10-K 1 a2212863z10-k.htm 10-K

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

or

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                       to                                      

Commission file number 001-34912

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

Delaware
(State or other jurisdiction of
incorporation or organization)
  22-2711928
(I.R.S. Employer Identification No.)

86 Morris Avenue
Summit, New Jersey

(Address of principal executive offices)

 

07901
(Zip Code)

(908) 673-9000
(Registrant's telephone number, including area code)

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

Title of each class   Name of each exchange on which registered
Common Stock, par value $.01 per share   NASDAQ Global Select Market
Contingent Value Rights   NASDAQ Global Market

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

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 ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes o    No ý

The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2012, the last business day of the registrant's most recently completed second quarter, was $27,784,369,047 based on the last reported sale price of the registrant's Common Stock on the NASDAQ Global Select Market on that date.

There were 418,744,447 shares of Common Stock outstanding as of February 7, 2013.

Documents Incorporated by Reference

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2012. The proxy statement is incorporated herein by reference into the following parts of the Form 10-K:

Part II, Item 5.   Equity Compensation Plan Information.
Part III, Item 10.   Directors, Executive Officers and Corporate Governance.
Part III, Item 11.   Executive Compensation.
Part III, Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Part III, Item 13.   Certain Relationships and Related Transactions, and Director Independence.
Part III, Item 14.   Principal Accountant Fees and Services.

   


CELGENE CORPORATION
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Item No.
   
  Page

Part I

1.

 

Business

 
1

1A.

 

Risk Factors

  24

1B.

 

Unresolved Staff Comments

  44

2.

 

Properties

  44

3.

 

Legal Proceedings

  44

4.

 

Mine Safety Disclosures

  47

Part II

5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 
48

6.

 

Selected Financial Data

  50

7.

 

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

  51

7A.

 

Quantitative and Qualitative Disclosures About Market Risk

  81

8.

 

Financial Statements and Supplementary Data

  87

9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

  149

9A.

 

Controls and Procedures

  149

9B.

 

Other Information

  153

Part III

10.

 

Directors, Executive Officers and Corporate Governance

 
153

11.

 

Executive Compensation

  153

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  153

13.

 

Certain Relationships and Related Transactions, and Director Independence

  153

14.

 

Principal Accountant Fees and Services

  153

Part IV

15.

 

Exhibits, Financial Statement Schedules

 
154

 

Signatures and Power of Attorney

  159

Table of Contents


PART I

ITEM 1.    BUSINESS

Celgene Corporation (collectively with its subsidiaries, "we," "our," "us," "Celgene" or the "Company") is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. We are dedicated to innovative research and development designed to bring new therapies to market and are involved in research in several scientific areas that may deliver proprietary next-generation therapies, targeting areas such as intracellular signaling pathways in cancer and immune cells, immunomodulation in cancer and autoimmune diseases, and therapeutic application of cell therapies. Celgene was incorporated in the State of Delaware in 1986.

Our primary commercial stage products include REVLIMID®, VIDAZA®, ABRAXANE®, THALOMID® (inclusive of Thalidomide Celgene®), and ISTODAX®. POMALYST® was approved by the U.S. Food and Drug Administration, or FDA, in February 2013 for patients with multiple myeloma who have received at least two prior therapies, including lenalidomide and bortezomib, and have demonstrated disease progression on or within 60 days of completion of the last therapy. Additional sources of revenue include royalties from Novartis on their sales of FOCALIN XR® and the entire RITALIN® family of drugs, other licensing royalties, and the sale of services through our Celgene Cellular Therapeutics subsidiary.

We make significant investments in research and development in support of multiple ongoing proprietary clinical development programs which support both our existing products and our pipeline of new drug candidates. REVLIMID® is in several phase III trials across a range of hematological malignancies that include newly diagnosed multiple myeloma and maintenance, lymphomas, chronic lymphocytic leukemia, or CLL, and non-deletion 5q myelodysplastic syndromes, or MDS. Phase III trials for POMALYST® in myelofibrosis, VIDAZA® in acute myeloid leukemia, or AML, and CC-486 for MDS and AML are also underway. In solid tumors, we continue to evaluate ABRAXANE® in a phase III trial for metastatic melanoma and have recently completed a phase III trial for ABRAXANE® in pancreatic cancer. Our lead product candidate in Inflammation & Immunology, apremilast, is being evaluated in broad phase III programs for psoriatic arthritis, psoriasis, and ankylosing spondylitis.

Beyond our phase III programs, we have developed a growing early-to-mid-stage pipeline of novel therapies to address significant unmet medical needs, including CC-292 (BTK inhibitor), CC-223 (dual TORK inhibitor), CC-115 (dual TORK/DNA PK inhibitor), CC-122 (pleiotropic pathway modulator), CC-220 and CC-11050 (anti-inflammatory), PDA-001 and PDA-002 (cellular therapies), in addition to partnered molecules ACE-011 (ActR fusion protein), ACE-536 (GDF trap), and EPZ-5676 (DOT1L inhibitor). For more information, see "– Celgene Leading Product Candidates."

We believe that the continued commercial success of our marketed products, our participation in research and development collaboration arrangements, the depth of our product pipeline, expected regulatory approvals of new products and expanded use of existing products will provide multiple catalysts for our future growth.

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In recent years we have completed a number of strategic acquisitions that strengthened our research and manufacturing capabilities and enhanced our commercial product portfolio. Our most recent strategic acquisitions include the following:

    In January 2010, we acquired Gloucester Pharmaceuticals, Inc., or Gloucester, which developed new therapies to address unmet medical needs in the treatment of hematological cancers and other hematological malignancies. Gloucester added ISTODAX® to our product portfolio and advanced our leadership position in the development of disease-altering therapies through innovative approaches for patients with rare and debilitating blood cancers.

    In October 2010, we acquired Abraxis Bioscience Inc., or Abraxis, a fully integrated global biotechnology company. The acquisition of Abraxis accelerated our strategy to become a global leader in oncology and added ABRAXANE®, which is based on Abraxis' proprietary tumor-targeting platform known as nab® technology, to our portfolio of leading cancer products.

    In March 2012, we acquired Avila Therapeutics, Inc., or Avila, a clinical-stage biotechnology company focused on the design and development of targeted covalent drugs. The acquisition added Avila's proprietary Avilomics™ platform for developing targeted covalent drugs that treat diseases through protein silencing and augments our investment in the discovery and development of novel therapeutics.

COMMERCIAL STAGE PRODUCTS

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

REVLIMID® is distributed in the United States through contracted pharmacies under the RevAssist® program, which is a proprietary risk-management distribution program tailored specifically to provide for the safe and appropriate distribution and use of REVLIMID®. Internationally, REVLIMID® is distributed under mandatory risk-management distribution programs tailored to meet local competent authorities' specifications to provide for the safe and appropriate distribution and use of REVLIMID®. These programs may vary by country and, depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies.

REVLIMID® continues to be evaluated in numerous clinical trials worldwide either alone or in combination with one or more other therapies in the treatment of a broad range of hematological malignancies, including multiple myeloma, MDS, various lymphomas, CLL, other cancers and other diseases.

VIDAZA® (azacitidine for injection):    VIDAZA® is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene

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re-expression. VIDAZA® is a Category 1 recommended treatment for patients with intermediate-2 and high-risk MDS, according to the National Comprehensive Cancer Network and is marketed in the United States for the treatment of all subtypes of MDS. The U.S. regulatory exclusivity for VIDAZA® expired in May 2011. If a generic version of VIDAZA® is successfully launched, we may quickly lose a significant portion of our sales for this product in the United States. In Europe, VIDAZA® is marketed for the treatment of intermediate-2 and high-risk MDS, as well as AML with 30% blasts, and has been granted orphan drug designation for the treatment of MDS and AML. European regulatory exclusivity is expected to continue through 2018.

ABRAXANE® (paclitaxel albumin-bound particles for injectable suspension):    ABRAXANE® is a solvent-free chemotherapy treatment option for metastatic breast cancer and non-small cell lung cancer which was developed using our proprietary nab® technology platform. This protein-bound chemotherapy agent combines paclitaxel with albumin. It is approved for the treatment of metastatic breast cancer in the United States and many international markets and for the treatment of non-small cell lung cancer in the United States. In January 2013, we announced the results from a phase III trial for ABRAXANE® in combination with gemcitabine in treatment-naïve patients with metastatic pancreatic cancer. The ABRAXANE® combination demonstrated a statistically significant improvement in overall survival compared to patients receiving gemcitabine alone. Based on these results, we plan to submit dossiers for registration in the U.S. and Europe during the first half of 2013 followed by submissions in other countries and regions during the second half of 2013. ABRAXANE® is currently in various stages of investigation for the treatment of the following cancers: expanded applications for metastatic breast, malignant melanoma, and bladder and ovarian. In October 2012, the FDA approved ABRAXANE® for the first-line treatment of locally advanced or metastatic non-small cell lung cancer, in combination with carboplatin, in patients who are not candidates for curative surgery or radiation therapy. The FDA approval was based on tumor response rates and the label did not include a progression-free survival claim. Accordingly, the Contingent Value Rights, or CVR, milestone payment, as described in Note 2 of the Notes to the Consolidated Financial Statements included elsewhere in this report, has not been achieved.

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

THALOMID® is distributed in the United States under our "System for Thalidomide Education and Prescribing Safety," or S.T.E.P.S.®, program, our proprietary comprehensive education and risk-management distribution program that we developed with the objective of providing for the safe and appropriate distribution and use of THALOMID®. Internationally, THALOMID® is also distributed under mandatory risk-management distribution programs tailored to meet local competent authorities' specifications to provide for the safe and appropriate distribution and use of THALOMID®. These programs may vary by country and, depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies.

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ISTODAX® (romidepsin):    ISTODAX® is approved in the United States for the treatment of cutaneous T-cell lymphoma, or CTCL, in patients who have received at least one prior systemic therapy and for the treatment of peripheral T-cell lymphoma, or PTCL, in patients who have received at least one prior therapy. ISTODAX® has received orphan drug designation for the treatment of non-Hodgkin's T-cell lymphomas, which includes CTCL and PTCL.

