington
 
Office space and research
 
331,400

San Diego, California
 
Office space and research
 
285,400

Warren, New Jersey
 
Office space and research
 
181,200

Cambridge, Massachusetts
 
Office space and research
 
145,300

Berkeley Heights, New Jersey
 
Office space
 
138,400

Brisbane, California
 
Office space and research
 
112,200

San Francisco, California
 
Office space and research
 
55,800

Waltham, Massachusetts
 
Office space and research
 
20,100

Overland Park, Kansas
 
Office space
 
20,000

Bothell, Washington
 
Warehouse
 
19,400

Allentown, Pennsylvania
 
Warehouse
 
15,100

Emeryville, California
 
Office space and research
 
4,900

Los Angeles, California
 
Office space
 
3,800

Washington, D.C.
 
Office space
 
3,500

Dallas, Texas
 
Office space
 
3,100


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. As of December 31, 2018, the non-cancelable lease terms for our operating leases expire at various dates between 2019 and 2029 and in some cases include renewal options. The total amount of rent expense recorded for all leased facilities in 2018 was $80 million.

ITEM 3.    LEGAL PROCEEDINGS
See Note 19 of Notes to Consolidated Financial Statements contained elsewhere in this report.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

33



PART II
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET AND STOCKHOLDER INFORMATION
Our common stock is traded on the NASDAQ Global Select Market under the symbol "CELG." As of February 21, 2019, there were approximately 360 holders of record of our common stock.
PERFORMANCE GRAPH
The below chart sets forth a comparison of cumulative total returns per share for the periods indicated:

chart-808501b19e6e538786ba01.jpg
 
 
Cumulative Total Return
 
 
12/13
 
12/14
 
12/15
 
12/16
 
12/17
 
12/18
Celgene Corporation
 
$
100.00

 
$
132.40

 
$
141.75

 
$
137.01

 
$
123.53

 
$
75.86

S&P 500
 
100.00

 
113.68

 
115.24

 
129.02

 
157.17

 
150.27

NASDAQ Composite
 
100.00

 
114.83

 
122.99

 
134.02

 
173.86

 
168.98

NASDAQ Biotechnology
 
100.00

 
134.40

 
150.22

 
118.15

 
143.74

 
131.00

* $100 Invested on 12/31/13 in Stock or Index – Including Reinvestment of Dividends, Fiscal Year Ended December 31.
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.
REPURCHASE OF EQUITY SECURITIES
From April 2009 through December 31, 2018, our Board of Directors approved purchases of up to $28.5 billion of our common stock, including increases of $5.0 billion and $3.0 billion approved by our Board of Directors in February and May 2018, respectively. Approved amounts exclude share purchase transaction fees.


34



As part of the existing Board authorized share repurchase program, in May 2018 we entered into an Accelerated Share Repurchase (ASR) agreement with an investment bank to repurchase an aggregate of $2.0 billion of our common stock. As part of the ASR agreement we received an initial delivery of 17,987,922 shares in May 2018 and a final delivery of 5,956,747 shares in August 2018. The total number of shares repurchased under the ASR agreement was 23,944,669 at a weighted average price of $83.53 per share.
There were no shares repurchased during the three-month period ended December 31, 2018. As of December 31, 2018, we had a remaining purchase authorization of approximately $2.8 billion.
During the period covered by this report, we did not sell any of our equity shares that were not registered under the Securities Act of 1933, as amended.
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 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, 2018, 2017 and 2016 and the Consolidated Balance Sheet data as of December 31, 2018 and 2017 are derived from our Consolidated Financial Statements which are included 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, 2015 and 2014 and the Consolidated Balance Sheet information as of December 31, 2016, 2015 and 2014 are derived from our Consolidated Financial Statements, which are not included in this Annual Report on Form 10-K (amounts in millions, except per share data).
 
 
Years ended December 31,
 
 
2018(1)
 
2017 (2)
 
2016
 
2015
 
2014
Consolidated Statements of Income:
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
15,281

 
$
13,003

 
$
11,229

 
$
9,256

 
$
7,670

Costs and operating expenses
 
10,090

 
8,296

 
8,063

 
7,001

 
5,151

Operating income
 
5,191

 
4,707

 
3,166

 
2,255

 
2,519

Interest and investment income, net
 
45

 
105

 
30

 
31

 
28

Interest (expense)
 
(741
)
 
(522
)
 
(500
)
 
(311
)
 
(176
)
Other income (expense), net
 
337

 
24

 
(324
)
 
