10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 (Fee Required) For the fiscal year ended December 31, 1996

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 (No Fee Required) 
     For the transition period from __________ to __________

Commission File No. 0-16132

                               CELGENE CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                        22-2711928
- -------------------------------                 --------------------------------
(State or other jurisdiction of                 (I.R.S. Employer Identification)
 incorporation or organization)

      7 Powder Horn Drive
      Warren, New Jersey                                       07059
- ----------------------------------------                     ----------
(Address of principal executive offices)                     (Zip Code)


                                 (908) 271-1001
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                    Yes  X   No 
                                        ---     ---

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Aggregate market value of voting stock held by non-affiliates of registrant as
of March 1, 1997: $ 99,264,579

Number of shares of Common Stock outstanding as of March 1, 1997:  10,783,373

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report, are incorporated by reference in Part III
hereof.





                              CELGENE CORPORATION
                          ANNUAL REPORT ON FORM 10-K
                          --------------------------
                               TABLE OF CONTENTS

Item No.                                                                  Page
- --------                                                                  ----
Part I

      1.   Business .........................................................3
      2.   Properties.......................................................19
      3.   Legal Proceedings................................................19
      4.   Submission of Matters to a Vote of
             Security Holders...............................................19

Part II

      5.   Market for Registrant's Common Equity
             and Related Stockholder Matters................................20
      6.   Selected Financial Data..........................................21
      7.   Management's Discussion and Analysis
              of Financial Condition and Results of Operations..............22
      8.   Financial Statements and Supplementary Data......................26
      9.   Changes in and Disagreements with
             Accountants on Accounting and Financial Disclosure.............26

Part III ...................................................................26

Part IV

      14.  Exhibits, Financial Statements, and
             Reports on Form 8-K............................................26




                                    PART I

ITEM 1. BUSINESS

     Celgene Corporation ("Celgene" or the "Company") is a biotechnology company
engaged in the development and commercialization of human pharmaceuticals and
agrochemicals. Celgene has two technology platforms: (i) targeted small molecule
synthesis and (ii) biocatalytic chiral chemistry synthesis. Celgene has applied
its expertise in small molecule chemistry to develop proprietary
immunotherapeutic pharmaceutical products, called SelCIDs[TM], intended to treat
chronic inflammatory diseases and other disorders. SelCIDs are orally available
small molecules that selectively inhibit the production of Tumor Necrosis Factor
Alpha ("TNF[alpha]"), a protein whose overproduction has been linked to many
chronic inflammatory diseases including inflammatory bowel disease, rheumatoid
arthritis, non-insulin dependent diabetes, asthma, lupus, and multiple
sclerosis. In the near term, the Company is seeking approval by the U.S. Food &
Drug Administration (the "FDA") to market Synovir[RegTM], its trademarked
formulation for thalidomide, a potent and selective inhibitor of TNF[alpha]. In
February 1997, the Company's New Drug Application ("NDA") for Synovir in the
treatment of an inflammatory complication of leprosy was filed by the FDA, and
the Company expects to submit an NDA in 1997 for Synovir in the treatment of
cachexia (wasting) in patients with Acquired Immune Deficiency Syndrome
("AIDS"). The Company is employing its biocatalytic chiral chemistry synthesis
technology to develop chirally pure chemical compounds with superior attributes
and/or lower manufacturing costs than conventional, non- chirally pure chemical
compounds. Celgene's chiral chemistry technology supports an established,
growing business in chirally pure intermediates and development programs in
chirally pure human pharmaceuticals and agrochemicals. In addition, the Company
will seek to license its biocatalytic process to agrochemical companies for the
production of chirally pure agrochemicals in exchange for royalties on sales.

     Celgene is employing its targeted small molecule synthesis technology
platform to develop its SelCIDs, with the objective of producing an array of
highly potent, selective, safe, orally available drugs to combat chronic
inflammatory diseases. These diseases collectively afflict millions of patients,
and are inadequately addressed with existing therapies. Celgene's SelCIDs
program arose out of the Company's recognition of the selective TNF[alpha]- 
suppressing activity of thalidomide. Certain SelCIDs have been demonstrated in
in vitro tests using human cells to be far more effective than thalidomide at
suppressing TNF[alpha] production. Furthermore, in small animal tests, the
SelCIDs evaluated did not have the teratogenic effects (birth defects) that were
evident with the same dosage level of thalidomide. The Company has commenced
preclinical development of its SelCIDs, and anticipates that the first compound
will be ready for safety testing in humans in the United Kingdom in 1997. In
February 1997, the United States Patent and Trademark Office ("U.S. PTO") issued
a composition of matter patent to the Company covering a large number of its
SelCIDS compounds. 

     In the near term, the Company is seeking to develop Synovir for the
treatment of several chronic and intractable diseases. The Company's NDA for
Synovir to treat erythema nodosum leprosum ("ENL"), a condition associated with
leprosy, was filed by the FDA in February 1997. The Company recently completed a
Phase II/III trial of Synovir for the treatment of cachexia in patients with
AIDS and, based on the positive preliminary data, expects to submit an NDA for
this indication in 1997. Celgene is also studying Synovir in preclinical and
clinical trials for the treatment of five other disease states. 

     Celgene's core chiral technology is a patented biocatalytic process.
Biocatalysis involves the identification and manipulation of enzymes to perform
specialized chemical reactions to produce chirally pure compounds. Chirality
refers to the property of many chemical compounds to exist in two or more
different geometric conformations that are mirror images of each other. While
one conformation may have beneficial effects, the other or others may be
inactive or produce undesirable effects. Chirally pure compounds contain only
one of these conformations, and thus potentially can have superior attributes. 

     The Company is employing its biocatalytic chiral chemistry synthesis
technology to develop chirally pure pharmaceutical products with greater
efficacy and fewer side effects than conventional products. The Company recently
filed Investigational New Drug applications ("INDs") in the United States and
Canada to initiate a Phase I/II clinical trial for a chirally pure version of
dl-methylphenidate, which has been used for decades in formulations such as
Ritalin[RegTM], for the treatment of Attention Deficit Hyperactivity Disorder
("ADD") in children. 

     Since 1990, Celgene has supplied chirally pure intermediates to several
major pharmaceutical companies for use in the development of chirally pure
pharmaceuticals, and a number of these companies are conducting advanced
clinical trials of pharmaceuticals that incorporate the Company's chirally pure
intermediates. Drugs 

                                       3



currently under clinical development by these pharmaceutical companies are
targeted at therapeutic indications with large populations, including asthma,
Parkinson's Disease, obesity/diabetes, and congestive heart failure. 

     Celgene is also applying its chiral technology to the production of
chirally pure agrochemicals, in which the Company's biocatalytic process can be
enabling by significantly lowering manufacturing costs, and substantially
reducing environmental impact. Since 1994, the Company has been developing a
process to manufacture a chirally pure version of a currently marketed crop
protection agent under a research and development agreement with a large
agrochemical company. The Company anticipates that in 1997, the agrochemical
company will decide whether it will license Celgene's biocatalytic process, and
proceed with the commercial production of the chirally pure version of the
product. 

     Celgene's portfolio of products currently under development is set forth in
the following table and further described below: 

                    Celgene's Product Development Programs 



             Product                     Indication or Intended Use                    Status(1)
- --------------------------------     ----------------------------------   ------------------------------------- 
                                                                                                        
Immunotherapeutics Platform                                                                                     

 SelCIDs[TM] (Selective Cytokine      Various immune system diseases       Preclinical testing                  
  Inhibitory Drugs)                   and disorders                                                             

Synovir                               Erythema Nodosum Leprosum            NDA Filed                            
                                       ("ENL") in leprosy                                                       
                                      AIDS--Cachexia                       Phase II/III Trial completed         
                                      AIDS--Recurrent Aphthous             Phase II/III Trial expected to       
                                       Stomatitis ("RAS")                  commence mid 1997                    
                                      AIDS--Chronic Diarrhea               Phase II/III Trial                   
Chiral Chemistry Platform                                                                                       

 Chirally Pure Pharmaceuticals                                                                                  

  d-MPH (chirally pure version        Attention Deficit Hyperactivity      Phase I/II Trial                     
  of dl-methylphenidate)(2)            Disorder ("ADD")                                                         

  Chirally pure anti-pain agent       Central nervous system pain          Preclinical testing                  

 Chirally Pure Intermediates                                                                                    

  Intermediates                       Building blocks for active           Developmental sales to                  
                                      ingredients for drugs under          pharmaceutical companies             
                                      development by pharmaceutical                                             
                                      companies                                                                 
 Chirally Pure Agrochemicals                                                                                    

  Chiral biocatalytic synthesis       Significantly reduced                First application in advanced stage  
  technology                          manufacturing costs and reduced      of evaluation by potential licensee  
                                      environmental impact 


(1) See -- "Government Regulation" for a description of the meaning of terms
   used to describe the status of the Company's product development activities. 

(2) One commercial formulation of dl-methylphenidate is Ritalin[RegTM].
      

                                       4



Celgene's Immunotherapeutic Platform 

     Celgene is developing a family of orally available, small molecule
pharmaceuticals that have the potential to regulate the overproduction of
TNF[alpha]. TNF[alpha], produced primarily by certain white blood cells, is one
of a number of proteins called cytokines, which act as chemical messengers
throughout the body to regulate many aspects of immune system function.
TNF[alpha] is essential to the mounting of an inflammatory response, which is
the normal immune system reaction to infection or injury, and rids the body of
foreign agents and promotes tissue repair. However, chronic or excessive
production of TNF[alpha] has been implicated in the pathophysiology of a number
of acute and chronic inflammatory diseases including inflammatory bowel disease,
rheumatoid arthritis, non-insulin dependent diabetes, asthma, lupus, and
multiple sclerosis. Collectively, these disease states afflict millions of
patients, and are inadequately treated with existing therapies. 


     The following table sets forth the estimated U.S. patient population for
several common inflammatory diseases and other disorders whose pathophysiologies
are believed to be associated with excess levels of TNF[alpha]: 

          Common Inflammatory Diseases and Other Disorders
              Related to Excess TNF[alpha] Levels



                                         Estimated U.S.   
             Disease                   Patient Population 
- -----------------------------------   --------------------
                                                    
 Asthma                                    15,000,000     
 Diabetes (non-insulin dependent)          11,000,000     
 Psoriasis                                  4,000,000     
 Rheumatoid Arthritis                       2,100,000     
 Cancer Cachexia                              500,000     
 Inflammatory Bowel Disease                   500,000     
 Multiple Sclerosis                           350,000     
 Lupus                                        250,000     


     Traditional therapies for these disease states include anti-inflammatory
drugs and immunosuppressive agents such as steroids and chemotherapeutics. These
therapies, however, often fail to achieve significant clinical effects, and can
cause serious side effects such as severe drops in blood counts, liver toxicity,
osteoporosis, birth defects, and various endocrine abnormalities. Newer
therapies, which include monoclonal antibodies and receptor-based therapies,
also have not adequately addressed these diseases. It is widely believed that
selective inhibition of TNF[alpha] represents a promising new strategy for
treating chronic inflammatory diseases. In pursuit of this strategy, two broad
classes of compounds have been investigated: proteins and small molecules.

     Investigational anti-TNF[alpha] proteins, including anti-TNF[alpha]
antibodies and TNF[alpha] receptors, have demonstrated efficacy in such chronic
inflammatory diseases as rheumatoid arthritis, inflammatory bowel disease,
Crohns' disease (a severe manifestation of inflammatory bowel disease), and
Graft versus Host Disease. While initial doses of these anti-TNF[alpha] proteins
have been well tolerated and reduced disease activity has been observed in
clinical studies, they do exhibit certain shortcomings linked to their nature as
proteins. First, they are relatively larger molecules that must be injected.
Second, the period of efficacy of a given dosage of a protein-based drug often
declines with repeated administration, rendering protein-based drugs more
suitable for treatment of acute pathological conditions rather than chronic
pathological conditions. This limitation is due in part to increasing production
by the patient's immune system of antibodies that neutralize administered
proteins. Varying degrees of this immunogenic response have been observed in
clinical trials of anti-TNF[alpha] antibodies for the treatment of rheumatoid
arthritis and Crohn's disease.

     There are a number of large protein based therapeutic products under
development for TNF[alpha] modulation. Major pharmaceutical companies and
several biotechnology companies have either antibody or receptor-based products
under development for rheumatoid arthritis, Crohn's disease, asthma, and
non-insulin dependent diabetes mellitus. While the rationale for the potential
clinical benefit of TNF[alpha] inhibition is clear, the best method to
accomplish this effect has yet to be determined.


                                       5



     It is believed that small molecule drugs will have important clinical
advantages in the treatment of chronic inflammatory diseases over large protein
investigational drugs, including: 

     [bullet] ease of administration (oral dosing versus chronic injections)
leading to greater patient compliance; 

     [bullet] facilitation of long term treatment due to the absence of
immunogenic neutralization, and 

     [bullet] potentially greater dosing flexibility through oral or inhalation
delivery. 

     Several hundred SelCIDs have been synthesized and tested by the Company.
Certain of these compounds have been identified which are substantially more
potent in in vitro bioassays of human cells than thalidomide, including some
with equivalent ability to inhibit TNF[alpha] overproduction but in a dose as
low as 1/10,000 of the dose of thalidomide. There can be no assurance, however,
that the same effect can be duplicated in in vivo tests. Furthermore, in small
animal tests, certain SelCIDs do not have the teratogenic effects that were
evident with the same dosage level of thalidomide. SelCIDs have demonstrated
greater stability and longer half-lives in human plasma than thalidomide. The
Company has commenced preclinical development of these compounds, and
anticipates that the first compound will be ready for safety testing in humans
in the United Kingdom in 1997, with the aim of filing an IND for the first
target indication in the United States in 1998. The Company has filed more than
20 composition of matter patent applications for SelCIDs, and the first patent,
covering the composition of a large number of these compounds, was issued to the
Company on February 25, 1997. 

Synovir 

     The Company is currently developing Synovir, its trademarked formulation of
thalidomide, a potent yet selective inhibitor of TNF[alpha], for the treatment
of a variety of serious disease states for which there is currently no adequate
therapy. 

     The Company's work with thalidomide is based on a scientific collaboration
with the Rockefeller University's Laboratory of Cellular Physiology and
Immunology ("Rockefeller"). In the early 1990s, researchers at Rockefeller
discovered that thalidomide is a selective modulator of TNF[alpha], and
therefore could be of potential benefit in certain serious immune related
disease states, including AIDS-related conditions, the inflammatory
complications of leprosy, and Graft versus Host Disease. The Company believes
that, in these disease states, the risk of thalidomide's major drawback, its
teratogenicity, is counterbalanced by the gravity of the disease and the drug's
potential clinical benefits. The Company has taken measures to institute a
program of safe and effective dispensing of Synovir. This program will include
comprehensive physician, pharmacist, and patient education, informed consent
procedures, appropriate labeling, and frequent pregnancy testing. Celgene is the
exclusive licensee from Rockefeller for the U.S. patent for the use of
thalidomide for treating the toxicity of high concentrations of TNF[alpha] in
HIV infection, cachexia and septic shock. 

     Initially, thalidomide was developed as a sedative, and was widely
prescribed by doctors in Europe in the late 1950s to pregnant women to relieve
morning sickness. After severe birth defects were observed with use of the drug,
it was virtually removed from the world market. Thalidomide was, however,
discovered to have therapeutic effects in the treatment of ENL in leprosy, a
disease that is rare in the United States but common in many parts of the
developing world. Although the FDA has never officially approved the marketing
of thalidomide, the U.S. Public Health Service has been dispensing the drug for
the treatment of ENL for the past 25 years. 

Target Disease States for Synovir 

     The primary indications for which the Company is currently testing, or
about to commence testing Synovir are set forth in the following table. The
table summarizes the completed, ongoing and planned clinical trials for Synovir.
The number of patients shown for each such trial that is either ongoing or
expected to be commenced is the number of patients that the Company anticipates
will be enrolled in such trial. There can be no assurance that the Company will
eventually commercialize or pursue regulatory approval for Synovir for any of
these indications.

                                       6




                     Synovir Clinical Development Programs 



                                                                        # of                                       
                                                                      Patients                                     
          Indication                          Status                  in Trial      Clinical Endpoint              
- --------------------------------   ------------------------------   -----------   -------------------------------- 
                                                                                                       
AIDS-Related Conditions                                                                                            
 Cachexia                           Phase II/III Trial                 102         Increase in body weight         
                                    completed                                      (at 8 weeks)                    
 Recurrent Aphthous Stomatitis      Phase II/III Trial                 84          Complete healing of all ulcers  
                                    expected to commence                                                           
                                    mid 1997                                                                       
 Chronic Diarrhea                   Phase II/III Trial                 120         Reduction in frequency          
                                    commenced 1996                                 of bowel movements              
Non AIDS-Related Conditions                                                                                        
 Erythema Nodosum                   NDA filed February 1997            NA          Absence of new lesions and      
  Leprosum in leprosy                                                              complete remission of all       
                                                                                   systemic symptoms               
                                                                                   (at 7 days)                     
 Graft versus Host Disease          Phase II/III Trial protocol        NA          Under discussion with the FDA   
                                    in design                                                                      



     AIDS-Related Conditions 

     Synovir has been studied in the treatment of several AIDS-related
conditions. Competing therapies have demonstrated beneficial effects in some of
these conditions, but only Synovir has been demonstrated to have some efficacy
in each of these indications. Many AIDS patients currently take several
different pharmaceuticals each day, and thus may suffer from side effects of
each pharmaceutical taken, as well as potential drug interaction problems. 

     Cachexia. Cachexia is defined clinically as the involuntary loss of more
than 10% of baseline body weight. Based on available information, the Company
believes that an estimated 50% of AIDS patients (or approximately 100,000
persons) in the United States suffer from cachexia at some point in the
progression of AIDS. The condition can result from HIV infection itself, or as a
consequence of AIDS-related illnesses. Cachexia markedly diminishes a patient's
quality of life, and may contribute directly to disease progression, or the
continuing loss of immune function, and to the development of opportunistic
infections. 