POMALYST® (pomalidomide):    POMALYST® was approved by the FDA in February 2013 for patients with multiple myeloma who have received at least two prior therapies, including lenalidomide and bortezomib, and have demonstrated disease progression on or within 60 days of completion of the last therapy, and is under review by the European Agency for the Evaluation of Medicinal Products, or EMA, for use in Europe. POMALYST® is a proprietary, small molecule that is administered orally and modulates the immune system and other biologically important targets. POMALYST® is also being evaluated in a phase III clinical trial for the treatment of myelofibrosis, in multiple trials in various phases for expanded usage in multiple myeloma and in a phase II trial for systemic sclerosis.

POMALYST® is distributed in the United States through contracted pharmacies under the POMALYST® REMS® program, which is a proprietary risk-management distribution program tailored specifically to provide for the safe and appropriate distribution and use of POMALYST®.

FOCALIN®, FOCALIN XR® and RITALIN LA®:    We licensed the worldwide rights (excluding Canada) regarding certain chirally pure forms of methylphenidate for FOCALIN® and FOCALIN XR® to Novartis. We also licensed to Novartis the rights related to long-acting formulations of methylphenidate and dex-methylphenidate products which are used in FOCALIN XR® and RITALIN LA®. As a result of the grant of these licenses we receive royalties on sales of these products.

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Current pivotal or phase III trials of our commercial stage products and their targeted disease indications are outlined in the following table:

Product   Disease
Indication
  Status   Trial
Beginning Date

REVLIMID®

  Newly diagnosed multiple myeloma   Phase III ongoing   August 2008

  Maintenance therapy for multiple myeloma   Phase III trials ongoing   December 2004

  MDS del 5q   Submitted EU regulatory filing    

  MDS non-del 5q   Phase III ongoing   February 2010

  Mantle cell lymphoma for U.S. filing   Phase II completed,    

      Submitted U.S. regulatory filing    

  Mantle cell lymphoma for EU filing   Phase II ongoing   April 2009

  Diffuse large B cell lymphoma   Phase II/III ongoing   July 2010

  Diffuse large B cell lymphoma maintenance   Phase III enrolling   May 2009

  Follicular lymphoma consolidation & maintenance   Phase III enrolling   December 2011

  CLL first-line   Phase III enrolling   November 2009

  CLL maintenance   Phase III enrolling   February 2009

VIDAZA®

 

AML

 
Phase III enrolling
 

October 2010

ABRAXANE®

 

Pancreatic cancer

 
Phase III completed,
   

      U.S. and EU regulatory filings pending    

  Melanoma   Phase III ongoing   April 2009

POMALYST®

 

Myelofibrosis

 
Phase III ongoing
 

September 2010

(pomalidomide)

  Multiple myeloma   Phase II completed,    

      Submitted EU regulatory filings    

  Multiple myeloma   Phase III ongoing   April 2011

      Additional phase I, II, III trials enrolling   March 2012

  Systemic Sclerosis   Phase II enrolling   June 2012

PRODUCT DEVELOPMENT

We devote significant resources to research and development programs in an effort to discover and develop potential future product candidates. Research and development expenses amounted to $1.724 billion in 2012, $1.600 billion in 2011, and $1.128 billion in 2010. The product candidates in our pipeline are at various stages of preclinical and clinical development. The path to regulatory approval includes three phases of clinical trials in which we collect data to support an application to regulatory authorities to allow us to market a product for treatment of a specified disease. There are many difficulties and uncertainties inherent in research and development of new products, resulting in a high rate of failure. To bring a drug from the discovery phase to regulatory approval, and ultimately to market, takes many years and significant cost. Failure can occur at any point in the process, including after the product is approved, based on post-market factors. New product candidates that appear promising in development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, inability to obtain necessary regulatory approvals, limited scope of approved uses, reimbursement challenges, difficulty or excessive costs of manufacture, alternative therapies or infringement of the patents or intellectual property rights of others. Uncertainties in the FDA approval process and the approval processes in other countries can result in delays in product launches and lost market opportunities. Consequently, it is very

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difficult to predict which products will ultimately be submitted for approval, which have the highest likelihood of obtaining approval and which will be commercially viable and generate profits. Successful results in preclinical or clinical studies may not be an accurate predictor of the ultimate safety or effectiveness of a drug or product candidate.

    Phase I Clinical Trials

    Phase I clinical trials begin when regulatory agencies allow initiation of clinical investigation of a new drug or product candidate and usually involves up to 80 healthy volunteers or subjects. The tests study a drug's safety profile, and may include a preliminary determination of a drug or product candidate's safe dosage range. The phase I clinical trial also determines how a drug is absorbed, distributed, metabolized and excreted by the body, and therefore the potential duration of its action. Phase I clinical trials generally take from one to three years to complete.

    Phase II Clinical Trials

    Phase II clinical trials are conducted on a limited number of subjects with the targeted disease. An initial evaluation of the drug's effectiveness on subjects is performed and additional information on the drug's safety and dosage range is obtained. Phase II clinical trials normally include up to several hundred subjects and may take as many as two to three years to complete.

    Phase III Clinical Trials

    Phase III clinical trials typically include controlled multi-center sites and involve a larger target patient population that normally consists of from several hundred to several thousand subjects to ensure that study results are statistically significant. During phase III clinical trials, physicians monitor subjects to determine efficacy and to gather further information on safety. These trials are generally global in nature and are designed to generate all of the clinical data necessary to submit an application for marketing approval to regulatory agencies. Phase III testing varies by disease state, but can often last from two to seven years.

    Regulatory Review

    If a product candidate successfully completes phase III clinical trials and is submitted to governmental regulators, such as the FDA in the United States or the EMA in the European Union, the time to final marketing approval can vary from six months (for a U.S. filing that is designated for priority review by the FDA) to several years, depending on a number of variables, such as the disease state, the strength and complexity of the data presented, the novelty of the target or compound, risk-management approval and whether multiple rounds of review are required for the agency(ies) to evaluate the submission. There is no guarantee that a potential treatment will receive marketing approval, or that decisions on marketing approvals or treatment indications will be consistent across geographic areas.

PRECLINICAL AND CLINICAL – STAGE PIPELINE

Our preclinical and clinical-stage pipeline of new drug candidates and cell therapies is highlighted by multiple classes of small molecule, therapeutic agents designed to selectively regulate disease-associated genes and proteins. These product candidates are at various stages of preclinical and clinical development.

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Oral anti-inflammatory agents:    We are developing novel, orally administered small molecules that specifically target PDE4, an intracellular enzyme that modulates the production of multiple pro-inflammatory and anti-inflammatory mediators including interleukin-2 (IL-2), IL-10, IL-12, IL-23, INF-gamma, TNF-a, leukotrienes and nitric oxide synthase. Apremilast (CC-10004), our lead product candidate in Inflammation & Immunology, has demonstrated statistically significant and clinically meaningful benefits in recent phase III trials in the treatment of psoriasis (ESTEEM 1 and 2 trials) and previously treated psoriatic arthritis (PALACE 1, 2, and 3 trials). Apremilast is being evaluated in phase III trials for psoriatic arthritis and ankylosing spondylitis and a phase II trial for the use of apremilast for Behçet's disease was recently completed. In addition, we are investigating our next generation oral PDE4 inhibitor, CC-11050, a unique anti-inflammatory compound with the potential to treat a variety of chronic inflammatory conditions such as cutaneous lupus erythematosus.

Cellular therapies:    At Celgene Cellular Therapeutics, or CCT, we are researching stem cells derived from the human placenta as well as from the umbilical cord. CCT is our research and development division dedicated to fulfilling the promise of cellular technologies by developing products and therapies to significantly benefit patients. Our goal is to develop proprietary cell therapy products for the treatment of unmet medical needs.

Stem cell based therapies offer the potential to provide disease-modifying outcomes for serious diseases that lack adequate therapy. We have developed proprietary technology for collecting, processing and storing placental stem cells with potentially broad therapeutic applications in cancer, auto-immune diseases, and other inflammatory diseases.

We are developing our cellular therapies, PDA-001 (IV formulation) and PDA-002 (IM/SC injectable formulation), with the initiation of phase I safety and dose finding studies. We are also continuing research to define the potential of placental-derived stem cells and to characterize other placental-derived products.

CC-486:    We have initiated two phase III trials of CC-486 that are currently enrolling to evaluate CC-486 in the treatment of MDS and AML. In addition, a phase I trial of CC-486 for the treatment of solid tumor indications is currently in progress.

Sotatercept (ACE-011) and ACE-536:    We have collaborated with Acceleron Pharma, Inc., or Acceleron, to develop sotatercept and ACE-536 to treat anemia in patients with rare blood disorders. Several phase II trials are in progress to evaluate the use of sotatercept or ACE-536 in the treatment of anemia in patients with rare blood disorders.