48

 
(44
)
Income before income taxes
 
4,832

 
4,314

 
2,372

 
2,023

 
2,327

Income tax provision
 
786

 
1,374

 
373

 
421

 
327

Net income
 
$
4,046

 
$
2,940

 
$
1,999

 
$
1,602

 
$
2,000

Net income per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
5.65

 
$
3.77

 
$
2.57

 
$
2.02

 
$
2.49

Diluted
 
$
5.51

 
$
3.64

 
$
2.49

 
$
1.94

 
$
2.39

Weighted average shares:
 
 
 
 
 
 
 
 
 
 
Basic
 
716.3

 
779.2

 
777.2

 
792.2

 
802.7

Diluted
 
733.8

 
808.7

 
803.3

 
824.9

 
836.0

 
 
As of December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
Consolidated Balance Sheets Data:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents, Debt securities available-for-sale and Equity investments with readily determinable fair values(1)
 
$
6,042

 
$
12,042

 
$
7,970

 
$
6,552

 
$
7,547

Total assets(3)
 
35,480

 
30,141

 
28,086

 
26,964

 
17,291

Short-term borrowings and current portion of long-term debt
 
501

 

 
501

 

 
606

Long-term debt, net of discount(3)
 
19,769

 
15,838

 
13,789

 
14,161

 
6,217

Retained earnings
 
17,559

 
13,061

 
10,074

 
8,075

 
6,473

Total stockholders' equity
 
6,161

 
6,921

 
6,600

 
5,919

 
6,525


35



(1) Accounting Standards Update No. 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” was effective for us on January 1, 2018. ASU 2016-01 requires changes in the fair value of equity investments with readily determinable fair values and changes in observable prices of equity investments without readily determinable fair values to be recorded in net income. For the year ended December 31, 2018, a net gain of $317 million was recorded in Other income (expense), net. Certain prior year Consolidated Balance Sheet amounts have been reclassified to conform to the current year's presentation. See Note 1 of Notes to Consolidated Financial Statements contained elsewhere in this report for additional information.
(2) The Income tax provision for fiscal 2017 includes income tax expense of approximately $1,269 million as a result of U.S. tax reform legislation, formerly known as the Tax Cuts and Jobs Act (2017 Tax Act), which was enacted on December 22, 2017. In addition, the Income tax provision also includes $290 million of excess tax benefits arising from share-based compensation awards that vested or were exercised during 2017, and are recorded in the income tax provision following the adoption of ASU 2016-09, "Compensation-Stock Compensation". See 'Liquidity and Capital Resources’ within Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" as well as Note 17 of Notes to Consolidated Financial Statements contained elsewhere in this report for additional details related to the 2017 Tax Act.
(3) Total assets and Long-term debt, net of discount have been restated as of December 31, 2015 and 2014 to reflect the retroactive reclassification of debt issuance costs in accordance with ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs."

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand our results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements. Certain statements in this Item 7 of Part II of this Annual Report on Form 10-K constitute forward-looking statements. Various risks and uncertainties, including those discussed in "Forward-Looking Statements" and Item 1A, “Risk Factors,” may cause our actual results and cash generated from operations to differ materially from these forward-looking statements. Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and are presented in U.S. dollars.
(In all accompanying tables, amounts of dollars expressed in millions, except per share amounts, unless otherwise noted)
Executive Summary

Celgene Corporation, together with its subsidiaries (collectively “we,” “our,” “us,” “Celgene” or the “Company”), is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases through next-generation solutions in protein homeostasis, immuno-oncology, epigenetics, immunology and neuro-inflammation. Celgene Corporation was incorporated in the State of Delaware in 1986.

Merger Agreement with Bristol-Myers Squibb Company

On January 2, 2019 Bristol-Myers Squibb Company (Bristol-Myers Squibb) and Celgene entered into a definitive merger agreement under which Bristol-Myers Squibb will acquire Celgene in a cash and stock transaction with an equity value of approximately $74 billion, based on the closing price of Bristol-Myers Squibb shares of $52.43 on January 2, 2019. Under the terms of the agreement, Celgene shareholders will receive 1.0 Bristol-Myers Squibb share and $50.00 in cash for each share of Celgene. Celgene shareholders will also receive one tradeable Bristol-Myers Squibb CVR for each share of Celgene, which will entitle the holder to receive a payment for the achievement of future regulatory milestones. The Boards of Directors of both companies have approved the merger agreement. The definitive merger agreement includes restrictions on the conduct of our business prior to the completion of the merger or termination of the merger agreement, generally requiring us to conduct our business in the ordinary course consistent with past practice. Without limiting the generality of the foregoing, we are subject to a variety of specified restrictions. Unless we obtain Bristol-Myers Squibb’s prior written consent (which consent may not be unreasonably withheld, conditioned or delayed) and except (i) as required or expressly contemplated by the merger agreement, (ii) as required by applicable law or (iii) as set forth in the confidential disclosure schedule delivered by Celgene to Bristol-Myers Squibb, we may not, among other things, incur additional indebtedness, issue additional shares of our common stock outside of our equity incentive plans, repurchase our common stock, pay dividends, acquire assets, securities or property (subject to certain exceptions, including without limitation, acquisitions up to a specified individual amount and an aggregate limitation), dispose of businesses or assets, enter into material contracts or make certain additional capital expenditures. See Item 1A. "Risk Factors - While the merger is pending, we are subject to business uncertainties and contractual restrictions that could materially adversely affect our operating results, financial position and/or cash flows or result in a loss of employees, customers, collaborators or suppliers.”


