CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Gains (Losses) Reclassified Out of Accumulated
Other Comprehensive (Loss) Income
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Accumulated Other Comprehensive (Loss) Income Components
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Classification in the
Consolidated Statements of Income
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Three-Month Periods Ended June 30,
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Six-Month Periods Ended June 30,
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2019
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2018
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2019
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2018
|
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Gains (losses) related to cash-flow hedges:
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Foreign exchange contracts
|
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Net product sales
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$
|
22
|
|
|
$
|
(12
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)
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|
$
|
46
|
|
|
$
|
(38
|
)
|
|
Treasury rate lock agreements
|
|
Interest (expense)
|
|
(1
|
)
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|
(1
|
)
|
|
(2
|
)
|
|
(2
|
)
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|
Interest rate swap agreements
|
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Interest (expense)
|
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—
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|
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—
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|
|
—
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|
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—
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|
|
Income tax provision - (expense) benefit
|
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—
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|
|
1
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|
|
—
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|
|
1
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|
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|
|
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Excluded component related to cash-flow hedges:
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Foreign exchange contracts
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Net product sales
|
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—
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|
|
1
|
|
|
—
|
|
|
(2
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)
|
|
|
|
|
|
|
|
|
|
|
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|
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Gains (losses) on debt securities available-for-sale:
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|
|
|
|
|
|
|
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Realized gain (loss) on sales of debt securities available-for-sale
|
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Interest and investment income, net
(1)
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|
1
|
|
|
—
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|
|
1
|
|
|
(18
|
)
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|
|
|
Income tax provision - (expense) benefit
(1)
|
|
—
|
|
|
—
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|
|
—
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|
|
4
|
|
|
Total reclassification, net of tax
|
|
|
|
$
|
22
|
|
|
$
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(11
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)
|
|
$
|
45
|
|
|
$
|
(55
|
)
|
(1)
We use a specific identification approach to release the realized gain (loss) on sales of debt securities available-for-sale and income tax effects into Accumulated other comprehensive (loss).
6. Financial Instruments and Fair Value Measurement
The tables below present information about assets and liabilities that are measured at fair value on a recurring basis as of
June 30, 2019
and
December 31, 2018
and the valuation techniques we utilized to determine such fair value.
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•
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Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Our level 1 assets consist of equity investments with readily determinable fair values. Our level 1 liability relates to our publicly traded Abraxis contingent value rights (Abraxis CVRs). See Note 19 of Notes to Consolidated Financial Statements included in our
2018
Annual Report on Form 10-K for a description of the Abraxis CVRs.
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•
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Level 2 inputs utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or similar assets in markets that are not very active. From time to time, our level 2 assets consist primarily of U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities (MBS), global corporate debt securities, asset backed securities, ultra short income fund investments, time deposits and repurchase agreements with original maturities of greater than three months. We may also have derivative instruments including foreign currency forward contracts, purchased currency options, zero-cost collar currency contracts and interest rate swap contracts, which may be in an asset or liability position.
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•
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Level 3 inputs utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity. We do not have any level 3 assets. Our level 3 liabilities consist of contingent consideration related to undeveloped product rights and technology platforms resulting from the acquisitions of Gloucester Pharmaceuticals, Inc. (Gloucester), Nogra Pharma Limited (Nogra), Avila Therapeutics, Inc. (Avila) and Quanticel Pharmaceuticals, Inc. (Quanticel). In addition, in connection with the Juno Acquisition, we assumed Juno's contingent consideration and success payment liabilities.
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Our contingent consideration obligations are recorded at their estimated fair values and we revalue these obligations each reporting period until the related contingencies are resolved. The fair value measurements are estimated using probability-weighted discounted cash flow approaches that are based on significant unobservable inputs related to product candidates acquired in business combinations and are reviewed quarterly. These inputs include, as applicable, estimated probabilities and timing of achieving specified development and regulatory milestones, estimated annual sales and the discount rate used to calculate the present value of estimated future payments. Significant changes which increase or decrease the probabilities of achieving the related development and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated annual sales
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
would result in corresponding increases or decreases in the fair values of these obligations. The fair value of our contingent consideration as of
June 30, 2019
and
December 31, 2018
was calculated using the following significant unobservable inputs:
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Inputs
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Ranges (weighted average) utilized as of:
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June 30, 2019
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December 31, 2018
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Discount rate
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3.6% to 4.8% (4.3%)
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3.6% to 4.8% (4.3%)
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Probability of payment
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0% to 68% (5%)
|
0% to 68% (5%)
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Projected year of payment for development and regulatory milestones
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2020 to 2029 (2024)
|
2020 to 2029 (2024)
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|
Projected year of payment for sales-based milestones and other amounts calculated as a percentage of annual sales
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N/A
|
N/A
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The maximum remaining potential payments related to the contingent consideration from the acquisitions of Gloucester, Avila, Quanticel and those assumed in the Juno Acquisition are estimated to be
$120 million
,
$475 million
,
$214 million
and
$284 million
, respectively, and
$1.8 billion
plus other amounts calculated as a percentage of annual sales pursuant to the license agreement with Nogra.
Success payment obligations assumed through the Juno Acquisition are also recorded at their estimated fair values and are revalued quarterly. Changes in the fair value of contingent consideration and success payment obligations are recognized in
Acquisition/integration related charges and restructuring, net
in the Consolidated Statements of Income. All success payment obligations assumed through the Juno Acquisition were settled and paid in full as of June 30, 2019.
The following tables present the Company's hierarchy for its assets and liabilities measured at fair value on a recurring basis as of
June 30, 2019
and
December 31, 2018
:
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Fair Value Measurements
as of June 30, 2019
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Balance as of
June 30, 2019
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Quoted Price in
Active Markets for
Identical Assets
(Level 1)
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Significant
Other Observable
Inputs
(Level 2)
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|
Significant
Unobservable
Inputs
(Level 3)
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Assets:
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Debt securities available-for-sale
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$
|
613
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|
|
$
|
—
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|
|
$
|
613
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|
|
$
|
—
|
|
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Equity investments with readily determinable fair values
|
1,496
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|
|
1,496
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|
|
—
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|
|
—
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Forward currency contracts
|
53
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|
|
—
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|
|
53
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|
|
—
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|
|
Zero-cost collar currency contracts
|
3
|
|
|
—
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|
|
3
|
|
|
—
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|
|
Total assets
|
$
|
2,165
|
|
|
$
|
1,496
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|
|
$
|
669
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
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|
|
|
|
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Contingent value rights
|
$
|
(27
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)
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|
$
|
(27
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other acquisition related contingent consideration
|
(98
|
)
|
|
—
|
|
|
—
|
|
|
(98
|
)
|
|
Total liabilities
|
$
|
(125
|
)
|
|
$
|
(27
|
)
|
|
$
|
—
|
|
|
$
|
(98
|
)
|
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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|
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|
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Fair Value Measurements
as of December 31, 2018
|
|
|
Balance as of December 31, 2018
|
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Quoted Price in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
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Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale
|
$
|
496
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|
|
$
|
—
|
|
|
$
|
496
|
|
|
$
|
—
|
|
|
Equity investments with readily determinable fair values
|
1,312
|
|
|
1,312
|
|
|
—
|
|
|
—
|
|
|
Forward currency contracts
|
78
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
Total assets
|
$
|
1,886
|
|
|
$
|
1,312
|
|
|
$
|
574
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
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Contingent value rights
|
$
|
(19
|
)
|
|
$
|
(19
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest rate swaps
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
Zero-cost collar currency contracts
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Other acquisition related contingent consideration and success payments
|
(163
|
)
|
|
—
|
|
|
—
|
|
|
(163
|
)
|
|
Total liabilities
|
$
|
(193
|
)
|
|
$
|
(19
|
)
|
|
$
|
(11
|
)
|
|
$
|
(163
|
)
|
We measure equity investments without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer or at net asset value, as a practical expedient, if available. We record upward adjustments, downward adjustments and impairments of equity investments without readily determinable fair values within
Other (expense) income, net
on the Consolidated Statements of Income. The following table represents a roll-forward of equity investments without readily determinable fair values:
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|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2019
|
|
Balance as of December 31, 2018
|
$
|
545
|
|
|
Purchases
|
52
|
|
|
Upward adjustments
|
30
|
|
|
Sales
|
(15
|
)
|
|
Downward adjustments and impairments
|
(42
|
)
|
|
Transfer to readily determinable fair value
|
(18
|
)
|
|
Balance as of June 30, 2019
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2018
|
|
Balance as of December 31, 2017
|
$
|
513
|
|
|
Cumulative effect adjustment for the adoption of ASU 2018-03
|
59
|
|
|
Purchases
|
46
|
|
|
Upward adjustments
|
32
|
|
|
Sales
|
(23
|
)
|
|
Downward adjustments and impairments
|
(2
|
)
|
|
Transfer to readily determinable fair value
|
(20
|
)
|
|
Balance as of June 30, 2018
|
$
|
605
|
|
For equity investments without a readily determinable fair value held as of
June 30, 2019
, cumulative upward adjustments and downward adjustments and impairments since the adoption of ASU 2016-01 for the period January 1, 2018 through
June 30, 2019
were
$96 million
and
$176 million
, respectively.
For equity investments with and without readily determinable fair values held as of
June 30, 2019
, we recorded a net unrealized loss of
$148 million
and a net unrealized gain of
$120 million
within
Other (expense) income, net
on the Consolidated Statements
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
of Income for the
three- and six-
month periods ended
June 30, 2019
, respectively. For equity investments with and without readily determinable fair values held as of
June 30, 2018
, we recorded a net unrealized loss of
$11 million
and a net unrealized gain of
$435 million
within
Other (expense) income, net
on the Consolidated Statements of Income for the
three- and six-
month periods ended
June 30, 2018
, respectively.
There were no security transfers between levels 1, 2 and 3 during the three-month periods ended
June 30, 2019
and
2018
. The following tables represent a roll-forward of the fair value of level 3 instruments:
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|
Three-Month Period Ended June 30, 2019
|
|
Liabilities:
|
|
|
|
Balance as of March 31, 2019
|
|
$
|
(163
|
)
|
|
Net change in fair value
|
|
25
|
|
|
Settlements, including transfers to Accrued expenses and other current liabilities
|
|
40
|
|
|
Balance as of June 30, 2019
|
|
$
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2018
|
|
Liabilities:
|
|
|
|
Balance as of March 31, 2018
|
|
$
|
(201
|
)
|
|
Amounts acquired from Juno
|
|
6
|
|
|
Settlements, including transfers to Accrued expenses and other current liabilities
|
|
2
|
|
|
Balance as of June 30, 2018
|
|
$
|
(193
|
)
|
There were no security transfers between levels 1, 2 and 3 during the
six-month periods ended
June 30, 2019
and
2018
. The following table represents a roll-forward of the fair value of level 3 instruments:
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2019
|
|
Liabilities:
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
(163
|
)
|
|
Net change in fair value
|
|
25
|
|
|
Settlements, including transfers to Accrued expenses and other current liabilities
|
|
40
|
|
|
Balance as of June 30, 2019
|
|
$
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2018
|
|
Liabilities:
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
(80
|
)
|
|
Amounts acquired from Juno, including measurement period adjustments
|
|
(116
|
)
|
|
Net change in fair value
|
|
1
|
|
|
Settlements, including transfers to Accrued expenses and other current liabilities
|
|
2
|
|
|
Balance as of June 30, 2018
|
|
$
|
(193
|
)
|
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
7. Derivative Instruments and Hedging Activities
Our revenue and earnings, cash flows and fair values of assets and liabilities can be impacted by fluctuations in foreign exchange rates and interest rates. We actively manage the impact of foreign exchange rate and interest rate movements through operational means and through the use of various financial instruments, including derivative instruments such as foreign currency option contracts, foreign currency forward contracts, treasury rate lock agreements and interest rate swap contracts. In instances where these financial instruments are accounted for as cash flow hedges or fair value hedges we may from time to time terminate the hedging relationship. If a hedging relationship is terminated, we generally either settle the instrument or enter into an offsetting instrument.
Foreign Currency Risk Management
We maintain a foreign exchange exposure management program to mitigate the impact of volatility in foreign exchange rates on future foreign currency cash flows, translation of foreign earnings and changes in the fair value of assets and liabilities denominated in foreign currencies.
Through our revenue hedging program, we endeavor to reduce the impact of possible unfavorable changes in foreign exchange rates on our future U.S. Dollar cash flows that are derived from foreign currency denominated sales. To achieve this objective, we hedge a portion of our forecasted foreign currency denominated sales that are expected to occur in the foreseeable future, typically within the next
three years
, with a maximum of
five years
. We manage our anticipated transaction exposure principally with foreign currency forward contracts, a combination of foreign currency zero-cost collars, and occasionally purchased foreign currency put options.
Foreign Currency Forward Contracts:
We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
We manage a portfolio of foreign currency forward contracts to protect against changes in anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with non-functional currency denominated revenues and expenses of foreign subsidiaries. The foreign currency forward hedging contracts outstanding as of
June 30, 2019
and
December 31, 2018
had settlement dates within
24 months
and
30 months
, respectively. The spot rate components of these foreign currency forward contracts are designated as cash flow hedges and any unrealized gains or losses are reported in Other Comprehensive Income (OCI) and reclassified to the Consolidated Statements of Income in the same periods during which the underlying hedged transactions affect earnings. If a hedging relationship is terminated with respect to a foreign currency forward contract, accumulated gains or losses associated with the contract remain in OCI until the hedged forecasted transaction occurs and are reclassified to operations in the same periods during which the underlying hedged transactions affect earnings. We recognize in earnings the initial value of the forward point components on a straight-line basis over the life of the derivative instrument within the same line item in the Consolidated Statements of Income that is used to present the earnings effect of the hedged item.