     The Company recently completed a Phase II/III pivotal trial of Synovir in
cachexia. The trial included 102 HIV positive patients who had lost at least 10%
of their body weight in the preceding six months. Results of these trials were
recently unblinded, and preliminary data appears very positive, demonstrating
statistically significant weight gain. The data is currently undergoing detailed
analysis in order to support the submission of an NDA for this indication. In
December 1995, the FDA permitted the Company to commence an expanded-access
program, which is ongoing, for Synovir for the treatment of cachexia. This
permits access to the drug for patients who fail to meet the admission criteria
of the Company's Phase II/III pivotal trial. 

     Recurrent Aphthous Stomatitis. RAS, which is characterized by lesions of
the oral cavity, esophagus, and gastrointestinal tract, afflicts an estimated
20,000 AIDS patients. Very positive results have been reported in a study
conducted by the AIDS Clinical Trials Group, an entity not related to the
Company. The Company intends to begin clinical trials in mid 1997 for the
evaluation of Synovir in the treatment of RAS. 

     Chronic Diarrhea. Frequent intractable diarrhea is a clinically important
symptom in AIDS patients. There currently is no effective treatment for this
condition, which results in restricted lifestyle and significant morbidity, such
as weight loss, and is estimated to afflict 50,000 patients in the United
States. The Company is currently sponsoring a double-blinded, placebo controlled
Phase II/III clinical trial to determine the safety and efficacy of Synovir in
the symptomatic treatment of AIDS patients with severe diarrhea in the presence
of two common bowel pathogens. 

     Effect of Protease Inhibitors and Triple Combination Therapy on Need for
Synovir. Triple combination therapy, which involves the use of a protease
inhibitor in conjunction with two reverse transcriptase inhibitors, has proven 

                                       7



effective at reducing the viral load of AIDS and may also reduce the number of
complications per patient. However, the Company believes there will be
continuing demand for Synovir among AIDS patients because: (i) triple
combination therapy does not restore the immune system, and thus many patients
receiving triple combination therapy, especially those who have suffered from
AIDS for an extended period of time, continue to be prone to opportunistic
infections associated with elevated levels of TNF[alpha]; (ii) there is evidence
that mutations of the AIDS virus may render protease inhibitors less effective,
and (iii) Synovir may be useful prophylactically to prevent the onset of
AIDS-related complications.

     Non AIDS-Related Conditions 

     Erythema Nodosum Leprosum. ENL is a complication of leprosy, a chronic
bacterial disease. Leprosy afflicts approximately 2.4 million persons worldwide,
although the disease is relatively rare in the United States. ENL occurs in
about 30% of leprosy patients, and is characterized by acute inflammation,
fever, and anorexia. In February 1997, the Company's NDA for Synovir in the
treatment of ENL was filed by the FDA. 

     Graft versus Host Disease. Graft versus Host Disease is a disorder of the
immune system that is the most common complication and cause of death following
bone marrow transplants. The Company is developing a protocol for a statistical
study of Synovir in the treatment of Graft versus Host Disease. 

     Compassionate Use Programs 

     Since 1995, the Company has been dispensing Synovir under
physician-directed emergency INDs. The Company has fulfilled over 600 separate
requests (each of which may represent a multiple number of patients being
treated) for supplies of Synovir to treat a total of 30 indications, with 15
indications comprising the majority of these requests. 

Celgene's Chiral Chemistry Platform 

     Celgene is applying its patented, cost effective biocatalytic chiral
chemistry synthesis technology and seven years of experience in developing
chirally pure intermediates towards substantial business opportunities in human
pharmaceuticals and agrochemicals. The Company believes it has made significant
progress over the past two years towards the development of three principal
opportunities: (i) the development of chirally pure versions of existing racemic
drugs (drugs containing equal quantities of the mirror image conformations of an
active ingredient that exhibits chirality) whose performance and/or safety
profiles may be enhanced by eliminating chiral impurities; (ii) the supply of
custom chirally pure intermediates to other pharmaceutical companies for use in
new drug development, and (iii) the development and production of chirally pure
agrochemicals. 

     Chirality 

     Many human pharmaceuticals and agrochemicals exist in two or more different
three dimensional configurations that are identical in chemical structure but
are mirror images of each other. These conformations, known as stereoisomers,
generally interact differently with biological targets. In clinical
applications, one stereoisomer may result in the desired therapeutic effect by
stimulating or inhibiting a targeted biological function, while the other
stereoisomer may be inactive or cause undesirable side effects. In contrast to
racemic pharmaceuticals, the use of chirally pure pharmaceuticals can result in
significant clinical benefits such as reduced toxicity and increased efficacy.
In agrochemical applications, the use of chirally pure chemicals can result in
substantially lower manufacturing costs and reduced environmental burden than
can be achieved with racemic chemicals. 

     The worldwide market value of drugs marketed in their chirally pure form
increased from approximately $90 million in 1985 to approximately $240 million
in 1995. This increase was driven, in large part, by the FDA's movement towards
requiring applicants, in connection with the submission of NDAs for racemic
compounds, to evaluate the racemic mixture as well as each stereoisomer. In
addition, the FDA recently requested public comment on whether and how it should
create incentives, including periods of market exclusivity, for the development
of chirally pure drugs. Similarly, agrochemicals are subject to complex and
evolving environmental regulation in the United States and abroad, including
regulations establishing usage levels. The Company believes that such regulatory
constraints increase the commercial opportunity for chirally pure agrochemicals
that cause less environmental impact, in terms of both their manufacture and
use. 

     Celgene's Core Chiral Technology: Biocatalysis 

     Celgene's patented biocatalytic process enables the efficient production of
chirally pure compounds. The Company's biocatalytic process is based primarily
on the use of biocatalytic enzymes called transaminases, which 

                                        8



are produced by the Company through genetic engineering techniques. These
enzymes catalyze the production of only the desired stereoisomer of a chiral
compound, and can be used in conventional chemical synthesis reactors at room
temperature. 

     The Company's biocatalytic process for producing chirally pure compounds
differs from the more common approach of producing racemic mixtures followed by
separation of the desired stereoisomer through resolution, crystallization, or
chromatography. These traditional approaches to producing chirally pure
compounds can be cumbersome, result in low yields, use more raw materials, and
are generally less economical than the Company's process. The Company believes
that its biocatalytic process can be applied to the manufacture of a wide
variety of organic chemicals, and provides the Company with three substantial
business opportunities. 

     Chirally Pure Pharmaceuticals. The Company is developing chirally pure
versions of racemic drugs as potentially improved pharmaceuticals with reduced
side effects, lower dosage requirements, enhanced specificity, and applications
in new indications. The Company has filed IND applications with the FDA and the
Health Protection Branch of Canada to initiate a Phase I/II clinical trial for a
chirally pure version of dl-methylphenidate ("dl-MPH"), which has been used for
decades, in formulations such as Ritalin, for the treatment of ADD in children.
Approximately one million American children are estimated to be treated with
dl-MPH in its racemic mixture. Total U.S. sales in 1996 of the drug were
estimated to be $300 million. The Company's study will evaluate the
pharmacokinetics and potential benefits of its chirally pure version of dl-MPH,
which the Company believes include reduced side effects, reduced dosage, and
improved efficacy. The Company anticipates that it will complete its Phase I/II
trial of its chirally pure version of dl-MPH by year-end 1997. In addition, the
Company has commenced development of a controlled release version of its
chirally pure version of dl-MPH, which may substantially improve administration
of the drug. The Company has applied for use and process patents for its
chirally pure version of dl-MPH.

     The Company also has identified a second racemic compound that it plans to
develop as a chirally pure product for the treatment of neuropathic pain. The
Company has established proof of concept for this approach in animal models of
neuropathic pain, and is currently developing a strategic and operational plan
for full clinical development of the compound. 

     Celgene believes there is a significant opportunity in developing chirally
pure versions of approved drugs sold in racemic form. Compounds that have been
approved and marketed have a significant body of information regarding their
safety and efficacy, and consequently: (i) the cost and duration of clinical
trials may be reduced if reference may be made to data used in the course of
obtaining regulatory approval for the racemic parent compound; (ii) the risk of
not obtaining regulatory approval may be reduced, and (iii) marketing risks may
be reduced due to the established market for the parent compound. 

     Chirally Pure Intermediates. Since 1990, the Company has applied its chiral
technology to the development and supply of chirally pure intermediates as
building blocks to make active ingredients for use in new drug development. The
Company focuses on chemical compounds known as amines, including amino acids and
ethanolamines, which are typically critical components of a broad spectrum of
pharmaceuticals, including therapeutics for cardiovascular, respiratory,
anti-infective, endocrine, cancer, and central nervous system applications. 

     Celgene has developed a substantial knowledge base relating to
transaminases, and a library of genetically engineered transaminases. These two
factors facilitate the rapid production of a wide variety of chirally pure
compounds to meet individual customer requirements. In addition, the Company's
biocatalytic process technology can be implemented on a commercial scale using
equipment common to the chemical processing industry with limited additional
capital expenditures. 

     Celgene's principal customers in 1996 included Sanofi Pharmaceuticals,
Bayer AG, Hoffman-LaRoche, Abbott Laboratories, Smith-Kline Beecham
Pharmaceuticals, and Discovery Therapeutics Inc. Several of these companies are
conducting advanced clinical trials of chirally pure pharmaceuticals that
incorporate chirally pure intermediates supplied by Celgene. The drugs under
clinical development by these pharmaceutical companies are targeted at large
therapeutic indications, including asthma, Parkinson's Disease,
obesity/diabetes, and congestive heart failure. It is estimated that the
world-wide market for chirally pure intermediates will grow to between $1.0
billion and $1.5 billion by the year 2000. 

                                       9



     Chirally Pure Agrochemicals. In June 1996, the Company announced the
formation of its Celgro[TM] subsidiary, which is marketing the Company's
proprietary biocatalytic chiral chemistry synthesis technology to agrochemical
companies. Celgro's approach is to work with agrochemical companies to adapt the
Company's biocatalytic technology to the manufacture of chirally pure versions
of these companies' crop protection agents, and then license the technology to
these companies in exchange for royalties. Celgro will also seek to develop
chirally pure versions of existing agrochemicals on its own, and then enter into
agreements with third parties, who will manufacture and sell the agrochemicals
and pay the Company royalties on such sales. The Company believes that the
agrochemical market presents a substantial opportunity because approximately $5
billion of agrochemicals sold each year in racemic form could be manufactured in
chirally pure form. 

     Since 1994, the Company has been developing a process to manufacture a
chirally pure version of a currently marketed racemic crop protection agent
under a research and development agreement with a large agrochemical company.
The Company has received certain milestone research and development payments
under this agreement and anticipates that, in 1997, the agrochemical company
will decide whether it will license Celgene's biocatalytic process for the
commercial production of the chirally pure version of the product. The Company
is also actively pursuing several similar opportunities with other major
agrochemical companies. 

     The Company also believes that its chiral technology is enabling in
agrochemical applications because it has the potential to significantly lower
manufacturing costs compared to conventional technologies and other chiral
technologies. Compared to the Company's biocatalytic process, conventional
technologies require more raw materials and greater plant capacity to produce
the same effective quantity of product, while other chiral technologies require
specialized equipment, more expensive chiral agents, more raw material, and
greater capacity for handling hazardous wastes produced in the manufacturing
process. In addition, it is anticipated that the required application amount of
a chirally pure form of an agrochemical is substantially less than the racemic
form, thereby reducing environmental impact. Agrochemicals are highly price
sensitive, and, therefore, a process that produces chirally pure products at
significant cost savings could be in substantial demand. 

Patents and Proprietary Technology 

     Patents and other proprietary rights are important to the Company's
business. The policy of the Company is to seek patent protection of its
inventions, and also to rely upon trade secrets, know-how, continuing
technological innovations, and licensing opportunities to develop and maintain
its competitive position. The Company's policy is to file the first patent
application claiming an invention that it seeks to patent as a U.S. patent
application or as a Patent Cooperation Treaty ("PCT") application, depending on
the nature of the invention. In many instances, the Company's U.S. patent
applications have been followed by corresponding patent applications in other
countries. A single PCT application permits the filing of patent applications in
several countries. There can be no assurance that any patents issued to the
Company will provide it with competitive advantages, or that any such issued
patent will not be challenged, invalidated, or circumvented by others, or that
the patents or proprietary rights of others will not have an adverse effect on
the ability of the Company to do business. 

     From 1990 to 1994, Celgene was issued three U.S. process patents covering
its chiral amine technology. The Company has also been issued 24 other U.S.
patents and has filed 23 U.S. and PCT patent applications relating to
biochemical compositions of matter, biocatalytic processes for the production of
chirally pure compounds, and new therapeutic compounds. In February 1997, the
U.S. PTO issued a composition of matter patent to the Company covering a large
number of its SelCIDs compounds. The Company has filed and continues to file
patent applications covering the use of chirally pure compounds for treating
specific disease indications, and for process technologies to be used in the
manufacture of these chirally pure compounds. The Company is also pursuing
patent protection for chirally pure forms of existing agrochemical products. 

     Under an agreement with The Rockefeller University the Company has obtained
an exclusive worldwide right and license to manufacture, have manufactured, use,
and sell products for treating toxicity associated with high concentrations of
TNF[alpha] in HIV infection, cachexia, and septic shock, which are covered by
patent rights owned by Rockefeller. In 1995, Rockefeller was issued U.S. Patent
No. 5,385,901 claiming a method of using thalidomide and thalidomide-like
compounds to treat certain diseases caused by abnormal concentrations of
TNF[alpha]. Under this agreement, the Company is obligated to pay certain
specified royalties to Rockefeller on net sales of such products. The license
remains in full force and effect in each country until the last patent covering
such products expires.

                                       10



     The patent positions of pharmaceutical and biotechnology firms, including
the Company, can be uncertain and involve complex legal and factual questions.
In addition, the coverage sought in a patent application can be significantly
reduced before the patent is issued. Consequently, the Company does not know
whether any of its pending applications will result in the issuance of patents
or, if any patents are issued, whether they will provide significant proprietary
protection or commercial advantage or will be circumvented by others. Since
patent applications in the United States are maintained in secrecy until patents
issue, and since publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, the Company cannot be certain
that it was the first to make the inventions covered by each of its pending
patent applications, or that it was the first to file patent applications for
such inventions. In the event a third party has also filed a patent for any of
its inventions, the Company may have to participate in interference proceedings
declared by the U.S. PTO to determine priority of invention, which could result
in substantial cost to the Company, even if the eventual outcome is favorable to
the Company. Prosecution of patent applications and litigation to establish the
validity and scope of patents, to assert patent infringement claims against
others and to defend against patent infringement claims by others can be
expensive and time consuming. There can be no assurance that in the event that
any claims in any of the Company's patents, if issued, are challenged by one or
more third parties, that any court of patent authority ruling on such challenge
will determine that such patent claims are valid and enforceable. In addition,
different countries have different procedures for obtaining patents, and patents
issued by different countries provide different degrees of protection against
the use of a patented technology by others. There can be no assurance,
therefore, that the issuance to the Company in one country of a patent covering
an invention will be followed by the issuance in other countries of patents
covering the same invention, or that any judicial interpretation of the
validity, enforceability or scope of the claims in a patent issued in one
country will be similar to the judicial interpretation given to a corresponding
patent issued in another country. Furthermore, even if the Company's patents are
determined to be valid, enforceable and broad in scope, there can be no
assurance that competitors will not be able to design around such patents, and
compete with the Company using the resulting alternative technology. 

     Prior to the enactment in the United States of new laws adopting certain
changes mandated by the General Agreement on Tariffs and Trade ("GATT"), the
exclusive rights afforded by a U.S. patent were for a period of 17 years
measured from the date of grant. Under these new laws, the term of any U.S.
patent granted on an application filed subsequent to June 8, 1995, will
terminate 20 years from the date on which the patent application was filed in
the United States. Future patents granted on an application filed before June 8,
1995, will have a term that terminates 20 years from the filing date or 17 years
from the date of grant, whichever date is later.

     Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
U.S. product patent or use patent may be extended for up to five years under
certain circumstances to compensate the patent holder for the time required for
FDA regulatory review of the product. The benefits of this act are available
only to the first approved use of the active ingredient in the drug product and
may be applied only to one patent per drug product. There can be no assurance
that the Company will be able to take advantage of this law. 

     The commercial success of the Company will also depend upon avoiding the
infringement of patents issued to third parties, and upon maintaining any
licenses upon which any future products of the Company may be based. Any of the
Company's competitors may own, file applications for, or later be issued patents
relating to therapeutic products which block the Company from adopting such
technologies, or which allow such competitors to directly or indirectly compete
with the products and services offered by the Company. The Company believes that
it is not infringing any issued patents in any country. However, because pending
patent applications in the United States are maintained in secrecy by the U.S.
PTO, the Company cannot determine with certainty that it is not using
technologies that are covered by the claims of pending U.S. patent applications
that may be allowed to third parties. 

     The Company also relies upon unpatented proprietary and trade secret
technology that it seeks to protect, in part, by confidentiality agreements with
its collaborative partners, employees, and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any such breach, or that the Company's trade secrets,
proprietary know-how, and technological advances will not otherwise become known
to others. In addition, there can be no assurance that others have not developed
or will not independently develop such proprietary technology or, despite
precautions taken by the Company, obtain access to the Company's proprietary
technology. 

                                       11



     It is the Company's policy to require its corporate partners, employees,
consultants, outside scientific collaborators and sponsored researchers and
other advisors to execute confidentiality agreements upon the commencement of
employment or consulting relationships with the Company. There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for the Company's trade secrets in the event of unauthorized
use or disclosure of such information. See "Risk Factors -- Uncertainty of 
Patent and Proprietary Rights." 