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CELGENE LEADING PRODUCT CANDIDATES

The development of our leading new drug candidates and their targeted disease indications are outlined in the following table:

Product   Disease
Indication
  Status   Trial
Beginning Date

CC-486

  Lower risk MDS   Phase III initiated   December 2012

  AML maintenance   Phase III initiated   December 2012

EPZ-5676

 

MLL-r Leukemia

 

Phase I enrolling

 

September 2012

Oral Anti-Inflammatory:

           

Apremilast (CC-10004)

  Psoriasis   Phase III trials ongoing   September 2010

  Psoriatic arthritis   Phase III trials ongoing   June 2010

  Rheumatoid arthritis   Phase II completed   December 2010

  Ankylosing spondylitis   Phase III enrolling   June 2012

  Behçet's disease   Phase II completed   August 2009

CC-11050

  Cutaneous lupus   Phase II ongoing   February 2011

CC-220

  Inflammation   Phase I enrolling   December 2012

Cellular Therapies:

           

PDA-001

  Crohn's disease   Phase I initiating   February 2013

PDA-002

  Peripheral arterial disease   Phase I initiating   Q2 2013

Activin Biology:

           

Sotatercept (ACE-011)

  Renal anemia   Phase II ongoing   June 2010

  Anemia with beta thalassemia   Phase II enrolling   April 2012

  Anemia with MDS   Phase II enrolling   December 2012

ACE-536

  Beta thalassemia   Phase II enrolling   January 2013

  Anemia with MDS   Phase II enrolling   January 2013

Novel Anti-tumor Agents:

           

CC-223

  Solid tumors, non-Hodgkin lymphoma, multiple myeloma   Phase I/II ongoing   July 2010

  Non-small cell lung cancer   Phase Ib ongoing   March 2012

CC-115

  Solid tumors, non-Hodgkin lymphoma, multiple myeloma   Phase I ongoing   April 2011

CC-122

  Solid tumors, non-Hodgkin lymphoma, multiple myeloma   Phase I ongoing   September 2011

CC-486

  Solid tumors   Phase I/II ongoing   November 2011

CC-292

  CLL, non-Hodgkin lymphoma   Phase I and Ib trials ongoing   August 2010

PATENTS AND PROPRIETARY TECHNOLOGY

We consider intellectual property protection (including, but not limited to, patents and regulatory exclusivities) relative to certain products, particularly those products discussed below, to be critical to our operations. For many of our products, in addition to compound patents, we hold patents on manufacturing processes, formulations or uses that may extend exclusivity beyond the expiration of the compound patent.

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Key products table of exclusivities:

The following table shows the expected expiration dates in the United States and in Europe of the last-to-expire period of exclusivity (regulatory or patent) related to the following approved drugs, which are subject to the challenges and risk factors as described herein:

 
 
U.S.
 
Europe

REVLIMID® brand drug

    2027   2024

(U.S. and European Patent Office, or EPO, drug substance patents)

THALOMID® brand drug

   
2023
 

2019

(Use and/or drug product patents)

VIDAZA® brand drug

   
2011
 

2018

(U.S. and EMA regulatory exclusivities only)

ABRAXANE® brand drug

   
2026
 

2022

(U.S. use and EPO use/drug product patents)

ISTODAX® brand drug

   
2021
 

(10 years regulatory

(U.S. drug substance patents)

        exclusivity upon approval)

(EMA regulatory exclusivity upon approval)

POMALYST® brand drug

   
2024
 

(10 years regulatory

(U.S. use patent)

        exclusivity upon approval)

(EMA regulatory exclusivity upon approval)

FOCALIN® brand drug

   
2015
 

N/A

(U.S. use patents)

FOCALIN XR® brand drug

   
2015
 

2018

(U.S. use patents)

(EPO drug product patent)

In the United States, the patents covering REVLIMID® include 17 patents that are listed in the U.S. Orange Book, all of which are assigned to us. The last-to-expire patent (2027), U.S. Patent No. 7,465,800, covers certain polymorphic forms of the pharmaceutically active ingredient of REVLIMID®.

REVLIMID® is also covered in foreign countries by certain patents and patent applications that correspond to certain of those listed in the U.S. Orange Book. For example, patents related to the active pharmaceutical ingredient, uses and pharmaceutical compositions have been granted in Europe. Although certain of the patents are currently scheduled to expire in 2017 or 2018, patents granted in certain European countries, such as Spain, France, Italy, Germany and the United Kingdom, will not expire until 2022 due to the Supplementary Protection Certificates, or SPCs, granted in these countries. In addition, as noted in the table above, patents in Europe that relate to certain polymorphic forms of the active pharmaceutical ingredient of REVLIMID® will not expire until 2024.

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The patents covering THALOMID® in the United States include 18 patents that are listed in the U.S. Orange Book. The last-to-expire patent that is assigned to us (2023), U.S. Patent No. 7,230,012, covers marketed THALOMID® formulations.

In foreign countries, THALOMID® is also covered by certain patents and patent applications that correspond to certain of those listed in the U.S. Orange Book. Patents related to the approved uses of THALOMID® have been granted in Europe. Although certain of these patents are currently scheduled to expire in 2014 or 2017, patents granted in certain European countries, such as Spain, France and Italy, will not expire relative to certain uses of thalidomide, until 2019 due to the SPCs granted in these countries.

In the United States, orphan drug exclusivity with respect to VIDAZA® expired in May 2011. In Europe, new drug and orphan exclusivities relative to VIDAZA® will expire in December 2018.

The patents covering ABRAXANE® in the United States include 14 patents that are listed in the U.S. Orange Book. One patent, U.S. Patent No. 7,820,788, expiring in 2024, covers marketed ABRAXANE® formulations. The last-to-expire patent (2026), U.S. Patent No. 8,268,348, covers approved uses of ABRAXANE®. In Europe, new drug exclusivity relative to ABRAXANE® expires in 2018. We have applied for and received in certain European countries SPCs relative to EP 0 961 612 B1 that extend exclusivity for ABRAXANE® to 2022.

The last-to-expire patents relating to ISTODAX® that are listed in the U.S. Orange Book, expire in August 2021.

The patents related to POMALYST® in the United States include at least 10 patents that are anticipated to be listed in the U.S. Orange Book. One patent (2016), U.S. Patent No. 6,316,471, covers marketed POMALYST® formulations. The last-to-expire patent (2024) is U.S. Patent No. 8,198,262 which covers uses of POMALYST® referenced in the approved U.S. label. POMALYST® is expected to receive Orphan Drug exclusivity which will last until February 2020.

In the United States, the patents covering FOCALIN® include three patents that are listed in the U.S. Orange Book. All of these patents are assigned to us. The last-to-expire patents, listed in the U.S. Orange Book, all expire in December 2015.

In the United States, the patents covering FOCALIN XR® comprise six patents that are listed in the U.S. Orange Book. All of these patents are assigned to us. These patents all expire in December 2015. A relevant European patent, owned by us, expires in June 2018.

In the United States, the patents covering RITALIN LA® comprise three patents that are listed in the U.S. Orange Book. All of these patents are assigned to us. These last-to-expire patents, all listed in the U.S. Orange Book, expire in December 2015. A related European patent, owned by us, expires in June 2018.

With respect to our U.S. patents for FOCALIN®, FOCALIN XR® and RITALIN LA®, litigation with generic drug companies have been resolved pursuant to confidential settlements which allow for the entrance of their respective generic products in the United States prior to the 2015 patent expirations in the event their respective abbreviated new drug applications, or ANDAs, receive

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FDA approval. In January 2012, Actavis Group, a generic manufacturer, announced the launch of a generic version of RITALIN LA®.

We have received SPCs in Europe relative to certain in-licensed thalidomide patents, which relate to THALOMID® and extend the terms of these patents relative to certain uses of thalidomide to 2019. Corresponding foreign patent applications and additional U.S. patent applications are still pending. Pursuant to certain agreements with the owners of the thalidomide patents, we are obligated to comply with certain milestones and other obligations, including those relating to REVLIMID® sales.

In 2001, Children's Medical Center Corporation, or CMCC, granted to us an exclusive worldwide license under certain patents and patent applications relating to thalidomide. In December 2002, CMCC granted to us an exclusive worldwide license to certain patents and patent applications relating to thalidomide analogs, metabolites, precursors and hydrolysis products of thalidomide, and stereoisomers thereof.

In addition, we have applied for and received SPCs to 2022 in Europe relative to both REVLIMID® and ABRAXANE®. In the United States, we have been granted a patent term extension of a REVLIMID® composition of matter patent to 2019. In the United States, we have been granted patent term adjustment with respect to a REVLIMID® polymorph patent; this patent is presently scheduled to expire in 2027.

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

Trade secret strategies also are important to our success and related to many of our key products.

Our brand names, logos and trademarks are also important to our success. We maintain both registered and common law trademarks. Common law trademark protection typically continues where and for as long as the mark is used. Registered trademarks continue in each country for as long as the trademark is registered.

In total, we own or have exclusively licensed nearly 400 issued U.S. patents. In addition, approximately 550 additional pending U.S. patent applications are owned by or exclusively licensed to us. We have a policy to seek worldwide patent protection for our inventions and have foreign patent rights corresponding to most of our U.S. patents.

Our research leads us to seek patent protection for molecular targets and drug discovery technologies, as well as therapeutic and diagnostic products and processes. More specifically, proprietary technology has been developed for use in molecular target discovery, the identification of regulatory pathways in cells, assay design and the discovery and development of pharmaceutical product candidates. An increasing percentage of our recent patent applications have been related to potential product candidates or compounds.

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CCT seeks patent protection for the collection, processing, composition, formulation and uses of mammalian placental and umbilical cord tissue and placental and umbilical cord stem cells, as well as cells and biomaterials derived from the placenta. As of December 2012 CCT owned, in whole or in part, 24 U.S. patents, including claims to novel cells and cellular compositions. In addition, CCT owns 92 U.S. patent applications, including pending provisional applications.

Our patents are regularly subject to challenge by generic drug companies. See Part I, Item 3, "Legal Proceedings." We rely on several different types of patents to protect our products that may include, without limitation, compound, polymorph, formulation and method of use patents. We cannot be certain, however, whether any of these patents will be circumvented, invalidated or found unenforceable or infringing in challenges by generic companies. For a more detailed discussion of risks related to our patent portfolio, see Part I, Item 1A. "Risk Factors."

GOVERNMENTAL REGULATION/EXCLUSIVITIES AFFORDED BY REGULATORY AUTHORITIES

Governmental Regulation:    Regulation by governmental authorities in the United States and other countries is a significant factor in the manufacture and marketing of pharmaceuticals and in our ongoing research and development activities. Most, if not all, of our therapeutic products require regulatory approval by governmental agencies prior to and after commercialization. Human therapeutic products are subject to rigorous preclinical testing and clinical trials and other pre-marketing and post-marketing approval requirements of the FDA and regulatory authorities in other countries. In the United States, various federal and, in some cases, state statutes and regulations also govern, or impact upon the manufacturing, testing for safety and effectiveness, labeling, storage, record-keeping and marketing of such products. The lengthy process of seeking required approvals, and the continuing need for compliance with applicable statutes and regulations, require the expenditure of substantial resources. Regulatory approval, if and when obtained, may be limited in scope which may significantly limit the uses for which a product may be promoted. Further, approved drugs, as well as their manufacturers, are subject to ongoing post-marketing review, inspection and discovery of previously unknown problems with such products or the manufacturing or quality control procedures used in their production, which may result in restrictions on their manufacture, sale or use or in their withdrawal from the market. Any failure or delay by us, our suppliers of manufactured drug product, collaborators or licensees, in obtaining regulatory approvals could adversely affect the marketing of our products and our ability to receive product revenue, license revenue or profit sharing payments.