Foreign currency forward contracts entered into to hedge forecasted revenue and expenses were as follows as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Foreign Currency
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Australian Dollar
|
|
$
|
17
|
|
|
$
|
46
|
|
|
British Pound
|
|
22
|
|
|
82
|
|
|
Canadian Dollar
|
|
71
|
|
|
158
|
|
|
Euro
|
|
1,376
|
|
|
1,381
|
|
|
Japanese Yen
|
|
478
|
|
|
424
|
|
|
Total
|
|
$
|
1,964
|
|
|
$
|
2,091
|
|
We consider the impact of our own and the counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its obligations under the contract on an ongoing basis. As of
June 30, 2019
, credit risk did not materially change the fair value of our foreign currency forward contracts.
We also manage a portfolio of foreign currency contracts to reduce exposures to foreign currency fluctuations of certain recognized assets and liabilities denominated in foreign currencies and, from time to time, we enter into foreign currency contracts to manage
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
exposure related to translation of foreign earnings. These foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Income in
Other (expense) income, net
in the current period. The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding as of
June 30, 2019
and
December 31, 2018
were
$87 million
and
$347 million
, respectively.
Foreign Currency Option Contracts:
From time to time, we may hedge a portion of our future foreign currency exposure by utilizing a strategy that involves both a purchased local currency put option and a written local currency call option that are accounted for as hedges of future sales denominated in that local currency. Specifically, we sell (or write) a local currency call option and purchase a local currency put option with the same expiration dates and local currency notional amounts but with different strike prices. The premium collected from the sale of the call option is equal to the premium paid for the purchased put option, resulting in no net premium being paid. This combination of transactions is generally referred to as a “zero-cost collar.” The expiration dates and notional amounts correspond to the amount and timing of forecasted foreign currency sales. The foreign currency zero-cost collar contracts outstanding as of
June 30, 2019
and
December 31, 2018
had settlement dates within
18 months
and
24 months
, respectively. If the U.S. Dollar weakens relative to the currency of the hedged anticipated sales, the purchased put option value reduces to zero and we benefit from the increase in the U.S. Dollar equivalent value of our anticipated foreign currency cash flows; however, this benefit would be capped at the strike level of the written call, which forms the upper end of the collar.
Outstanding foreign currency zero-cost collar contracts entered into to hedge forecasted revenue were as follows as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
(1)
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Foreign currency zero-cost collar contracts designated as hedging activity:
|
|
|
|
|
Purchased Put
|
$
|
833
|
|
|
$
|
1,933
|
|
|
Written Call
|
969
|
|
|
2,216
|
|
(1)
U.S. Dollar notional amounts are calculated as the hedged local currency amount multiplied by the strike value of the foreign currency option. The local currency notional amounts of our purchased put and written call that are designated as hedging activities are equal to each other.
We previously entered into foreign currency purchased put option contracts to hedge forecasted revenue which were not part of a collar strategy. Such purchased put option contracts had a notional value of
nil
as of
June 30, 2019
and
December 31, 2018
. We de-designated all of our purchased put option contracts prior to
June 30, 2019
.
Interest Rate Risk Management
Forward Starting Interest Rate Swaps and Treasury Rate Locks:
In anticipation of issuing fixed-rate debt, we may use forward starting interest rate swaps (forward starting swaps) or treasury rate lock agreements (treasury rate locks) that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. To the extent these hedges of cash flows related to anticipated debt are effective, any realized or unrealized gains or losses on the forward starting swaps or treasury rate locks are reported in OCI and are recognized in income over the life of the anticipated fixed-rate notes. As of
June 30, 2019
and
December 31, 2018
, we did not have any outstanding forward starting swaps or treasury rate locks.
Interest Rate Swap Contracts:
From time to time we hedge the fair value of certain debt obligations through the use of interest rate swap contracts. The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in benchmark interest rates. Gains or losses resulting from changes in fair value of the underlying debt attributable to the hedged benchmark interest rate risk are recorded on the Consolidated Statements of Income within Interest (expense) with an associated offset to the carrying value of the notes recorded on the Consolidated Balance Sheets. Since the specific terms and notional amount of the swap are intended to match those of the debt being hedged all changes in fair value of the swap are recorded on the Consolidated Statements of Income within Interest (expense) with an associated offset to the derivative asset or liability on the Consolidated Balance Sheets. Consequently, there is no net impact recorded in income. Any net interest payments made or received on interest rate swap contracts are recognized as interest expense on the Consolidated Statements of Income. If a hedging relationship is terminated for an interest rate swap contract, accumulated gains or losses associated with the contract are measured and recorded as a reduction or increase of current and future interest expense associated with the previously hedged debt obligations. We terminated all of our interest rate swap contracts prior to June 30, 2019.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes the notional amounts of our outstanding interest rate swap contracts as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Interest rate swap contracts entered into as fair value hedges of the following fixed-rate senior notes:
|
|
|
|
|
3.875% senior notes due 2025
|
$
|
—
|
|
|
$
|
200
|
|
|
3.450% senior notes due 2027
|
—
|
|
|
450
|
|
|
3.900% senior notes due 2028
|
—
|
|
|
200
|
|
|
Total
|
$
|
—
|
|
|
$
|
850
|
|
We have entered into swap contracts that were designated as hedges of certain of our fixed rate notes in
2019
and
2018
, and also terminated the hedging relationship by settling certain of those swap contracts during
2019
and
2018
. In
2019
, we settled
$850 million
notional amount of certain swap contracts. The settlement of swap contracts resulted in the receipt of net proceeds of
$13 million
during the
six-month period ended
June 30, 2019
, which are accounted for as a reduction of current and future interest expense associated with these notes. During
2018
, we settled
$250 million
notional amount of certain swap contracts. The settlement of swap contracts resulted in the receipt of net proceeds of
$2 million
during the year ended
December 31, 2018
, which were accounted for as a reduction of current and future interest expense associated with these notes. See Note 11 for additional details related to reductions of current and future interest expense.
The following tables summarize the fair value and presentation in the Consolidated Balance Sheets for derivative instruments as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Instrument
|
|
|
Asset
Derivatives
|
|
Liability Derivatives
|
|
Derivatives designated as hedging instruments:
|
|
|
Foreign exchange contracts
(1)
|
|
Other current assets
|
|
$
|
59
|
|
|
$
|
15
|
|
|
|
|
Other non-current assets
|
|
17
|
|
|
4
|
|
|
|
|
Other non-current liabilities
|
|
3
|
|
|
3
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
Foreign exchange contracts
(1)
|
|
Other current assets
|
|
11
|
|
|
3
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
2
|
|
|
11
|
|
|
Interest rate swap agreements
|
|
Other current assets
|
|
2
|
|
|
2
|
|
|
Total
|
|
|
|
$
|
94
|
|
|
$
|
38
|
|
(1)
Derivative instruments in this category are subject to master netting arrangements and are presented on a net basis in the Consolidated Balance Sheet in accordance with ASC 210-20.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Fair Value
|
|
Instrument
|
|
Balance Sheet Location
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign exchange contracts
(1)
|
|
Other current assets
|
|
$
|
63
|
|
|
$
|
18
|
|
|
|
|
Other non-current assets
|
|
45
|
|
|
16
|
|
|
|
|
Other non-current liabilities
|
|
12
|
|
|
15
|
|
|
Interest rate swap agreements
|
|
Other current assets
|
|
7
|
|
|
—
|
|
|
|
|
Other non-current assets
|
|
1
|
|
|
—
|
|
|
|
|
Other non-current liabilities
|
|
1
|
|
|
19
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
Foreign exchange contracts
(1)
|
|
Other current assets
|
|
21
|
|
|
5
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
2
|
|
|
12
|
|
|
Interest rate swap agreements
|
|
Other current assets
|
|
2
|
|
|
3
|
|
|
|
|
Other non-current assets
|
|
5
|
|
|
4
|
|
|
Total
|
|
|
|
$
|
159
|
|
|
$
|
92
|
|
(1)
Derivative instruments in this category are subject to master netting arrangements and are presented on a net basis in the Consolidated Balance Sheets in accordance with ASC 210-20.
As of
June 30, 2019
and
December 31, 2018
, the following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of the Hedged Liability
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
|
|
Consolidated Balance Sheet Classification in Which the Hedged Item Is Included
|
|
June 30, 2019
(1)
|
|
December 31, 2018
(1)
|
|
June 30, 2019
(2)
|
|
December 31, 2018
(2)
|
|
Current portion of long-term debt, net of discount
|
|
$
|
—
|
|
|
$
|
501
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
Long-term debt, net of discount
|
|
8,244
|
|
|
8,227
|
|
|
102
|
|
|
90
|
|
(1)
The current portion of long-term debt, net of discount, includes
nil
and
$501 million
of carrying value with discontinued hedging relationships as of
June 30, 2019
and
December 31, 2018
, respectively. The Long-term debt, net of discount includes approximately
$8.2 billion
and
$3.3 billion
of carrying value with discontinued hedging relationships as of
June 30, 2019
and
December 31, 2018
, respectively.
(2)
The current portion of long-term debt, net of discount, includes
nil
and
$2 million
of discontinued hedging relationships at
June 30, 2019
and
December 31, 2018
, respectively. The Long-term debt, net of discount includes
$102 million
and
$107 million
of hedging adjustment on discontinued hedging relationships on long-term debt as of
June 30, 2019
and
December 31, 2018
, respectively.