36



Based on the closing price of Bristol-Myers Squibb stock of $52.43 on January 2, 2019, the cash and stock consideration to be received by Celgene shareholders at closing is valued at $102.43 per Celgene share and one Bristol-Myers Squibb CVR. Each Bristol-Myers Squibb CVR will entitle its holder to receive a one-time potential payment of $9.00 in cash upon U.S. Food and Drug Administration (FDA) approval of all three of ozanimod (by December 31, 2020), liso-cel (JCAR017) (by December 31, 2020) and bb2121 (by March 31, 2021), in each case for a specified indication. Upon completion of the merger, Bristol-Myers Squibb shareholders are expected to own approximately 69% of the company, and Celgene shareholders are expected to own approximately 31% based on shares outstanding for each of Bristol-Myers Squibb and Celgene.

The transaction is not subject to a financing condition. The cash portion will be funded through a combination of cash on hand and debt financing. Bristol-Myers Squibb has obtained fully committed debt financing from Morgan Stanley Senior Funding, Inc. and MUFG Bank, Ltd.

The transaction is subject to approval by Bristol-Myers Squibb and Celgene shareholders and the satisfaction of customary closing conditions and regulatory approvals. Bristol-Myers Squibb and Celgene expect to complete the transaction in the third quarter of 2019.

If the merger agreement is terminated under specified circumstances, Celgene may be required to pay Bristol-Myers Squibb a termination fee of $2.2 billion, and if the merger agreement is terminated under certain other circumstances, Bristol-Myers Squibb may be required to pay Celgene a termination fee of $2.2 billion.

Our primary commercial stage products include REVLIMID®, POMALYST®/IMNOVID®, OTEZLA®, ABRAXANE®, and VIDAZA®.

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 product candidates. Our clinical trial activity includes trials across the disease areas of hematology, oncology, and inflammation and immunology. REVLIMID® is being evaluated in phase III trials covering a range of hematological malignancies that include lymphomas. In July 2018, the phase III trial (AUGMENTTM) for REVLIMID® in combination with rituximab (R2), for the treatment of relapsed and/or refractory follicular or marginal zone lymphoma achieved its primary endpoint. In December 2018, we submitted a U.S. supplemental New Drug Application (NDA) for REVLIMID® in combination with rituximab in relapsed and/or refractory indolent non-Hodgkin lymphoma (NHL) and in January 2019 we submitted an application with the European Medicines Agency (EMA) for approval in Europe. Also, within hematological malignancies, POMALYST® is in phase III and post-approval trials for relapsed and/or refractory multiple myeloma (RRMM). In solid tumors, ABRAXANE® is currently being investigated in pancreatic cancer, breast and non-small cell lung cancers. In inflammation and immunology in 2018, we submitted a U.S. supplemental NDA and Japan NDA for OTEZLA® in Behçet’s disease following positive results from the phase III trial (RELIEFTM). Patients with active Behçet’s disease showed statistically significant reductions in oral ulcers with OTEZLA® when compared to placebo. Also in 2018, the phase IIIb study (STYLETM) for OTEZLA® in patients with moderate to severe scalp psoriasis showed statistically significant improvement of the Scalp Physician’s Global Assessment (ScPGA) response compared with placebo. OTEZLA® is also being evaluated in a phase III trial in pediatric psoriasis (SPROUT®), while continuing to be studied in psoriatic arthritis and plaque psoriasis.