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

In the United States, the FDA may grant "fast track" status (a process designed to facilitate the development and expedite the review of drugs) to products that treat serious diseases and fill an unmet medical need. In addition, most drugs with fast track status would be considered candidates for priority review, which generally means that the time it takes the FDA to review a New Drug Application, or NDA, is reduced.

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The FDA can also assign a Breakthrough Therapy designation to a drug or biologic. A drug intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and that may be a substantial improvement over existing therapies, based on preliminary clinical evidence from one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development may be designated a Breakthrough Therapy. For drugs and biologics that have been designated as Breakthrough Therapies, robust FDA-Sponsor interaction and communication can help to identify the most efficient, expeditious path for clinical development while minimizing the number of patients placed in ineffective control regimens. A Breakthrough Therapy designation requires evidence of substantial improvement over current treatments in early clinical development.

Typically, clinical trials involve a three-phase process as previously described. In some cases, further studies are required as a condition for an NDA or biologics license application, or BLA, approval. The FDA requires monitoring of all aspects of clinical trials and reports of all adverse events must be made to the agency before drug approval and requires submission of post-marketing adverse event reports after approval. The FDA may also require the Sponsor to conduct pediatric studies for the drug and indication under review if the application is for a new active ingredient, indication, dosage form, dosing regimen, or route of administration.

FDA Review and Approval:    The results of the preclinical testing and clinical trials are submitted to the FDA as part of an NDA or BLA for evaluation to determine if there is substantial evidence that the product is safe and effective for approval to commence commercial sales. In responding to an NDA or BLA, the FDA may grant marketing approval or deny approval by requesting additional information, even new clinical trials, if it determines that the application does not satisfy its regulatory approval criteria. When an NDA or BLA is approved, the NDA or BLA holder must (a) employ a system for obtaining reports of drug adverse experience and side effects associated with the drug and make appropriate submissions to the FDA and (b) timely advise the FDA if any marketed product fails to adhere to specifications established by the NDA or BLA.

The FDA may grant "accelerated approval" to products that have been studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit to patients over existing treatments. For accelerated approval, the drug product must have an effect on a surrogate endpoint reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity.

The FDA may provide approval with restrictions to assure safe use. If the FDA concludes that a drug previously shown to be effective can be safely used only if distribution or use is restricted, the FDA will require post-marketing restrictions as necessary to assure safe use. The sponsor may be required to establish systems to assure use of the product under safe conditions. In 2007, the FDA was granted authority to require risk evaluation and mitigation strategies, or REMS, to ensure that benefits of a drug outweigh risks. There are financial and other penalties for non-compliance with a drug's REMS.

For all products that receive accelerated approval, the FDA may withdraw approval after a hearing if a post-marketing clinical study fails to verify clinical benefit, if the applicant fails to perform the required post-marketing study with due diligence, if post-marketing restrictions are

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inadequate to assure safe use of the product, if the applicant fails to adhere to agreed upon post-marketing restrictions, if promotional materials are false or misleading, or if other evidence demonstrates the product is not safe or effective under its conditions of use.

Manufacturing Quality Control:    Among the conditions for NDA or BLA approval is the requirement that the prospective manufacturer's quality control and manufacturing procedures continually conform with the FDA's current Good Manufacturing Practice, or cGMP, regulations (which are regulations established by the FDA governing the manufacture, processing, packing, storage and testing of drugs and biologics intended for human use). In complying with cGMP, manufacturers must devote extensive time, money and effort in the area of production and quality control and quality assurance to maintain full technical compliance. Manufacturing facilities and company records are subject to periodic inspections by the FDA to ensure compliance. If a manufacturing facility is not in substantial compliance with these requirements, regulatory enforcement action may be taken by the FDA, which may include seeking an injunction against shipment of products from the facility and/or recall of products previously shipped from the facility.

FDA Review and Enforcement:    The FDA closely reviews and regulates the marketing and promotion of drug and biologic products. FDA approval for a specified indication is required before marketing or promoting a product for that indication. The FDA may take enforcement action against a company for promoting unapproved uses of a product ("off-label promotion") or for other violations of advertising and labeling laws and regulations.

The FDA may issue warning letters and untitled letters or non-compliance letters that are made public, which may require corrective actions including modification of advertising or other corrective communications to consumers or healthcare professionals. Failure to comply with applicable FDA regulatory requirements can result in enforcement actions, such as license revocation or suspension; orders for retention, recall, seizure or destruction of product; cessation of manufacturing; injunctions; inspection warrants; search warrants; civil penalties, including fines based on the equitable remedy of disgorgement; restitution; and criminal prosecution.

Post-approval:    After approval, a sponsor of a drug product has ongoing reporting obligations concerning adverse reactions associated with the drug, including expedited reports for serious and unexpected adverse events. Following assessment of these reports, regulatory authorities can require product label updates to reflect new safety data or warnings. If the FDA becomes aware of new safety information, it can also require us to conduct studies or clinical trials at the time of approval or after approval to assess the potential for a serious risk. The FDA can also impose marketing restrictions, including the suspension of marketing or complete withdrawal of a product from the market.

Markets Outside of the United States:    Approval procedures must be undertaken in virtually every other country comprising the market for our products. The approval procedure and the time required for approval vary from country to country and may involve additional testing.

Exclusivities:    Pursuant to the United States Orphan Drug Act, a sponsor may request that the FDA designate a drug intended to treat a "rare disease or condition" as an "orphan drug." The term "orphan drug" can refer to either a drug or biologic. A rare disease or condition is defined as one which affects less than 200,000 people in the United States, or which affects more than 200,000 people, but for which the cost of developing and making available the product is not

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expected to be recovered from sales of the product in the United States. Upon the approval of the first NDA or BLA for a drug designated as an orphan drug for a specified indication, the sponsor of that NDA or BLA is entitled to seven years of exclusive marketing rights in the United States for the orphan drug for the same indication unless the sponsor cannot assure the availability of sufficient quantities of the drug to meet the needs of persons with the disease. However, orphan drug status is particular to the approved indication and does not prevent another company from seeking approval of an off-patent drug that has other labeled indications that are not under orphan or other exclusivities. The period of orphan exclusivity is concurrent with any patent or other exclusivity that relates to the drug or biologic. Orphan drugs may also be eligible for federal income tax credits for costs associated with the drugs' development. In order to increase the development and marketing of drugs for rare disorders, regulatory bodies outside the United States have enacted regulations similar to the Orphan Drug Act.

Under the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act, or the Act, products covered by approved NDAs or supplemental NDAs may be protected by periods of patent and/or non-patent exclusivity. During the three-year marketing exclusivity period granted for reports of new clinical investigations conducted by the sponsor essential for approval, the FDA is precluded from approving a potential competitor's Abbreviated New Drug Application, or ANDA, or a 505(b)(2) application. The FDA is also precluded from accepting an ANDA or 505(b)(2) application for a five-year marketing exclusivity period that is granted when an active moiety (which is a molecule or ion responsible for the physiological or pharmacological action of the drug) has not been previously approved. An applicant is permitted to submit an ANDA or 505(b)(2) after four years if it contains certification of invalidity or non-infringement to a patent listed for the approved drug, but such application does not affect any regulatory or appropriate patent exclusivity.

The FDA also grants an additional six months of market protection at the end of listed patents and/or exclusivity for the drug product's active moiety, when the drug sponsor has conducted pediatric studies in response to a written request from the FDA. To qualify for pediatric exclusivity, an applicant must have received a written request for pediatric studies from the FDA.

NDAs submitted under 505(b)(2) of the Act may not reference data contained in the NDA for a product protected by an effective and unexpired exclusivity and must include patent certifications. ANDAs and 505(b)(2) applications are generally less burdensome than full NDAs in that, in lieu of new clinical data, the applications rely in whole, or in part, upon the safety and efficacy findings of the referenced approved drug in conjunction with bridging data, typically bioequivalence data. Upon the expiration of the applicable exclusivities, through passage of time or successful legal challenge, the FDA may grant effective approval of an ANDA for a generic drug, or may accept reference to a previously protected NDA in a 505(b)(2) application. Depending upon the scope of the applicable exclusivities, any such approval could be limited to certain formulations and/or indications/claims, i.e., those not covered by any outstanding exclusivities.

An abbreviated pathway was established by the Biologics Price Competition and Innovation Act of 2009 (BPCI Act), enacted in 2010, as part of the Patient Protection and Affordable Care Act. The BPCI Act creates an abbreviated licensure pathway for biological products shown to be biosimilar to or interchangeable with an FDA-licensed reference product. Biological products

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have 12 years of exclusivity, after which there may be biosimilar application approvals under the Public Health Service Act.

Manufacturers also have the opportunity to take advantage of the ability for the FDA to consider single enantiomer drugs as new chemical entities for a five-year new chemical entity exclusivity. For new chemical entity determination the new single enantiomer may not rely on clinical investigations from the racemic product's approval.

Under the Generating Antibiotic Incentives Now Act of 2011, an additional five years of marketing exclusivity is available for products approved and designated as qualified infectious disease products, or QIDPs. A QIDP is defined as "an antibacterial or drug for human use intended to treat serious or life-threatening infections, including those caused by (1) an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens; or (2) qualifying pathogens." A "qualifying pathogen" means a pathogen identified and listed by the FDA as such.

COMPETITION

The pharmaceutical and biotechnology industries are highly competitive. We also compete with universities and research institutions in the development of products and processes, and in the acquisition of technology from outside sources.