The following tables summarize the effect of derivative instruments designated as cash flow hedging instruments in AOCI for the three-month periods ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2019
|
|
Instrument
|
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative
(1)
|
|
Classification of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Classification of Gain/(Loss) Recognized in Income Related to Amount Excluded from Effectiveness Testing
|
|
Amount of Gain/(Loss) Recognized in Income on Derivative Related to Amount Excluded from Effectiveness Testing
|
|
Foreign exchange contracts
|
$
|
(12
|
)
|
|
Net product sales
|
|
$
|
22
|
|
|
Net product sales
|
|
$
|
—
|
|
|
Treasury rate lock agreements
|
—
|
|
|
Interest (expense)
|
|
(1
|
)
|
|
N/A
|
|
—
|
|
(1)
Net gains of
$33 million
are expected to be reclassified from AOCI into income in the next 12 months.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2018
|
|
Instrument
|
|
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative
(1)
|
|
Classification of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Classification of Gain/(Loss) Recognized in Income Related to Amount Excluded from Effectiveness Testing
|
|
Amount of Gain/(Loss) Recognized in Income on Derivative Related to Amount Excluded from Effectiveness Testing
|
|
Foreign exchange contracts
|
|
$
|
226
|
|
|
Net product sales
|
|
$
|
(12
|
)
|
|
Net product sales
|
|
$
|
1
|
|
|
Treasury rate lock agreements
|
|
—
|
|
|
Interest (expense)
|
|
(1
|
)
|
|
N/A
|
|
—
|
|
The following tables summarize the effect of derivative instruments designated as cash flow hedging instruments in AOCI for the
six-month periods ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2019
|
|
Instrument
|
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative
(1)
|
|
Classification of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Classification of Gain/(Loss) Recognized in Income Related to Amount Excluded from Effectiveness Testing
|
|
Amount of Gain/(Loss) Recognized in Income on Derivative Related to Amount Excluded from Effectiveness Testing
|
|
Foreign exchange contracts
|
$
|
39
|
|
|
Net product sales
|
|
$
|
46
|
|
|
Net product sales
|
|
$
|
—
|
|
|
Treasury rate lock agreements
|
—
|
|
|
Interest (expense)
|
|
(2
|
)
|
|
N/A
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Net gains of
$33 million
are expected to be reclassified from AOCI into income in the next 12 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2018
|
|
Instrument
|
|
Amount of
Gain/(Loss)
Recognized in OCI
on Derivative
(1)
|
|
Classification of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income
|
|
Classification of Gain/(Loss) Recognized in Income Related to Amount Excluded from Effectiveness Testing
|
|
Amount of Gain/(Loss) Recognized in Income on Derivative Related to Amount Excluded from Effectiveness Testing
|
|
Foreign exchange contracts
|
|
$
|
131
|
|
|
Net product sales
|
|
$
|
(38
|
)
|
|
Net product sales
|
|
$
|
(2
|
)
|
|
Treasury rate lock agreements
|
|
(4
|
)
|
|
Interest (expense)
|
|
(2
|
)
|
|
N/A
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect of derivative instruments which were designated as fair value hedging instruments on the Consolidated Statements of Income for the
three- and six-
month periods ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in
Income on Derivative
|
|
|
|
|
|
Three-Month Periods Ended June 30,
|
|
Six-Month Periods Ended June 30,
|
|
Instrument
|
|
Classification of Gain/(Loss) Recognized in Income on Derivative
|
|
2019
(1)
|
|
2018
(1)
|
|
2019
(1)
|
|
2018
(1)
|
|
Interest rate swap agreements
|
|
Interest (expense)
|
|
$
|
12
|
|
|
$
|
(2
|
)
|
|
$
|
31
|
|
|
$
|
(7
|
)
|
(1)
The amounts include a benefit of
$8 million
and
$8 million
for the three-month periods ending
June 30, 2019
and
2018
, respectively, and a benefit of
$16 million
and
$16 million
for the six-months ending
June 30, 2019
and
2018
, relating to the amortization of the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged liability for discontinued hedging relationships.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes the effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Income for the
three- and six-
month periods ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification of Gain/(Loss) Recognized in Income on Derivative
|
|
|
|
|
|
Three-Month Periods Ended June 30,
|
|
Six-Month Periods Ended June 30,
|
|
Instrument
|
|
Classification of Gain/(Loss) Recognized in Income on Derivative
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Foreign exchange contracts
|
|
Other (expense) income, net
|
|
$
|
(4
|
)
|
|
$
|
22
|
|
|
$
|
5
|
|
|
$
|
9
|
|
The impact of gains and losses on foreign exchange contracts not designated as hedging instruments related to changes in the fair value of assets and liabilities denominated in foreign currencies are generally offset by net foreign exchange gains and losses, which are also included on the Consolidated Statements of Income in
Other (expense) income, net
for all periods presented. When we enter into foreign exchange contracts not designated as hedging instruments to mitigate the impact of exchange rate volatility in the translation of foreign earnings, gains and losses will generally be offset by fluctuations in the U.S. Dollar translated amounts of each Consolidated Statements of Income account in current and/or future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2019
|
|
|
|
|
|
|
Net product sales
|
|
Interest (expense)
|
|
Other (expense) income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded
|
|
$
|
4,399
|
|
|
$
|
(192
|
)
|
|
$
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
The effects of fair value and cash flow hedging:
|
|
|
|
|
|
|
|
|
(Loss) gain on fair value hedging relationships
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
Hedged items
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
|
|
|
Derivatives designated as hedging instruments
(1)
|
|
—
|
|
|
12
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from AOCI into income
|
|
22
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
2
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Reclassification adjustment for excluded component (loss)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
|
|
Treasury rate lock agreements:
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) reclassified from AOCI into income
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
—
|
|
|
—
|
|
|
—
|
|
(1)
The amounts include a benefit of
$8 million
relating to the amortization of the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged liability for discontinued hedging relationships for the three-month period ending
June 30, 2019
.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2018
|
|
|
|
|
|
|
Net product sales
|
|
Interest (expense)
|
|
Other (expense) income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded
|
|
$
|
3,808
|
|
|
$
|
(192
|
)
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effects of fair value and cash flow hedging:
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
Hedged items
|
|
—
|
|
|
11
|
|
|
—
|
|
|
|
|
|
Derivatives designated as hedging instruments
(1)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) reclassified from AOCI into income
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
7
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Reclassification adjustment for excluded component (loss)
|
|
(6
|
)
|
|
|
|
|
|
|
|
Treasury rate lock agreements:
|
|
|
|
|
|
|
|
|
|
|
Amount of (loss) reclassified from AOCI into income
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
—
|
|
|
—
|
|
|
—
|
|
(1)
The amounts include a benefit of
$8 million
relating to the amortization of the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged liability for discontinued hedging relationships for the three-month period ending
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2019
|
|
|
|
|
|
|
Net product sales
|
|
Interest (expense)
|
|
Other (expense) income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded
|
|
$
|
8,423
|
|
|
$
|
(384
|
)
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effects of fair value and cash flow hedging:
|
|
|
|
|
|
|
|
|
(Loss) gain on fair value hedging relationships
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
Hedged items
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
|
|
|
Derivatives designated as hedging instruments
(1)
|
|
—
|
|
|
31
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
|
46
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Reclassification adjustment for excluded component (loss) gain
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
|
|
Treasury rate lock agreements:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
—
|
|
|
—
|
|
|
—
|
|
(1)
The amounts include a benefit of
$16 million
relating to the amortization of the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged liability for discontinued hedging relationships for the six-month period ending
June 30, 2019
.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2018
|
|
|
|
|
|
|
Net product sales
|
|
Interest (expense)
|
|
Other (expense) income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded
|
|
$
|
7,339
|
|
|
$
|
(358
|
)
|
|
$
|
969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effects of fair value and cash flow hedging:
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
Hedged items
|
|
—
|
|
|
25
|
|
|
—
|
|
|
|
|
|
Derivatives designated as hedging instruments
(1)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
|
(38
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
15
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Reclassification adjustment for excluded component (loss) gain
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
|
|
Treasury rate lock agreements:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
|
|
|
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach / changes in fair value
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The amounts include a benefit of
$16 million
relating to the amortization of the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged liability for discontinued hedging relationships for the six-month period ending
June 30, 2018
.
8. Cash, Cash Equivalents and Debt Securities Available-for-Sale
Time deposits, repurchase agreements, and commercial paper instruments with original maturities less than three months and money market funds are included in Cash and cash equivalents. As of
June 30, 2019
, the carrying value of our time deposits and repurchase agreements was
$941 million
and money market funds was approximately
$4.8 billion
, all of which are included in Cash and cash equivalents. As of
December 31, 2018
, the carrying value of our time deposits and repurchase agreements was
$276 million
, and money market funds was approximately
$2.9 billion
, all of which were included in Cash and cash equivalents. The carrying values approximated fair value as of
June 30, 2019
and
December 31, 2018
.
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated fair value of debt securities available-for-sale by major security type and class of security as of
June 30, 2019
and
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Amortized Cost
|
|
Gross Unrealized Gain
|
|
Gross Unrealized Loss
|
|
Estimated Fair Value
|
|
Ultra short income fund
|
|
$
|
579
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
579
|
|
|
Time deposits
(1)
and Repurchase agreements
(1)
|
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
Total debt securities available-for-sale
|
|
$
|
613
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
613
|
|
(1)
Have original maturities of greater than three months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Amortized Cost
|
|
Gross Unrealized Gain
|
|
Gross Unrealized Loss
|
|
Estimated Fair Value
|
|
Ultra short income fund
|
|
$
|
450
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
Time deposits
(1)
and Repurchase agreements
(1)
|
|
46
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
Total debt securities available-for-sale
|
|
$
|
496
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
496
|
|
(1)
Have original maturities of greater than three months.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Ultra short income fund includes investments in certificates of deposit, repurchase agreements, commercial paper and corporate notes. Time deposits and repurchase agreements in the tables above have original maturities greater than three months. Our repurchase agreements are collateralized by U.S. government securities, cash, bonds, commercial paper and bank certificates of deposit. As of
June 30, 2019
, all of our time deposits and repurchase agreements had original maturities less than one year.
Duration periods of debt securities available-for-sale as of
June 30, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Duration of one year or less
|
|
$
|
613
|
|
|
$
|
613
|
|
9. Inventory
Inventories as of
June 30, 2019
and
December 31, 2018
are summarized by major category as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Raw materials
|
$
|
264
|
|
|
$
|
252
|
|
|
Work in process
|
93
|
|
|
79
|
|
|
Finished goods
|
107
|
|
|
127
|
|
|
Total inventory
|
$
|
464
|
|
|
$
|
458
|
|
10. Intangible Assets and Goodwill
Intangible Assets:
Our finite-lived intangible assets primarily consist of developed product rights and technology obtained from the acquisitions of Abraxis BioScience, Inc. (Abraxis) and Juno. The remaining weighted-average amortization period for finite-lived intangible assets not fully amortized is approximately
8.7 years
. Our indefinite lived intangible assets consist of acquired IPR&D product rights from the acquisitions of Receptos Inc. (Receptos), Gloucester and Juno.
The gross carrying amount and accumulated amortization of intangible assets as of
June 30, 2019
and
December 31, 2018
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Intangible Assets, Net
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Acquired developed product rights
|
|
$
|
3,414
|
|
|
$
|
(2,436
|
)
|
|
$
|
978
|
|
|
Technology
|
|
1,743
|
|
|
(594
|
)
|
|
1,149
|
|
|
Licenses
|
|
66
|
|
|
(37
|
)
|
|
29
|
|
|
Other
|
|
43
|
|
|
(39
|
)
|
|
4
|
|
|
|
|
5,266
|
|
|
(3,106
|
)
|
|
2,160
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Acquired IPR&D product rights
|
|
13,831
|
|
|
—
|
|
|
13,831
|
|
|
Total intangible assets
|
|
$
|
19,097
|
|
|
$
|
(3,106
|
)
|
|
$
|
15,991
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Intangible Assets, Net
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Acquired developed product rights
|
|
$
|
3,406
|
|
|
$
|
(2,261
|
)
|
|
$
|
1,145
|
|
|
Technology
|
|
1,743
|
|
|
(552
|
)
|
|
1,191
|
|
|
Licenses
|
|
66
|
|
|
(35
|
)
|
|
31
|
|
|
Other
|
|
54
|
|
|
(39
|
)
|
|
15
|
|
|
|
|
5,269
|
|
|
(2,887
|
)
|
|
2,382
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Acquired IPR&D product rights
|
|
13,831
|
|
|
—
|
|
|
13,831
|
|
|
Total intangible assets
|
|
$
|
19,100
|
|
|
$
|
(2,887
|
)
|
|
$
|
16,213
|
|
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Amortization expense related to intangible assets was
$110 million
and
$129 million
for the
three-month periods ended June 30, 2019
and
2018
, respectively, and
$220 million
and
$217 million
for the
six-month periods ended
June 30, 2019
and
2018
, respectively. Assuming no changes in the gross carrying amount of finite-lived intangible assets, the future annual amortization expense related to intangible assets is expected to be approximately
$441 million
in
2019
,
$440 million
in
2020
,
$437 million
in
2021
,
$178 million
in
2022
and
$92 million
in
2023
.
Goodwill:
There was
no
change in the carrying value of the Company's goodwill from
December 31, 2018
to
June 30, 2019
.
11. Debt
Short-Term Borrowings and Current Portion of Long-Term Debt:
We had no outstanding short-term borrowings as of June 30, 2019 and
December 31, 2018
. The carrying value of the current portion of long-term debt as of June 30, 2019 and
December 31, 2018
includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
2.250% senior notes due 2019
|
$
|
—
|
|
|
$
|
501
|
|
Long-Term Debt:
Our outstanding senior notes with maturity dates in excess of one year after June 30, 2019 have an aggregate principal amount of
$19.850 billion
with varying maturity dates and interest rates. The carrying values of the long-term portion of these senior notes as of June 30, 2019 and
December 31, 2018
includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
2.875% senior notes due 2020
|
$
|
1,498
|
|
|
$
|
1,497
|
|
|
3.950% senior notes due 2020
|
506
|
|
|
509
|
|
|
2.250% senior notes due 2021
|
498
|
|
|
498
|
|
|
2.875% senior notes due 2021
|
499
|
|
|
498
|
|
|
3.250% senior notes due 2022
|
1,030
|
|
|
1,034
|
|
|
3.550% senior notes due 2022
|
996
|
|
|
996
|
|
|
2.750% senior notes due 2023
|
747
|
|
|
747
|
|
|
3.250% senior notes due 2023
|
995
|
|
|
994
|
|
|
4.000% senior notes due 2023
|
727
|
|
|
730
|
|
|
3.625% senior notes due 2024
|
1,000
|
|
|
1,000
|
|
|
3.875% senior notes due 2025
|
2,486
|
|
|
2,478
|
|
|
3.450% senior notes due 2027
|
1,004
|
|
|
986
|
|
|
3.900% senior notes due 2028
|
1,490
|
|
|
1,490
|
|
|
5.700% senior notes due 2040
|
247
|
|
|
247
|
|
|
5.250% senior notes due 2043
|
393
|
|
|
393
|
|
|
4.625% senior notes due 2044
|
988
|
|
|
987
|
|
|
5.000% senior notes due 2045
|
1,976
|
|
|
1,975
|
|
|
4.350% senior notes due 2047
|
1,234
|
|
|
1,234
|
|
|
4.550% senior notes due 2048
|
1,476
|
|
|
1,476
|
|
|
Total long-term debt
|
$
|
19,790
|
|
|
$
|
19,769
|
|
As of June 30, 2019 and
December 31, 2018
, the fair value of our outstanding Senior Notes was approximately
$21.4 billion
and
$19.3 billion
, respectively, and represented a level 2 measurement within the fair value measurement hierarchy.
Debt Issuance:
In February 2018, we issued
$500 million
principal amount of
2.875%
senior notes due 2021 (2021 Notes),
$1.000 billion
principal amount of
3.250%
senior notes due 2023 (2023 Notes),
$1.500 billion
principal amount of
3.900%
senior notes due 2028 (2028 Notes) and
$1.500 billion
principal amount of
4.550%
senior notes due 2048 (2048 Notes). The 2021 Notes, 2023 Notes, 2028 Notes and 2048 Notes were issued at
99.954%
,
99.758%
,
99.656%
and
99.400%
of par, respectively, and the discount is being amortized as additional interest expense over the period from issuance through maturity. Offering costs of approximately
$32 million
were recorded as a direct deduction from the carrying amount of the 2021 Notes, 2023 Notes, 2028 Notes and 2048
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Notes on our Consolidated Balance Sheets. The offering costs are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the 2021 Notes is payable semi-annually in arrears on February 19 and August 19 of each year, beginning August 19, 2018 and the principal is due in full at the maturity date. Interest on the 2023 Notes, 2028 Notes and 2048 Notes is payable semi-annually in arrears on February 20 and August 20 of each year, beginning August 20, 2018 and the principal is due in full at the maturity date. The 2021 Notes, 2023 Notes, 2028 Notes and 2048 Notes may be redeemed at our option, in whole or in part, at any time at a redemption price equaling accrued and unpaid interest plus the greater of
100%
of the principal amount of the Notes to be redeemed or the sum of the present values of the remaining schedule payments of interest and principal discounted to the date of redemption on a semi-annual basis plus
10
basis points for the 2021 Notes,
15
basis points for the 2023 Notes,
20
basis points for the 2028 Notes and
25
basis points for the 2048 Notes. If we experience a change of control accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the 2021 Notes, 2023 Notes, 2028 Notes and 2048 Notes at a purchase price equal to
101%
of the principal amount plus accrued and unpaid interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property.