Governmental Regulation 

     Regulation by governmental authorities in the United States and non-U.S.
countries is a significant factor in the manufacture and marketing of
pharmaceuticals and in the Company's ongoing research and development
activities. All of the Company's therapeutic products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical testing and
clinical trials and other pre-market approval requirements by the FDA and
regulatory authorities in other countries. In the United States, various
federal, and in some cases state, statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping, and
marketing of such products. The lengthy process of seeking required approvals,
and the subsequent compliance with applicable statutes and regulations require
the expenditure of substantial resources. Even if regulatory approval is
obtained for any of the pharmaceutical products manufactured by or for the
Company, or with the Company's chirally pure intermediates, or using the
Company's biocatalytic chiral processes, the content of the approval may
significantly limit the indicated uses for which such products may be marketed.
Further, approved drugs, as well as their manufacturers, are subject to ongoing
review, and discovery of previously unknown problems with such products may
result in restrictions on their manufacture, sale or use or in their withdrawal
from the market. Any failure by the Company or its collaborators or licensees to
obtain or maintain, or any delay in obtaining regulatory approvals could
adversely affect the marketing of any products developed by the Company, and its
ability to receive product revenue, royalty revenue, or profit sharing payments.

     The activities required before a pharmaceutical may be marketed in the
United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of product and its formulations. The results of
these studies must be submitted to the FDA as part of an IND, which must be
reviewed by the FDA before proposed clinical trials can begin. Typically,
clinical trials involve a three-phase process. 

     In Phase I, clinical trials are conducted with a small number of
individuals to determine the early safety and tolerability profile and the
pattern of drug distribution and metabolism within the body. In Phase II,
clinical trials are conducted with groups of patients in order to determine
preliminary efficacy, dosing regimes, and expanded evidence of safety. In Phase
III, large-scale, multicenter, adequate and well-controlled, comparative
clinical trials are conducted with patients in order to provide enough data for
the statistical proof of efficacy and safety required by the FDA and others. 

     The results of the preclinical testing and clinical trials are then
submitted to the FDA for a pharmaceutical product in the form of an NDA for
approval to commence commercial sales. In responding to an NDA, the FDA may
grant marketing approval, request additional information, or deny the
application if it determines that the application does not satisfy its
regulatory approval criteria. In the case of a drug intended for use for a rare
disease or condition which has been designated as an orphan drug for that
particular disease or condition, the first approval of that drug for that
disease or condition precludes approval of the same drug by another applicant
for the same disease or condition for a period of seven years, irrespective of
whether other applicants were also actively investigating the drug or seeking
approval for the same disease or condition. 

     Pursuant to the Orphan Drug Act, the FDA may designate a drug intended to
treat a "rare disease or condition" as an "orphan drug." "Rare disease or
condition" is defined as one which affects less than 200,000 people in the
United States, or which affects more than 200,000 people, but for which the cost
of development and making available the drug will not be recovered from sales of
the drug in the United States. Upon the first approval of an NDA for a drug
designated as an orphan drug for a specified indication, the sponsor of the NDA
is entitled to exclusive marketing rights in the United States for that drug for
that indication for seven years. Orphan drugs may also be eligible for federal
income tax credits for certain clinical trial expenses. Possible amendment of
the Orphan Drug Act by the United States Congress and possible reinterpretation
by the FDA are the subject of frequent 

                                       12



discussion. FDA regulations reflecting certain other limitations and procedures
went into effect in January 1993. Therefore, there is no assurance as to the
precise scope of protection that may be afforded by orphan drug status in the
future, or that the current level of exclusivity and tax credits will remain in
effect. The Company has received from the FDA orphan drug designation for
Synovir for the treatment of ENL, AIDS cachexia, and RAS. However, there can be
no assurance that another company will not receive approval prior to Celgene for
the use of thalidomide for the treatment of one or more of these indications. If
such were to happen, Celgene's applications could not be approved until the
competing company's seven year period of exclusivity expired. 

     Among the conditions for NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
with the FDA's current Good Manufacturing Practice regulations and guidelines
("GMP"). In complying with GMP, manufacturers must continue to expend time,
money, and effort in the area of production and quality control and quality
assurance to ensure full technical compliance. Manufacturing facilities are
subject to periodic inspections by the FDA to ensure compliance. 

     Steps similar to those in the United States must be undertaken in virtually
every other country comprising the market for the Company's products before any
such product can be commercialized in those countries. The approval procedure
and the time required for approval varies from country to country and may
involve additional testing. There can be no assurance that approvals will be
granted on a timely basis, or at all. In addition, regulatory approval of prices
is required in most countries other than the United States. There can be no
assurance that the resulting prices would be sufficient to generate an
acceptable return to the Company. 

Competition 

     The pharmaceutical and agrochemical businesses in which the Company
competes are each highly competitive. The Company's competitors include major
pharmaceutical and chemical companies, many of which have considerably greater
financial, technical, and marketing resources than the Company. The Company also
experiences competition in the development of its products and processes from
universities and other research institutions and, in some instances, competes
with others in acquiring technology from such sources. 

     Competition in the pharmaceutical industry, and specifically in the
immunomodulating areas being addressed by the Company, is particularly intense.
A number of companies are pursuing techniques to modulate TNF[alpha] production
through various combinations of small molecule approaches, monoclonal
antibodies, and TNF[alpha] receptors. In addition, a number of other companies
are attempting to address, with other technologies and products, the disease
states currently being targeted by the Company. Other companies are attempting
to develop thalidomide for AIDS-related and non AIDS- related indications.
EntreMed, Inc. and its corporate partner, Bristol-Myers Squibb, are researching
the effectiveness of thalidomide as an anti-angiogenesis (preventing new blood
vessel growth) agent in the treatment of retinal disease and cancer. Andrulis
Pharmaceuticals Corp., a privately held company, is attempting to develop
thalidomide for the treatment of AIDS-related complications.

     Several other companies have established chiral products and chiral
technologies. Companies that develop and manufacture chirally pure intermediates
include: Chiroscience Group Plc ("Chiroscience"); DSM Andeno B.V.; Lonza Ltd.;
Kanegafuchi Chemical Industry Co., Ltd.; Cambrex Corporation, and ChiRex Inc.
Several of these companies have established commercial scale manufacturing
facilities that are believed to be in compliance with GMP, which provides these
companies with a competitive advantage. In addition, Sepracor and Chiroscience
are actively developing chirally pure versions of pharmaceuticals currently
marketed in racemic form. Chiroscience has completed Phase I trials in the
United Kingdom for a chirally pure version of dl-MPH and is working with Medeva
Plc, the lead supplier of dl-MPH in the United States, towards full clinical
development. Chiroscience has also taken certain steps to assert patent and
proprietary rights with respect to its formulation of a chirally pure version of
dl-MPH. The agrochemical market is large and within this market, efforts are
underway by the in- house development staffs of agrochemical companies to
produce chirally pure versions of their existing racemic crop protection agents.

     The pharmaceutical and agrochemical industries have undergone, and are
expected to continue to undergo, rapid and significant technological change, and
competition is expected to intensify as technical advances in each field are
made and become more widely known. In order to compete effectively, the Company
will be required to continually upgrade its scientific expertise and technology,
identify and retain capable management, and pursue scientifically feasible and
commercially viable opportunities. 

                                       13




     The Company's competition will be determined in part by the indications for
which the Company's products are developed and ultimately approved by regulatory
authorities. An important factor in competition will be the timing of market
introduction of the Company's or competitors' products. Accordingly, the
relative speed with which the Company can develop products, complete clinical
trials and approval processes, and supply commercial quantities of products to
the market will be expected to be important competitive factors. Competition
among products approved for sale will be based, among other things, on product
efficacy, safety, convenience, reliability, availability, price, and patent
position.

Manufacturing 

     Synovir is manufactured for the Company by Penn Pharmaceuticals Ltd. of
Great Britain ("Penn") in a special facility devoted exclusively to the
production of Synovir. The Company currently produces chirally pure
intermediates in its own facilities, which are adequate to produce the
developmental quantities of product currently used by the Company and its
current customers. However, the Company's existing facilities will not be
adequate for the manufacture of large scale developmental and commercial
quantities of the Company's chiral products. In order to obtain such larger
quantities, the Company expects to engage third parties through licensing
agreements with customers, or by entering into an alliance, joint venture, or
other arrangement with one or more contract manufacturers. In certain instances,
the Company may be required to make substantial capital expenditures to access
additional manufacturing capacity. 

Sales and Marketing 

     The Company employs a direct sales staff to market and provide technical
support to customers for its chirally pure intermediates and biocatalytic
process technology. Celgene is also developing a marketing and sales
organization to commercialize Synovir (subject to regulatory approval of the
product), and intends to employ approximately 25 persons in this capacity. The
Company believes that a direct sales force for Synovir can be effective because
of the relatively small, concentrated patient population, of which 80% resides
in 20 major cities. Celgene intends to engage a specialty contract distributor
to distribute Synovir in strict accordance with the Company's program to promote
the safe and effective dispensing and use of the product. This program will
include comprehensive physician, pharmacist and patient education, informed
consent procedures, appropriate labeling, and frequent pregnancy testing. 

Employees 

     At December 31, 1996, the Company had 79 full time employees, 60 of whom
were engaged primarily in research and development activities, and the remainder
of whom were engaged in executive, administrative, and marketing activities.
Forty-seven employees have advanced degrees, including 24 who have Ph.D.
degrees. The Company also maintains consulting arrangements with a number of
scientists at various universities and other research institutions in Europe and
the United States. 

Forward Looking Statements

     Certain statements contained in this Annual Report on Form 10-K, including,
without limitation, statements appearing under Item 1, "Business" and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Risk Factors set forth below, together with other factors that appear
with the forward-looking statements, or in the Company's other Securities and
Exchange Commission filings, could affect the Company's actual results and could
cause the Company's actual results to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company in this
Annual Report on Form 10-K.

                                       14



                                 RISK FACTORS 

     Uncertainty of Product Development. Many of the Company's products and
processes are in the early or mid-stages of development, and will require the
commitment of substantial resources, extensive research, development,
preclinical testing, clinical trials, manufacturing scale-up, and regulatory
approval prior to commercialization. To date, the Company has produced and sold
only small quantities of chirally pure intermediates, and has not yet
commercialized Synovir[RegTM] or any immunotherapeutic pharmaceuticals, chirally
pure pharmaceuticals, or chirally pure agrochemicals. All of the products under
development by the Company, and the products under development by other
companies in which the Company's chirally pure intermediates are being used will
require further development, clinical testing, and regulatory approvals, and
there can be no assurance that commercially viable products will result from
these efforts.

     Uncertainty Associated with Clinical Trials; Government Regulation. The
preclinical development, clinical trials, manufacturing, marketing, and labeling
of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the United States and other countries.
There can be no assurance that the Company will be able to obtain the necessary
approvals required to market its products in any of these markets. Substantially
all of the Company's current chirally pure intermediates may be components of
pharmaceutical and agrochemical products developed and marketed by others. The
testing, marketing, and manufacturing of such pharmaceutical and agrochemical
products, as well as of the Company's proprietary products, will require
regulatory approval, including approval from the U.S. Food & Drug Administration
(the "FDA"), and, in certain cases, from the U.S. Environmental Protection
Agency (the "EPA"), or governmental authorities outside of the United States
that perform roles similar to those of the FDA and EPA. 

     It is not possible to predict how long the approval processes for any of
the Company's products will take or whether any such approvals ultimately will
be granted. Positive results in preclinical testing and/or early phases of
clinical studies are no assurance of success in later phases of the approval
process. In general, preclinical tests and clinical trials can take many years,
and require the expenditure of substantial resources, and the data obtained from
such tests and trials can be susceptible to varying interpretation that could
delay, limit, or prevent regulatory approval. Also, delays or rejections may be
encountered during any stage of the regulatory approval process based upon the
failure of the clinical data to demonstrate compliance with, or upon the failure
of the product to meet, the regulatory agency's requirements for safety,
efficacy, and quality or, in the case of an orphan drug indication, because
another applicant received approval first; and those requirements may become
more stringent due to changes in regulatory agency policy, or the adoption of
new regulations. Even if regulatory approval is obtained for any of the
Company's pharmaceutical products or products manufactured with the Company's
chirally pure intermediates or using the Company's biocatalytic chiral
processes, the content of the approval may significantly limit the indicated
uses for which such products may be marketed. Further, approved drugs and
agrochemicals, as well as their manufacturers, are subject to on-going review,
and discovery of previously unknown problems with such products may result in
restrictions on their manufacture, sale or use or in their withdrawal from the
market. Delays in obtaining, or the failure to obtain and maintain, necessary
approvals from the FDA, EPA, or other regulatory agencies for the Company's
proprietary products, or the products in which the Company's products are to be
included, would have a material adverse effect on the Company's business,
financial condition, and results of operations. 

     No Assurance of Market Acceptance. There can be no assurance that those of
the Company's products which receive regulatory approval, or for which no
regulatory approval is required, will achieve market acceptance. A number of
factors render the degree of market acceptance of the Company's products
uncertain, including the extent to which the Company can demonstrate such
products' efficacy, safety, and advantages over competing products, as well as
the reimbursement policies of third party payors, such as government and private
insurance plans. Failure of the Company's products to achieve market acceptance
would have a material adverse effect on the Company's business, financial
condition, and results of operations. 

     Risks of Product Liability and Availability of Insurance. The Company may
be subject to product liability or other claims based on allegations that the
use of its technology or products has resulted in adverse effects, whether by
participants in the Company's clinical trials or by patients (if and when such
products are approved). Thalidomide, when used by pregnant women, has resulted
in serious birth defects. Therefore, necessary and strict precautions 

                                       15


must be taken by physicians prescribing the drug to women with childbearing
potential, and there can be no assurance that such precautions will be observed
in all cases or, if observed, will be effective. Although the Company has
product liability insurance in force that it believes to be appropriate for its
current stage of development, such coverage will not be adequate if and when the
Company commercializes its products under development. There can be no assurance
that it will be able to obtain additional coverage as required, or that such
coverage will be adequate to protect the Company in the event claims are
asserted against it. The obligation to defend against or pay any product
liability claim may have a material adverse effect on the Company's business,
financial condition, and results of operations. 

     Patent and Proprietary Rights. The Company's success will depend, in part,
on its ability to obtain and enforce patents, protect trade secrets, obtain
licenses to technology owned by third parties when necessary, and conduct its
business without infringing the proprietary rights of others. The patent
positions of pharmaceutical and biotechnology firms, including the Company, can
be uncertain and involve complex legal and factual questions. In addition, the
coverage sought in a patent application can be significantly reduced before the
patent is issued. Consequently, the Company does not know whether any of its
pending applications will result in the issuance of patents or, if any patents
are issued, whether they will provide significant proprietary protection or
commercial advantage, or will be circumvented by others. Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, the Company cannot be certain that it was
the first to make the inventions covered by each of its pending patent
applications, or that it was the first to file patent applications for such
inventions. In the event a third party has also filed a patent for any of its
inventions, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company. Protection of patent applications
and litigation to establish the validity and scope of patents, to assert patent
infringement claims against others and to defend against patent infringement
claims by others can be expensive and time consuming. There can be no assurance
that in the event that any claims in any of the Company's patents, if issued,
are challenged by one or more third parties, that any court of patent authority
ruling on such challenge will determine that such patent claims are valid and
enforceable. An adverse outcome in such litigation could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties, or require the Company to cease using the technology covered
by the disputed rights . Also, different countries have different procedures for
obtaining patents, and patents issued by different countries provide different
degrees of protection against the use of a patented invention by others. There
can be no assurance, therefore, that the issuance to the Company in one country
of a patent covering an invention will be followed by the issuance in other
countries of patents covering the same invention, or that any judicial
interpretation of the validity, enforceability, or scope of the claims in a
patent issued in one country will be similar to the judicial interpretation
given to a corresponding patent issued in another country. Furthermore, even if
the Company's patents are determined to be valid, enforceable, and broad in
scope, there can be no assurance that competitors will not be able to design
around such patents, and compete with the Company using the resulting
alternative technology. 

     The Company also relies upon unpatented proprietary and trade secret
technology that it seeks to protect, in part, by confidentiality agreements with
its collaborative partners, employees, and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any such breach, or that the Company's trade secrets,
proprietary know-how, and technological advances will not otherwise become known
to others. In addition, there can be no assurance that others have not
developed, or will not independently develop such proprietary technology or,
despite precautions taken by the Company, obtain access to the Company's
proprietary technology. 

     History of Operating Losses; Capital Requirements; Uncertainty of
Additional Funding. The Company has sustained losses in each year since its
incorporation in 1986. In 1996, the Company sustained a net loss of
approximately $17.8 million, and had an accumulated deficit of approximately
$92.6 million at December 31, 1996. The Company expects to make substantial
expenditures to further develop its immunotherapeutic, Synovir and chiral
products, and, based on these expenditures, it is likely that losses will
continue through 1997 and into 1998, unless and until the Company can achieve
profitability by obtaining required regulatory approvals and achieving
commercially viable levels of sales of Synovir. In addition, the Company expects
to experience quarter-to-quarter fluctuations in revenues and expenses thereby
resulting in quarter-to-quarter fluctuations in losses. The Company expects that
its rate of spending will increase as the result of increased clinical trial
costs and expenses associated with the regulatory approval process and
commercialization of products now in development. In order to assure funding for
the Company's future operations, the Company needs to seek additional capital
resources. However, no assurances can be given that the Company will be
successful in raising additional capital. If the Company is unable to raise
additional funds, the Company believes that its current financial resources
could fund operations based on reduced levels of research and development and
administrative activities through 1997.

                                       16


     However, there can be no assurance that the Company will not need to
obtain additional financing prior to such time, or that such financing will be
available on terms acceptable to the Company, or at all. The Company's actual
cash requirements may vary materially from those now planned, and will depend
upon numerous factors, including the results of the Company's development and
commercialization programs, the timing and results of preclinical and clinical
trials, the timing and costs of obtaining regulatory approvals, the level of
resources that the Company commits to the development of manufacturing,
marketing, and sales capabilities, the ability of the Company to license its
biocatalytic chiral process technology to agrochemical companies, the
technological advances and activities of competitors, and other factors.