We also have a growing number of potential products in phase III trials or that have completed phase III across multiple diseases. In the inflammation and immunology therapeutic area, we completed two phase III trials (RADIANCETM and SUNBEAMTM) for ozanimod in relapsing multiple sclerosis (RMS). Both RADIANCETM and SUNBEAMTM achieved their primary endpoints in reducing the annualized relapse rate in patients with RMS. Enrollment is currently ongoing for the phase III TRUENORTHTM trial in ulcerative colitis (UC) and the phase III YELLOWSTONETM trial in Crohn’s Disease (CD). In hematology, we submitted a U.S. NDA for fedratinib for the treatment of patients with myelofibrosis in January 2019. In June and July 2018, Celgene and Acceleron Pharma, Inc. (Acceleron) announced that luspatercept achieved all primary and key secondary endpoints in the phase III MEDALISTTM and BELIEVETM trials in patients with low-to-intermediate risk myelodysplastic syndromes (MDS) and transfusion-dependent beta-thalassemia, respectively. In collaboration with bluebird bio, the pivotal study (KarMMaTM) evaluating bb2121 in RRMM is ongoing and enrollment was completed in the fourth quarter. The clinical program evaluating bb2121 in earlier lines of multiple myeloma (MM) is also advancing. In the second quarter of 2018 we initiated the pivotal TRANSCEND WORLD trial evaluating liso-cel (lisocabtagene maraleucel) (JCAR017) in relapsed and/or refractory diffuse large B-cell lymphoma (DLBCL). Phase III trials are also underway for CC-486 in MDS, acute myeloid leukemia (AML), and angioimmunoblastic T-Cell lymphoma (AITL). In solid tumors, we are supporting a phase III study of marizomib in newly diagnosed glioblastoma, sponsored by the European Organization for Research and the Treatment of Cancer (EORTC) in collaboration with the Canadian Cancer Trials Group (CCTG). In 2018, our partner BeiGene initiated phase III trials for tislelizumab (BGB-A317) in 1L hepatocellular carcinoma, 2L/3L hepatocellular carcinoma, and 2L/3L non-small cell lung cancer.


37



Beyond our phase III programs, we have access to a growing early-to-mid-stage pipeline of novel potential therapies to address significant unmet medical needs that consists of new product candidates and cell therapies developed in-house, licensed from other companies or able to be optioned from collaboration partners. We believe that continued use of our primary commercial stage products, participation in research and development collaboration arrangements, depth of our product pipeline, potential regulatory approvals of new products and new indications for existing products will provide the catalysts for future growth.

Recent Developments

The following tables present significant developments in our pivotal and phase III clinical trials and regulatory approval requests that occurred during the three-month period ended December 31, 2018, as well as developments that are expected to occur if the future occurrence is material and reasonably certain:

Regulatory Approval Requests in Major Markets:
Product
Disease Indication/
New Formulation
Major Market
Regulatory Agency
Action
REVLIMID®
Relapsed and/or refractory indolent non-Hodgkin lymphoma
U.S.
FDA
Q4 2018 (submitted)
REVLIMID®
Relapsed and/or refractory indolent non-Hodgkin lymphoma
Europe
EMA
Q1 2019 (submitted)
Fedratinib
Myelofibrosis
U.S.
FDA
Q1 2019 (submitted)

Pivotal and Phase III Trials:
Product Candidate
Trial
Disease Indication
Action
OTEZLA®
CC-10004-PPSO-003 (SPROUT®)
Pediatric psoriasis
Initiated
CC-486
OR-CL-LYM - LYSARC-13134 (ORACLE)
AITL
Initiated

Financial Update

The following table summarizes net product sales, total revenue and earnings for the years ended December 31, 2018, 2017 and 2016 (dollar amounts in millions, except per share data):

 
 
 
 
 
 
 
 
% Change
 
 
Years Ended December 31,
2018 versus 2017
 
2017 versus 2016
 
 
2018
 
2017
 
2016
 
Net product sales
 
$
15,265

 
$
12,973

 
$
11,185

 
17.7
%
 
16.0
%
Total revenue
 
15,281

 
13,003

 
11,229

 
17.5
%
 
15.8
%
Net income
 
4,046

 
2,940

 
1,999

 
37.6
%
 
47.1
%
Diluted earnings per share
 
$
5.51

 
$
3.64

 
$
2.49

 
51.4
%
 
46.2
%

Total net product sales for 2018 increased by approximately $2.3 billion, or 17.7%, to approximately $15.3 billion compared to the year ended December 31, 2017. The increase was comprised of net volume increases of approximately $2.0 billion, or 15.2%, and net price increases of $369 million, or 2.9%. The increase in volume was primarily driven by increased unit sales of REVLIMID®, OTEZLA® and POMALYST®/IMNOVID®. The price impact was primarily attributable to net price increases in the U.S., which were partially offset by net price decreases in international markets. Changes in foreign currency exchange rates including the impact of foreign exchange hedging activity unfavorably impacted Net product sales by $51 million, or 0.4%.