Debt Repayment:
In May 2019, we repaid the
2.250%
senior notes with a principal amount of
$500 million
upon maturity.
From time to time, we have used treasury rate locks and forward starting interest rate swap contracts to hedge against changes in interest rates in anticipation of issuing fixed-rate notes. As of June 30, 2019, and
December 31, 2018
a balance of
$28 million
and
$31 million
, respectively, in net losses remained in AOCI related to the settlement of these derivative instruments and will be recognized as interest expense over the life of the notes.
As of June 30, 2019, we were not a party to any pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes as described in Note 7. From time to time, we terminate the hedging relationship on certain of our swap contracts by settling the contracts or by entering into offsetting contracts. Any net proceeds received or paid in these settlements are accounted for as a reduction or increase of current and future interest expense associated with the previously hedged notes. As of June 30, 2019 and
December 31, 2018
, we had balances of
$102 million
and
$109 million
, respectively, of unamortized gains recorded as a component of our debt as a result of past swap contract settlements. See Note 7 for additional details related to interest rate swap contract activity.
Commercial Paper:
As of June 30, 2019 and
December 31, 2018
, we had available capacity to issue up to
$2.0 billion
of commercial paper. As of June 30, 2019 and
December 31, 2018
, there were
no
borrowings under the program.
Senior Unsecured Credit Facility:
We maintain a senior unsecured revolving credit facility (Credit Facility) that provides revolving credit in the aggregate amount of
$2.0 billion
. Amounts may be borrowed in U.S. Dollars for general corporate purposes. The Credit Facility currently serves as backup liquidity for our commercial paper borrowings and expires on April 25, 2023. As of June 30, 2019 and
December 31, 2018
, there were
no
outstanding borrowings against the Credit Facility. The Credit Facility contains affirmative and negative covenants, including certain customary financial covenants. We were in compliance with all financial covenants as of June 30, 2019.
12. Share-Based Compensation
We have stockholder-approved stock incentive plans, the Celgene Corporation 2017 Stock Incentive Plan and the 2014 Equity Incentive Plan (formerly known as the Juno Therapeutics, Inc. 2014 Equity Incentive Plan) (collectively, the Plans) that provide for the granting of options, restricted stock units (RSUs), performance stock units (PSUs) and other share-based and performance- based awards to our employees, officers and non-employee directors. The Management Compensation and Development Committee of the Board of Directors (Compensation Committee) may determine the type, amount and terms, including vesting, of any awards made under the Plans.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Share-based compensation expense recognized reflects an estimate of the number of awards expected to vest after taking into consideration an estimate of award forfeitures based on actual experience and is recognized on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting. The following table summarizes the components of share-based compensation expense in the Consolidated Statements of Income for the
three- and six-
month periods ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended June 30,
|
|
Six-Month Periods Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Cost of goods sold (excluding amortization of acquired intangible assets)
|
|
$
|
13
|
|
|
$
|
9
|
|
|
$
|
25
|
|
|
$
|
18
|
|
|
Research and development
(1)
|
|
112
|
|
|
157
|
|
|
238
|
|
|
356
|
|
|
Selling, general and administrative
(2)
|
|
100
|
|
|
118
|
|
|
219
|
|
|
311
|
|
|
Total share-based compensation expense
|
|
225
|
|
|
284
|
|
|
482
|
|
|
685
|
|
|
Tax benefit related to share-based compensation expense
(3)
|
|
42
|
|
|
37
|
|
|
91
|
|
|
74
|
|
|
Reduction in net income
|
|
$
|
183
|
|
|
$
|
247
|
|
|
$
|
391
|
|
|
$
|
611
|
|
(1)
The
three- and six-
month periods ended
June 30, 2019
include Juno related share-based compensation expense related to the post-combination service period of
$17 million
and
$34 million
, respectively. The
three- and six-
month periods ended
June 30, 2018
include Juno related share-based compensation expense related to the post-combination service period of
$100 million
and
$233 million
, respectively.
(2)
The
three- and six-
month periods ended
June 30, 2019
include Juno related share-based compensation expense related to the post-combination service period of
$3 million
and
$14 million
, respectively. The
three- and six-
month periods ended
June 30, 2018
include Juno related share-based compensation expense related to the post-combination service period of
$50 million
and
$167 million
, respectively.
(3)
The tax benefit related to share-based compensation expense above excludes excess tax benefits of
$11 million
and
$5 million
from share-based compensation awards that vested or were exercised during the
three-month periods ended June 30, 2019
and
2018
, respectively, and
$27 million
and
$16 million
for the
six-month periods ended
June 30, 2019
, and
2018
, respectively.
The following table summarizes the activity for stock options, RSUs and PSUs for the
six-month period ended
June 30, 2019
(in millions unless otherwise noted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
RSUs
|
|
PSUs (in thousands)
|
|
Outstanding as of December 31, 2018
|
71.1
|
|
|
11.7
|
|
|
660
|
|
|
Changes during the Year:
|
|
|
|
|
|
|
|
|
Granted
|
—
|
|
|
8.4
|
|
|
200
|
|
|
Exercised / Released
|
(6.6
|
)
|
|
(1.4
|
)
|
|
(160
|
)
|
|
Forfeited
|
(1.6
|
)
|
|
(0.6
|
)
|
|
(42
|
)
|
|
Outstanding as of June 30, 2019
|
62.9
|
|
|
18.1
|
|
|
658
|
|
Total compensation cost related to unvested awards not yet recognized and the weighted-average periods over which the awards are expected to be recognized as of
June 30, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
RSUs
|
|
PSUs
|
|
Unrecognized compensation cost
|
$
|
326
|
|
|
$
|
908
|
|
|
$
|
29
|
|
|
Expected weighted-average period in years of compensation cost to be recognized
|
1.9
|
|
|
1.8
|
|
|
1.4
|
|
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. Income Taxes
We regularly evaluate the likelihood of the realization of our deferred tax assets and reduce the carrying amount of those deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods available to us for tax reporting purposes and other relevant factors. Significant judgment is required in making this assessment.
Our tax returns are under routine examination in many taxing jurisdictions. The scope of these examinations includes, but is not limited to, the review of our taxable presence in a jurisdiction, our deduction of certain items, our claims for research and development credits, our compliance with transfer pricing rules and regulations and the inclusion or exclusion of amounts from our tax returns as filed. Our U.S. federal income tax returns have been audited by the Internal Revenue Service (IRS) through the year ended December 31, 2008. Tax returns for the years ended December 31, 2009, 2010 and 2011 are currently under examination by the IRS. We are also subject to audits by various state and foreign taxing authorities, including most U.S. states and countries where we have operations.
We regularly re-evaluate our tax positions and the associated interest and penalties, if applicable, resulting from audits of federal, state and foreign income tax filings, as well as changes in tax law (including regulations, administrative pronouncements, judicial precedents, etc.) that would reduce the technical merits of the position to below more likely than not. We believe that our accruals for tax liabilities are adequate for all open years. Many factors are considered in making these evaluations, including past history, recent interpretations of tax law and the specifics of each matter. Because tax regulations are subject to interpretation and tax litigation is inherently uncertain, these evaluations can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. We apply a variety of methodologies in making these estimates and assumptions, which include studies performed by independent economists, advice from industry and subject matter experts, evaluation of public actions taken by the IRS and other taxing authorities, as well as our industry experience. These evaluations are based on estimates and assumptions that have been deemed reasonable by management. However, if management’s estimates are not representative of actual outcomes, our results of operations could be materially impacted.
Unrecognized tax benefits, generally represented by liabilities on the Consolidated Balance Sheets and all subject to tax examinations, arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Virtually all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. We account for interest and potential penalties related to uncertain tax positions as part of our provision for income taxes. For the
six-month period ended
June 30, 2019
gross unrecognized tax benefits increased by
$51 million
, including interest, primarily due to current year tax positions. The liability for unrecognized tax benefits is expected to increase in the next 12 months relating to operations occurring in that period. Any settlements of examinations with taxing authorities or statute of limitations expirations would likely result in a decrease in our liability for unrecognized tax benefits and a corresponding increase in taxes paid or payable and/or a decrease in income tax expense. It is reasonably possible that the amount of the liability for unrecognized tax benefits could change by a significant amount during the next twelve-month period as a result of settlements or statute of limitations expirations. Finalizing examinations with the relevant taxing authorities can include formal administrative and legal proceedings and, as a result, it is difficult to estimate the timing and range of possible change related to the Company’s unrecognized tax benefits. An estimate of the range of possible change cannot be made until issues are further developed or examinations close. Our estimates of tax benefits and potential tax benefits may not be representative of actual outcomes and variation from such estimates could materially affect our consolidated financial statements in the period of settlement or when the statutes of limitations expire.
14. Collaboration Arrangements
We enter into collaborative arrangements for the research and development, license, manufacture and/or commercialization of products and/or product candidates. In addition, we also acquire product candidates and research and development technology rights and establish research and development collaborations with third parties to enhance our strategic position within our industry by strengthening and diversifying our research and development capabilities, product pipeline and marketed product base. These arrangements may include non-refundable, upfront payments, payments by us for options to acquire rights to products and product candidates and other rights, as well as contingent obligations by us for potential development, regulatory and commercial performance milestone payments, cost sharing arrangements, royalty payments, profit sharing and equity investments (including equity investments in the event of an initial public offering of equity by our partners). Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
approval. Milestone payments made to third parties upon regulatory approval are capitalized and amortized over the remaining useful life of the related product. Upfront payments are recorded when incurred, and milestone payments are recorded when the specific milestone has been achieved. The activities under these collaboration agreements are performed with no guarantee of either technological or commercial success. Although we do not consider any individual alliance to be material, certain of the more notable alliances are described in Note 18 of Notes to Consolidated Financial Statements included in our
2018
Annual Report on Form 10-K. The following is a brief description for notable new collaborations and for those collaborations which we have described in detail in our
2018
Annual Report on Form 10-K if there has been significant activity during the
six-month period ended
June 30, 2019
. Amounts related to collaborations that are not specifically presented are included in the aggregate as Other Collaboration Arrangements.
BeiGene, Limited. (BeiGene):
We entered into a collaboration agreement with BeiGene in August 2017 (BeiGene Collaboration Agreement) to develop and commercialize BeiGene's investigational anti-programmed cell PD-1 inhibitor, BGB-A317. The BeiGene Collaboration Agreement also provided for a termination payment in the event Celgene were to terminate the BeiGene Collaboration Agreement under certain circumstances. In June 2019, we mutually agreed with BeiGene to terminate the BeiGene Collaboration Agreement with BeiGene regaining full global rights to BGB-A317 and Celgene agreeing to pay
$150 million
to BeiGene in full satisfaction of any and all amounts that had accrued or that may otherwise have been payable at any time by Celgene to BeiGene under the BeiGene Collaboration Agreement, except for customary indemnification obligations. Such amount has been classified as a component of
Acquisition/integration related charges and restructuring, net
within the Consolidated Statement of Income. The termination of the BeiGene Collaboration Agreement has no effect on our License and Supply Agreement with BeiGene dated July 5, 2017, granting BeiGene the right to distribute certain Celgene products in China.
Other Collaboration Arrangements in 2019:
A financial summary of certain period activity and the period-end balances related to our other collaboration arrangements is presented below
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended June 30,
|
|
|
Research and Development Expense
|
|
|
|
|
Upfront Fees
|
|
Milestones
|
|
Extension/Termination of Arrangements
|
|
Amortization of Prepaid Research and Development
|
|
Equity Investments Made During Period
|
|
2019
|
$
|
53
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
2018
|
146
|
|
|
15
|
|
|
4
|
|
|
2
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended June 30,
|
|
|
Research and Development Expense
|
|
|
|
|
Upfront Fees
|
|
Milestones
|
|
Extension/Termination of Arrangements
|
|
Amortization of Prepaid Research and Development
|
|
Equity Investments Made During Period
|
|
2019
|
$
|
269
|
|
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
76
|
|
|
2018
|
391
|
|
|
15
|
|
|
4
|
|
|
4
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of:
|
|
Intangible Asset Balance
|
|
Equity Investment Balance
|
|
Percentage of Outstanding Equity
|
|
June 30, 2019
|
|
$
|
9
|
|
|
$
|
1,070
|
|
|
N/A
|
|
December 31, 2018
|
|
13
|
|
|
1,280
|
|
|
N/A
|
(1)
In addition to the expenses noted in the table above, we may also incur expenses for collaboration agreement related activities that are managed or funded by us.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15. Commitments and Contingencies
Collaboration Arrangements and Acquired Research and Development Assets:
We have entered into certain research and development collaboration arrangements with third parties that include our funding of certain development, manufacturing and commercialization efforts and the potential for making future milestone and royalty payments upon the achievement of pre-established developmental, regulatory and/or commercial targets. In addition, we have also acquired research and development assets or rights to products and technologies from third parties that included potential future development, regulatory and commercial milestones. Our obligation to fund these efforts and make milestone payments is contingent upon our continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the programs. Due to the nature of these arrangements, the future potential payments are inherently uncertain, and accordingly no amounts have been recorded for the potential future achievement of these targets in our accompanying Consolidated Balance Sheets as of
June 30, 2019
and
December 31, 2018
. See Note 3 and Note 14 for additional details related to our acquisitions and collaboration arrangements, respectively.