     Intense Competition and Rapid Technological Change. The pharmaceutical and
agrochemical businesses in which the Company operates are highly competitive and
subject to rapid and profound technological change. The Company's present and
potential competitors include major chemical and pharmaceutical companies, as
well as specialized biotechnology firms in the United States and in other
countries. Most of these companies have considerably greater financial,
technical, and marketing resources than the Company. The Company also
experiences competition in the development of its products and processes from
universities and other research institutions and, in some instances, competes
with others in acquiring technology from such sources. The pharmaceutical and
agrochemical industries have undergone, and are expected to continue to undergo,
rapid and significant technological change, and the Company expects competition
to intensify as technical advances in each field are made and become more widely
known. There can be no assurance that others will not develop products or
processes with significant advantages over the products and processes that the
Company is seeking to develop. Any such development could have a material
adverse effect on the Company's business, financial condition, and results of
operations. 

     Sole Supplier of Raw Material and Sole Encapsulator for Synovir. The
Company obtains all of its bulk drug material for Synovir from a single source.
In addition, the Company currently relies on a single manufacturer to
encapsulate Synovir. Because the FDA requires that all suppliers of
pharmaceutical bulk material and all manufacturers of pharmaceuticals for sale
in the United States achieve and maintain compliance with current Good
Manufacturing Practice regulations and guidelines ("GMP"), if the operations of
the sole supplier or the sole encapsulator were to become unavailable for any
reason, the required FDA review of the operations of a new supplier or new
encapsulator could cause a delay in the manufacture of Synovir. Such a delay
could have a material adverse effect on the Company's business, financial
condition, and results of operations. 

     Dependence Upon Third Parties. The Company's ability to fully commercialize
its proprietary products, if developed, may depend to some extent upon the
Company's ability to enter into joint ventures or other arrangements with
established pharmaceutical companies with the requisite experience and financial
and other resources to obtain regulatory approval, and to manufacture and market
such products. In addition, the Company's chirally pure intermediates are
components of pharmaceutical or agrochemical products that are developed and
marketed by others, and therefore the success of the Company's chirally pure
intermediates is dependent upon the efforts of third parties over which the
Company has no control. Such third parties may fail to pursue or fund those
products that include the Company's chirally pure intermediates. 

     Lack of Manufacturing Capabilities. The manufacture of large quantities of
pharmaceuticals is a complex process, and all pharmaceutical manufacturing
facilities must comply with applicable regulations of the FDA. While the Company
has developed expertise in the production of certain of its chirally pure
intermediates in developmental quantities, the Company currently has no
experience in, or its own facilities for, manufacturing any products on a
commercial scale. The Company currently utilizes an outside manufacturer for the
production of Synovir, and currently intends to utilize outside manufacturers if
and when needed to produce the Company's other products on a commercial scale.
There can be no assurance that such manufacturers will meet the Company's
requirements for quality, quantity, or timeliness, or that these manufacturers
will achieve and maintain compliance with all applicable regulations. 

     Limited Marketing Capabilities. The Company has a direct sales force,
comprised of two sales persons, which markets its chirally pure intermediates,
and will continue to do so for the foreseeable future. The Company has no sales
force, either internal or external, for its immunotherapeutic products, since no
immunotherapeutic compounds have received FDA approval. The Company is in the
process of developing sales, marketing, and 

                                      17



distribution resources for Synovir, and with respect to certain other products,
it may seek a corporate partner to provide such services. Any delay in
developing these resources for Synovir may have an adverse impact on potential
sales of Synovir. 

     Dependence Upon Reimbursement; Uncertainty of Product Pricing. Sales of the
Company's pharmaceutical products, and sales of pharmaceutical products of other
companies of which the Company's chirally pure intermediates may be a component,
will be dependent, in part, on the extent to which the costs of such products
will be paid by health maintenance, managed care, pharmacy benefit and similar
health care management organizations, or reimbursed by government health
administration authorities, private health coverage insurers, and other third
party payors. These health care management organizations and third party payors
are increasingly challenging the prices charged for medical products and
services. Additionally, the containment of health care costs has become a
priority, and the prices of pharmaceutical and biotechnology drugs have been
targeted in this effort. If the Company succeeds in bringing any pharmaceutical
products to market, there can be no assurance that such products will be
considered cost effective by payors, that reimbursement will be available or, if
available, that the level of reimbursement will be sufficient to allow the
Company to sell its products on a profitable basis. 

     Dependence on Key Personnel. The success of the Company will depend, in
large part, on its ability to continue to attract and retain highly skilled
scientific and management personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to attract and
retain such persons. The loss of the Company's executive officers or scientific
personnel, or the failure of the Company to attract and retain other highly
skilled personnel would have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company does not
maintain key man life insurance coverage on the lives of any of its officers or
key employees. 

     Environmental/Safety Hazards. The Company uses certain hazardous materials
in its research and development activities. While the Company believes it is
currently in substantial compliance with the federal, state, and local laws and
regulations governing such use, there can be no assurance that accidental injury
or contamination will not occur. Any such accident or contamination could result
in substantial liabilities, which could exceed the Company's resources.
Additionally, there can be no assurance that the cost of compliance with
environmental and safety laws and regulations will not be greater than currently
expected. 

                                       18



ITEM 2. PROPERTIES.

     The Company leases a 44,500 square foot laboratory and office facility in
Warren, New Jersey, under a lease with an unaffiliated party, which has a term
ending in May 2002 with a five-year renewal option. The Company also sub-leases
17,500 square feet in a facility located in Annandale, New Jersey, that houses
the Company's Celgro subsidiary. The facility consists of office and laboratory
space and is leased under a sub-lease which expires in February 1999. The
Company believes that its laboratory facilities are adequate for its research
and development activities for at least the next 12 months. 


ITEM 3. LEGAL PROCEEDINGS.

     The Company is not engaged in any legal proceedings. The Company believes
it is currently in substantial compliance with all federal, state, and local
environmental laws. 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders during the fourth
quarter of 1996.
                                      

                                    PART II

 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

                           PRICE RANGE OF COMMON STOCK

     The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "CELG." The following table sets forth, for the periods indicated,
the intra-day high and low sale prices per share of Common Stock on the Nasdaq
National Market: 



                                                  High       Low    
                                                  --------   ------ 
                                                            
1996                                                                
First Quarter    ..............................     19.00    11.13  
Second Quarter   ..............................     18.13    11.13  
Third Quarter .................................     11.88     6.00  
Fourth Quarter   ..............................     12.25     7.88  
1995                                                                
First Quarter    ..............................      6.25     4.38  
Second Quarter   ..............................     11.50     4.88  
Third Quarter .................................     11.25     7.25  
Fourth Quarter   ..............................     13.50     8.25  


     The last reported sale price per share for the Common Stock on the Nasdaq
National Market on March 25, 1997 was $8.25. As of March 25, 1997, there were
approximately 466 holders of record of the Company's Common Stock.


                                       19




ITEM 6. SELECTED FINANCIAL DATA

     The following Selected Financial Data should be read in conjunction with
the Company's Financial Statements and the Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included elsewhere in this Annual Report. The data
set forth below with respect to the Company's Statement of Operations for the
years ended December 31, 1994, 1995 and 1996, and the balance sheet data as of
December 31, 1995 and 1996 are derived from the Company's financial statements
which have been audited by KPMG Peat Marwick LLP, independent accountants, and
which are included elsewhere in this Annual Report and are qualified by
reference to such Financial Statements and Notes thereto. Other information has
been derived from other audited financial statements. The historical results are
not necessarily indicative of future results of operations.



                                                                   Year Ended December 31                               
                                            ---------------------------------------------------------------------       
                                              1992          1993          1994          1995           1996             
                                            -----------   -----------   -----------   ------------   ------------       
                                                          (in thousands, except per share amounts)                      
                                                                                                      
Statement of Operations Data:                                                                                           
Revenues:                                                                                                               
  Chirally pure intermediates ...........     $   272       $  1,652      $  1,998      $    658       $  1,466         
  Research contracts   ..................         450            155           258           515          1,036         
                                              -------       --------      --------      --------       --------         
  Total Revenues ........................         722          1,807         2,256         1,173          2,502         
                                              -------       --------      --------      --------       --------         
Expenses:                                                                                                               
  Cost of goods sold ....................         304          1,445         1,097           792            981         
  Research and development   ............       3,876          4,762         6,492         8,183         16,323         
  Selling, general and administrative .         3,368          3,408         3,131         2,858          4,001         
                                              -------       --------      --------      --------       --------         
  Total Expenses ........................       7,548          9,615        10,720        11,833         21,305         
                                              -------       --------      --------      --------       --------         
  Loss from operations ..................      (6,826)        (7,808)       (8,464)      (10,660)       (18,803)        
Other Income and Expense:                                                                                               
  Interest income .......................       1,597            993           587           568          1,308         
  Interest expense  .....................          --           (193)           --          (425)          (324)        
                                              -------       --------      --------      --------       --------         
Loss from continuing operations .........      (5,229)        (7,008)       (7,877)      (10,517)       (17,819)        
Loss from discontinued operations  ......      (1,918)        (3,318)       (2,336)           --             --         
                                              -------       --------      --------      --------       --------         
Net loss   ..............................      (7,147)       (10,326)      (10,213)      (10,517)       (17,819)        
Accretion of premium payable on                                                                                         
 preferred stock and warrants   .........          --             --            --            --          1,013         
Deemed dividend for preferred stock                                                                                     
 conversion discount   ..................          --             --            --            --          2,778         
                                              -------       --------      --------      --------       --------         
Net loss applicable to common                                                                                           
 stockholders ...........................     $(7,147)      $(10,326)     $(10,213)     $(10,517)      $(21,610)        
                                              =======       ========      ========      ========       ========         
Per share of Common Stock:                                                                                              
  Loss from continuing operations  ......       (0.67)         (0.89)        (1.00)        (1.30)         (1.89)        
  Loss from discontinued                                                                                                
   operations ...........................       (0.25)         (0.43)        (0.30)           --             --         
  Net loss applicable to                                                                                                
   common stockholders    ...............     $ (0.92)      $  (1.32)     $  (1.30)     $  (1.30)      $  (2.29)        
                                              =======       ========      ========      ========       ========         
Weighted average number of shares                                                                                       
 of common stock outstanding   ............     7,789          7,841         7,853         8,073          9,450         




                                                         Years Ended December 31                             
                                  ---------------------------------------------------------------------      
                                    1992          1993          1994           1995          1996            
                                  -----------   -----------   ------------   -----------   ------------      
                                                             (in thousands)                                  
                                                                                            
Balance Sheet Data:                                                                                          
Cash and cash equivalents, and                                                                               
 marketable securities   ......     $ 28,266      $ 17,900      $  8,500       $ 11,713      $ 17,815        
Total assets    ...............       31,751        21,822        11,548         14,211        20,938        
Convertible debentures   ......           --            --            --          4,592         2,026        
Accumulated deficit   .........      (39,934)      (50,260)      (60,473)       (70,989)      (92,599)       
Stockholders' equity  .........       30,375        20,296        10,004          7,143        16,065        


                                       20




ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

Overview 

     Celgene was organized in 1980 as a unit of Celanese, a major chemical
company. Celgene's initial mandate was to apply biotechnology to the production
of fine and specialty chemicals. Following the 1986 merger of Celanese with
Hoechst, Celgene was spun out as a separate company. In 1987, Celgene made an
initial public offering of its common stock, and commenced the development of
biotreatment processes for the chemical industry. Celgene discontinued these
operations in 1994 to focus on the development of its targeted small molecule
synthesis and biocatalytic chiral chemistry synthesis platforms. 

     Since 1990, the Company's revenues have been generated primarily through
the research and development relating to, and supply of, chirally pure
intermediates to pharmaceutical companies for use in new drug development and,
to a lesser degree, from an agrochemical research and development contract. The
Company believes that sales of chirally pure intermediates will account for a
less significant portion of the Company's overall revenues as the Company
continues to develop, and, subject to receipt of required regulatory approvals,
begins to generate revenues from Synovir[RegTM] and from its chirally pure
pharmaceutical and agrochemical products. 

     The Company has sustained losses in each year since its incorporation in
1986. In 1996, the Company had a net loss of $17.8 million, and an accumulated
deficit of $92.6 million at December 31, 1996. The Company expects to make
substantial expenditures to further its immunotherapeutic program, to
commercialize Synovir, and to expand its chiral business, and, based on these
expenditures, it is likely that losses will continue for at least 12 months or
longer, unless and until the Company can achieve profitability by obtaining
required regulatory approvals and achieving commercially viable sales levels of
Synovir.

     Subject to the risks described elsewhere in this Annual Report, the Company
believes that there are significant market opportunities for the products and
processes under development by the Company. To address these opportunities in a
timely and effective manner, the Company intends to rely on collaborations and
licensing arrangements with third parties. To date, the Company has entered into
agreements covering the manufacture for the Company of certain compounds, such
as Synovir, and research and development by the Company covering chirally pure
intermediates for use in new drug development and processes for producing
chirally pure crop protection agents for license to agrochemical manufacturers.
The Company intends to develop its own marketing and sales resources for
commercializing its pharmaceutical products under development that address
limited or geographically concentrated patient populations, and intends to enter
into collaborative and licensing arrangements for commercializing those products
that address large and geographically dispersed patient populations. The Company
is currently developing a small marketing and sales organization for Synovir.

     Future operating results will depend on many factors, including demand for
the Company's products, regulatory approvals, the timing of the introduction of
new products by the Company or competing companies, the Company's ability to
control costs, and its ability to attract and retain highly qualified scientific
and management personnel. 

Results of Operations 

Fiscal Years Ended December 31, 1996, 1995 and 1994 

     Total revenues; order backlog. The Company's total revenues for 1996
increased by 108% to approximately $2.5 million from approximately $1.2 million
in 1995. The Company's total revenues for 1995 decreased by 48% from
approximately $2.3 million in 1994. The Company's order backlog for chirally
pure intermediates and research contracts at December 31, 1996 was approximately
$742,000. 

                                       21



     Chirally pure intermediate revenues. Chirally pure intermediate revenues
for 1996 increased by 128% to approximately $1.5 million from approximately
$658,000 in 1995. The increase in chirally pure intermediate revenues was due
primarily to the addition of new customers, and a greater volume of orders from
existing customers for their ongoing clinical trials. Chirally pure intermediate
revenues for 1995 decreased by 67% from approximately $2.0 million for 1994.
This decrease was due primarily to the discontinuation of clinical trials by a
pharmaceutical manufacturer of a product candidate that incorporated one of the
Company's intermediates.

     Research contract revenues. Research contract revenues for 1996 increased
by 94% to approximately $1.0 million from $515,000 for 1995. This increase was
primarily due to a greater number of research contracts. Chiral research
contract revenues for 1995 increased by 100% from approximately $258,000 for
1994. This increase was due primarily to a greater number of research contracts
relating to the development of chirally pure intermediates. 

     Cost of goods sold. Cost of goods sold in 1996 increased by 24% to
approximately $981,000 from approximately $792,000 in 1995. This increase in
cost of goods sold corresponded with the increased volume of chirally pure
intermediates sold by the Company. The cost of goods sold in 1995 decreased by
28% from approximately $1.1 million in 1994. This decrease corresponds with the
decrease in sales of chirally pure intermediates due primarily to the
discontinuation of clinical trials by a pharmaceutical manufacturer of a product
candidate that incorporated one of the Company's intermediates.

     Research and development expenses. Research and development expenses for
1996 increased by 99% to approximately $16.3 million from approximately $8.2
million in 1995. This increase was due to an increase of approximately $6.5
million of expenses associated with the Company's immunotherapeutic program, and
$1.7 million of expenses associated with the initiation of the chiral
pharmaceutical development program. The major factors contributing to the
increased cost of the Company's immunotherapeutic and Synovir programs resulted
from increases in the following expense categories: preclinical and clinical
trial expenses, approximately $2.9 million; regulatory and compliance expenses,
approximately $1.3 million; manufacturing costs for developmental quantities of
Synovir, approximately $925,000, and other ongoing research expenses,
approximately $1.4 million. 

     Research and development expenses for 1995 increased by 26% from
approximately $6.5 million in 1994. This increase in research and development
was due to an increase of approximately $2.3 million in expenses associated with
the Company's immunotherapeutic and Synovir programs, and was partially offset
by a decrease of $600,000 in personnel and related expenses for the chiral
research group. The major factors contributing to the increased cost of the
Company's immunotherapeutic and Synovir programs resulted from increases in the
following expense categories: greater preclinical and clinical trial expenses,
approximately $1.0 million; regulatory and compliance expenses, approximately
$600,000; other ongoing research expenses, approximately $450,000, and expenses
associated with The Rockefeller University program and other university
immunotherapeutic research programs, approximately $250,000. 

     Selling, general and administrative expenses. Selling, general and
administrative expenses for 1996 increased by 38% to approximately $4.0 million
from approximately $2.9 million in 1995. This increase was primarily due to the
formation of a small sales and marketing group in anticipation of the Synovir
product launch, the addition of product liability coverage to the Company's
insurance, recruiting expenses, and higher consulting and legal expenses
associated with the shareholder rights agreement adopted in September 1996.
Selling, general and administrative expenses for 1995 decreased by 7% from
approximately $3.1 million in 1994. This decrease was primarily due to a lower
level of spending across most expense categories, and was partially offset by
the amortization of offering costs related to the $12.0 million 8% Convertible
Debentures sold in July, 1995.

     Interest income and interest expense. Interest income for 1996 increased by
128% to approximately $1.3 million from approximately $569,000 in 1995. This
increase was attributable to higher average cash balances in 1996 due to the
$23.8 million of net proceeds from the Series A Convertible Preferred Stock
offering in March 1996. Interest income for 1995 decreased by 3% from
approximately $587,000 in 1994. This decrease in interest income was due to the
reduced funds available for investment during the first half of 1995. Interest
expense for 1996 decreased by 24% to approximately $324,000 from approximately
$425,000. This decrease was due to the conversion to equity of a substantial
portion of the 8% Convertible Debentures. There was no interest expense in 1994.