Total net product sales for 2017 increased by approximately $1.8 billion, or 16.0%, to approximately $13.0 billion compared to 2016. The increase was comprised of net volume increases of approximately $1.5 billion, or 13.6%, and net price increases of $369 million, or 3.3%. The increase in volume was primarily driven by increased unit sales of REVLIMID®, POMALYST®/IMNOVID® and OTEZLA®. The price impact was primarily attributable to price increases in the U.S., which were partially offset

38



by price decreases in Europe. Changes in foreign currency exchange rates, including the impact of foreign exchange hedging activity, unfavorably impacted net product sales by $98 million, or 0.9%.

Total revenue increased by approximately $2.3 billion, or 17.5%, in 2018 compared to 2017 primarily due to the continued growth in sales of REVLIMID®, POMALYST®/IMNOVID® and OTEZLA® reflecting increases of approximately $1.7 billion, or 20.4%, in the United States and $579 million, or 12.4%, in international markets.

Total revenue increased by approximately $1.8 billion, or 15.8%, in 2017 compared to 2016 primarily due to the continued growth in sales of REVLIMID®, POMALYST®/IMNOVID® and OTEZLA® reflecting increases of approximately $1.3 billion, or 18.7%, in the United States and $460 million, or 10.9%, in international markets.

In addition to the increase in total revenue discussed above, notable items impacting net income and diluted earnings per share for the years ended December 31, 2018, 2017 and 2016 are as follows:
 
 
 
 
Years Ended December 31,
 
 
Income Statement Classification
 
2018
 
2017
 
2016
Research and development asset acquisition expenses (see Note 3*)
 
Research and development
 
$
1,125

 
$
325

 
$
893

Collaboration arrangements (see Note 18*)
 
Research and development
 
632

 
833

 
927

In-process research & development (IPR&D) asset impairment charge related to GED-0301 (see Note 5*)
 
Research and development
 

 
1,620

 

Clinical trial & development activity wind-down (income) expense related to GED-0301 (see Note 5*)
 
Research and development
 
(60
)
 
188

 

Litigation-related loss contingency accrual expense (see Note 19*)
 
Selling, general and administrative
 
96

 
315

 
199

Share-based compensation expense (see Notes 3 and 15*)(1)
 
Cost of goods sold, Research and development, and Selling, general and administrative
 
1,114

 
644

 
606

Amortization of acquired intangible assets (see Note 11*)
 
Amortization of acquired intangible assets
 
468

 
329

 
459

Juno Therapeutics, Inc. (Juno) acquisition costs
 
Acquisition related charges (gains) and restructuring, net
 
93

 

 

Reduction in contingent consideration liabilities related to GED-0301 (see Note 5*)
 
Acquisition related charges (gains) and restructuring, net
 

 
(1,397
)
 

Fair value adjustments on equity investments (see Notes 1 and 5*)
 
Other income (expense), net
 
317

 

 

Investment impairment charges
 
Other income (expense), net
 

 
(54
)
 
(394
)
2017 Tax Act (see Note 17*)
 
Income tax provision
 
(43
)
 
1,269

 


(1) Includes share-based compensation expense related to the acquisition of Juno post-combination service period of $320 million and $208 million, which was recorded in Research and development and Selling, general and administrative, respectively, for the year ended December 31, 2018.

* References to Notes in this table are to the Notes to Consolidated Financial Statements contained elsewhere in this report.


39



Results of Operations - Fiscal Years Ended December 31, 2018, 2017 and 2016
Net Product Sales and Other Revenue

Net product sales and other revenue for 2018, 2017 and 2016 were as follows:
 
REVLIMID® 
 
 
 
 
 
 
 
Percent Change
 
2018
 
2017
 
2016
 
2018 versus 2017
 
2017 versus 2016
U.S.
$
6,469

 
$
5,426

 
$
4,417

 
19.2
%
 
22.8
%
International
3,216

 
2,761

 
2,557

 
16.5
%
 
8.0
%
Worldwide
$
9,685

 
$
8,187

 
$
6,974

 
18.3
%
 
17.4
%

REVLIMID® net sales increased by approximately $1.5 billion, or 18.3%, to approximately $9.7 billion for 2018 compared to 2017. Sales growth was primarily volume-driven due to global increases in treatment duration and market share. In the U.S., sales growth increased due to increases in both price and unit sales from market penetration and treatment duration of patients using REVLIMID®. International volume growth was partially offset by net price decreases.

REVLIMID® net sales increased by approximately $1.2 billion, or 17.4%, to approximately $8.2 billion in 2017 compared to 2016, primarily due to increased sales in both U.S. and international markets. U.S. sales growth increased due to both price increases and, an increase in unit sales from market penetration and treatment duration of patients using REVLIMID®. In addition, unit sales increased across all international regions, primarily in Europe and Japan, driven by increased duration of use and market share gains. International volume growth was partially offset by net price decreases.