Contingencies:
We believe we maintain insurance coverage adequate for our current needs. Our operations are subject to environmental laws and regulations which, among other things, impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. We review the effects of such laws and regulations on our operations and modify our operations as appropriate. We believe we are in substantial compliance with all applicable environmental laws and regulations.
We have ongoing customs, duties and value-added-tax examinations in various countries that have yet to be settled. Based on our knowledge of the claims and facts and circumstances to date, none of these matters, individually or in the aggregate, are deemed to be material to our financial condition.
16. Leases
We routinely enter into leases for the use of office and research facilities, which comprise the majority of our total lease obligation, as well as leases for the use of automobiles and certain equipment in various locations globally. Our leasing portfolio is comprised entirely of operating leases. A brief description of these leasing activities follows.
Our leases for the use of office and research facilities generally have minimum annual rents, which may be subject to specified annual rent increases or annual changes in the Consumer Price Index (CPI). While contractually specified minimum rent and annual rent increases are included in the measurement of the ROU asset and related lease liability, changes in CPI are treated as variable lease payments, and as such, are recognized in our Consolidated Statements of Income in the period in which the obligation for those payments is incurred. Additionally, under these lease arrangements, we may be required to pay directly, or reimburse the lessors, for real estate taxes, insurance, utilities, maintenance and other operating costs. Such amounts are generally variable and therefore not included in the measurement of the ROU asset and related lease liability but are instead recognized as variable lease expense in our Consolidated Statements of Income when they are incurred.
Our leases for the use of office and research facilities have remaining lease terms ranging from less than
1 year
up to
10 years
, some of which include options to extend the leases for subsequent periods ranging from
1 year
to
9 years
, and some of which include options to terminate the leases for a fee. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Certain of our leases have options to extend the term at a future negotiated market rate. Such renewal periods are not included in the lease term as the future market rate is unknown at lease commencement.
We also lease automobiles for use by our sales force and other certain employees, primarily under several Master Lease Agreements (MLAs). Under these MLAs, we may be required to make additional lease payments for exceeding a specified mileage, as well as for other operating costs such as maintenance and repair services. These costs are generally variable in nature and therefore are not included in the measurement of the ROU asset and related lease liability. Instead, such costs are recognized as variable lease expense in our Consolidated Statements of Income when they are incurred. Depending upon the country location of the automobile, each leased automobile has a term between
3 years
and
4 years
and are generally not renewed beyond that term.
With regards to our leases for the use of office and other equipment, these leases have remaining lease terms ranging from less than
1 year
up to
8 years
, some of which include options to extend and some of which include options to terminate the leases for an insignificant fee. For our equipment leases, we may be required to make additional lease payments based on exceeding a specified usage, such as pages copied/printed, as well as other operating costs such as maintenance and repair services. These costs are generally variable in nature and therefore are not included in the measurement of the ROU asset and related lease liability.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Instead, such costs are recognized as variable lease expense in our Consolidated Statements of Income when they are incurred. Our leased equipment is an insignificant component of our ROU assets and lease liabilities.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2019
|
|
Six-Month Period Ended June 30, 2019
|
|
Operating lease cost
|
|
$
|
24
|
|
|
$
|
47
|
|
|
Short-term lease cost
|
|
—
|
|
|
—
|
|
|
Variable lease cost
|
|
9
|
|
|
17
|
|
|
Sublease income
|
|
—
|
|
|
—
|
|
|
Total lease cost
|
|
$
|
33
|
|
|
$
|
64
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2019
|
|
Six-Month Period Ended June 30, 2019
|
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
23
|
|
|
$
|
50
|
|
Supplemental noncash information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2019
|
|
Six-Month Period Ended June 30, 2019
|
|
ROU assets obtained in exchange for new operating liabilities
|
|
$
|
11
|
|
|
$
|
29
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Operating Leases
|
|
|
|
Other non-current assets
|
|
$
|
280
|
|
|
Accrued expenses and other current liabilities
|
|
82
|
|
|
Other non-current liabilities
|
|
225
|
|
|
|
|
|
|
Weighted-average remaining lease term (years) - operating leases
|
|
4.33
|
|
|
Weighted-average discount rate - operating leases
|
|
3.98
|
%
|
Maturities of lease liabilities as of
June 30, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2019 (excluding the six-month period ended June 30, 2019)
|
|
$
|
49
|
|
|
2020
|
|
89
|
|
|
2021
|
|
68
|
|
|
2022
|
|
57
|
|
|
2023
|
|
43
|
|
|
2024
|
|
17
|
|
|
Thereafter
|
|
12
|
|
|
Total undiscounted lease payments
|
|
$
|
335
|
|
|
|
|
|
|
Less: imputed interest
|
|
(28
|
)
|
|
Total discounted lease payments
|
|
$
|
307
|
|
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Future minimum lease payments under non-cancelable operating leases as of
December 31, 2018
were:
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2019
|
|
$
|
92
|
|
|
2020
|
|
89
|
|
|
2021
|
|
70
|
|
|
2022
|
|
59
|
|
|
2023
|
|
45
|
|
|
Thereafter
|
|
68
|
|
|
Total minimum lease payments
|
|
$
|
423
|
|
As of
June 30, 2019
, we have
$280 million
of aggregate ROU assets and
$307 million
of related lease liabilities. Additionally, we have an operating lease which has not yet commenced with total undiscounted lease obligations of
$66 million
. The agreement was entered into during the fourth quarter of 2018 to lease a portion of a building which will be used primarily for office and research facilities. The lessor is currently building this space and we do not have access to the building until construction is complete. The lease is expected to commence in early- to mid-2020 when construction of the asset is completed.
17. Legal Proceedings
Like many companies in our industry, we have, from time to time, received inquiries and subpoenas and other types of information requests from government authorities and others and we have been subject to claims and other actions related to our business activities. While the ultimate outcome of investigations, inquiries, information requests and legal proceedings is difficult to predict, adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, product recalls, costs and significant payments, which may have a material adverse effect on our results of operations, cash flows or financial condition.
Pending patent proceedings include challenges to the scope, validity and/or enforceability of our patents relating to certain of our products, uses of products or processes. Further, as certain of our products mature or they near the end of their regulatory exclusivity periods, it is more likely that we will receive challenges to our patents, and in some jurisdictions we have received such challenges. We are also subject, from time to time, to claims of third parties that we infringe their patents covering products or processes. Although we believe we have substantial defenses to these challenges and claims, there can be no assurance as to the outcome of these matters and an adverse decision in these proceedings could result in one or more of the following: (i) a loss of patent protection, which could lead to a significant reduction of sales that could materially affect our future results of operations, cash flows or financial condition; (ii) our inability to continue to engage in certain activities; and (iii) significant liabilities, including payment of damages, royalties and/or license fees to any such third party.
We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.
Among the principal matters pending are the following:
Patent-Related Proceedings:
REVLIMID
®
: In 2012, our European patent EP 1 667 682 (the ’682 patent) relating to certain polymorphic forms of lenalidomide expiring in 2024 was opposed in a proceeding before the European Patent Office (EPO) by Generics (UK) Ltd. and Teva Pharmaceutical Industries Ltd. On July 21, 2015, the EPO determined that the ’682 patent was not valid. We appealed the EPO ruling to the EPO Board of Appeal, thereby staying any revocation of the patent until the appeal is finally adjudicated. The appeal is scheduled to be heard on March 5, 2020.
We believe that our patent portfolio for lenalidomide in the major markets in Europe, including the composition of matter patent including its supplementary protection certificate, which expires in 2022, is strong, and we still expect that we will have protection in the major markets in the EU for lenalidomide until at least 2022.
In February 2019, Synthon B.V. (Synthon) commenced a lawsuit against us in the Netherlands seeking to revoke our Netherlands patent protecting REVLIMID
®
. On June 19, 2019, Synthon terminated the lawsuit.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We received two Notices of Allegation on July 3, 2018 and July 6, 2018 from Natco Pharma (Canada) Inc. (Natco Canada) notifying us of the filing of Natco Canada’s two separate ANDSs with Canada’s Minister of Health, with respect to Canadian Letters Patent Nos. 2,476,983; 2,477,301; 2,537,092; 2,687,924; 2,687,927; 2,688,694; 2,688,695; 2,688,708; 2,688,709; 2,741,412 and 2,741,575. Natco Canada is seeking to manufacture and market a generic version of 2.5 mg, 5 mg, 7.5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in Canada. We commenced infringement actions in the Federal Court of Canada on August 16, 2018, asserting all the patents, and seeking a declaration of infringement and a permanent injunction. The trial is scheduled to start on March 30, 2020.
We received four Notices of Allegation on October 4, 2018 from Apotex Inc. (Apotex) notifying us of the filing of Apotex’s ANDS with Canada’s Minister of Health, with respect to Canadian Letters Patent Nos. 2,476,983; 2,477,301; 2,537,092; 2,687,924; 2,687,927; 2,688,694; 2,688,695; 2,688,708; 2,688,709; 2,741,412 and 2,741,575. Apotex is seeking to manufacture and market a generic version of 2.5 mg, 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in Canada. We commenced infringement actions in the Federal Court of Canada on November 15, 2018, asserting all the patents, and seeking a declaration of infringement and a permanent injunction. The trial is scheduled to start on May 4, 2020.
We received a Notice Letter dated September 9, 2016 from Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc. (collectively, DRL) notifying us of its Abbreviated New Drug Application (ANDA) which contains Paragraph IV certifications against U.S. Patent Nos. 7,465,800; 7,855,217; 7,968,569; 8,530,498; 8,648,095; 9,101,621 and 9,101,622 that are listed in the U.S. Food and Drug Administration (FDA) list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book (Orange Book), for REVLIMID
®
. DRL is seeking to manufacture and market a generic version of 2.5 mg, 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in the United States. In response to the Notice Letter, we timely filed an infringement action against DRL in the U.S. District Court for the District of New Jersey on October 20, 2016. As a result of the filing of our action, the FDA cannot grant final approval of DRL’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) March 12, 2019. On November 18, 2016, DRL filed an answer and counterclaims asserting that each of the patents is invalid and/or not infringed. On December 27, 2016, we filed our answer to DRL’s counterclaims. Fact discovery is closed. Expert discovery is scheduled to close on September 27, 2019. The court has not yet entered a schedule for trial.
We received an additional Notice Letter from DRL dated June 8, 2017 notifying us of additional Paragraph IV certifications against U.S. Patent Nos. 7,189,740; 8,404,717 and 9,056,120 that are listed in the Orange Book for REVLIMID
®
. In response to that Notice Letter, we timely filed an infringement action against DRL in the U.S. District Court for the District of New Jersey on July 20, 2017. As a result of the filing of our action, the FDA cannot grant final approval of DRL’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) December 9, 2019. On October 18, 2017, DRL filed an amended answer and counterclaims asserting that each of the patents is invalid and/or not infringed. We filed our answer to DRL’s counterclaims on November 15, 2017. Fact discovery is set to close on September 2, 2019. The court has not yet entered a schedule for expert discovery or trial.
We received an additional Notice Letter from DRL dated February 26, 2018 notifying us of additional Paragraph IV certifications against U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 8,315,886 and 8,626,531 that are listed in the Orange Book for REVLIMID
®
. In response to the Notice Letter, we timely filed an infringement action against DRL in the U.S. District Court for the District of New Jersey on April 12, 2018. As a result of the filing of our action, the FDA cannot grant final approval of DRL’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) August 27, 2020. DRL filed an amended answer and counterclaims on May 31, 2018 asserting that each of the patents is invalid and/or not infringed. We filed our answer to DRL’s counterclaims on June 28, 2018. The case is stayed until January 9, 2020, subject to renewal by agreement of the parties and the court’s approval of same. The court has not yet entered a schedule for expert discovery or trial.
We received a Notice Letter dated February 27, 2017 from Zydus Pharmaceuticals (USA) Inc. (Zydus) notifying us of Zydus’s ANDA, which contains Paragraph IV certifications against U.S. Patent Nos. 7,465,800; 7,855,217; 7,968,569; 8,530,498; 8,648,095; 9,101,621 and 9,101,622 that are listed in the Orange Book for REVLIMID
®
. Zydus is seeking to manufacture and market a generic version of 2.5 mg, 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in the United States. In response to the Notice Letter, we timely filed an infringement action against Zydus in the U.S. District Court for the District of New Jersey on April 12, 2017. As a result of the filing of our action, the FDA cannot grant final approval of Zydus’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) August 28, 2019. On August 7, 2017, Zydus filed an answer and counterclaims asserting that each of the patents is invalid and/
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
or not infringed. On September 11, 2017, we filed our answer to Zydus’s counterclaims. Fact discovery is set to close on August 30, 2019. The court has yet to enter a schedule for expert discovery and trial.