     Net loss. The net loss for 1996 increased by 70% to approximately $17.8
million from approximately $10.5 million in 1995. This increase was due
primarily to higher spending on the immunotherapeutics and Synovir 

                                       22



programs, as discussed above. The net loss for 1995 increased by 3% to
approximately $10.5 million from approximately $10.2 million for 1994. This
increase in net loss was due to the absence of losses from discontinued
operations offset by increased spending for the Synovir development program and
lower sales of chirally pure intermediates. Net loss for 1994 included the loss
from the Company's discontinued biotreatment operations of $2.3 million. Loss
from continuing operations during 1995 increased approximately $2.6 million due
primarily to lower sales of chirally pure intermediates and higher spending on
Synovir. 

Liquidity and Capital Resources 

     Since inception, the Company has financed its working capital requirements
primarily through private and public sales of its debt and equity securities,
income earned on the investment of the proceeds from the sale of such
securities, and revenues from product sales. The Company has raised
approximately $76.0 million in net proceeds from two public and two private
offerings, including its initial public offering in July 1987. 

     In July 1995, the Company issued and sold in a private placement offering
$12.0 million aggregate principal amount of 8% Convertible Debentures due July
31, 1997 for total net proceeds, after offering costs, of approximately $11.0
million. As of March 14, 1997, approximately $9.8 million principal amount of
the 8% Convertible Debentures had been converted into Common Stock, and the
remaining debentures are convertible into Common Stock at the option of either
the holder or the Company. In March 1996, the Company issued and sold in a
private placement offering 503 shares of Series A Convertible Preferred Stock at
$50,000 per share, for total gross proceeds of approximately $25.2 million and
net proceeds, after offering costs, of approximately $23.8 million. See
Notes 5 and 6 to the Financial Statements. 

     The Company's net working capital at December 31, 1996, increased by 59% to
approximately $16.4 million from approximately $10.3 million at December 31,
1995. This increase in working capital was due primarily to the $23.8 million of
net proceeds from the Series A Convertible Preferred Stock offering in March
1996. The Company's net working capital at December 31, 1996 consisted
principally of cash, cash equivalents, and marketable securities.

     Cash and cash equivalents increased by $586,000 in 1996. This increase
reflected the receipt of net proceeds of $24.1 million from financing activities
offset by $16.6 million of cash used in operations, $1.4 million of capital
expenditures and $5.5 million of investments in marketable securities. Current
research commitments for 1997, primarily for the Rockefeller University, are
$504,000.

     The Company expects that its rate of spending will increase as the result
of increased clinical trial costs and expenses associated with the regulatory
approval process and commercialization of products now in development. In order
to assure funding for the Company's future operations, the Company needs to seek
additional capital resources. However, no assurances can be given that the
Company will be successful in raising additional capital. If the Company is
unable to raise additional funds, the Company believes that its current
financial resources could fund operations based on reduced levels of research
and development and administrative activities through 1997.

     As of December 31, 1996, the Company had for federal income tax purposes a
net operating loss carryforward of approximately $85.0 million. If not utilized
to offset future taxable income, such loss carryforward will expire between 2001
and 2011. Certain events, including any sales by the Company of shares of its
stock and/or transfers of a substantial number of shares of Common Stock by the
current stockholders, may restrict the ability of the Company to utilize its net
operating loss carryforward. 

                                       24



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      See Part IV, Item 14 of this Report.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

      There have been no changes in or disagreements with the Company's auditors
on accounting principles or financial statement disclosure.


                                   PART III

      The information required by Part III (Items 10 through 13) is incorporated
by reference to the captions "Principal Stockholders," "Election of Directors,"
"Management" and "Certain Transactions" in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the Company's fiscal year covered by this Report.


                                    PART IV


ITEM 14.   EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.

           (a)    See  Index to  Financial  Statements  immediately  following
                  Exhibit Index.

           (b)    No reports on Form 8-K were filed during the Company's fourth
                  quarter in 1996.

           (c)    Exhibits

           See Exhibit Index immediately following signature pages.

                                       25



                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                        CELGENE CORPORATION


                                        By  /s/ John W. Jackson
                                        --------------------------
                                        John W. Jackson
                                        Chairman of the Board and
                                        Chief Executive Officer

Date:  March 28, 1997

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



Signature                        Title                    Date
- ---------                        -----                    ----
/s/ John W. Jackson              Chairman of the Board    March 28, 1997
- --------------------------       and Chief Executive 
John W. Jackson                  Officer             

/s/ Sol J. Barer                 Director                 March 28, 1997
- --------------------------
Sol J. Barer

/s/ Robert C. Butler             Chief Financial Officer  March 28, 1997
- --------------------------       (Principal Financial
Robert C. Butler                 Officer)            
                                 
/s/ Frank T. Cary                Director                 March 28, 1997
- --------------------------
Frank T. Cary

/s/ Arthur Hull Hayes, Jr.       Director                 March 28, 1997
- --------------------------
Arthur Hull Hayes, Jr.

/s/ Richard C. E. Morgan         Director                 March 28, 1997
- --------------------------
Richard C. E. Morgan

/s/ Walter L. Robb               Director                 March 28, 1997
- --------------------------
Walter L. Robb

/s/ Lee J. Schroeder             Director                 March 28, 1997
- --------------------------
Lee J. Schroeder

/s/ Sanford Kaston               Controller (Chief        March 28, 1997
- --------------------------       Accounting Officer)
Sanford Kaston                   

The foregoing constitutes a majority of the directors.

                                       26



(c) Exhibits.

                              CELGENE CORPORATION 

                         INDEX TO FINANCIAL STATEMENTS 



                                                                                      Page
                                                                                      ----
                                                                                    
Independent Auditors' Report    ...................................................    F-2
Balance Sheets as of December 31, 1995 and 1996   .................................    F-3
Statements of Operations--Years Ended December 31, 1994, 1995 and 1996    .........    F-4
Statements of Stockholders' Equity--Years Ended December 31, 1994, 1995 and 1996 ..    F-5
Statements of Cash Flows--Years Ended December 31, 1994, 1995 and 1996    .........    F-6
Notes to Financial Statements   ...................................................    F-8




                                      F-1



                         INDEPENDENT AUDITORS' REPORT 

The Board of Directors and Stockholders 
CELGENE CORPORATION: 

     We have audited the accompanying balance sheets of Celgene Corporation as
of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three- 
year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. 

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. 

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Celgene Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles. 


                                           /s/ KPMG Peat Marwick LLP

Short Hills, New Jersey 
February 27, 1996 


                                      F-2




                              CELGENE CORPORATION

                                BALANCE SHEETS 



                                                                             December 31, 
                                                                       -------------------------
                                                                          1995           1996   
                                                                       ----------     ----------
                                                                                        
                               ASSETS                                                            
Current assets:                                                                                  
  Cash and cash equivalents   .......................................  $   337,165    $   922,961
  Marketable securities available for sale   ........................   11,375,740     16,892,023
  Accounts receivable   .............................................      397,241        378,595
  Other current assets  .............................................      404,011        635,841
                                                                       -----------    -----------
    Total current assets   ..........................................   12,514,157     18,829,420

Plant and equipment, net   ..........................................    1,207,805      1,940,615
Other assets   ......................................................       41,250         41,250
Deferred debt costs  ................................................      448,006        126,577
                                                                       -----------    -----------
Total assets   ......................................................  $14,211,218    $20,937,862
                                                                       ===========    ===========
                 LIABILITIES AND STOCKHOLDERS' EQUITY                                            
Current liabilities:                                                                             
  Accounts payable   ................................................  $   607,206    $ 1,552,674
  Accrued expenses   ................................................    1,610,846        881,604
                                                                       -----------    -----------
    Total current liabilities .......................................    2,218,052      2,434,278

Convertible debentures  .............................................    4,592,366      2,026,043
Convertible debentures-accrued interest   ...........................      258,299        412,532
                                                                       -----------    -----------
Total liabilities    ................................................    7,068,717      4,872,853
                                                                       -----------    -----------
Stockholders' equity:                                                                            
  Preferred stock, $.01 par value per share; 5,000,000 shares                                    
  authorized, Series A convertible, redeemable cumulative preferred;                             
  267 shares issued and outstanding at December 31, 1996; includes                                
  $533,416 accretion premium   ......................................           --     13,883,416
  Common stock, $.01 par value per share; 20,000,000 shares                                      
  authorized; 8,807,863 and 10,611,422 shares issued and                                         
  outstanding at December 31, 1995 and 1996, respectively    ........       88,079        106,114

  Common stock in treasury, at cost -- 24,271 and 29,985 shares                                  
   at December 31, 1995 and December 31, 1996, respectively    ......         (243)      (100,239)

  Additional paid-in capital  .......................................   78,064,288     94,770,176
  Unamortized deferred compensation-restricted stock  ...............       (7,085)        (1,133)
  Accumulated deficit   .............................................  (70,989,400)   (92,599,039)
  Net unrealized gain (loss) on marketable securities                          
   available for sale   .............................................      (13,138)         5,714
                                                                       -----------    -----------
  Total stockholders' equity  .......................................    7,142,501     16,065,009
                                                                       -----------    -----------
Total liabilities and stockholders' equity   ........................  $14,211,218    $20,937,862
                                                                       ===========    ===========


                See Accompanying Notes to Financial Statements.

                                      F-3



                              CELGENE CORPORATION

                           STATEMENTS OF OPERATIONS 



                                                                For Years Ended December 31,            
                                                     ---------------------------------------------------
                                                          1994               1995               1996    
                                                     ---------------    ---------------    -------------
                                                                                             
Revenues:                                                                                                
 Chirally pure intermediates   .....................  $  1,997,636       $     657,753     $   1,465,715
 Research contracts   ..............................       258,000             515,000         1,036,665
                                                      ------------       -------------     -------------
 Total revenues ....................................     2,255,636           1,172,753         2,502,380
Expenses:                                                                                               
 Cost of goods sold   ..............................     1,096,687             792,251           981,448
 Research and development   ........................     6,492,468           8,183,045        16,322,825
 Selling, general and administrative    ............     3,130,551           2,857,758         4,001,419
                                                      ------------       -------------     ------------- 
 Total expenses ....................................    10,719,706          11,833,054        21,305,692 
                                                      ------------       -------------     ------------- 
Loss from operations  ..............................    (8,464,070)        (10,660,301)      (18,803,312)

Other Income and Expense:                                                                                
 Interest income   .................................       586,931             568,516         1,308,244 
 Interest expense  .................................            --             424,738           323,913 
                                                      ------------       -------------     ------------- 
Loss from continuing operations   ..................    (7,877,139)        (10,516,523)      (17,818,981)
Discontinued operations (note 9):                                                                        
 Loss from operations    ...........................    (1,497,088)                 --                -- 
 Loss on disposal  .................................      (839,000)                 --                -- 
                                                      ------------       -------------     ------------- 
 Loss from discontinued operations   ...............    (2,336,088)                 --                -- 
                                                      ------------       -------------     ------------- 
Net loss  ..........................................   (10,213,227)        (10,516,523)      (17,818,981)

Accretion of premium payable on preferred                                                                
 stock and warrants (note 6)   .....................            --                  --         1,012,881 

Deemed dividend for preferred stock conversion                                                           
 discount (note 6) .................................            --                  --         2,777,777 
                                                      ------------       -------------     ------------- 
Net loss applicable to common stockholders    ......  $(10,213,227)      $ (10,516,523)    $ (21,609,639)
                                                      ============       =============     ============= 
Per share of Common Stock (note 2):                                                                      
 Loss from continuing operation   ..................  $      (1.00)      $       (1.30)    $       (1.89)
 Loss from discontinued operation    ...............          (.30)                 --                -- 
 Net loss applicable to common stockholders   ......  $      (1.30)      $       (1.30)    $       (2.29)
                                                      ============       =============     =============
Weighted average number of shares of common stock                                                        
 outstanding    ....................................     7,853,000           8,073,000         9,450,000 


                See Accompanying Notes to Financial Statements.

                                      F-4




                              CELGENE CORPORATION 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 1994, 1995 and 1996



                                                                                                     
                                                                                                     
                                                                                                     
                                                   Common Stock                 Preferred Stock      
                                            ------------------------------ ------------------------- 
                                               Shares           Amount      Shares       Amount      
                                            --------------   ------------- ---------   ------------- 
                                                                           
Balances at December 31, 1993                 7,864,538         $78,646        --      $        --      
Repurchase of shares  .....................                                                          
Restricted stock forfeited  ...............      (4,000)            (40)                             
Exercised stock options  ..................      26,422             264                              
Amortization of deferred                                                                             
 compensation   ...........................                                                          
Change in net unrealized gain (loss)                                                                 
 on marketable securities   ...............                                                          
Net loss  .................................                                                          
                                            --------------   ------------- ---------   ------------- 
Balances at December 31, 1994  ............   7,886,960          78,870        --               --   
Exercised stock options  ..................      24,987             250                              
Amortization of deferred                                                                             
 compensation   ...........................                                                          
Discount for convertible debentures  ......                                                          
Conversion of convertible debentures  .....     895,916           8,959                              
Cost associated with conversion of                                                                   
 convertible debentures, net   ............                                                          
Change in net unrealized gain (loss)                                                                 
 on marketable securities   ...............                                                          
Net loss  .................................                                                          
                                            --------------   ------------- ---------   ------------- 
Balances at December 31, 1995  ............   8,807,863          88,079        --               --   
Exercised stock options  ..................      42,069             420                              
Repurchase of shares  .....................                                                          
Amortization of deferred                                                                             
 compensation   ...........................                                                          
Conversion of convertible debentures  .....     372,681           3,727                              
Issuance of preferred stock, net  .........                                   503       25,150,000   
Conversion of preferred stock  ............   1,388,809          13,888      (236)     (12,141,309)  
Preferred stock lock-up warrants  .........                                                          
Accretion of premium on preferred                                                                    
 stock    .................................                                                874,725   
Deemed dividend for preferred stock                                                                  
 conversion discount  .....................                                                          
Change in net unrealized gain (loss)                                                                 
 on marketable securities   ...............                                                          
Net loss  ................................. --------------   ------------- ---------   ------------- 
Balances at December 31, 1996  ............  10,611,422        $106,114       267     $ 13,883,416   
                                            ==============   ============= =========  ============== 


[RESTUBBED TABLE]



                                                                                         
                                                 Treasury Stock             Additional
                                            ------------------------------    Paid-in
                                               Shares           Amount        Capital    
                                            --------------   -------------  -----------  
                                                                   
Balances at December 31, 1993                    (21,604)       $(217)      $70,554,294  
Repurchase of shares  .....................       (2,667)         (26)             (134) 
Restricted stock forfeited  ...............                                     (44,960) 
Exercised stock options  ..................                                     175,568  
Amortization of deferred                                                                 
 compensation   ...........................                                              
Change in net unrealized gain (loss)                                                     
 on marketable securities   ...............                                              
Net loss  .................................                                              
                                            --------------   -------------  -----------  

Balances at December 31, 1994  ............      (24,271)        (243)       70,684,768  
Exercised stock options  ..................                                     170,638  
Amortization of deferred                                                                 
 compensation   ...........................                                              
Discount on convertible debentures  ......                                    1,194,434  
  to adjust to market yield
Conversion of convertible debentures  .....                                   6,370,680  
Cost associated with conversion of                                                       
 convertible debentures, net   ............                                    (356,232) 
Change in net unrealized gain (loss)                                                     
 on marketable securities   ...............                                              
Net loss  .................................                                              
                                            --------------   -------------  ----------- 
Balances at December 31, 1995  ............      (24,271)        (243)       78,064,288  
Exercised stock options  ..................                                     337,521  
Repurchase of shares  .....................       (5,714)     (99,996)                   
Amortization of deferred                                                                 
 compensation   ...........................                                              
Conversion of convertible debentures  .                                       2,645,388  
Issuance of preferred stock, net  .........                                  (1,320,375) 
Conversion of preferred stock  ............                                  12,127,421  
Preferred stock lock-up warrants  .........                                     138,156  
Accretion of premium on preferred                                                        
 stock    .................................                                              
Deemed dividend for preferred stock                                                      
 conversion discount  .....................                                   2,777,777  
Change in net unrealized gain (loss)                                                     
 on marketable securities   ...............                                              
Net loss  .................................                                              
                                            --------------   -------------  ----------- 
Balances at December 31, 1996  ............      (29,985)   $(100,239)      $94,770,176  
                                            ==============  ==============  ===========  


[RESTUBBED TABLE]




                                                                                  Net Unrealized
                                                                                  Gain (Loss) on
                                                                                    Marketable
                                                                                     Securities
                                              Unamortized                            Available       
                                                Deferred         Accumulated            For  
                                              Compensation         Deficit             Sale                   Total     
                                            ---------------     ---------------    -------------         -------------
                                                                                               
Balances at December 31, 1993               $     (77,459)       $(50,259,650)      $        --            $20,295,614     
Repurchase of shares  .....................                                                                       (160) 
Restricted stock forfeited  ...............        15,627                                                      (29,373) 
Exercised stock options  ..................                                                                    175,832  
Amortization of deferred                                                                                                
 compensation   ...........................        42,658                                                       42,658  
Change in net unrealized gain (loss)                                                                                    
 on marketable securities   ...............                                            (267,278)              (267,278) 
Net loss  .................................                        (10,213,227)                            (10,213,227) 
                                            --------------       -------------       ------------         -------------    
Balances at December 31, 1994  ............       (19,174)         (60,472,877)        (267,278)            10,004,066  
Exercised stock options  ..................                                                                    170,888  
Amortization of deferred                                                                                                
 compensation   ...........................        12,089                                                       12,089  
Discount for convertible debentures  ......                                                                  1,194,434  
Conversion of convertible debentures  .                                                                      6,379,639  
Cost associated with conversion of                                                                                      
 convertible debentures, net   ............                                                                   (356,232) 
Change in net unrealized gain (loss)                                                                                    
 on marketable securities   ...............                                             254,140                254,140  
Net loss  .................................                        (10,516,523)                            (10,516,523) 
                                            --------------       -------------       ------------         -------------  
Balances at December 31, 1995  ............        (7,085)         (70,989,400)         (13,138)             7,142,501  
Exercised stock options  ..................                                                                    337,941  
Repurchase of shares  .....................                                                                    (99,996) 
Amortization of deferred                                                                                                
 compensation   ...........................         5,952                                                        5,952  
Conversion of convertible debentures  .                                                                      2,649,115  
Issuance of preferred stock, net  .........                                                                 23,829,625  
Conversion of preferred stock  ............                                                                         --  
Preferred stock lock-up warrants  .........                           (138,156)                                     --  
Accretion of premium on preferred                                                                                       
 stock    .................................                           (874,725)                                     --    
Deemed dividend for preferred stock                                                                                     
 conversion discount  .....................                         (2,777,777)                                     --  
Change in net unrealized gain (loss)                                                                                    
 on marketable securities   ...............                                              18,852                 18,852  
Net loss  .................................                        (17,818,981)                            (17,818,981) 
                                            --------------       -------------      ------------         -------------  
Balances at December 31, 1996  ............      $ (1,133)       $ (92,599,039)     $     5,714           $ 16,065,009  
                                            ==============       =============      ============         =============    
                                      


[END OF RESTUBBED TABLE]

                See Accompanying Notes to Financial Statements.