POMALYST®/IMNOVID® 
 
 
 
 
 
 
 
Percent Change
 
2018
 
2017
 
2016
 
2018 versus 2017
 
2017 versus 2016
U.S.
$
1,391

 
$
1,008

 
$
778

 
38.0
%
 
29.6
%
International
649

 
606

 
533

 
7.1
%
 
13.7
%
Worldwide
$
2,040

 
$
1,614

 
$
1,311

 
26.4
%
 
23.1
%

POMALYST®/IMNOVID® net sales increased by $426 million, or 26.4%, to approximately $2.0 billion for 2018 compared to 2017, primarily due to increased sales in the U.S. market. In the U.S., sales growth increased due to both unit sales and price increases. Increases in market share and treatment duration contributed to the increase in U.S. unit sales. In addition, international unit sales increased, primarily due to sales growth in Europe as a result of increased treatment duration. International volume growth was partially offset by net price decreases.

POMALYST®/IMNOVID® net sales increased by $303 million, or 23.1%, to approximately $1.6 billion in 2017 compared to 2016, primarily due to increased sales in the U.S. and to a lesser extent international markets. In the U.S., sales growth increased primarily due to an increase in unit sales and price increases. In addition, unit sales increased across all international regions, primarily in Europe. Increases in market share and treatment duration contributed to the increases in U.S. and international regions. International volume growth was partially offset by net price decreases.

OTEZLA® 
 
 
 
 
 
 
 
Percent Change
 
2018
 
2017
 
2016
 
2018 versus 2017
 
2017 versus 2016
U.S.
$
1,275

 
$
1,058

 
$
904

 
20.5
%
 
17.0
%
International
333

 
221

 
113

 
50.7
%
 
95.6
%
Worldwide
$
1,608

 
$
1,279

 
$
1,017

 
25.7
%
 
25.8
%

40




OTEZLA® net sales increased by $329 million, or 25.7%, to approximately $1.6 billion for 2018 compared to 2017, due to increased worldwide sales. In the U.S., sales growth increased primarily due to unit sales increases as a result of managed care contracts executed in 2017 and 2018, which contributed to higher gross-to-net charges. Volume increased in all international markets led by Japan, where it was launched in 2017.

OTEZLA® net sales increased by $262 million, or 25.8% to approximately $1.3 billion in 2017 compared to 2016, primarily due to increased worldwide unit sales. Net sales in the U.S. were volume driven reflecting increased market share and expanding patient access. International volume growth was partially offset by net price decreases.

ABRAXANE® 
 
 
 
 
 
 
 
Percent Change
 
2018
 
2017
 
2016
 
2018 versus 2017
 
2017 versus 2016
U.S.
$
663

 
$
607

 
$
634

 
9.2
%
 
(4.3
)%
International
399

 
385

 
339

 
3.6
%
 
13.6
 %
Worldwide
$
1,062

 
$
992

 
$
973

 
7.1
%
 
2.0
 %

ABRAXANE® net sales increased by $70 million, or 7.1%, to approximately $1.1 billion for 2018 compared to 2017, primarily due to unit sales and price increases in the U.S. market. International volume growth was partially offset by net price decreases.

ABRAXANE® net sales increased by $19 million, or 2.0% to $992 million in 2017 compared to 2016, primarily due to increases in unit sales in international markets. The increase was partially offset by decreased unit sales in the U.S. The decrease in U.S. unit sales reflects the continuing competition in breast cancer and lung cancer indications.

OTHER PRODUCT NET SALES
 
 
 
 
 
 
 
Percent Change
 
2018
 
2017
 
2016
 
2018 versus 2017
 
2017 versus 2016
U.S.
$
217

 
$
211

 
$
248

 
2.8
 %
 
(14.9
)%
International
653

 
690

 
662

 
(5.4
)%
 
4.2
 %
Worldwide
$
870

 
$
901

 
$
910

 
(3.4
)%
 
(1.0
)%

All other product net sales, which include IDHIFA®, VIDAZA®, generic azacitidine for injection, THALOMID®, and ISTODAX®, decreased by $31 million in 2018 compared to 2017, primarily due to decreases in net sales from VIDAZA®, THALOMID®, ISTODAX® and generic azacitidine for injection, partially offset by increased net sales from IDHIFA®, which launched in the third quarter of 2017.

All other product sales, decreased by $9 million in 2017 compared to 2016, primarily due to decreases in generic azacitidine for injection and THALOMID® net sales, which were partially offset by increases in net sales from the launch of IDHIFA® and VIDAZA® net sales.