Competition in the areas of oncology and inflammation and immunology areas, is particularly intense. Numerous pharmaceutical and biotechnology companies have extensive anti-cancer and anti-inflammatory drug discovery, development and commercial resources. AbbVie, Amgen, AstraZeneca, Biogen Idec, Bristol-Myers Squibb, Eisai, Ltd., F. Hoffmann-LaRoche, Johnson & Johnson, Merck, Novartis, Pfizer, Sanofi, and Takeda, are among the many companies researching and developing new compounds in the oncology and inflammation and immunology fields. We also have potential competition from generic drug manufacturers.

The pharmaceutical and biotechnology industries have undergone, and are expected to continue to undergo, rapid and significant technological change. Consolidation and competition are expected to intensify as technical advances in each field are achieved and become more widely known. In order to compete effectively, we will be required to continually upgrade and expand our scientific expertise and technology, identify and retain capable personnel and pursue scientifically feasible and commercially viable opportunities.

Our competition will be determined in part by the indications and geographic markets for which our products are developed and ultimately approved by regulatory authorities. The relative speed with which we develop new products, complete clinical trials, obtain regulatory approvals, receive pricing and reimbursement approvals, and finalize agreements with contract manufacturers, when needed, and market our products are critical factors in gaining a competitive advantage. Competition among approved products depends, among other things, on product efficacy, safety, convenience, reliability, availability, price, third-party reimbursement and patent and non-patent exclusivity.

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SIGNIFICANT ALLIANCES

We have entered into a variety of alliances in the ordinary course of our business. Although we do not consider any individual alliance to be material, the following is a brief description of certain of the more notable alliances:

Novartis Pharma AG:    We licensed the worldwide rights (excluding Canada) regarding certain chirally pure forms of methylphenidate for FOCALIN® and FOCALIN XR® to Novartis. We also licensed to Novartis the rights related to long-acting formulations of methylphenidate and dex-methylphenidate products which are used in FOCALIN XR® and RITALIN LA®. As a result of the grant of these licenses we sell FOCALIN® to Novartis and receive royalties of between 30% and 35% on their sales of FOCALIN XR® and RITALIN LA®. Under the agreement, we have received upfront and regulatory achievement milestone payments totaling $55.0 million.

The agreement will continue until the later of (i) the tenth anniversary of the first commercial launch on a country-by-country basis or (ii) when the last applicable patent expires with respect to that country. At the expiration date, we will grant Novartis a perpetual, non-exclusive, royalty-free license to make, have made, use, import and sell products using the dex-methylphenidate and long-acting formulation technology.

The agreement may be terminated by Novartis upon 12 months' prior written notice or by either party upon, among other things, the material breach of the other or in the event of withdrawal of the dex-methylphenidate product or RITALIN® product from the market because of regulatory mandate.

If the agreement is terminated by us, then all licenses granted to Novartis under the agreement will terminate and Novartis will grant us a non-exclusive license to certain of their intellectual property related to the compounds and products. If the agreement is terminated by Novartis then all licenses granted to Novartis under the agreement will terminate.

When generic versions of long-acting methylphenidate hydrochloride and dexmethylphenidate hydrochloride enter the market, we expect Novartis' sales of RITALIN LA® and FOCALIN XR® products to decrease and therefore its royalties under this agreement to also decrease. In January 2012, Actavis Group announced the launch of a generic version of RITALIN LA®.

Array BioPharma Inc.:    We have a research collaboration agreement with Array BioPharma Inc., or Array, focused on the discovery, development and commercialization of novel therapeutics in cancer and inflammation. As part of this agreement, we made payments to date in the aggregate amount of $59.0 million, which were recorded as research and development expense, in return for an option to purchase exclusive worldwide rights for compounds developed against up to two research targets defined in the agreement. Array will be responsible for all discovery and clinical development through phase I or phase IIa for each compound. Potential milestone payments for each compound of approximately $200.0 million (most of which are payable subsequent to exercise of the relevant option) if certain discovery, development and regulatory milestones are achieved, and $300.0 million if certain commercial milestones are achieved, as well as royalties on net sales.

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During 2012 we exercised our option to extend the term of the agreement for an additional year. Our option will now terminate upon the earlier of (i) a termination of the agreement by its terms, (ii) the date we have exercised our options for compounds developed against two of the four research targets identified, or (iii) September 21, 2013. We may unilaterally extend the option term for an additional one-year term until September 21, 2014. During 2012, we made a $3.0 million payment to Array in order to extend the research activities on one of the compounds.

If we exercise the options for each compound, upon the expiration of the research collaboration agreement under certain circumstances, Array will grant us a fully paid-up, royalty-free license to use certain intellectual property of Array to market and sell the compounds and products developed under the agreement.

Acceleron Pharma:    We entered into a worldwide strategic collaboration agreement with Acceleron for the joint development and commercialization of sotatercept, or ACE-011, currently being studied for treatment of renal anemia. The collaboration agreement, as amended, combines both companies' resources and commitment to developing products for the treatment of cancer and cancer-related bone loss, and expands the joint development, manufacturing and commercialization of Acceleron's products to include anemia exclusivity. Under the terms of the ACE-011 agreement, we and Acceleron will jointly develop, manufacture and commercialize Acceleron's products for the treatment of bone loss. We made a payment to Acceleron in February 2008 of $50.0 million, which included a $5.0 million equity investment in Acceleron Series C-1 Convertible Preferred Stock, with the remainder recorded as research and development expense. In December 2011, we made a $25.0 million equity investment in Acceleron Series F Convertible Preferred Stock. In the event of an initial public offering of Acceleron, we will purchase a minimum of $7.0 million of Acceleron common stock. We have agreed to pay all development costs related to ACE-011 incurred after January 1, 2013.

Acceleron is eligible to receive development, regulatory approval and sales-based milestones of up to $367.0 million for the ACE-011 program and up to an additional $348.0 million for each of three specific discovery stage programs. The parties also agreed to co-promote the products under the ACE-011 agreement in North America. Acceleron will receive tiered royalties on worldwide net sales upon the commercialization of a development compound. We made a $7.0 million development milestone payment to Acceleron in April 2011 for the initiation of enrollment into a phase II study for chemotherapy-induced anemia.

In August 2011, we also entered into a collaboration, license and option agreement with Acceleron, for the joint development and commercialization of ACE-536 for the treatment of anemia. The ACE-536 agreement also includes an option for future Acceleron anemia programs. The ACE-536 agreement provides us with an exclusive, worldwide, royalty-bearing license to the ACE-536 program and future Acceleron programs for the treatment of anemia. The parties also agreed to co-promote the products under the ACE-536 agreement in the United States, Canada and Mexico.

In connection with the ACE-536 agreement, we made a payment to Acceleron in the amount of $25.0 million. We have also agreed to pay all development costs incurred after January 1, 2013. Acceleron is eligible to receive development, regulatory approval and sales-based milestones of up to $217.5 million for the ACE-536 program and up to an additional $170.8 million for the first

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discovery stage program, $148.8 million for the second discovery stage program and $125.4 million for each additional discovery stage program thereafter. In October 2011, we made a $7.5 million milestone payment for the initiation of a phase I clinical study of ACE-536. A $10.0 million milestone payment will be made for the January 2013 initiation of a phase II clinical study to evaluate ACE-536 for the treatment of anemia in patients with myelodysplastic syndromes. Acceleron will receive tiered royalties on worldwide net sales upon the commercialization of a development compound.

The agreements for ACE-011 and ACE-536 may be terminated by us, at our sole discretion, at any time for the ACE-011 agreement, and, with respect to the ACE-536 agreement, after completion of the initial phase II clinical trials, or by either party, among other things, upon a material breach by the other party.

GlobeImmune, Inc.:    We entered into a collaboration and option agreement with GlobeImmune, Inc., or GlobeImmune, as amended, focused on the discovery, development and commercialization of novel therapeutics in cancer. As part of this agreement, we made a payment in May 2009 of $30.0 million, which was recorded as research and development expense, in return for the option to license certain compounds and products based on the GI-4000, GI-6200, GI-3000 and GI-6300 oncology drug candidate programs, as well as oncology compounds and products resulting from future programs controlled by GlobeImmune. If the option is exercised, GlobeImmune will be entitled to receive potential milestone payments of approximately $230.0 million for the GI-4000 program, $145.0 million for each of the GI-6200 and GI-3000 programs and $161.0 million for each of the GI-6300 program and each additional future program if certain development, regulatory and sales-based milestones are achieved. GlobeImmune will also receive tiered royalties on worldwide net sales.

Our options with respect to the GI-4000, GI-6200, GI-3000 and GI-6300 oncology drug candidate programs will terminate if we do not exercise our respective options after delivery of certain reports from GlobeImmune on the completed clinical trials with respect to each drug candidate program. If we do not exercise our options with respect to any drug candidate program or future program, our option with respect to the oncology products resulting from future programs controlled by GlobeImmune will terminate three years after the last of the options with respect to the GI-4000, GI-6200, GI-3000 and GI-6300 oncology drug candidate programs terminates.

Agios Pharmaceuticals, Inc.:    On April 14, 2010, we entered into a discovery and development collaboration and license agreement with Agios Pharmaceuticals, Inc., or Agios, which focuses on cancer metabolism targets and the discovery, development and commercialization of associated therapeutics. As part of the agreement, as amended, we paid Agios $121.2 million, which was recorded by us as research and development expense. We also made an $8.8 million equity investment in Agios Series B Convertible Preferred Stock. In October 2011, we made a $20.0 million payment to Agios for a one year extension of our oncology collaboration and licensing agreement and in November 2011, made a $28.7 million investment in Agios series C-2 Convertible Preferred Stock. With respect to each product in a program that we choose to license, Agios could receive up to $120.0 million upon achievement of certain milestones plus royalties on sales, and Agios may also participate in the development and commercialization of certain products in the United States. Agios may also receive a one-time milestone payment of $25.0 million upon dosing of the final human subject in a phase II study, such payment to be made only once with respect to only one program. Our option will terminate on April 14, 2014.