On April 27, 2018, we filed another infringement action against Zydus in the U.S. District Court for the District of New Jersey. The patents-in-suit are U.S. Patent Nos. 7,977,357; 8,193,219 and 8,431,598, which are patents that are not listed in the Orange Book. Zydus filed its answer on July 9, 2018 asserting that each of the patents is invalid and/or not infringed. Fact discovery is set to close on August 30, 2019. The court has yet to enter a schedule for expert discovery and trial.
We received a Notice Letter dated June 30, 2017 from Cipla Ltd., India (Cipla) notifying us of Cipla’s ANDA No. 210435, which contains Paragraph IV certifications against U.S. Patent Nos. 7,465,800; 7,855,217; 7,968,569; 8,530,498; 8,648,095; 9,101,621 and 9,101,622 that are listed in the Orange Book for REVLIMID
®
. Cipla is seeking to manufacture and market a generic version of 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in the United States. In response to the Notice Letter, on August 15, 2017, we timely filed an infringement action against Cipla in the U.S. District Court for the District of New Jersey. As a result of the filing of our action, the FDA cannot grant final approval of Cipla’s ANDA No. 210435 until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) January 5, 2020. On October 13, 2017, Cipla filed an answer and counterclaims asserting that each of the patents is invalid and/or not infringed. We filed our answer to Cipla’s counterclaims on November 17, 2017. Fact discovery is set to close on September 30, 2019. Expert discovery is set to close on May 14, 2020. The court has yet to enter a schedule for trial.
On May 8, 2018, we filed another infringement action against Cipla in the U.S. District Court for the District of New Jersey. The infringement action concerns Cipla’s ANDA No. 210435. The patents-in-suit are U.S. Patent Nos. 7,977,357; 8,193,219 and 8,431,598, which are patents that are not listed in the Orange Book. Cipla filed its answer and counterclaims on July 16, 2018 asserting that each of the patents is invalid and/or not infringed. We filed our answer to Cipla’s counterclaims on August 20, 2018. Fact discovery is set to close on September 30, 2019. Expert discovery is set to close on May 14, 2020. The court has yet to enter a schedule for trial.
We received a Notice Letter dated May 30, 2019 from Cipla Ltd., India (Cipla) notifying us of another Cipla ANDA, No. 213165, which contains Paragraph IV certifications against U.S. Patent Nos. 7,465,800; 7,855,217; 7,968,569; 8,530,498; 8,648,095; 9,101,621; 9,101,622; 7,189,740; 8,404,717 and 9,056,120 that are listed in the Orange Book for REVLIMID
®
. Cipla is seeking to manufacture and market a generic version of 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in the United States. In response to the Notice Letter, on July 3, 2019, we timely filed an infringement action against Cipla in the U.S. District Court for the District of New Jersey. As a result of the filing of our action, the FDA cannot grant final approval of Cipla’s ANDA No. 213165 until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) November 30, 2021. Cipla has not yet responded to this complaint. The court has not yet entered a schedule for fact discovery, expert discovery, or trial.
We received a Notice Letter dated November 28, 2017 from Apotex Inc. (Apotex) notifying us of Apotex’s ANDA, which contains Paragraph IV certifications against U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 7,465,800; 7,468,363; 7,855,217; 8,315,886; 8,626,531 and 8,741,929 that are listed in the Orange Book for REVLIMID
®
. Apotex is seeking to manufacture and market a generic version of 2.5 mg, 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in the United States. In response to the Notice Letter, we timely filed an infringement action against Apotex in the U.S. District Court for the District of New Jersey on January 11, 2018. As a result of the filing of our action, the FDA cannot grant final approval of Apotex’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) May 29, 2020. Apotex filed its answer on August 30, 2018. Fact discovery is set to close on January 17, 2020. The court has yet to enter a schedule for expert discovery and trial.
We received an additional Notice Letter from Apotex dated January 14, 2019 notifying us of additional Paragraph IV certifications against U.S. Patent Nos. 7,189,740; 8,404,717 and 9,056,120 that are listed in the Orange Book for REVLIMID
®
. In response to that Notice Letter, we timely filed an infringement action against Apotex in the U.S. District Court for the District of New Jersey on February 26, 2019. As a result of the filing of our action, the FDA cannot grant final approval of Apotex’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) July 15, 2021. Apotex filed its answer on April 2, 2019. Fact discovery is scheduled to close on April 1, 2020. The court has yet to enter a schedule for expert discovery and trial.
On June 19, 2019, we filed another infringement action against Apotex in the U.S. District Court for the District of New Jersey. The patents-in-suit are U.S. Patent Nos. 7,977,357; 8,193,219 and 8,431,598, which are patents that are not listed in the Orange
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Book. Apotex has not yet responded to this complaint. The court has yet to enter a schedule for fact discovery, expert discovery, or trial.
We received a Notice Letter dated May 30, 2018 from Sun Pharmaceutical Industries Limited (Sun) notifying us of Sun’s ANDA, which contains Paragraph IV certifications against U.S. Patent Nos. 7,465,800; 7,855,217 and 7,968,569 that are listed in the Orange Book for REVLIMID
®
. Sun is seeking to manufacture and market a generic version of 2.5 mg, 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in the United States. In response to the Notice Letter, we timely filed an infringement action against Sun in the U.S. District Court for the District of New Jersey on July 13, 2018. As a result of the filing of our action, the FDA cannot grant final approval of Sun’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, or (ii) November 30, 2020. On August 14, 2018, Sun filed an answer and counterclaims asserting that each of the patents is invalid and/or not infringed. We filed our answer to Sun’s counterclaims on September 18, 2018. Fact discovery is set to close on January 17, 2020. The court has yet to enter a schedule for expert discovery and trial.
On April 16, 2019, we filed another infringement action against Sun in the U.S. District Court for the District of New Jersey. The patents-in-suit are U.S. Patent Nos. 7,977,357; 8,193,219 and 8,431,598, which are patents that are not listed in the Orange Book. Sun has not yet responded to this complaint. The court has yet to enter a schedule for fact discovery, expert discovery, and trial.
We received a Notice Letter dated November 9, 2018 from Hetero USA Inc. (Hetero) notifying us of Hetero’s ANDA, which contains Paragraph IV certifications against U.S. Patent Nos. 7,465,800; 7,855,217; 7,468,363; and 8,741,929 that are listed in the Orange Book for REVLIMID
®
. Hetero is seeking to manufacture and market a generic version of 2.5 mg, 5 mg, 10 mg, 15 mg, 20 mg, and 25 mg REVLIMID
®
(lenalidomide) capsules in the United States. In response to the Notice Letter, we timely filed an infringement action against Hetero in the U.S. District Court for the District of New Jersey on December 20, 2018. As a result of the filing of our action, the FDA cannot grant final approval of Hetero’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, or (ii) May 12, 2021. On March 11, 2019, Hetero filed an answer and counterclaims asserting that each of the patents is invalid and/or not infringed. We filed our answer to Hetero’s counterclaims on April 15, 2019. Fact discovery is scheduled to close on August 28, 2020. The court has yet to enter a schedule for expert discovery and trial.
We received an additional Notice Letter from Hetero dated June 3, 2019 notifying us of additional Paragraph IV certifications against U.S. Patent Nos. 7,968,569; 8,530,498; 8,648,095; 9,101,621; 9,101,622; 7,189,740; 8,404,717 and 9,056,120 that are listed in the Orange Book for REVLIMID
®
. In response to the Notice Letter, we timely filed an infringement action against Hetero in the U.S. District Court for the District of New Jersey on July 16, 2019. As a result of the filing of our action, the FDA cannot grant final approval of Hetero’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) December 3, 2021. The court has not yet entered a schedule for fact discovery, expert discovery and trial.
POMALYST
®
: We received a Notice Letter dated March 30, 2017 from Teva Pharmaceuticals USA, Inc. (Teva) (the Teva Notice Letter) notifying us of Teva’s ANDA submitted to the FDA, which contains Paragraph IV certifications against U.S. Patent Nos. 6,316,471; 8,198,262; 8,673,939; 8,735,428 and 8,828,427 that are listed in the Orange Book for POMALYST
®
. Teva is seeking to manufacture and market a generic version of 1 mg, 2 mg, 3 mg, and 4 mg POMALYST
®
(pomalidomide) capsules in the United States. We later received similar Notice Letters (together with the Teva Notice Letter, the Pomalidomide Notice Letters) from other generic drug manufacturers-Apotex; Hetero USA, Inc. (Hetero); Aurobindo Pharma Ltd. (Aurobindo); Mylan Pharmaceuticals Inc. (Mylan); and Breckenridge Pharmaceutical, Inc. (Breckenridge)-relating to these and other POMALYST
®
patents listed in the Orange Book. In May 2018, we received a similar Notice Letter from Synthon Pharmaceuticals Inc. (the Synthon Notice Letter). In June 2019, we received a similar Notice Letter from DRL.
In response to the Pomalidomide Notice Letters, we timely filed infringement actions in the U.S. District Court for the District of New Jersey against Teva on May 4, 2017 and against Apotex, Hetero, Aurobindo, Mylan, and Breckenridge on May 11, 2017. As a result of the filing of our actions, the FDA cannot grant final approval of these ANDAs until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) August 8, 2020.
On July 13, 2017, Apotex and Hetero each filed answers and counterclaims asserting that each of the patents is invalid and/or not infringed, and further seeking declaratory judgments of noninfringement and invalidity for additional patents listed in the Orange Book for POMALYST
®
, namely U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 8,315,886 and 8,626,531. On August 17, 2017, we filed replies to Apotex’s and Hetero’s counterclaims, as well as counter-counterclaims against Apotex and Hetero asserting
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
infringement of U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 8,315,886 and 8,626,531. Apotex and Hetero filed replies to our counter-counterclaims on September 6 and September 8, 2017, respectively.
On July 31, 2017, Breckenridge filed an answer and counterclaims asserting that each of the patents is invalid and/or not infringed. We filed our answer to Breckenridge’s counterclaims on September 5, 2017. On December 6, 2017, Breckenridge filed an amended pleading to include counterclaims seeking declaratory judgments of noninfringement and invalidity for additional patents listed in the Orange Book for POMALYST
®
, namely U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 8,315,886 and 8,626,531. We replied to Breckenridge’s amended counterclaims and asserted counter-counterclaims on January 3, 2018. Breckenridge filed its answer to our counter-counterclaims on January 24, 2018.
On August 7, 2017, Teva filed an answer and counterclaims asserting that each of the patents is invalid and/or not infringed. On September 11, 2017, we filed our answer to Teva’s counterclaims.
On August 9, 2017, Mylan filed a motion to dismiss the complaint, and on March 2, 2018, the court denied Mylan’s motion to dismiss without prejudice and granted our request for venue-related discovery. Mylan filed an answer on March 16, 2018.
On September 15, 2017, Aurobindo filed an answer and counterclaims asserting that each of the patents is invalid and/or not infringed, and further seeking declaratory judgments of noninfringement and invalidity for additional patents listed in the Orange Book for POMALYST
®
, namely U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 8,315,886 and 8,626,531. We filed our answer to Aurobindo’s counterclaims and counter-counterclaims concerning U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 8,315,886 and 8,626,531 on October 20, 2017. Aurobindo filed its answer to our counter-counterclaims on November 24, 2017.
In response to the Synthon Notice Letter, we timely filed an infringement action against Synthon in the U.S. District Court for the District of New Jersey on June 19, 2018. As a result of the filing of our actions, the FDA cannot grant final approval of Synthon’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) November 7, 2020. On July 16, 2018, Synthon filed an answer and counterclaims asserting that each of the patents asserted in the complaint is invalid and/or not infringed. On August 20, 2018, we filed our answer to Synthon’s counterclaims. We received a notice letter dated October 5, 2018 from Synthon notifying us of an additional Paragraph IV certification against U.S. Patent No. 9,993,467 that is listed in the Orange Book for POMALYST
®
. In response to the Notice Letter, we timely filed an amended complaint against Synthon on November 20, 2018. On December 4, 2018, Synthon filed an answer and counterclaims asserting that each of the patents in the amended complaint is invalid and/or not infringed. On January 2, 2019, we filed our answer to Synthon’s counterclaims. In May of 2019, the parties entered into a confidential settlement agreement. Pursuant to terms of the confidential settlement agreement, on May 13, 2019, the Court enjoined Synthon from infringing the asserted patents, unless and to the extent otherwise specifically authorized by Celgene, and dismissed these proceedings.
We received a Notice Letter dated August 7, 2018 from Hetero notifying us of an additional Paragraph IV certification against U.S. Patent No. 9,993,467 that is listed in the Orange Book for POMALYST
®
. In response to the Notice Letter, we timely filed an infringement action against Hetero in the U.S. District Court for the District of New Jersey on September 20, 2018 (“the Hetero ’467 Action”). On November 30, 2018, Hetero filed an answer and counterclaims. We filed our answer to Hetero’s counterclaims on January 4, 2019.
We received a Notice Letter dated August 13, 2018 from Teva notifying us of an additional Paragraph IV certification against U.S. Patent No. 9,993,467 that is listed in the Orange Book for POMALYST
®
. In response to the Notice Letter, we timely filed an infringement action against Teva in the U.S. District Court for the District of New Jersey on September 27, 2018 (“the Teva ’467 Action”). On November 14, 2018, Teva filed an answer and counterclaims. We filed our answer to Teva’s counterclaims on December 18, 2018.