                                      F-5




                              CELGENE CORPORATION

                           STATEMENTS OF CASH FLOWS 



                                                                                Years Ended December 31,
                                                                 ------------------------------------------------------
                                                                       1994               1995             1996
                                                                ----------------   ---------------   -----------------
                                                                                               
Cash flows from operating activities:                                                                                
  Loss from Continuing Operations    ...........................  $  (7,877,139)     $ (10,516,523)     $(17,818,981)
  Adjustments to reconcile loss from continuing                                                                      
   operations to net cash used in operating activities:                                                              
    Depreciation   .............................................        675,352            776,741           685,351 
    Amortization of convertible debt costs    ..................             --            173,192           234,540 
    Amortization of deferred compensation  .....................         58,285             12,089             5,952 
    Interest on convertible debentures  ........................             --            424,738           323,914 
  Change in current assets and liabilities:                                                                          
    Increase in accounts payable and accrued expenses  .........         17,253            674,188           216,226 
    (Increase) decrease in accounts receivable   ...............       (262,368)           225,843            18,646 
    (Increase) decrease in other assets    .....................         60,381             24,833          (231,830)
                                                                  -------------      -------------      -------------
  Net cash used in continuing operations   .....................     (7,328,236)        (8,204,899)      (16,566,182)
  Net cash used in discontinued operation  .....................     (1,736,054)                --                -- 
                                                                  -------------      -------------      -------------
  Net cash used in operating activities    .....................     (9,064,290)        (8,204,899)      (16,566,182)
                                                                  -------------      -------------      -------------
Cash flows from investing activities:                                                                                
  Capital expenditures   .......................................       (198,964)           (29,880)       (1,418,161)
  Proceeds from sales and maturities of marketable                                                                   
  securities available for sale   ..............................     19,314,158         22,185,466       137,051,037 
  Purchases of marketable securities available for sale   ......    (10,678,498)       (25,099,905)     (142,548,468)
                                                                  -------------      -------------      -------------
  Net cash provided by (used in) investing activities  .........      8,436,696         (2,944,319)       (6,915,592)
                                                                  -------------      -------------      -------------
Cash flows from financing activities:                                                                                
  Net proceeds from exercise of common stock options   .........        130,672            170,888           237,945 
  Net proceeds from issuance of convertible debentures    ......             --         11,022,570                -- 
  Net proceeds from issuance of preferred stock  ...............             --                 --        23,829,625 
                                                                  -------------      -------------      -------------
  Net cash provided by financing activities   ..................        130,672         11,193,458        24,067,570 
                                                                  -------------      -------------      -------------
  Net increase (decrease) in cash and cash equivalents    ......       (496,922)            44,240           585,796 
  Cash and cash equivalents at beginning of period  ............        789,847            292,925           337,165 
                                                                  -------------      -------------      -------------
  Cash and cash equivalents at end of period  ..................  $     292,925      $     337,165      $    922,961 
                                                                  =============      =============      =============


                                                                     (continued)

                See Accompanying Notes to Financial Statements.

                                      F-6



                              CELGENE CORPORATION 
                     STATEMENTS OF CASH FLOWS--(Continued) 



                                                                         Years Ended December 31,            
                                                              ---------------------------------------------- 
                                                                 1994             1995            1996       
                                                              --------------   -------------   ------------- 
                                                                                                  
Non-cash investing activity:                                                                                 
  Change in net unrealizable gain (loss) on marketable                                                       
   securities available for sale   ........................     $ (267,278)      $ 254,140      $   18,852   
                                                                ==========       ==========     ===========  
Non-cash financing activities:                                                                               
  Issuance of common stock upon the conversion of                                                            
 convertible debentures and accrued interest thereon,                                                        
 net    ...................................................             --       $5,928,907     $2,649,115   
                                                                ==========       ==========     ===========  
  Accretion of premium payable on preferred stock and                                                        
 warrants  ................................................             --              --      $1,012,881   
                                                                ==========       ==========     ===========  
  Deemed dividend for preferred stock conversion                                                             
 discount  ................................................             --              --      $2,777,777   
                                                                ==========       ==========     ===========  
  Issuance of warrants for services rendered in connection                                                   
 with the issuance of convertible debentures   ............             --       $  94,500              --   
                                                                ==========       ==========     ===========  
  Issuance of common stock upon the conversion of                                                            
 convertible preferred stock and accrued accretion                                                           
 thereon, net    ..........................................             --              --      $12,141,309  
                                                                ==========       ==========     ===========  
  Issuance of common stock upon exercise of options                                                          
 through the return of common stock previously                                                               
 outstanding  .............................................     $       --       $      --      $   99,996   
                                                                ==========       ==========     ===========  


                See Accompanying Notes to Financial Statements.

                                      F-7




                              CELGENE CORPORATION 
                         NOTES TO FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

(1) NATURE OF BUSINESS AND LIQUIDITY

     Celgene Corporation ("Celgene" or the "Company") is a biotechnology company
engaged in the development and commercialization of human pharmaceuticals and
agrochemicals. Celgene has two technology platforms: (i) targeted small molecule
synthesis and (ii) biocatalytic chiral chemistry synthesis. Celgene is applying
its expertise in targeted small molecule synthesis to develop proprietary
immunotherapeutic pharmaceutical products called SelCIDs[TM] (Selective Cytokine
Inhibitory Drugs) to treat chronic inflammatory diseases. SelCIDs are orally
available small molecules that selectively inhibit the production of Tumor
Necrosis Factor Alpha ("TNF[alpha]"), a protein whose overproduction has been
linked to many chronic inflammatory diseases including inflammatory bowel
disease, rheumatoid arthritis, non-insulin dependent diabetes, asthma, lupus,
and multiple sclerosis. In the near term, the Company is seeking to develop
Synovir[RegTM], the Company's trademarked formulation of thalidomide, a potent
modulator of TNF[alpha], for the treatment of several severe and intractable
disease states. The Company is employing its biocatalytic chiral chemistry
synthesis technology to develop chirally pure chemical compounds with superior
attributes and/or lower manufacturing costs than conventional, non-chirally pure
chemical compounds. Celgene's chiral chemistry technology supports an
established business in chirally pure intermediates, and development programs in
chirally pure human pharmaceuticals and agrochemicals. 

     The Company expects that its rate of spending will increase as the result
of increased clinical trial costs and expenses associated with the regulatory
approval process and commercialization of products now in development. In order
to assure funding for the Company's future operations, the Company needs to seek
additional capital resources. However, no assurances can be given that the
Company will be successful in raising additional capital. If the Company is
unable to raise additional funds through these means, the Company believes that
its current financial resources could fund operations based on reduced levels of
research and development and administrative activities through 1997. 

     The preparation of the financial statements requires management to make
estimates and assumptions that affect reported amounts and disclosures in these
financial statements. Actual results could differ from those estimates. The
Company is subject to certain risks and uncertainties such as uncertainty of
product development, uncertainties regarding regulatory approval, no assurance
of market acceptance of products, risk of product liability, uncertain scope of
patent and proprietary rights, intense competition, and rapid technological
change. 

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 (a) Cash Equivalents 

     At December 31, 1995 and 1996, cash equivalents consisted principally of
funds invested in overnight repurchase agreements, money market funds, and
United States government securities such as treasury bills and notes. 

 (b) Marketable Securities 

     The Company has classified all of its marketable securities as securities
available for sale. Such securities are to be held for an indefinite period of
time and are intended to be used to meet the ongoing liquidity needs of the
Company. Realized gains and losses are included in operations and are measured
using the specific cost identification method. 

                                      F-8



                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 (c) Plant and Equipment 

     Plant and equipment are stated at cost. Depreciation of plant and
equipment is provided using the straight-line method. The estimated useful lives
of fixed assets are as follows:

                                                           
 Laboratory equipment and machinery   ......    5-10 years        
 Furniture and fixtures   ..................    5-10 years        

     Amortization of leasehold improvements is calculated using the
straight-line method over the term of the lease or the life of the asset,
whichever is shorter. Maintenance and repairs are charged to operations as
incurred, while renewals and improvements are capitalized. 

     Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. In accordance with SFAS No.
121, the Company reviews long-lived assets for impairment whenever events or
changes in business circumstances occur that indicate that the carrying amount
of the assets may not be recoverable. The Company assesses the recoverability of
long-lived assets held and to be used based on undiscounted cash flows and
measures the impairment, if any, using discounted cash flows. Adoption of SFAS
No. 121 did not have a material impact on the Company's financial position,
operating results or cash flows. 

 (d) Research and Development Costs 

     All research and development costs are expensed as incurred. 

 (e) Income Taxes 

     The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect for all years in which the temporary differences are expected to reverse.

     Research and development tax credits will be recognized as a reduction of
the provision for income taxes when realized. 

 (f) Revenue Recognition 

     Revenue from the sale of chemical intermediates is recognized upon product
shipment. Revenue under research contracts is recorded as earned under the
contracts, generally as services are provided. Revenue is recognized immediately
for nonrefundable license fees when agreement terms require no additional
performance on the part of the Company. 

 (g) Stock Options 

     The Company generally does not record compensation cost for the issuance of
employee stock options since the options are generally issued with an exercise
price equal to the market price at the date of grant. For the fair value of the
employee stock options issued in 1995 and 1996, see note 7. 

 (h) Share Information 

     Net loss per share of common stock is based upon the weighted average
number of shares of common stock outstanding. The assumed exercise of stock
options, conversion of convertible debentures and convertible preferred stock
are not considered, as the effect would be anti-dilutive. 

 (i) Presentation 

     Certain prior year amounts have been reclassified to conform with the
current year presentation. In connection with the discontinuation of the
Company's biotreatment operation (see note 9), the 1994 financial results
applicable to continuing operations exclude amounts from the discontinued
operation. 

                                      F-9



                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 (j) Deferred Debt Costs 

     Deferred debt costs are amortized over the life of the debt. 

 (k) Fair Value of Financial Instruments 

     The fair value, which is the carrying value, of marketable securities
available for sale is based on quoted market prices. The convertible debentures
approximate fair value after discount, to produce an interest rate that
approximates market rates. For all other financial instruments their carrying
value approximates fair value due to their short maturity.

(3) PLANT AND EQUIPMENT 

     Plant and equipment consists of the following: 

                                                        December 31,          
                                               ------------------------------ 
                                                  1995             1996       
                                                ------------     ------------ 
 Leasehold improvements   ..................    $ 3,113,212      $ 3,731,518  
 Laboratory equipment and machinery   ......      4,946,764        5,746,619  
 Furniture and fixtures   ..................        391,370          391,370  
                                                ------------     ------------ 
                                                  8,451,346        9,869,507  
 Less: accumulated depreciation    .........      7,243,541        7,928,892  
                                                ------------     ------------ 
                                                $ 1,207,805      $ 1,940,615  
                                                ============     ============ 

(4) ACCRUED EXPENSES 

     Accrued expenses consists of the following: 

                                                    December 31,       
                                               ----------------------- 
                                                 1995            1996    
                                               ----------     ---------       
 Professional and consulting fees   ......     $  912,400      $357,859        
 Accrued compensation   ..................        610,111       457,849        
 Other   .................................         88,335        65,896        
                                               ----------     ---------       
                                               $1,610,846     $ 881,604        
                                               ==========     =========       

(5) CONVERTIBLE DEBENTURES 

     During 1995, the Company issued and sold in an offering pursuant to
Regulation S, 8% Convertible Debentures due July 31, 1997 in the aggregate
principal amount of $12,000,000, and received net proceeds, after offering
costs, of $11,022,570. The recorded value of the debentures at that date of
issuance was discounted to produce a market interest rate approximating 13.5%.
Such debentures are convertible into Common Stock at the option of either the
holders thereof or the Company. The holders of the convertible debentures may
convert the debentures into Common Stock of the Company at a conversion price
that varies and is based upon the market price (as defined) of Common Stock for
the five trading days preceding the date of conversion.

     The Company may require the conversion of the convertible debentures
commencing October 15, 1995 through July 30, 1997 at a conversion price which
varies and is based upon the market price of the Common Stock on the date of
conversion. The Company also has the right to redeem any convertible debenture
upon which it has received notice of intent to convert. The redemption price is
the greater of 115% of the principal and the accrued interest on the redeemed
debenture or an amount which is based on the appreciation of the Common Stock
from the date of issuance of the debentures. The Company has classified the
debentures at December 31, 1996 as a long term liability since it has the
ability and intent to convert them into Common Stock. 

     As of December 31, 1996, convertible debentures in the aggregate principal
amount of $9,750,000, plus accrued interest, had been converted into a total of
1,268,597 shares of common stock. No interest was paid in cash. 

                                      F-10



                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(6) SERIES A CONVERTIBLE PREFERRED STOCK

     On March 13, 1996, in a private placement, the company completed the sale
of 503 shares of Series A Convertible Preferred Stock, par value $.01 per share
(the "Preferred Stock"), at an issue price of $50,000 per share. The Company
received net proceeds, after offering costs, of $23,829,625. The Preferred
Stock, plus accretion at a rate of 4.9% per year, is convertible into common
stock of the Company at the option of the holders thereof at a conversion price
per share of common stock equal, generally, to the lesser of (i) $18.81 or (ii)
90% of the average closing price per share of the common stock for the seven
trading days immediately prior to the date of conversion. The Preferred Stock
primarily became convertible during the third quarter of the year. As a result
of recent guidance related to issuance of securities issued with variable
conversion features that include a potential discount to market the Company
recognized the value of the discount to market conversion feature as a deemed
dividend. Had this been recorded in the third quarter the net loss applicable to
common stockholders would have been $(8,584,611) and the related per share
amount would have been $(.90). The average closing price per share of common
stock for the seven trading days immediately prior to December 31, 1996 was
$11.25.

     The Company may redeem the shares in increments of not less than $1.5
million plus accretion commencing December 13, 1996, on thirty business days
written notice to the preferred stockholders, at a price that equals a specified
premium, ranging from 120% to 130%, of the purchase price plus accretion
premium. Under certain conditions, upon receipt of a conversion notice from the
holder, the Company has the right (i) to redeem shares presented for conversion,
or (ii) to defer conversion for 90 days in exchange for warrants to purchase
additional shares of common stock as specified in the Certificate of Designation
of Series A Convertible Preferred Stock. Any shares of Series A Convertible
Preferred Stock outstanding on March 13, 1998 shall be converted automatically
into common stock on such date at the conversion price then in effect. The
holders of Preferred Stock have no voting rights. 

     The Company granted registration rights to the subscribers in the Preferred
Stock private placement. A registration statement with respect to investor
resales of common shares underlying the Preferred Stock was filed and declared
effective on June 10, 1996. In connection with the private placement, the
Company also granted to certain executives and affiliates of the placement agent
warrants, valued at $60,168, to purchase an aggregate of 66,853 shares of common
Stock at an exercise price of $20.52, subject to proportional adjustment in the
event that the Company undertakes a stock split, stock dividend,
recapitalization or similar event. These warrants are exercisable for a period
of five years from the date of issuance. 

     As of December 31, 1996, 236 shares (as of January 31, 1997, 276 shares) of
the Series A Preferred Stock, with their respective accrued accretion, had been
converted into 1,388,809 (1,590,745 at January 31, 1997) shares of common stock.
Through December 31, 1996 the Company had accrued $874,725 representing
accretion of the premium on the Preferred Stock of which $533,416 relates to
preferred shares not yet tendered for conversion. As of December 31, 1996 the
Company had also issued warrants valued at $138,156, that entitle certain
stockholders of the Series A Preferred Stock to purchase 153,507 shares of
common stock at an exercise price of $11.50. The warrants were issued in
exchange for the deferral of conversion for 90 days. These warrants are
exercisable for a period of two years from the date of issuance. 

(7) STOCK BASED COMPENSATION 

 (a) Stock Options 

     On June 16, 1995, the stockholders of the Company approved the 1995
Non-Employee Directors' Incentive Plan, which provides for the granting of
non-qualified stock options to purchase an aggregate of not more than 250,000
shares of common stock (subject to adjustment under certain circumstances) to
directors of the Company who are not officers or employees of the Company
("Non-Employee Directors"). Non-employee Directors are no longer eligible to
participate in the 1992 Non-Employee Directors' Stock Option Plan. Each new
Non-Employee Director, upon the date of his election or appointment, receives an
option to purchase 20,000 shares of common stock. Additionally, upon the date of
each annual meeting of stockholders, each continuing Non-Employee 

                                      F-11



                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(7) STOCK BASED COMPENSATION (Continued)

Director receives an option to purchase 10,000 shares of common stock (or a pro
rata portion thereof if he has served less than one year), except that at the
1995 annual meeting of stockholders the Non-Employee Directors received an
option to purchase 6,000 shares of common stock. On April 5, 1995, each
Non-Employee Director received an initial grant of a non-qualified option to
purchase 20,000 shares of common stock, upon shareholder approval of this plan,
which was received June 16, 1995. The shares subject to each non-employee
director's option grant of 20,000 shares vest in four equal annual installments
commencing on the first anniversary of the date of grant. The shares subject to
an annual meeting option grant vest in full on the date of the first annual
meeting of stockholders held following the date of grant. All options are
granted at an exercise price that equates to the fair market value of the
Company's common stock at the grant date and expire 10 years after the date of
grant. This plan terminates in 2005. 