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We have determined that Agios is a variable interest entity; however, we are not the primary beneficiary of Agios. Although we would have the right to receive the benefits from the collaboration and license agreement, we do not have the power to direct the activities under the collaboration and license agreement as Agios has the decision-making authority for the Joint Steering Committee and Joint Research Committee until we exercise our option to license a product. Our interest in Agios is limited to our equity ownership and we do not have any obligations or rights to the future losses or returns of Agios beyond this ownership.

Epizyme:    In April 2012, we entered into a collaboration and license agreement with Epizyme, Inc., or Epizyme, to discover, develop and commercialize novel therapeutic compounds by inhibiting histone methyltransferases (HMTs), an important epigenetic target class.

Under the terms of the agreement, we made an upfront payment of $65.0 million to Epizyme and also made a $25.0 million equity investment in Epizyme Series C Preferred Stock. If the option is exercised, Epizyme could receive up to $165.0 million in milestone payments associated with each Epizyme compound developed to inhibit each distinct HMT target under the collaboration plus royalties on sales. Under this agreement, we have the exclusive option to license rights to HMT targets outside the United States and each Epizyme compound associated with such target during the option term. Epizyme will have the sole responsibility to develop and commercialize compounds in the United States.

The option term expires on either July 9, 2015, or July 9, 2016 if we unilaterally extend the option term for a fourth year and pay an option extension fee. Further, if an HMT target or targets are selected then the agreement will expire upon the expiration of all applicable royalty terms under the agreement with respect to all licensed Epizyme compounds. Upon the expiration of the agreement, we will have a fully paid-up, royalty-free license to use Epizyme intellectual property to manufacture, market, use and sell such licensed Epizyme compounds developed under the agreement outside the United States.

Other Collaboration Arrangements in 2012:    In addition to the collaboration arrangements described above, we entered into a number of collaborative arrangements during 2012 that resulted in $34.5 million of assets for investments in equity or other assets and research and development expenses of $113.5 million. These additional arrangements entered into during 2012 include the potential for future milestone payments of up to an aggregate $1.420 billion related to the attainment of specified development and regulatory approval milestones over a period of several years. Our obligation to fund these efforts is contingent upon continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the programs.

MANUFACTURING

We own and operate an FDA approved manufacturing facility in Zofingen, Switzerland which produces the active pharmaceutical ingredient, or API, for REVLIMID® and THALOMID® and have contracted with FDA approved third-party contract manufacturers to provide backup API manufacturing services for these products. Manufacturing services for REVLIMID® and THALOMID®, which consist of formulation, encapsulation, packaging, warehousing and distribution, are performed at our FDA approved drug product manufacturing facility in Boudry, Switzerland. We have contracted with a number of third-party drug product manufacturing

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service providers and packaging service providers to provide backup manufacturing and packaging services. All of our third-party service providers are approved by the regulatory authorities for the geographies that they serve.

The API for ABRAXANE® is generally available from multiple sources and is normally available in quantities adequate to meet our needs. Manufacturing services for ABRAXANE® are performed at our manufacturing facility in Arizona and by an approved third party contract manufacturing facility.

The API for VIDAZA® is supplied by two suppliers, and the API for ISTODAX® is supplied by a single-source supplier. Manufacturing and packaging services for these products are provided by a number of third-party service providers.

The API for POMALYST® is supplied by a single-source supplier with primary manufacturing services being performed at our Boudry manufacturing facility. We expect to utilize third-party service providers for backup manufacturing and packaging services for this product.

The API for FOCALIN® and FOCALIN XR® is currently obtained from two suppliers, and we rely on a single manufacturer for the tableting and packaging of FOCALIN® finished product.

CCT currently operates an FDA registered facility in Cedar Knolls, New Jersey for the recovery and storage of cord blood and placental stem cells for LifeBankUSA®. In addition, our Warren, New Jersey facility is FDA registered for production of PDA-001, a culture-expanded placenta-derived stem cell under cGMP to supply clinical studies. This is a multi-purpose facility capable of supporting other products.

INTERNATIONAL OPERATIONS

We have significant operations outside the United States conducted both through our subsidiaries and through distributors. Revenues from operations outside the United States were $2.338 billion, or 42.4% of total revenues in 2012, $1.981 billion, or 40.9% of total revenues in 2011, and $1.437 billion, or 39.6% of total revenues in 2010. The increase in the percentage of total revenues from outside of the United States is the result of our ongoing efforts to increase the availability of our products to patients worldwide.

Our international headquarters and a drug product manufacturing facility which performs formulation, encapsulation, packaging, warehousing and distribution are located in Boudry, Switzerland. We continue to expand our international regulatory, clinical and commercial infrastructure and currently conduct our international operations in over 50 countries and have sales in over 70 countries and regions including Europe, Latin America, Middle East, Asia/Pacific and Canada.

Our international operations are subject to risks associated with operating on an international basis including currency fluctuations, price and exchange controls and other restrictive governmental actions. Our international operations are also subject to government-imposed constraints, including laws on pricing, reimbursement and access to our products. Depending on the direction of change relative to the U.S. dollar, foreign currency values can increase or decrease the reported dollar value of our net assets and results of operations. While we cannot

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predict with certainty future changes in foreign exchange rates or the effect they will have, we attempt to mitigate their impact through operational means and by using foreign currency derivative instruments. See the discussions under "Item 7A Quantitative and Qualitative Disclosures About Market Risk."

SALES AND COMMERCIALIZATION

We promote our brands globally through our commercial organization which is comprised of highly trained individuals who have significant experience in the pharmaceutical industry, especially in the areas of oncology and immunology. Our commercial organization supports our currently marketed brands and prepares for the launches of new products, as well as new indications for existing products. We have a team of dedicated market access professionals to help physicians, patients and payers understand the value our products deliver. Given our goal to ensure that patients who might benefit from our therapies have the opportunity to do so and given the complex reimbursement environment in the United States, we offer the services of Celgene Patient Support®, a dedicated, central point of contact for patients and healthcare professionals who use or prescribe Celgene products. Celgene Patient Support® is a free service that helps patients and healthcare professionals navigate the challenges of reimbursement, providing information about co-pay assistance and answering questions about obtaining Celgene products.

In most countries, we sell our products through our own sales organizations. In some countries, particularly in Latin America, we partner with third-party distributors. See the section entitled "COMMERCIAL STAGE PRODUCTS" above. Generally, we distribute our products through the commonly used channels in local markets. However, REVLIMID®, POMALYST®, and THALOMID® are distributed under mandatory risk-management distribution programs tailored to meet local competent authorities' specifications to provide for their safe and appropriate distribution and use.

EMPLOYEES

As of December 31, 2012, we had 4,700 full-time employees, of whom 2,020 were engaged primarily in research and development activities, 1,451 engaged primarily in sales and commercialization activities, 452 engaged primarily in manufacturing, and the remaining 777 engaged primarily in executive and general and administrative activities. The number of full-time employees in our international operations has grown from 1,654 at the end of 2011 to 1,834 at the end of 2012. We also employ a number of part-time employees and maintain consulting arrangements with a number of researchers at various universities and other research institutions around the world.

FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated by reference in this Annual Report on Form 10-K are considered forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning our business, results of operations, economic performance and/or financial condition, based on management's

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current expectations, plans, estimates, assumptions and projections. Forward-looking statements are included, for example, in the discussions about:

    strategy;

    new product discovery and development;

    current or pending clinical trials;

    our products' ability to demonstrate efficacy or an acceptable safety profile;

    actions by the FDA;

    product manufacturing, including our arrangements with third-party suppliers;

    product introduction and sales;

    royalties and contract revenues;

    expenses and net income;

    credit and foreign exchange risk management;

    liquidity;

    asset and liability risk management;

    the outcome of litigation;

    intellectual property rights and protection;

    economic factors;

    competition; and

    operational and legal risks.

Any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Forward-looking statements generally are identified by the words "expects," "anticipates," "believes," "intends," "estimates," "aims," "plans," "may," "could," "will," "will continue," "seeks," "should," "predict," "potential," "outlook," "guidance," "target," "forecast," "probable," "possible" or the negative of such terms and similar expressions. Forward-looking statements are subject to change and may be affected by risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events, although we intend to continue to meet our ongoing disclosure obligations under the U.S. securities laws and other applicable laws.

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We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements, and therefore you should not place too much reliance on them. These factors include, among others, those described herein, under "Risk Factors" and elsewhere in this Annual Report and in our other public reports filed with the Securities and Exchange Commission, or SEC. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward-looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals.

ITEM 1A.    RISK FACTORS

The following statements describe the major risks to our business and should be considered carefully. Any of these factors could significantly and negatively affect our business, prospects, financial condition, operating results or credit ratings, which could cause the trading price of our common stock to decline. The risks described below are not the only risks we may face. Additional risks and uncertainties not presently known to us, or risks that we currently consider immaterial, could also negatively affect our business, financial results and operations.

We may experience significant fluctuations in our quarterly operating results which could cause our financial results to be below expectations and cause our stock price to be volatile.

We have historically experienced, and may continue to experience, significant fluctuations in our quarterly operating results. These fluctuations are due to a number of factors, many of which are outside our control, and may result in volatility of our stock price. Future operating results will depend on many factors, including:

    demand or lack of demand for our products, including demand that adversely affects our ability to optimize the use of our manufacturing facilities;

    the introduction and pricing of products competitive with ours, including generic competition;

    developments regarding the safety or efficacy of our products;

    regulatory approvals for our products and pricing determinations with respect to our products;

    regulatory approvals for our manufacturing facilities and those of our suppliers;

    timing and levels of spending for research and development, sales and marketing;

    timing and levels of reimbursement from third-party payers for our products;

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    development or expansion of business infrastructure in new clinical and geographic markets;

    the acquisition of new products and companies;

    tax rates in the jurisdictions in which we operate;

    timing and recognition of certain research and development milestones and license fees;

    ability to control our costs;

    fluctuations in foreign currency exchange rates; and

    economic and market instability.