We received a Notice Letter dated August 22, 2018 from Breckenridge notifying us of an additional Paragraph IV certification against U.S. Patent No. 9,993,467 that is listed in the Orange Book for POMALYST
®
. In response to the Notice Letter, we timely filed an infringement action against Breckenridge in the U.S. District Court for the District of New Jersey on October 5, 2018 (“the Breckenridge ’467 Action”). On November 7, 2018, Breckenridge filed an answer and counterclaims. We filed our answer to Breckenridge’s counterclaims on December 12, 2018.
We received a Notice Letter dated September 28, 2018 from Mylan notifying us of an additional Paragraph IV certification against U.S. Patent No. 9,993,467 that is listed in the Orange Book for POMALYST
®
. In response to the Notice Letter, we timely filed an infringement action against Mylan in the U.S. District Court for the District of New Jersey on November 9, 2018 (“the Mylan ’467 Action”). On January 22, 2019, Mylan filed an answer.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We received a Notice Letter dated October 9, 2018 from Apotex notifying us of an additional Paragraph IV certification against U.S. Patent No. 9,993,467 that is listed in the Orange Book for POMALYST
®
. In response to the Notice Letter, we timely filed an infringement action against Apotex in the U.S. District Court for the District of New Jersey on November 21, 2018 (“the Apotex ’467 Action”). On December 12, 2018, Apotex filed an answer and counterclaims. We filed our answer to Apotex’s counterclaims on January 16, 2019.
We received a Notice Letter dated November 30, 2018 from Aurobindo notifying us of an additional Paragraph IV certification against U.S. Patent No. 9,993,467 that is listed in the Orange Book for POMALYST
®
. In response to the Notice Letter, we timely filed an infringement action against Aurobindo in the U.S. District Court for the District of New Jersey on January 4, 2019 (“the Aurobindo ’467 Action”). On January 18, 2019, Aurobindo filed an answer and counterclaims. We filed our answer to Aurobindo's counterclaims on February 22, 2019.
On January 31, 2019, the above-referenced POMALYST
®
actions filed in May 2017 against (i) Teva and (ii) Apotex, Hetero, Aurobindo, Mylan, and Breckenridge were consolidated with the Hetero ’467 Action, the Teva ’467 Action, the Breckenridge ’467 Action, the Mylan ’467 Action, the Apotex ’467 Action, and the Aurobindo ’467 Action. In the consolidated case, fact discovery is set to close on August 30, 2019, and expert discovery is set to close on March 13, 2020. The court has yet to enter a schedule for trial.
On February 14, 2019, we filed additional infringement actions in the U.S. District Court for the District of New Jersey against each of Apotex, Aurobindo, Breckenridge, Hetero, and Mylan. On March 19, 2019, we filed an additional infringement action in the U.S. District Court for the District of New Jersey against Teva. The patents-in-suit in each of these six actions are 10,093,647; 10,093,648 and 10,093,649, which patents are not listed in the Orange Book. In the Apotex action, Apotex filed an answer and counterclaims on April 26, 2019. We filed our answer to Apotex’s counterclaims on May 31, 2019. In the Aurobindo action, Aurobindo filed an answer and counterclaims on July 1, 2019. In the Breckenridge action, Breckenridge filed an answer and counterclaims on June 4, 2019. We filed our answer to Breckenridge’s counterclaims on July 9, 2019. In the Hetero action, Hetero filed an answer and counterclaims on June 24, 2019. We filed our answer to Hetero’s counterclaims on July 29, 2019. In the Mylan action, Mylan filed an answer on April 23, 2019. In the Teva action, Teva filed an answer and counterclaims on June 17, 2019. We filed our answer to Teva’s counterclaims on July 22, 2019. The court has yet to enter a schedule for fact discovery, expert discovery, or trial in any of these actions.
In response to the DRL Notice Letter, we timely filed an infringement action against DRL in the U.S. District Court for the District of New Jersey on July 12, 2019. As a result of the filing of our action, the FDA cannot grant final approval of DRL’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) December 3, 2021. The court has yet to enter a schedule for fact discovery, expert discovery, or trial.
ABRAXANE
®
: On March 21, 2019, following a referral by the UK High Court of Justice in the context of our request for a Supplemental Protection Certificate (SPC) to the ABRAXANE
®
patent UK No. 0 961 612 (the ’612 patent), the Court of Justice for the EU held, in substance, that no SPC was available to the extent ABRAXANE
®
was assessed as a novel formulation of paclitaxel. On the basis of this decision, no SPC will be available in the UK. Applications are still pending in other jurisdictions, including in Germany. The ’612 patent expired in Europe in September 2017. However, if granted, the SPCs will expire in 2022. Data exclusivity in Europe expired in January 2019.
We received a Notice Letter dated November 5, 2018 from HBT Labs, Inc. (HBT) notifying us of HBT’s 505(b)(2) NDA which contains Paragraph IV certifications against U.S. Patent Nos. 7,758,891; 7,820,788; 7,923,536; 8,034,375; 8,138,229; 8,268,348; 8,314,156; 8,853,260; 9,101,543; 9,393,318; 9,511,046 and 9,597,409 that are listed in the Orange Book for ABRAXANE
®
. HBT is seeking to manufacture and market Paclitaxel Protein-Bound Particles for Injectable Suspension (Albumin-Bound), 100 mg/vial in the United States. In response to the Notice letter, we timely filed infringement actions against HBT in the U.S. District Court for the District of New Jersey on December 17, 2018, and in the U.S. District Court for the District of Delaware on December 19, 2018. As a result of these filings, the FDA cannot grant final approval of HBT’s 505(b)(2) NDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, or (ii) May 6, 2021. On February 5, 2019, we filed an amended complaint in the U.S. District Court for the District of Delaware. On February 5, 2019, we filed a notice of voluntary dismissal without prejudice in the United States District Court for the District of New Jersey. The court ordered the notice of voluntary dismissal on February 7, 2019. On February 11, 2019, HBT filed a motion to dismiss and transfer in the United States District Court for the District of Delaware. We filed our opposition on March 4, 2019, and HBT filed its reply on March 11, 2019. On May 28, 2019, the Court denied HBT’s motion to dismiss and transfer. On June 11, 2019, HBT answered the amended
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
complaint and filed counterclaims. On July 2, 2019, we answered HBT’s counterclaims. The court has not yet entered a schedule for fact discovery, expert discovery, or trial.
OTEZLA
®
: We received Notice Letters from each of the following company groups (individual or joint) between May 14, 2018 and June 1, 2018: Alkem Laboratories Ltd. (Alkem); Amneal Pharmaceuticals LLC (Amneal); Annora Pharma Private Ltd. (Annora) and Hetero USA Inc. (Hetero); Aurobindo Pharma Ltd. and Aurobindo Pharma U.S.A. Inc. (Aurobindo); Cipla Ltd. (Cipla); DRL; Emcure Pharmaceuticals Ltd. (Emcure) and Heritage Pharmaceuticals Inc. (Heritage); Glenmark Pharmaceuticals Ltd. (Glenmark); Macleods Pharmaceuticals Ltd. (Macleods); Mankind Pharma Ltd. (Mankind); MSN Laboratories Private Ltd. (MSN); Pharmascience Inc. (Pharmascience); Prinston Pharmaceutical Inc. (Prinston); Sandoz Inc. (Sandoz); Shilpa Medicare Ltd. (Shilpa); Teva Pharmaceuticals USA, Inc. (Teva) and Actavis LLC (Actavis); Torrent Pharmaceuticals Ltd. (Torrent); Unichem Laboratories, Ltd. (Unichem); and Zydus Pharmaceuticals (USA) Inc. (Zydus) notifying us of their ANDAs, which contain Paragraph IV certifications against one or more of the following patents: U.S. Patent Nos. 6,962,940; 7,208,516; 7,427,638; 7,659,302; 7,893,101; 8,455,536; 8,802,717; 9,018,243 and 9,872,854, which are listed in the Orange Book for OTEZLA
®
. Each of the companies is seeking to market a generic version of OTEZLA
®
. In response to the Notice Letters, we timely filed infringement actions in the U.S. District Court for the District of New Jersey. As a result of the filing of our actions, the FDA cannot grant final approval of any of these companies’ ANDAs until at least the earlier of (i) a final decision that each of the asserted patents is invalid, unenforceable, and/or not infringed, and (ii) September 21, 2021.
Between August 8, 2018 and August 30, 2018, we filed amended complaints against Alkem, Amneal, Aurobindo, Cipla, DRL, Glenmark, Pharmascience, Sandoz, Teva and Actavis, Unichem, and Zydus additionally asserting U.S. Patent No. 9,724,330, which was recently listed in the Orange Book for OTEZLA
®
.
Between October 15, 2018 and November 27, 2018, we filed amended complaints against Alkem, Amneal, Annora and Hetero, Aurobindo, Cipla, DRL, Emcure and Heritage, Glenmark, Macleods, Mankind, MSN, Pharmascience, Prinston, Sandoz, Teva and Actavis, Torrent, Unichem, and Zydus additionally asserting U.S. Patent No. 10,092,541, which was recently listed in the Orange Book for OTEZLA
®
.
Between March 1, 2019 and April 4, 2019, we filed amended complaints against Annora and Hetero, MSN, and Emcure, in response to Notice Letters containing additional Paragraph IV certifications against one or more of the above-listed patents, which are listed in the Orange Book for OTEZLA
®
.
Each defendant has filed an Answer disputing infringement and/or validity of the patents asserted against it. Along with their Answers, each of Alkem, Annora and Hetero, Cipla, DRL, Emcure and Heritage, Glenmark, Macleods, Mankind, Pharmascience, Sandoz, Shilpa, Teva and Actavis, Torrent, and Unichem filed declaratory judgment counterclaims asserting that some or all of the patents are not infringed and/or are invalid. The court has consolidated all OTEZLA
®
litigations for discovery and case management purposes, and entered a schedule for fact discovery. The court has not yet entered a schedule for expert discovery and trial in any of the OTEZLA
®
litigations.
THALOMID
®
: We received a Notice Letter dated July 19, 2018 from West-Ward Pharmaceuticals International Limited (West-Ward) notifying us of West-Ward’s ANDA which contains Paragraph IV certifications against U.S. Patent Nos. 6,315,720; 6,561,977; 6,755,784; 6,869,399; 7,141,018; 7,230,012; 7,959,566; 8,315,886 and 8,626,531 that are listed in the Orange Book for THALOMID
®
. West-Ward is seeking to manufacture and market a generic version of 50 mg, 100 mg, 150 mg, and 200 mg THALOMID
®
(thalidomide) capsules in the United States. In response to the Notice letter, we timely filed an infringement action against West-Ward in the U.S. District Court for the District of New Jersey on August 31, 2018. As a result of the filing of our action, the FDA cannot grant final approval of West-Ward’s ANDA until at least the earlier of (i) a final decision that each of the patents is invalid, unenforceable, and/or not infringed, and (ii) January 20, 2021. On February 11, 2019, West-Ward filed its answer and counterclaims, asserting that each of the patents is invalid and/or not infringed. We filed our answer to West-Ward’s counterclaims on March 18, 2019. Fact discovery is set to close on May 8, 2020. The court has yet to enter a schedule for expert discovery and trial.
Juno Patent-Related Proceedings:
KITE:
On October 18, 2017, the day on which the FDA approved Kite Pharma, Inc.’s (Kite) Yescarta™ KTE-C19 product, Juno filed a complaint against Kite in the U.S. District Court for the Central District of California. The complaint alleged that Yescarta™ infringes claims 1-3, 5, 7-9, and 11 of U.S. Patent No. 7,446,190 (the ’190 Patent). Kite answered the complaint on November 28, 2017, and filed counterclaims of non-infringement and invalidity against Juno. Juno filed a motion to dismiss Kite’s counterclaims and to strike certain affirmative defenses on December 19, 2017.
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On March 8, 2018, the court granted Juno’s motion to dismiss and strike, and ordered Kite to file an amended answer and counterclaims. On the same day, the court denied Kite’s motion to stay. On March 29, 2018, Kite filed an amended answer and counterclaims, asserting that the ’190 Patent is invalid and/or not infringed. On April 9, 2018, we filed an answer to Kite’s counterclaims. The court held a claim construction hearing on September 18, 2018, and issued a claim construction order on October 9, 2018. On November 12, 2018, Kite filed a motion to dismiss Plaintiffs Memorial Sloan Kettering Cancer Center and Juno Therapeutics based on an alleged lack of standing. Plaintiffs filed their opposition on November 26, 2018, and Kite filed its reply on December 3, 2018. The Court did not hold a hearing and has taken the motion under submission. Kite filed a motion for summary judgment of non-infringement on January 22, 2019. We filed our opposition to Kite’s summary judgment motion on February 19, 2019. Kite’s reply was filed on March 11, 2019. The Court did not hold a hearing and took the matter under submission. Expert discovery is ongoing. Trial is scheduled to begin on December 3, 2019.