     On May 27, 1992, the stockholders of the Company approved two new stock
option plans: the 1992 Long-Term Incentive Plan (the "1992 Incentive Plan") and
the 1992 Non-Employee Directors' Stock Option Plan (the "1992 Directors' Plan").

     The 1992 Incentive Plan provides for the granting of options, restricted
stock awards, stock appreciation rights, performance awards and other
stock-based awards to employees and officers of the Company to purchase not more
than an aggregate of 1,000,000 shares of common stock, subject to adjustment
under certain circumstances. The Management Compensation and Development
Committee of the Board of Directors (the "Committee") determines the type,
amount and terms, including vesting, of any awards made under the Incentive
Plan. This plan terminates in 2002. 

     With respect to options granted under the 1992 Incentive Plan, the 1992
Directors' Plan, and the 1986 Stock Option Plan that terminated in June 1996
(collectively, the "Plans"), the exercise price may not be less than the fair
market value of the common stock on the date of grant. In general, each option
granted under the Plans vests evenly over a three or four year period and
expires 10 years from the date of grant, subject to earlier expiration in case
of termination of employment. The vesting period for options and restricted
stock awards granted under the Plans is subject to certain acceleration
provisions if a change in control, as defined in the Plans, occurs. 

     The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
Plans. Accordingly, no compensation expense has been recognized for its stock
based compensation plans other than for restricted stock awards. Had
compensation expense for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's net
loss and loss per share would have been increased by approximately $198,000, or
$0.02 per share in 1995 to $(10,714,523), or $(1.32) per share and approximately
$1,905,000, or $0.20 per share in 1996 to $(23,514,639), or $(2.49) per share.
The weighted average fair value of the options granted during 1995 is estimated
as $2.88 on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of zero, weighted average volatility
of 47%, weighted average risk free interest rate of 6.49% and an expected term
of 2.91 years. The weighted average fair value of the options granted during
1996 is estimated as $5.01 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of zero,
weighted average volatility of 43% weighted average risk free interest rate
ranging of 6.49%, and a weighted average expected term of 2.22 years.

     The pro forma effects on net loss and loss per share for 1995 and 1996 may
not be representative of the pro forma effects in future years since
compensation cost is allocated on a straight-line basis over the vesting periods
of the grants, which extends beyond the reported years. 

                                      F-12



                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(7) STOCK BASED COMPENSATION (Continued)

     The following table summarizes the stock option activity for the Plans: 



                                                                            Options                  
                                                           ------------------------------------------
                                        Shares Available                   Weighted Average Exercise 
                                           for Grant         Shares            Price per Share       
                                     -------------------   ------------   ---------------------------
                                                                                         
 Balance January 1, 1994 .........        1,268,794         1,145,969                $8.60           
   Granted   .....................         (418,994)          418,994                 7.20           
   Exercised .....................               --           (26,422)                6.65           
   Cancelled .....................          233,742          (233,742)                9.46           
                                         ----------        ----------                ------          
 Balance December 31, 1994  ......        1,083,542         1,304,799                 8.03           
   Authorized   ..................          250,000                --                   --           
   Granted   .....................         (209,368)          209,368                 6.49           
   Exercised .....................               --           (24,987)                6.84           
   Cancelled .....................           78,712           (78,712)                9.24           
                                         ----------        ----------                ------          
 Balance December 31, 1995  ......        1,202,886         1,410,468                 7.75           
   Expired Plan ..................         (139,999)               --                   --           
   Granted   .....................         (678,589)          678,589                13.25           
   Exercised .....................               --           (42,069)                8.03           
   Cancelled .....................           46,095           (46,095)                6.40           
                                         ----------        ----------                ------          
 Balance December 31, 1996  ......          430,393         2,000,893                $9.64           
                                         ==========        ==========                ======    



     The following table summarizes information concerning options outstanding
under the Plans at December 31, 1996: 



                               Options Outstanding                                          Options Exercisable        
- --------------------------------------------------------------------------------- --------------------------------------
    Range of      Number Outstanding                Weighted Average               Number Exercisable   Weighted Average
Exercise Price       at 12/31/96        Remaining Term (Life)    Exercise Price       at 12/31/96        Exercise Price 
- --------------    ------------------    ---------------------    --------------    ------------------   ----------------
                                                                                                      
 5.00-9.00               871,658                6.2                   $6.52               675,658             $6.59     
 9.01-13.00              601,266                5.4                    9.93               424,181              9.78     
13.01-18.00              527,969                8.9                   14.42               110,004             14.03     
                       ---------                ---                   -----             ---------             -----     
                       2,000,893                6.7                   $9.64             1,209,843             $8.39     
                       =========                ===                   =====             =========             =====     
                          


     On February 14, 1997 the Company granted 50,000 options to a Vice President
exercisable at $10.69 (market price at the date of grant). These options vest
evenly over four years and have a ten year term. 

 (b) Restricted Stock Awards 

      Restricted stock awards granted pursuant to the Plans generally require no
payments by the grantee. All of the shares of stock subject to such restricted
stock awards are subject to forfeiture if the employee's employment, or
Non-Employee Director's association with the Company, is terminated or ended
(except under certain circumstances) prior to a vesting period of generally
three to five years from the restricted stock award grant date. The market price
of the shares on the date of the grant is recorded as a deduction from
stockholders' equity (unamortized deferred compensation--restricted stock) which
is amortized to compensation expense over the applicable vesting period. There
have been no grants of restricted stock in 1994, 1995, or 1996. 


     On January 24, 1997, the Company awarded 5,000 shares of common stock to
the Company's Chairman and CEO, which were immediately vested.

 (c) Warrants 

     In connection with the retention of a financial advisor, the Company in
February 1991 granted to such financial advisor a warrant to purchase, until
January 15, 1996, 50,000 shares of common stock at a price of $6.50 

                                      F-13




                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(7) STOCK BASED COMPENSATION (Continued)

per share. This warrant expired on January 15, 1996. 

     In connection with the retention of an investor relations firm, the Company
in November 1994 granted to such firm a warrant to purchase until September 1,
1999, 50,000 shares of common stock at a price of $6.50 per share. This warrant
was outstanding as of December 31, 1996. 


     In connection with the retention of an investment firm to assist in the
sale and issuance of 8% Convertible Debentures, the Company in August, 1995
granted to such firm warrants to purchase until July 31, 2000, 105,000 shares of
common stock at a price of $9.60 per share. These warrants were outstanding as
of December 31, 1996. 


     In connection with the retention of an investment firm to assist in the
sale and issuance of the Preferred Stock, the Company, in March, 1996 granted to
such firm warrants to purchase until March 10, 2001, 66,853 shares of common
stock at a price of $20.52. These warrants were outstanding as of December 31,
1996. 


     During 1996, the Company also issued to certain holders of convertible
Preferred Stock warrants valued at $138,156, to purchase 153,507 shares of
common stock at an exercise price of $11.50. The warrants were issued in
exchange for the deferral of conversion for 90 days. These warrants are
exercisable for a period of two years from the date of issuance. These warrants
were outstanding as of December 31, 1996.

 (d) Rights Plan

     During 1996, the Company adopted a shareholder rights plan ("Rights Plan").
The Rights Plan involves the distribution of one "Right" as a dividend on each
outstanding share of the Company's common stock to all holders of record on
September 26, 1996. Each Right shall entitle the holder to purchase one-tenth of
a share of common stock. The Rights trade in tandem with the common stock until,
and exercisable upon, certain triggering events, and the exercise price is based
on the estimated long term value of the Company's common stock. 

(8) INCOME TAXES

     At December 31, 1995 and 1996, the tax effects of temporary differences
that give rise to deferred tax assets are as follows: 



                                                                               1995              1996
                                                                          -------------     -------------  
                                                                                                     
 Deferred Assets:                                                                                          
   Federal and state net operating loss carryforwards   ...............   $  26,510,000     $  33,998,000  
   Research and experimentation tax credit carryforwards   ............       1,851,000         2,050,000  
   Plant and equipment, principally due to differences in depreciation        1,226,000         1,301,000  
   Patents, principally due to differences in amortization    .........          90,000            75,000  
   Accrued expenses, principally due to accrual for financial                                              
   reporting purposes  ................................................         297,000           165,000  
                                                                          -------------     -------------  
 Total deferred tax assets   ..........................................      29,974,000        37,589,000  
 Valuation allowance   ................................................     (29,974,000)      (37,589,000) 
                                                                          -------------     -------------  
 Net deferred tax assets  .............................................   $          --     $          --  
                                                                          =============     =============  



     A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. 

     At December 31, 1996, the Company had net operating loss carryforwards of
approximately $85,000,000 that will expire in the years 2001 to 2011. The
Company also has research and experimentation credit carryforwards of
approximately $ 2,050,000 that expire in the years 2001 to 2011. Ultimate
utilization/availability of such net operating losses and credits may be
curtailed if a significant change in ownership occurs. 

                                      F-14




                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(9) DISCONTINUED OPERATION 

     On June 16, 1994, the Company entered into an agreement with Sybron
Chemicals, Inc. ("Sybron Chemicals") pursuant to which the Company has
exclusively licensed its biotreatment technology and sold its biotreatment
laboratory and field demonstration equipment to Sybron Chemicals. Under the
terms of the agreement, Sybron Chemicals has the exclusive right to
commercialize the Company's biocatalysis technology for the removal of hazardous
wastes from manufacturing and process waste streams. During the next ten years,
under the terms of the agreement, the Company will receive royalty payments
based on a percentage of commercial net sales of biotreatment systems made by
Sybron Chemicals. The Company has not recorded any royalty revenues in 1994,
1995 and 1996. 

     During the second quarter of 1994, the Company recognized a charge to
discontinued operations of $839,000, or $.11 per share, for disposal of its
biotreatment business, of which $536,000 represents a non-cash loss on the sale
of capital equipment dedicated to the Company's biotreatment operations and
$303,000 relates to severance arrangements with biotreatment personnel. 

     For the year ended December 31, 1994, revenues relative to the biotreatment
operations were approximately $38,000. Direct expenses related to the
biotreatment operations, primarily for personnel, research and development and
depreciation, amounted to $1,535,000 for the year ended December 31, 1994. 

(10) MARKETABLE SECURITIES AVAILABLE FOR SALE 

     A summary of marketable securities at December 31, 1995 is as follows: 



                                                         Gross              Gross          Estimated
                                                       Unrealized         Unrealized          Fair  
                                         Cost             Gain               Loss            Value  
                                    --------------   -------------   ------------------   ------------
                                                                                       
 US Government and agency                                                                             
   obligations ..................     $8,892,723       $     --            $  (13,301)     $ 8,879,422 
 Certificates of deposit   ......      1,000,017             --                   (22)         999,995 
 Asset backed security  .........        500,665             --                  (509)         500,156 
 Commercial Paper    ............        995,473             694                   --          996,167 
                                      -----------      ---------           ----------      -----------
                                      $11,388,878      $     694           $  (13,832)     $11,375,740
                                      ===========      =========           ==========      ===========


     The net change in the unrealized gain (loss) for the year ended December
31, 1995 amounted to approximately $254,000. The proceeds from sales and
maturities of marketable securities available for sale included gross realized
gains and losses of approximately $34,000 and $148,000 respectively, for the
year ended December 31, 1995. 

     Marketable securities available for sale at December 31, 1996 include debt
securities with maturities ranging from January, 1997 to October, 1997. A
summary of marketable securities at December 31, 1996 is as follows: 




                                                        Gross           Gross         Estimated   
                                                       Unrealized      Unrealized        Fair     
                                         Cost            Gain            Loss           Value     
                                    --------------   -------------   -------------   ------------- 
                                                                                   
 Commercial Paper    ............     $8,369,006       $      --       $    (170)     $ 8,368,836  
 Corporate Bonds  ...............      4,015,052           6,773              --        4,021,825  
 Certificates of deposit   ......      3,000,034              --            (424)       2,999,610  
 US Government and agency                                                                         
  obligations   .................     $1,502,217              --            (465)     $ 1,501,752  
                                      -----------      ----------      ---------      ----------- 
                                      $16,886,309      $    6,773      $  (1,059)     $16,892,023 
                                      ===========      ==========      =========      =========== 



                                      F-15



                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(10) MARKETABLE SECURITIES AVAILABLE FOR SALE (Continued)

     The net change in the unrealized gain (loss) for the year ended December
31, 1996 amounted to approximately $19,000. The proceeds from sales and
maturities of marketable securities available for sale included gross realized
gains and losses of approximately $359,000 and $32,000 respectively, for the
year ended December 31, 1996. 

(11) COMMITMENTS AND CONTINGENCIES 

 (a) Leases 

     Celgene leases its main laboratory and office facilities in Warren
Township, New Jersey. The current lease term for the main laboratory and office
space expires in 1997 and has two five-year renewal options. The Company has
notified the landlord of its intent to renew the lease for a five-year term into
the year 2002. Annual payments are $330,000. The lease provides that at the end
of each five-year term, the rent will be increased based upon the change in the
consumer price index, but in no case shall the increase be greater than 20%.
Celgene is also required to pay additional amounts for real estate taxes,
utilities, and maintenance. Total rental expense amounted to $474,000, $448,000
and $453,000 in 1994, 1995 and 1996, respectively. 


     In January, 1997 the Company entered into a sub-lease agreement to lease an
additional 18,000 square feet of laboratory and office space from Merck & Co.
located at the Exxon Research & Development Center in Annandale, New Jersey. The
sub-lease agreement is for a two year term, expiring in February, 1999. Annual
payments are $227,500. 

 (b) Employment Agreements 

     Celgene has employment agreements with certain officers and employees. The
related outstanding commitments at December 31, 1996 total approximately
$692,000 for 1997. Employment contracts provide for an increase in compensation
reflecting annual reviews and related salary adjustments. 

 (c) Contracts 

     The Company enters into sponsored research contracts from which certain
revenues are derived. Aggregate research and development costs incurred in
connection with such contracts totaled $247,000, $403,000, and $910,000, in
1994, 1995, and 1996, respectively. 

     In August 1992, the Company entered into a two-year research and
development agreement with The Rockefeller University. Under the terms of the
agreement, the Company has the world-wide exclusive license to manufacture and
market any drugs, including Synovir, which may result from the research
performed at The Rockefeller University. Rockefeller is entitled to receive
royalties based on commercial sales of any such drugs. In July 1994 this
agreement was extended for an additional two years and again in 1996 for an
additional two years. Under terms of the extension, the Company is committed to
pay the Rockefeller University $504,000 annually. 

     In December, 1995 the Company entered into an agreement with Penn
Pharmaceutical, Ltd. of Great Britain ("Penn") to build a special facility
devoted exclusively to the production of Synovir. Under the terms of the
agreement, based on certain milestones with respect to commencing production and
U.S. Food & Drug Administration inspection, the Company is responsible for
$320,000 of start-up and validation costs. In addition, the Company will lease
the dedicated facility for a three year period. Annual facility payments are
$268,000, which began in December, 1996. Penn will manufacture Synovir and sell
it exclusively to the Company. 

 (d) Contingencies 

     The Company believes it maintains insurance coverage adequate for its
current needs. 

     The Company's operations are subject to environmental laws and regulations
which impose limitations on the discharge of pollutants into the air and water
and establish standards for the treatment, storage and disposal of solid and 

                                      F-16




                              CELGENE CORPORATION 
                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                        December 31, 1994, 1995 and 1996

(11) COMMITMENTS AND CONTINGENCIES (Continued)
hazardous wastes. The Company reviews the effects of such laws and regulations
on its operation and modifies its operations as appropriate. The Company
believes that it is in substantial compliance with all applicable environmental
laws and regulations. 

 (e) Concentration on Market Risk 

     During 1994, three customers accounted for approximately 83% (57%, 14% and
12% individually) of the total revenues. During 1995, one customer accounted for
approximately 40% of the total revenues. During 1996, four customers accounted
for approximately 73% (35%, 15%, 12% and 11% individually) of the total
revenues. 