We are dependent on the continued commercial success of our primary products REVLIMID®, VIDAZA®, THALOMID® and ABRAXANE®, and a significant decline in demand for or use of these products or our other commercially available products could materially and adversely affect our operating results.

During the next several years, the growth of our business will be largely dependent on the commercial success of REVLIMID®, VIDAZA®, THALOMID® and ABRAXANE®. We cannot predict the extent to which these or our other existing or new products will be accepted by regulators, physicians, patients and other key opinion leaders as effective drugs with certain advantages over existing or future therapies. We are continuing to introduce our products in additional international markets and to obtain approvals for additional indications both in the United States and internationally. A delay in gaining the requisite regulatory approvals for these markets or indications could negatively impact our growth plans and the value of our stock.

Further, if unexpected adverse experiences are reported in connection with the use of any of our products, physician and patient comfort with the product could be undermined, the commercial success of such product could be adversely affected and the acceptance of our other products could be negatively impacted. We are subject to adverse event reporting regulations that require us to report to the Food and Drug Administration, or FDA, or similar bodies in other countries if our products are associated with a death or serious injury. These adverse events, among others, could result in additional regulatory controls, such as the performance of costly post-approval clinical studies or revisions to our approved labeling, which could limit the indications or patient population for our products or could even lead to the withdrawal of a product from the market. Similarly, the occurrence of serious adverse events known or suspected to be related to the products could negatively impact product sales. For example, THALOMID® is known to be toxic to the human fetus and exposure to the drug during pregnancy could result in significant deformities in the baby. REVLIMID® is also considered fetal toxic and there are warnings against use of VIDAZA® in pregnant women as well. While we have restricted distribution systems for both THALOMID® and REVLIMID® and we endeavor to educate patients regarding the potential known adverse events including pregnancy risks, we cannot ensure that all such warnings and recommendations will be complied with or that adverse events resulting from non-compliance will not have a material adverse effect on our business.

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It is necessary that our primary products achieve and maintain market acceptance. A number of factors may adversely impact the degree of market acceptance of our products, including the products' efficacy, safety, price and benefits, if any, over competing products, as well as the reimbursement policies of third-party payers, such as government and private insurance plans, patent disputes and claims about adverse side effects.

If we do not gain or maintain regulatory approval of our products we will be unable to sell our current products and products in development.

Changes in law, government regulations or policies can have a significant impact on our results of operations. The discovery, preclinical development, clinical trials, manufacturing, risk evaluation and mitigation strategies (such as our S.T.E.P.S.® and RevAssist® programs), marketing and labeling of pharmaceuticals and biologics are all subject to extensive laws and regulations, including, without limitation, the U.S. Federal Food, Drug, and Cosmetic Act, the U.S. Public Health Service Act, Medicare Modernization Act, Food and Drug Administration Amendments Act, and other federal and state statutes, as well as similar laws in foreign jurisdictions. Changes in laws, government regulations or policies can have a significant adverse impact on our ability to continue to commercialize our products or introduce new products to the market, which would adversely affect our results of operations.

If we or our agents, contractors or collaborators are delayed in receiving, or are unable to obtain all, necessary governmental approvals, we will be unable to effectively market our products.

The testing, marketing and manufacturing of our products requires regulatory approval, including approval from the FDA and, in some cases, from the Environmental Protection Agency, or EPA, or governmental authorities outside of the United States that perform roles similar to those of the FDA and EPA, including the EMA, European Commission, the Japanese Pharmaceuticals and Medical Devices Agency, the Swissmedic, the Australian Therapeutic Goods Administration and Health Canada. Certain of our pharmaceutical products, such as FOCALIN®, fall under the Controlled Substances Act of 1970 that requires authorization by the U.S. Drug Enforcement Agency, or DEA, of the U.S. Department of Justice in order to handle and distribute these products.

The regulatory approval process presents a number of risks to us, principally:

    In general, preclinical tests and clinical trials can take many years, and require the expenditure of substantial resources, and the data obtained from these tests and trials can be susceptible to varying interpretation that could delay, limit or prevent regulatory approval;

    Delays or rejections may be encountered during any stage of the regulatory process based upon the failure of the clinical or other data to demonstrate compliance with a regulatory agency's requirements for safety, efficacy and quality or, in the case of a product seeking an orphan drug indication, because another designee received approval first or receives approval of other labeled indications;

    Requirements for approval may become more stringent due to changes in regulatory agency policy or the adoption of new regulations or legislation;

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    The scope of any regulatory approval, when obtained, may significantly limit the indicated uses for which a product may be marketed and reimbursed and may impose significant limitations in the nature of warnings, precautions and contra-indications that could materially affect the sales and profitability of the drug;

    Approved products, as well as their manufacturers, are subject to continuing and ongoing review, and discovery of previously unknown problems with these products or the failure to adhere to manufacturing or quality control requirements may result in restrictions on their manufacture, sale or use or in their withdrawal from the market;

    Regulatory authorities and agencies of the United States or foreign governments may promulgate additional regulations restricting the sale of our existing and proposed products, including specifically tailored risk evaluation and mitigation strategies;

    Guidelines and recommendations published by various governmental and non-governmental organizations can reduce the use of our products;

    Once a product receives marketing approval, we may not market that product for broader or different applications, and the FDA may not grant us approval with respect to separate product applications that represent extensions of our basic technology. In addition, the FDA may withdraw or modify existing approvals in a significant manner or promulgate additional regulations restricting the sale of our present or proposed products. The FDA may also request that we perform additional clinical trials or change the labeling of our existing or proposed products if we or others identify side effects after our products are on the market;

    Products, such as REVLIMID®, that are subject to accelerated approval can be subject to an expedited withdrawal if the post-marketing restrictions are not adhered to or are shown to be inadequate to assure the safe use of the drug, or evidence demonstrates that the drug is not shown to be safe and effective under its conditions of use. Additionally, promotional materials for such products are subject to enhanced surveillance, including pre-approval review of all promotional materials used within 120 days following marketing approval and a requirement for the submissions 30 days prior to initial dissemination of all promotional materials disseminated after 120 days following marketing approval; and

    Our risk evaluation and mitigation strategies, labeling and promotional activities relating to our products as well as our post-marketing activities are regulated by the FDA, the Federal Trade Commission, the United States Department of Justice, the DEA, state regulatory agencies and foreign regulatory agencies and are subject to associated risks. In addition, individual states, acting through their attorneys general, have become active as well, seeking to regulate the marketing of prescription drugs under state consumer protection and false advertising laws. If we fail to comply with regulations regarding the promotion and sale of our products, appropriate distribution of our products under our restricted distribution systems, off-label promotion and the promotion of unapproved products, such agencies may bring enforcement actions against us that could inhibit our commercial capabilities as well as result in significant penalties.

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Other matters that may be the subject of governmental or regulatory action which could adversely affect our business include:

    changes in laws and regulations, including without limitation, patent, environmental, privacy, health care and competition laws;

    importation of prescription drugs from outside the United States at prices that are regulated by the governments of various foreign countries;

    additional restrictions on interactions with healthcare professionals; and

    privacy restrictions that may limit our ability to share data from foreign jurisdictions.

We collect placentas and umbilical cord blood for our unrelated allogeneic and private stem cell banking businesses. The FDA's Center for Biologics Evaluation and Research currently regulates human tissue or cells intended for transplantation, implantation, infusion or transfer to a human recipient under 21 CFR Parts 1270 and 1271. Part 1271 requires cell and tissue establishments to screen and test donors, to prepare and follow written procedures for the prevention of the spread of communicable disease and to register the establishment with FDA. This part also provides for inspection by the FDA of cell and tissue establishments. Currently, we are required to be, and are, licensed to operate in New York, New Jersey, Maryland and California. If other states adopt similar licensing requirements, we would need to obtain such licenses to continue operating any stem cell banking businesses if we are deemed to be operating in those states. If we are delayed in receiving, or are unable to obtain at all, necessary licenses, we will be unable to provide services in those states and this could impact negatively on our revenue.

Sales of our products will be significantly reduced if access to and reimbursement for our products by governmental and other third-party payers is reduced or terminated.

Sales of our products will depend, in part, on the extent to which the costs of our 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 payers. Generally, in Europe and other countries outside the United States, the government-sponsored healthcare system is the primary payer of healthcare costs of patients. These health care management organizations and third-party payers are increasingly challenging the prices charged for medical products and services. Additionally, the 2010 U.S. Health Care Reform Law, which became effective in January 2011, has provided sweeping health care reform in the United States, which may impact access to and reimbursement for our products. In addition to the federal legislation, state legislatures and foreign governments have also shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. The establishment of limitations on patient access to our drugs, adoption of price controls and cost-containment measures in new jurisdictions or programs, and adoption of more restrictive policies in jurisdictions with existing controls and measures, including the impact of the 2010 U.S. Health Care Reform Law, could adversely impact our business and future results. If these organizations and third-party payers do not consider our products to be cost-effective compared to other available therapies, they may not reimburse

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providers or consumers of our products or, if they do, the level of reimbursement may not be sufficient to allow us to sell our products on a profitable basis.

Our ability to sell our products to hospitals in the United States depends in part on our relationships with group purchasing organizations, or GPOs. Many existing and potential customers for our products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes on an exclusive basis, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO's affiliated hospitals and other members. If we are not one of the providers selected by a GPO, affiliated hospitals and other members may be less likely to purchase our products, and if the GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer's products, we may be precluded from making sales to members of the GPO for the duration of that contractual arrangement. Our failure to renew contracts with GPOs may cause us to lose market share and could have a material adverse effect on our sales, financial condition and results of operations. We cannot assure you that we will be able to renew these contracts at the current or substantially similar terms. If we are unable to keep our relationships and develop new relationships with GPOs, our competitive position may suffer.

We encounter similar regulatory and legislative issues in most countries outside the United States. International operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on access to and reimbursement for our products. Although we cannot predict the extent to which our business may be affected by future cost-containment measures or other potential legislative or regulatory developments, additional foreign price controls or other changes in pricing regulation could restrict access to and reimbursement for our current and future products, which could adversely affect our revenue and results of operations.

Our long-term success depends, in part, on intellectual property protection.