Proceedings Involving the U.S. Patent and Trademark Office (USPTO):
REMS IPRs: Under the America Invents Act (AIA), any person may seek to challenge an issued patent by petitioning the USPTO to institute a post grant review. On April 23, 2015, we were informed that the Coalition for Affordable Drugs VI LLC filed petitions for IPR challenging the validity of our U.S. Patent Nos. 6,045,501 (the ’501 patent) and 6,315,720 (the ’720 patent) covering certain aspects of our REMS program. On October 27, 2015, the USPTO Patent Trial and Appeal Board (PTAB) instituted IPR proceedings relating to these patents. An oral hearing was held on July 21, 2016. The PTAB’s decisions, rendered on October 26, 2016, held that the ’501 and ’720 patents are invalid, primarily due to obviousness in view of certain publications. On November 25, 2016, we requested a rehearing with respect to certain claims of these patents. On September 8, 2017, the PTAB denied our rehearing request for the ’501 patent, but granted our rehearing request pertaining to a certain claim of the ’720 patent.
We timely appealed to the U.S. Court of Appeals for the Federal Circuit the PTAB’s determinations regarding certain claims of the ’720 patent and the ’501 patent on November 6, 2017 and on November 9, 2017, respectively. On February 26, 2018, the USPTO intervened in our appeal. Oral argument occurred on June 3, 2019. On July 30, 2019, the U.S. Court of Appeals for the Federal Circuit affirmed the PTAB's prior ruling. We retain other patents covering certain aspects of our REMS program, as well as patents that cover our products that use our REMS system.
REVLIMID
®
IPRs: On February 23, 2018, Apotex filed a petition for IPR challenging the validity of our U.S. Patent No. 8,741,929. On September 27, 2018, the PTAB denied institution of the IPR. On October 29, 2018, Apotex filed a Request for Rehearing.
JUNO IPR: On August 13, 2015, Kite filed a petition for IPR challenging the validity of U.S. Patent No. 7,446,190 (the ’190 Patent), exclusively licensed from Memorial Sloan Kettering Cancer Center. On February 11, 2016, the PTAB instituted the IPR proceedings. A hearing was held before the PTAB on October 20, 2016. On December 16, 2016, the PTAB issued a final written decision upholding all claims of the ’190 Patent. On February 16, 2017, Kite filed a notice of appeal of the PTAB’s final written decision to the U.S. Court of Appeals for the Federal Circuit. On June 6, 2018, the Federal Circuit affirmed the decision of the Patent Trial and Appeal Board, upholding all claims of the ’190 Patent.
Other Proceedings:
MYLAN: On April 3, 2014, Mylan filed a lawsuit against us in the U.S. District Court for the District of New Jersey alleging that we violated various federal and state antitrust and unfair competition laws by allegedly refusing to sell samples of our THALOMID
®
and REVLIMID
®
brand drugs so that Mylan may conduct the bioequivalence testing necessary to submit ANDAs to the FDA for approval to market generic versions of these products. Mylan is seeking injunctive relief, damages and a declaratory judgment. We filed a motion to dismiss Mylan’s complaint on May 25, 2014. Mylan filed its opposition to our motion to dismiss on June 16, 2014. The Federal Trade Commission filed an amicus curiae brief in opposition to our motion to dismiss on June 17, 2014.
On December 22, 2014, the court granted our motion to dismiss (i) Mylan’s claims based on Section 1 of the Sherman Act (without prejudice), and (ii) Mylan’s related claims arising under the New Jersey Antitrust Act. The court denied our motion to dismiss the remaining claims which primarily relate to Section 2 of the Sherman Act. On January 6, 2015, we filed a motion to certify for interlocutory appeal the order denying our motion to dismiss with respect to the claims relating to Section 2 of the Sherman Act, which appeal was denied by the U.S. Court of Appeals for the Third Circuit on March 5, 2015. On January 20, 2015, we filed an answer to Mylan’s complaint. Fact discovery closed in June 2016 and expert discovery closed in November 2016. On December 16, 2016, we moved for summary judgment, seeking a ruling that judgment be granted in our favor on all claims. The motion for summary judgment was argued on December 13, 2017. Supplemental briefing on the motion for summary judgment was filed on February 1, 2018. On October 3, 2018, the Court granted in part and denied in part our motion for summary judgment. In July
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2019, the parties reached a confidential settlement under which Mylan's claims are to be dismissed with prejudice. The settlement amount was not materially different than the amount we had previously accrued for this matter as of June 30, 2019.
THALOMID
®
AND REVLIMID
®
ANTITRUST LITIGATION: On November 7, 2014, the International Union of Bricklayers and Allied Craft Workers Local 1 Health Fund (IUB) filed a putative class action lawsuit against us in the U.S. District Court for the District of New Jersey alleging that we violated various antitrust, consumer protection, and unfair competition laws by (a) allegedly securing an exclusive supply contract with Seratec S.A.R.L. so that Barr Laboratories allegedly could not secure its own supply of thalidomide active pharmaceutical ingredient, (b) allegedly refusing to sell samples of our THALOMID
®
and REVLIMID
®
brand drugs to various generic manufacturers for the alleged purpose of bioequivalence testing necessary for ANDAs to be submitted to the FDA for approval to market generic versions of these products, and (c) allegedly bringing unjustified patent infringement lawsuits in order to allegedly delay approval for proposed generic versions of THALOMID
®
and REVLIMID
®
. IUB, on behalf of itself and a putative class of third-party payers, is seeking injunctive relief and damages.
In February 2015, we filed a motion to dismiss IUB’s complaint, and upon the filing of a similar putative class action making similar allegations by the City of Providence (Providence), the parties agreed that the decision in the motion to dismiss IUB’s complaint would apply to the identical claims in Providence’s complaint. In October 2015, the court denied our motion to dismiss on all grounds.
We filed our answers to the IUB and Providence complaints in January 2016. On June 14, 2017, a new complaint was filed by the same counsel representing the plaintiffs in the IUB case, making similar allegations and adding
three
new plaintiffs - International Union of Operating Engineers Stationary Engineers Local 39 Health and Welfare Trust Fund (Local 39), The Detectives’ Endowment Association, Inc. (DEA) and David Mitchell. Plaintiffs added allegations that our settlements of patent infringement lawsuits against certain generic manufacturers have had anticompetitive effects. Counsel identified the new complaint as related to the IUB and Providence cases and, on August 1, 2017, filed a consolidated amended complaint on behalf of IUB, Providence, Local 39, DEA, and Mitchell. On September 28, 2017, the same counsel filed another complaint, which it identified as related to the consolidated case, and which made similar allegations on behalf of an additional asserted class representative, New England Carpenters Health Benefits Fund (NEC). The NEC action has been consolidated with the original action involving IUB, Providence, DEA, Local 39, and Mitchell into a master action for all purposes.
On October 2, 2017, the plaintiffs filed a motion for certification of two damages classes under the laws of thirteen states and the District of Columbia and a nationwide injunction class. On February 26, 2018, we filed our opposition to the plaintiffs’ motion and a motion for judgment on the pleadings dismissing all state law claims where the plaintiffs no longer seek to represent a class. The plaintiffs filed their opposition to our motion for judgment on the pleadings on April 2, 2018, and we filed our reply on April 13, 2018. The plaintiffs filed their reply in support of their class certification motion on May 18, 2018. Fact discovery in these cases closed on May 17, 2018 and expert discovery closed on December 11, 2018. On October 30, 2018, the Court denied Plaintiffs’ Motion for Class Certification and Celgene’s motion for judgment on the pleadings. On December 14, 2018, the plaintiffs filed a new motion for class certification. Our opposition to Plaintiff’s new motion for class certification was filed on January 25, 2019 and the plaintiffs’ reply in support of their new motion for class certification was filed on February 15, 2019. In July 2019, the parties reached a settlement under which all the putative class plaintiff claims would be dismissed with prejudice; plaintiffs’ motion for preliminary approval of that settlement is currently pending before the Court. The settlement amount was not materially different than the amount we had previously accrued for this matter as of June 30, 2019.
USAO MASSACHUSETTS SUBPOENA: In December 2015, we received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts, and in November 2016, we received a second subpoena related to the same inquiry. The materials requested primarily relate to patient assistance programs, including our support of 501(c)(3) organizations that provide financial assistance to eligible patients. We are cooperating with these requests.
CELGENE SECURITIES CLASS ACTION: On March 29, 2018, the City of Warren General Employees’ Retirement System filed a putative class action against us and certain of our officers in the U.S. District Court for the District of New Jersey. The complaint alleges that the defendants violated federal securities laws by making misstatements and/or omissions concerning (1) trials of GED-0301, (2) 2020 outlook and projected sales of OTEZLA
®
, and (3) the new drug application for Ozanimod. On May 3, 2018, a similar putative class action lawsuit against us and certain of our officers was filed by Charles H. Witchcoff in the U.S. District Court for the District of New Jersey. The complaint alleges that defendants violated federal securities laws by making material misstatements and/or omissions concerning (1) trials of GED-0301, (2) 2020 outlook and projected sales of OTEZLA
®
, and (3) the new drug application for Ozanimod. On September 27, 2018, the court consolidated the two actions and appointed a lead plaintiff, lead counsel, and co-liaison counsel for the putative class. On October 9, 2018, the court entered a scheduling order which requires lead plaintiff to file an amended complaint by December 10, 2018; defendants to file their motion to dismiss the
CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
amended complaint by February 8, 2019; lead plaintiff to file its opposition to the motion to dismiss by April 9, 2019; and defendants to file their reply by May 9, 2019. On December 10, 2018, the lead plaintiff filed its amended complaint. On February 8, 2019, defendants filed a motion to dismiss plaintiff’s amended complaint in full, and the plaintiff filed its opposition on April 9, 2019.
SARATOGA DERIVATIVE ACTION: On July 12, 2018, Saratoga Advantage Trust Health and Biotechnology Portfolio filed a shareholder derivative complaint against certain members of our board of directors in the U.S. District Court for the District of New Jersey. The complaint alleges that (i) certain defendants made misrepresentations and omissions of material fact concerning, among other things, trials of GED-0301, sales of OTEZLA
®
, 2017 and 2020 fiscal guidance, and the new drug application for Ozanimod and (ii) all defendants failed to adequately supervise Celgene with regard to trials of GED-0301, sales of OTEZLA
®
, 2017 and 2020 fiscal guidance, the new drug application for Ozanimod, and the promotion and marketing of REVLIMID
®
. The plaintiff has agreed to stay the defendants’ obligation to answer or otherwise respond to the allegations in the complaint in deference to the Celgene Securities Class Actions and subject to thirty days’ notice by either plaintiff or defendants of an intent to proceed. On August 1, 2018, the Court entered an order staying the proceedings until the disposition of the first motion to dismiss in the Celgene Securities Class Action. The order also administratively terminated the proceedings.
GEROLD DERIVATIVE ACTION: On October 11, 2018, Sam Baran Gerold filed a shareholder derivative complaint against certain members of our board of directors in the Superior Court of New Jersey. The complaint alleges that (i) defendants breached certain fiduciary duties related to, among other things, GED-0301, OTEZLA
®
, and the new drug application for Ozanimod and (ii) because of that breach, the defendants caused Celgene to waste its corporate assets and the defendants were unjustly enriched. On October 29, 2018, defendants removed this matter to the U.S. District Court for the District of New Jersey. On January 9, 2019 the court entered a stipulation and order staying the matter until the disposition of the motion to dismiss in the Celgene Securities Class Action or at any party’s election on 15 days’ notice to all other parties.
HUMANA, INC (HUMANA): On May 16, 2018, Humana filed a lawsuit against us in the Pike County Circuit Court of the Commonwealth of Kentucky. Humana’s complaint alleges we engage in unlawful off-label marketing in connection with sales of THALOMID
®
and REVLIMID
®
and asserts claims against us for fraud, breach of contract, negligent misrepresentation, unjust enrichment, and violations of New Jersey’s Racketeer Influenced and Corrupt Organizations Act. The complaint seeks, among other things, treble and punitive damages, injunctive relief and attorneys’ fees and costs. On June 13, 2018, we removed Humana’s lawsuit to the U.S. District Court for the Eastern District of Kentucky and, on July 11, 2018, filed a motion to dismiss Humana’s complaint in full. On July 12, 2018, Humana moved to remand the case to state court. On March 29, 2019, the lawsuit was remanded to Pike County Circuit Court of the Commonwealth of Kentucky. On April 25, 2019, Celgene filed a motion to transfer or dismiss Humana’s complaint, as well as a motion to transfer on forum non conveniens grounds. Humana filed its oppositions to the motions on May 28, 2019, and Celgene filed its replies on June 14, 2019. A hearing on the motions is scheduled for September 12, 2019.
On March 1, 2019, Humana filed a separate lawsuit against us in the United States District Court for the District of New Jersey. Humana’s complaint alleges that we violated various antitrust, consumer protection, and unfair competition laws to delay or prevent generic competition for our THALOMID
®
and REVLIMID
®
brand drugs, including (a) allegedly refusing to sell samples of our products to generic manufacturers for purposes of bioequivalence testing intended to be included in ANDAs for approval to market generic versions of these products; (b) allegedly bringing unjustified patent infringement lawsuits, procuring invalid patents, and/or entering into anticompetitive patent settlements; (c) allegedly securing an exclusive supply contract for supply of thalidomide active pharmaceutical ingredient. The complaint purports to assert claims on behalf of Humana and its subsidiaries in several capacities, including as a direct purchaser and as an indirect purchaser, and seeks, among other things, treble and punitive damages, injunctive relief and attorneys’ fees and costs. We filed a motion to dismiss Humana’s complaint on May 22, 2019. Humana filed its opposition to our motion to dismiss on July 1, 2019.