Other Revenue: Other revenue decreased by $14 million to $16 million for 2018 compared to 2017. Beginning in 2018, we were no longer entitled to receive royalties from Novartis AG (Novartis) on sales of RITALIN® and FOCALIN XR®, which primarily contributed to the decrease in Other revenue.

Other revenue decreased by $14 million to $30 million for 2017 compared to 2016. This decrease is primarily due to a reduction in royalty revenue from Novartis based upon its sales of both RITALIN® and FOCALIN XR®, both of which have been unfavorably impacted by generic competition in certain markets.


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

REVLIMID® and POMALYST® are distributed in the United States primarily through contracted pharmacies under the REVLIMID REMS® and POMALYST REMS® programs, respectively. These are proprietary risk-management distribution programs tailored specifically to provide for the safe and appropriate distribution and use of REVLIMID® and POMALYST®. Internationally, REVLIMID® 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. OTEZLA®, ABRAXANE® and VIDAZA® are distributed through the more traditional pharmaceutical industry supply chain and are not subject to the same risk-management distribution programs as REVLIMID® and POMALYST®/IMNOVID®.

Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are generally based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. The Medicaid rebate percentage was increased and extended to Medicaid Managed Care Organizations in March 2010. The accrual of the rebates associated with Medicaid Managed Care Organizations is calculated based on estimated historical patient data related to Medicaid Managed Care Organizations. We also analyze actual billings received from the states to further support the accrual rates. 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 (70% beginning in 2019). In order to estimate the cost to us of this coverage gap responsibility, we analyze data for eligible Medicare Part D patients against data for eligible Medicare Part D patients treated with our products as well as the historical invoices. This expense is recognized throughout the year as costs are incurred. In certain international markets government-sponsored programs require rebates to be paid based on program specific rules and, accordingly, the rebate accruals are determined primarily on estimated eligible sales.

Rebates or administrative fees are offered to certain wholesale customers, group purchasing organizations and end-user customers, consistent with pharmaceutical industry practices. Settlement of rebates and fees may generally occur from one to 15 months from the date of sale. We record a provision for rebates at the time of sale based on contracted rates and historical redemption rates. Assumptions used to establish the provision include level of wholesaler inventories, contract sales volumes and average contract pricing. We regularly review the information related to these estimates and adjust the provision accordingly.

Chargeback accruals are based on the differentials between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs. Distributor service fee accruals are based on contractual fees to be paid to the wholesale distributor for services provided. TRICARE is a health care program of the U.S. Department of Defense Military Health System that provides civilian health benefits for military personnel, military retirees and their dependents. TRICARE rebate accruals are included in chargeback accruals and are based on estimated Department of Defense eligible sales multiplied by the TRICARE rebate formula.

Sales discount accruals are based on payment terms extended to customers.

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® and POMALYST®/IMNOVID® 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.

See Critical Accounting Estimates and Significant Accounting Policies below for further discussion of gross-to-net sales accruals.


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Gross-to-net sales accruals and the balance in the related allowance accounts for the years ended December 31, 2018, 2017 and 2016 were as follows:
 
Government
Rebates
 
Chargebacks
and 
Distributor
Service Fees
 
Sales Discounts
 
Sales Returns and Allowances
 
Total
Balance as of December 31, 2015
$
225

 
$
142

 
$
12

 
$
17

 
$
396

Allowances for sales during prior periods
20

 
(14
)
 

 
(6
)
 

Allowances for sales during 2016
668

 
764

 
153

 
17

 
1,602

Credits/deductions issued for prior year sales
(175
)
 
(56
)
 
(10
)
 
(6
)
 
(247
)
Credits/deductions issued for sales during 2016
(367
)
 
(646
)
 
(139
)
 
(4
)
 
(1,156
)
Balance as of December 31, 2016
$
371

 
$
190

 
$
16

 
$
18

 
$
595

Allowances for sales during prior periods
9

 
(28
)
 

 
(5
)
 
(24
)
Allowances for sales during 2017
881

 
1,102

 
193

 
13

 
2,189

Credits/deductions issued for prior year sales
(310
)
 
(96
)
 
(17
)
 
(8
)
 
(431
)
Credits/deductions issued for sales during 2017
(407
)
 
(898
)
 
(172
)
 
(3
)
 
(1,480
)
Balance as of December 31, 2017
$
544

 
$
270

 
$
20

 
$
15

 
$
849

Allowances for sales during prior periods
(38
)
 
4

 

 

 
(34
)
Allowances for sales during 2018
1,114

 
1,637

 
243

 
45

 
3,039

Credits/deductions issued for prior year sales
(355
)
 
(167
)
 
(19
)
 
(8
)
 
(549
)
Credits/deductions issued for sales during 2018
(587
)
 