                                      F-17





Quarterly Statements of Operations (Unaudited)


                                                             Quarter Ended    
                                             ----------------------------------------------
                                                                   1995                           
                                             ----------------------------------------------
                                              March 31    June 30    Sept. 30    Dec. 31   
                                             ----------- ---------- ----------- ---------- 
                                                             (in thousands)                      
                                                                            
Revenues:                                                                                  
 Chirally pure intermediates ...............   $    19     $   224    $   147     $   268  
 Research contracts ........................       140         100        145         130  
                                               -------     -------    -------     -------  
  Total revenues ...........................       159         324        292         398  
Expenses:                                                                                  
 Cost of goods sold ........................       160         204        166         262  
 Research and development ..................     1,578       1,768      1,703       3,134  
 Selling, general and administrative  ......       676         689        674         819  
                                               -------     -------    -------     -------  
  Total expenses ...........................     2,414       2,661      2,543       4,215  
                                               -------     -------    -------     -------  
 Loss from operations  .....................    (2,255)     (2,337)    (2,251)     (3,817) 
Other Income and Expense:                                                                  
 Interest income ...........................       108          80        121         259  
 Interest expense   ........................        --          --       (232)       (193) 
                                               -------     -------    -------     -------  
  Net loss .................................    (2,147)     (2,257)    (2,362)     (3,751) 
Accretion of premium payable on                                                            
 preferred stock and warrants   ............        --          --         --          --  
Deemed dividend for preferred stock                                                        
 conversion discount   .....................        --          --         --          --  
                                               -------     -------    -------     -------  
Net loss applicable to common                                                              
 stockholders    ...........................   $(2,147)    $(2,257)   $(2,362)    $(3,751) 
                                               =======     =======    =======     =======  
                                                                                



[RESTUBBED TABLE]
                                                              Quarter Ended    
                                             --------------------------------------------
                                                                 1996                    
                                             ---------------------------------- ---------
                                              March 31    June 30    Sept. 30*  Dec. 31  
                                             ----------- ---------- ----------- ---------
                                                            (in thousands)               
                                                                          
Revenues:                                                                                
 Chirally pure intermediates ...............   $   517     $   502    $    78   $   369  
 Research contracts ........................       150         185        376       325  
                                               -------     -------    -------   -------  
  Total revenues ...........................       667         687        455       694  
Expenses:                                                                                
 Cost of goods sold ........................       270         179        234       298  
 Research and development ..................     2,738       3,582      4,662     5,341  
 Selling, general and administrative  ......       659         805      1,274     1,263  
                                               -------     -------    -------   -------  
  Total expenses ...........................     3,667       4,566      6,170     6,902  
                                               -------     -------    -------   -------  
 Loss from operations  .....................    (3,000)     (3,879)    (5,716)   (6,208) 
Other Income and Expense:                                                                
 Interest income ...........................       152         478        359       319  
 Interest expense   ........................      (110)        (77)       (68)      (69) 
                                               -------     -------    -------   -------  
  Net loss .................................    (2,958)     (3,478)    (5,425)   (5,958) 
Accretion of premium payable on                                                          
 preferred stock and warrants   ............        76         306        382       249  
Deemed dividend for preferred stock                                                      
 conversion discount   .....................        --          --      2,778        --  
                                               -------     -------    -------   -------  
Net loss applicable to common                                                            
 stockholders    ...........................   $(3,034)    $(3,784)   $(8,585)  $(6,207) 
                                               =======     =======    =======   =======  
[END RESTUBBED TABLE]


*  The Company's Series A Convertible Preferred Stock primarily became
   convertible during the third quarter of 1996. As a result of recent guidance
   related to issuance of securities issued with variable conversion features
   that include a potential discount to market the Company recognized the value
   of the discount to market conversion feature as a deemed dividend. Also see
   Note 6.


                                      F-18


EXHIBIT INDEX


3.1     Certificate of Incorporation of the Company (Incorporated by reference
        to Exhibit 3.1 to the Company's Registration Statement on Form S-1,
        dated July 24, 1987).

3.2     By-laws of the Company (Incorporated by reference to the Company's
        Current Report on Form 8-K, dated September 16, 1996).

4.1     Form of 8% Convertible Debenture due July 31, 1997 (Incorporated by
        reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q
        for the quarter ended June 30, 1995).
                                                             
4.2     Form of Certificate of Designation of Series A Convertible Preferred
        Stock, par value $.01 per share (Incorporated by reference to Exhibit
        4.1 to the Company's Current Report on Form 8-K, dated March 13, 1996).

10.1    1986 Stock Option Plan (Incorporated by reference to Exhibit A to the
        Company's Proxy Statement dated April 13, 1990).

10.2    Forms of Stock Option Agreements (Incorporated by reference to Exhibit
        10.6 to the Company's Registration Statement on Form S-1, dated July 24,
        1987).

10.3    Lease Agreement, dated January 16, 1987, between the Company and Powder
        Horn Associates (Incorporated by reference to Exhibit 10.17 to the
        Company's Registration Statement on Form S-1, dated July 24, 1987).

10.4    1992 Long-Term Incentive Plan (Incorporated by reference to Exhibit A to
        the Company's Proxy Statement, dated April 17, 1992).

10.5    1992 Non-Employee Directors' Incentive Plan (Incorporated by reference
        to Exhibit B to the Company's Proxy Statement, dated April 17, 1992).

10.6    Form of Option Agreements under the 1992 Long-Term Incentive Plan and
        1992 Non- Employee Directors' Incentive Plan (Incorporated by reference
        to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
        year ended December 31, 1992).

10.7    License and asset purchase agreement dated June 17, 1994 between the
        Company and Sybron Chemicals, Inc. (Incorporated by reference to Exhibit
        10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
        ended June 30, 1994).

10.8    Agent's Warrant issued in connection with the placement of 8%
        Convertible Debentures (Incorporated by reference to Exhibit 10.2 to the
        Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
        1995).

10.9    Form of Registration Rights Agreement (Incorporated by reference to
        Exhibit 10.1 to the Company's Current Report on Form 8-K, dated March
        13, 1996).

10.10   Agent's Warrant issued in connection with the placement of Series A
        Convertible Preferred Stock. (Incorporated by reference to the Company's
        Annual Report on Form 10-K for the year ended December 31, 1995).

10.11   Rights Agreement, dated as of September 16, 1996, between Celgene
        Corporation and American Stock Transfer & Trust Company (Incorporated by
        reference to the Company's Registration Statement on Form 8-A, filed on
        September 16, 1996).

10.12*  Form of indemnification agreement between the Company and each officer
        and director of the Company.

23.1*   Consent of KPMG Peat Marwick LLP.

27.1*   Financial Data Schedule.


* Filed herewith

                                      II-1

EX-10.12

                                                                        EX-10.12

                        INDEMNIFICATION AGREEMENT


            This INDEMNIFICATION AGREEMENT made and entered into this day of
_____, 1996 (the "Agreement"), by and between CELGENE CORPORATION, a Delaware
corporation (together with its affiliates, as defined in the federal securities
laws, the "Company"), and ____________________ (the "Indemnitee"):

            WHEREAS, highly competent persons are becoming more reluctant to
serve publicly-held corporations as officers or in other capacities unless they
are provided with adequate protection through insurance and indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and

            WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and

            WHEREAS, the Board of Directors of the Company has determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and

            WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and

            WHEREAS, the Indemnitee is willing to serve, continue to serve and
to take on additional service for or on behalf of the Company on the condition
that he be so indemnified;

            NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and the Indemnitee do hereby covenant and agree as
follows:

            Section 1. Services by Indemnitee. The Indemnitee agrees to serve as
a director of the Company. The Indemnitee may at any time and for any reason
resign from such position (subject to any other contractual obligation or other
obligation imposed by operation of law).

            Section 2. Indemnification. The Company shall indemnify the
Indemnitee to the fullest extent permitted by applicable law in effect on the
date hereof or as such laws may from time to time be amended. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of the Indemnitee provided hereunder shall include but
shall not be limited to those rights set forth hereinafter, except to the extent
expressly prohibited by applicable law.







            Section 3. Action or Proceeding Other Than an Action by or in the
Right of the Company. The Indemnitee shall be entitled to the indemnification
rights provided in this Section 3 if he is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, other than
an action by or in the right of the Company, by reason of the fact that he is or
was a director, officer, employee, agent, partner or fiduciary of the Company or
is or was serving at the request of the Company as a director, officer,
employee, agent, partner or fiduciary of any other entity or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, the Indemnitee shall be indemnified against all expenses (including
attorneys' fees), costs, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful.

            Section 4. Actions by or in the Right of the Company. The Indemnitee
shall be entitled to the indemnification rights provided in this Section 4 if he
is a person who was or is made a party or is threatened to be made a party to
any threatened, pending or completed action or suit brought by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, agent, partner or fiduciary of the
Company or is or was serving at the request of the Company as a director,
officer, employee, agent, partner or fiduciary of any other entity by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, the Indemnitee shall be indemnified against all expenses (including
attorneys' fees) and costs actually and reasonably incurred by him in connection
with such action or suit (including, but not limited to, the investigation,
defense, settlement or appeal thereof) if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that no such indemnification shall be made in
respect of any claim, issue or matter as to which applicable law expressly
prohibits such indemnification by reason of an adjudication of liability of the
Indemnitee to the Company, unless, and only to the extent that, the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite such adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnification for such expenses and costs as
such court shall deem proper.

            Section 5. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Agreement and in
addition to the rights to indemnification set forth in Sections 3 and 4 hereof,
to the extent that the Indemnitee has served as a witness on behalf of the
Company or has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit or proceeding referred to in Sections 3 and 4 hereof, or in defense
of any claim, issue or matter therein, he shall be indemnified against


                                  -2-





all costs, charges and expenses (including attorneys' fees) actually and
reasonably incurred by him or on his behalf in connection therewith.

            Section 6. Partial Indemnification. In addition to the rights to
indemnification set forth in Sections 3 and 4 hereof, if the Indemnitee is only
partially successful in the defense, investigation, settlement or appeal of any
action, suit, investigation or proceeding described in Section 3 or 4 hereof,
and as a result is not entitled under Section 3, 4 or 5 hereof to
indemnification by the Company for the total amount of the expenses (including
attorneys' fees), costs, judgments, penalties, fines, and amounts paid in
settlement actually and reasonably incurred by him, the Company shall
nevertheless indemnify the Indemnitee, as a matter of right pursuant to Section
5 hereof, to the extent that the Indemnitee has been partially successful.

            Section 7. Determination of Entitlement to Indemnification. Upon
written request by the Indemnitee for indemnification pursuant to Section 3 or 4
hereof, the entitlement of the Indemnitee to indemnification pursuant to the
terms of this Agreement shall be determined by the following person or persons
who shall be empowered to make such determination: (a) the Board of Directors of
the Company by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined); or (b) if such a quorum is not obtainable or, even if
obtainable, if the Board of Directors by the majority vote of Disinterested
Directors so directs, by Independent Counsel (as hereinafter defined) in a
written opinion to the Board of Directors, a copy of which shall be delivered to
the Indemnitee; or (c) by the stockholders of the Company. Independent Counsel
shall be selected by the Board of Directors and approved by the Indemnitee. Upon
failure of the Board so to select Independent Counsel or upon failure of the
Indemnitee so to approve Independent Counsel, Independent Counsel shall be
selected by the Chancellor of the State of Delaware or such other person as the
Chancellor shall designate to make such selection. Such determination of
entitlement to indemnification shall be made not later than 60 days after
receipt by the Company of a written request for indemnification. Such request
shall include documentation or information which is necessary for such
determination and which is reasonably available to the Indemnitee. Any costs or
expenses (including attorneys' fees) incurred by the Indemnitee in connection
with his request for indemnification hereunder shall be borne by the Company.
The Company hereby indemnifies and agrees to hold the Indemnitee harmless
therefrom irrespective of the outcome of the determination of the Indemnitee's
entitlement to indemnification. If the person making such determination shall
determine that the Indemnitee is entitled to indemnification as to part (but not
all) of the application for indemnification, such person shall reasonably
prorate such partial indemnification among such claims, issues or matters.

            Section 8. Presumptions and Effect of Certain Proceedings. The
Secretary of the Company shall, promptly upon receipt of the Indemnitee's
request for indemnification, advise in writing the Board of Directors or such
other person or persons empowered to make the determination as provided in
Section 7 that the Indemnitee has made such request for indemnification. Upon
making such request for indemnification, the Indemnitee shall be presumed to be
entitled to indemnification hereunder and the Company 


                                  -3-





shall have the burden of proof in the making of any determination contrary to
such presumption. If the person or persons so empowered to make such
determination shall have failed to make the requested indemnification within 60
days after receipt by the Company of such request, the requisite determination
of entitlement to indemnification shall be deemed to have been made and the
Indemnitee shall be absolutely entitled to such indemnification, absent actual
and material fraud in the request for indemnification. The termination of any
action, suit, investigation or proceeding described in Section 3 or 4 hereof by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself: (a) create a presumption that the
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, that the Indemnitee had reasonable
cause to believe that his conduct was unlawful; or (b) otherwise adversely
affect the rights of the Indemnitee to indemnification except as may be provided
herein.

            Section 9. Advancement of Expenses and Costs. All reasonable
expenses and costs incurred by the Indemnitee (including attorneys' fees,
retainers and advances of disbursements required of the Indemnitee) shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding at the request of the Indemnitee within 20 days after the receipt by
the Company of a statement or statements from the Indemnitee requesting such
advance or advances from time to time. The Indemnitee's entitlement to such
expenses shall include those incurred in connection with any proceeding by the
Indemnitee seeking an adjudication or award in arbitration pursuant to this
Agreement. Such statement or statements shall reasonably evidence the expenses
and costs incurred by him in connection therewith and shall include or be
accompanied by an undertaking by or on behalf of the Indemnitee to repay such
amount if it is ultimately determined that the Indemnitee is not entitled to be
indemnified against such expenses and costs by the Company as provided by this
Agreement or otherwise.

            Section 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses. In the event that a determination is made that
the Indemnitee is not entitled to indemnification hereunder or if payment has
not been timely made following a determination of entitlement to indemnification
pursuant to Sections 7 and 8, or if expenses are not advanced pursuant to
Section 9, the Indemnitee shall be entitled to a final adjudication in an
appropriate court of the State of Delaware or any other court of competent
jurisdiction of his entitlement to such indemnification or advance.
Alternatively, the Indemnitee at his option may seek an award in arbitration to
be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association, such award to be made within 60 days following the
filing of the demand for arbitration. The Company shall not oppose the
Indemnitee's right to seek any such adjudication or award in arbitration or any
other claim, but may oppose the Indemnitee's right to indemnification. Such
judicial proceeding or arbitration shall be made de novo and the Indemnitee
shall not be prejudiced by reason of a determination (if so made) pursuant to
Sections 7 and 8 that he is not entitled to indemnification. If a determination
is made or deemed to have been made pursuant to the terms of Section 7 or
Section 8 hereof that the Indemnitee is entitled to indemnification, the Company
shall be bound by such determination and is precluded from asserting that 


                                  -4-





such determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court or before any such arbitrator that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary. If the court or arbitrator shall
determine that the Indemnitee is entitled to any indemnification hereunder, the
Company shall pay all reasonable expenses (including attorneys' fees) and costs
actually incurred by the Indemnitee in connection with such adjudication or
award in arbitration (including, but not limited to, any appellate proceedings).

            Section 11. Other Rights to Indemnification. The indemnification and
advancement of expenses (including attorneys' fees) and costs provided by this
Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may now or in the future be entitled under any provision of the
by-laws, agreement, provision of the Certificate of Incorporation, vote of
stockholders or disinterested directors, provision of law or otherwise.

            Section 12. Attorneys' Fees and Other Expenses To Enforce Agreement.
In the event that the Indemnitee is subject to or intervenes in any proceeding
in which the validity or enforceability of this Agreement is at issue or seeks
an adjudication or award in arbitration to enforce his rights under, or to
recover damages for breach of, this Agreement, the Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company
and shall be indemnified by the Company against, any actual expenses for
attorneys' fees and disbursements reasonably incurred by him.

            Section 13. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the Indemnitee has
ceased to occupy any of the positions or have any of the relationships described
in Sections 3 and 4 of this Agreement; and (b) the final termination of all
pending or threatened actions, suits, proceedings or investigations with respect
to the Indemnitee. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit the Indemnitee and his
spouse, assigns, heirs, devises, executors, administrators or other legal
representatives.

            Section 14. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.



                                  -5-





            Section 15. Identical Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.

     Section 16. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.

            Section 17.  Definitions.  For purposes of this Agreement:

                  (a) "Disinterested Director" shall mean a director of the
Company who is not or was not a party to the action, suit, investigation or
proceeding in respect of which indemnification is being sought by the
Indemnitee.

                  (b) "Independent Counsel" shall mean a law firm or a member of
a law firm that neither is presently nor in the past five years has been
retained to represent: (i) the Company or the Indemnitee in any matter material
to either such party, or (ii) any other party to the action, suit, investigation
or proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or the Indemnitee in an action to determine the Indemnitee's right to
indemnification under this Agreement.

            Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.

            Section 19. Notice by the Indemnitee. The Indemnitee agrees promptly
to notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
matter which may be subject to indemnification covered hereunder, either civil,
criminal or investigative.

            Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or if (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:



                                  -6-




                  (a)  If to the Indemnitee, to:

                         --------------------
                         --------------------
                         --------------------




                  (b)  If to the Company to:
                        CELGENE CORPORATION
                        7 Powder Horn Drive
                        Warren, New Jersey  07059
                        Attn:  Chairman of the Board

or to such other address as may have been furnished to the Indemnitee by the
Company or to the Company by the Indemnitee, as the case may be.

            Section 21. Governing Law. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware, without giving effect to the conflict of laws.


            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.


                            CELGENE CORPORATION


                            By
                               ------------------------------
                               Name:
                               Title:




                                  -7-

EX-23.1

                                                                   EXHIBIT 23.1

                         Independent Auditors' Consent


The Board of Directors and Stockholders
Celgene Corporation:


We consent to incorporation by reference in the Registration Statements (no.
33-21462, no. 33-38296, and no. 33-62510) on Form S-8 of Celgene Corporation of
our report dated February 27, 1997, relating to the balance sheets of Celgene
Corporation as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the December
31, 1996 Annual Report on Form 10-K of Celgene Corporation.



                                        /s/ KPMG Peat Marwick LLP


Short Hills, New Jersey
March 28, 1997

EX-27

 


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<CIK>                         0000816284
<NAME>                        Celgene Financial Data Schedule
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                                  Dec-31-1996
<PERIOD-END>                                       Dec-31-1996

<CASH>                                                 922,961
<SECURITIES>                                        16,892,023
<RECEIVABLES>                                          378,595
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<CURRENT-ASSETS>                                    18,829,420
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<TOTAL-ASSETS>                                      20,937,862
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<PREFERRED>                                         13,883,416
<COMMON>                                               106,114
<OTHER-SE>                                           2,075,479
<TOTAL-LIABILITY-AND-EQUITY>                        20,937,862
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<TOTAL-REVENUES>                                     2,502,380
<CGS>                                                  981,448
<TOTAL-COSTS>                                       21,305,692
<OTHER-EXPENSES>                                             0
<LOSS-PROVISION>                                             0

<INTEREST-EXPENSE>                                     323,913
<INCOME-PRETAX>                                    (17,818,981)
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<INCOME-CONTINUING>                                (17,818,981)
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<NET-INCOME>                                       (17,818,981)
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