(1,315
)
 
(222
)
 
(5
)
 
(2,129
)
Balance as of December 31, 2018
$
678

 
$
429

 
$
22

 
$
47

 
$
1,176


A comparison of provisions for allowances for sales within each of the four categories noted above for 2018 and 2017 follows:

2018 compared to 2017: Government rebate provisions increased by $186 million for 2018 compared to 2017, due to a $124 million increase in international government rebates and a $62 million increase in the U.S. market. The increase in international government rebates was primarily driven by higher sales volumes and increased rebate rates. The increase in the U.S. market was primarily due to higher sales volumes and increased rebate rates, with $57 million due to an increase in Medicaid rebates (primarily in the managed care channel) and $5 million due to an increase in expense related to Medicare Part D Coverage Gap. In 2019, we expect the rebate provision for the Medicare Part D Coverage Gap to increase as a result of a planned increase in the portion manufacturers of pharmaceutical products are responsible for.

Chargebacks and distributor service fees provisions increased by $567 million for 2018 compared to 2017. Chargebacks increased by $245 million and distributor service fees increased by $322 million. The increase in chargebacks was primarily due to higher sales volumes and a greater portion of sales qualifying for chargeback rebates, including a $7 million increase related to the TRICARE program driven by higher sales volumes. The distributor service fee increase was primarily attributable to increased sales volumes and new managed care contracts for OTEZLA®, which accounted for $268 million of the increase, as well as a $30 million increase in commercial copayment program expense and a $16 million increase in the distributor service fee expense, both of which also were attributable to higher sales volumes.

Discount provisions increased by $50 million for 2018 compared to 2017, primarily due to higher sales volumes. The increase was primarily comprised of an increase of $25 million related to REVLIMID® as well as increases related to OTEZLA® and POMALYST®.

Provisions for sales returns increased by $37 million in 2018 compared to 2017, as the current year period included a $32 million increase in the OTEZLA® returns reserve, primarily related to $30 million in the fourth quarter of 2018 due to an anticipated increase in returns resulting from the sales of shorter-dated inventory in early to mid 2018. In addition, the provision for ABRAXANE® returns increased by $5 million compared to 2017.

A comparison of provisions for allowances for sales within each of the four categories noted above for 2017 and 2016 follows:

2017 compared to 2016: Government rebate provisions increased by $202 million in 2017 compared to 2016, which was primarily due to a $122 million increase in the U.S. market and an $80 million increase in international government rebates. The increase

43



in the U.S. market was primarily due to higher sales volumes and increased rebate rates, with $120 million due to an increase in Medicaid rebates (primarily in the managed care channel) and $2 million due to an increase in expense related to Medicare Part D Coverage Gap. The increase in international government rebates was primarily driven by higher sales volumes and increased rebate rates.

Chargebacks and distributor service fees provisions increased by $324 million in 2017 compared to 2016. Chargebacks increased by approximately $127 million and distributor service fees increased by approximately $197 million. The increase in chargebacks was primarily due to higher sales volumes and a greater portion of sales qualifying for chargeback rebates, including a $13 million increase related to the TRICARE program driven by higher sales volumes. The distributor service fee increase was primarily attributable to increased sales volumes and new managed care contracts effective January 1, 2017 for OTEZLA®, which accounted for $154 million of the increase, as well as a $22 million increase in commercial copayment program expense and a $14 million increase in the distributor service fee expense, both of which also were attributable to higher sales volumes.

Discount provisions increased by $40 million in 2017 compared to 2016, which was primarily due to a $37 million increase in the U.S. market and a $3 million increase in international discounts, both due to higher sales volumes. The U.S. market increase was comprised of an increase of $24 million related to REVLIMID® as well as increases related to OTEZLA® and POMALYST®.

Provisions for sales returns decreased by $3 million in 2017 compared to 2016, primarily due to a reduction in the ABRAXANE® returns reserve allowance.

Cost of Goods Sold (excluding amortization of acquired intangible assets): Cost of goods sold and related percentages for the years ended December 31, 2018, 2017 and 2016 were as follows:
 
 
2018
 
2017
 
2016
Cost of goods sold (excluding amortization of acquired intangible assets)
 
$
587

 
$
461

 
$
438

Increase from prior year
 
$
126

 
$
23

 
$
18

Percent increase from prior year
 
27.3
%
 
5.3
%
 
4.3
%
Percent of net product sales
 
3.8
%
 
3.6
%
 
3.9
%

Cost of goods sold (excluding amortization of acquired intangible assets) increased by $126 million to $587 million in 2018 compared to 2017. The increase was primarily due to the higher level of net product sales of REVLIMID®, POMALYST®