Our success depends, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties and to conduct our business without infringing upon the proprietary rights of others. The patent positions of pharmaceutical and biopharmaceutical companies, including ours, can be uncertain and involve complex legal and factual questions including those related to our risk evaluation and mitigation strategies (such as our S.T.E.P.S.® and RevAssist® programs). In addition, the coverage sought in a patent application can be significantly reduced before the patent is issued.

Consequently, we do not know whether any of our owned or licensed pending patent applications, which have not already been allowed, will result in the issuance of patents or, if any patents are issued, whether they will be dominated by third-party patent rights, whether they will provide significant proprietary protection or commercial advantage or whether they will be circumvented, opposed, invalidated, rendered unenforceable or infringed by others. Further, we are aware of third-party U.S. patents that relate to, for example, the use of certain stem cell technologies and cannot be certain as to any impact to our potential products, or guarantee that our patents or pending applications will not be involved in, or be defeated as a result of,

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opposition proceedings before a foreign patent office or any interference proceedings before the United States Patent & Trademark Office, or PTO.

With respect to patents and patent applications we have licensed-in, there can be no assurance that additional patents will be issued to any of the third parties from whom we have licensed patent rights, or that, if any new patents are issued, such patents will not be opposed, challenged, invalidated, infringed or dominated or provide us with significant proprietary protection or commercial advantage. Moreover, there can be no assurance that any of the existing licensed patents will provide us with proprietary protection or commercial advantage. Nor can we guarantee that these licensed patents will not be either infringed, invalidated or circumvented by others, or that the relevant agreements will not be terminated. A termination of material licenses granted to us could have a material adverse effect on our business, financial condition and results of operations.

Because (1) patent applications filed in the United States on or before November 28, 2000 are maintained in secrecy until patents issue, (2) patent applications filed in the United States on or after November 29, 2000 are not published until approximately 18 months after their earliest claimed priority date, (3) United States patent applications that are not filed outside the United States may not publish at all until issued and (4) publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be certain that we, or our licensors, were the first to make the inventions covered by each of the issued patents or pending patent applications or that we, or our licensors, were the first to file patent applications for such inventions. In the event a third party has also filed a patent for any of our inventions, we, or our licensors, may have to participate in interference proceedings before the PTO to determine priority of invention, which could result in the loss of a U.S. patent or loss of any opportunity to secure U.S. patent protection for the invention. Even if the eventual outcome is favorable to us, such interference proceedings could result in substantial cost to us.

Our intellectual property rights will further be affected in ways that are difficult to anticipate at this time by the provisions of the America Invents Act, signed into law on September 16, 2011. The new patent law is the first major overhaul of the U.S. patent system since 1952, and includes a number of changes to established practices. The most significant changes in the new law include the transition to a first-to-file system, the availability of new post-grant review for issued patents, various procedural changes, including the submission of prior art and the availability of derivation proceedings and supplemental examination, and an expanded prior commercial user rights defense to a claim of patent infringement. The scope of these changes and the lack of experience with their practical implementation, suggest a transitional period with some uncertainty over the next few years. For example, while some provisions of the new patent law have already taken effect, others will take effect up to 18 months from enactment. The U.S. PTO is still in the process of publishing regulations concerning the implementation of the law. Several provisions of the new law will likely be tested in courts over time.

The changes in the new U.S. patent law will have an impact on our intellectual property rights and how business is conducted in general. For example, the first-to-file system places a premium on filing as early as possible and appears to increase what is available as prior art, by changing the applicable definitions. In the future, in addition to patents and printed publications, we may be required to deal with unfamiliar prior art categories such as art that is "otherwise available to the

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public." For patent applications filed on or after March 16, 2013, we may expect post-grant review challenges initiated up to nine months after the corresponding patent issues.

While the new patent law was intended to make the resolution of intellectual property disputes easier and less expensive, we may in the future have to prove that we are not infringing patents or we may be required to obtain licenses to such patents. However, we do not know whether such licenses will be available on commercially reasonable terms, or at all. Prosecution of patent applications, post-grant opposition proceedings 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 claims of any of our owned or licensed patents are challenged by one or more third parties, any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation or post-grant proceeding could cause us to lose exclusivity relating to the subject matter delineated by such patent claims and may have a material adverse effect on our business. If a third party is found to have rights covering products or processes used by us, we could be forced to cease using the products or processes covered by the disputed rights, be subject to significant liabilities to such third party and/or be required to license technologies from such third party. 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 us in one country of a patent covering an invention will be followed by the issuance in other countries of patents covering the same invention or that any judicial interpretation of the validity, enforceability or scope of the claims in a patent issued in one country will be similar to the judicial interpretation given to a corresponding patent issued in another country. Competitors have chosen and in the future may choose to file oppositions to patent applications, which have been deemed allowable by foreign patent examiners. Furthermore, even if our owned or licensed patents are determined to be valid and enforceable, there can be no assurance that competitors will not be able to challenge the validity or our patent claims in post-grant proceedings, or to design around such patents and compete with us using the resulting alternative technology. Additionally, for these same reasons, we cannot be sure that patents of a broader scope than ours may be issued and thereby create freedom to operate issues. If this occurs we may need to reevaluate pursuing such technology, which is dominated by others' patent rights, or alternatively, seek a license to practice our own invention, whether or not patented.

We also rely upon unpatented, proprietary and trade secret technology that we seek to protect, in part, by confidentiality agreements with our collaborative partners, employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. There can be no assurance that these agreements provide meaningful protection or that they will not be breached, that we would have adequate remedies for any such breach or that our trade secrets, proprietary know-how and technological advances will not otherwise become known to others. In addition, there can be no assurance that, despite precautions taken by us, others have not and will not obtain access to our proprietary technology or that such technology will not be found to be non-proprietary or not a trade secret.

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Our products may face competition from lower cost generic or follow-on products and providers of these products may be able to sell them at a substantially lower cost than us.

Generic drug manufacturers are seeking to compete with our drugs and present an important challenge to us. Even if our patent applications, or those we have licensed-in, are issued, innovative and generic drug manufacturers and other competitors may challenge the scope, validity or enforceability of such patents in court, requiring us to engage in complex, lengthy and costly litigation. Alternatively, innovative and generic drug manufacturers and other competitors may be able to design around our owned or licensed patents and compete with us using the resulting alternative technology. If any of our issued or licensed patents are infringed or challenged, we may not be successful in enforcing or defending our or our licensor's intellectual property rights and subsequently may not be able to develop or market the applicable product exclusively.

Upon the expiration or loss of patent protection for one of our products, or upon the "at-risk" launch (despite pending patent infringement litigation against the generic product) by a generic manufacturer of a generic version of one of our products, we can quickly lose a significant portion of our sales of that product, which can adversely affect our business. In addition, if generic versions of our competitors' branded products lose their market exclusivity, our patented products may face increased competition which can adversely affect our business.

The FDA approval process allows for the approval of an Abbreviated New Drug Application, or ANDA, or 505(b)(2) application for a generic version of our approved products upon the expiration, through passage of time or successful legal challenge, of relevant patent or non-patent exclusivity protection. Generic manufacturers pursuing ANDA approvals are not required to conduct costly and time-consuming clinical trials to establish the safety and efficacy of their products; rather, they are permitted to rely on the innovator's data regarding safety and efficacy. Thus, generic manufacturers can sell their products at prices much lower than those charged by the innovative companies who have incurred substantial expenses associated with the research and development of the drug product. Accordingly, while our products currently may retain certain regulatory and or patent exclusivity, our products are or will be subject to ANDA applications to the FDA in light of the Hatch-Waxman Amendments to the Federal Food, Drug and Cosmetic Act. The ANDA procedure includes provisions allowing generic manufacturers to challenge the effectiveness of the innovator's patent protection prior to the generic manufacturer actually commercializing their products – the so-called "Paragraph IV" certification procedure. In recent years, generic manufacturers have used Paragraph IV certifications extensively to challenge the applicability of Orange Book-listed patents on a wide array of innovative pharmaceuticals, and we expect this trend to continue. During the exclusivity periods, the FDA is generally prevented from granting effective approval of an ANDA. Upon the expiration of the applicable exclusivities, through passage of time or successful legal challenge, the FDA may grant effective approval of an ANDA for a generic drug, or may accept reference to a previously protected NDA in a 505(b)(2) application. Further, upon such expiration event, the FDA may require a generic competitor to participate in some form of risk management system which could include our participation as well. Depending upon the scope of the applicable exclusivities, any such approval could be limited to certain formulations and/or indications/claims, i.e., those not covered by any outstanding exclusivities.

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If an ANDA filer or a 505(b)(2) applicant were to receive approval to sell a generic or follow-on version of one of our products, that product would become subject to increased competition and our revenues for that product would be adversely affected.

We received two Paragraph IV Certification Letters dated August 30, 2010 and June 12, 2012, respectively, advising us that Natco Pharma Limited of Hyderabad, India, or Natco, submitted an ANDA to the FDA with respect to REVLIMID®. See "Legal Proceedings" contained in Part I, Item 3 of this Annual Report on Form 10-K for further information.

If we are not able to effectively compete our business will be adversely affected.

The pharmaceutical and biotechnology industries in which we operate are highly competitive and subject to rapid and significant technological change. Our present and potential competitors include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms, including, but not limited to:

    Takeda and Johnson & Johnson, which compete with REVLIMID® and THALOMID® in the treatment of multiple myeloma and in clinical trials with our compounds;

    Eisai, SuperGen and Johnson & Johnson, which compete or may potentially compete with VIDAZA®, in addition Eisai potentially competes with ABRAXANE®, and in other oncology products in general;

    Amgen, which potentially competes with our TNF-a and kinase inhibitors;

    AstraZeneca, which potentially competes in clinical trials with our compounds and TNF-a inhibitors;

    Biogen Idec is generally developing drugs that address the oncology and immunology markets;

    Bristol Myers Squibb, which potentially competes with ABRAXANE®, and in clinical trials with our compounds and TNF-a inhibitors, in addition to other oncology products in general;

    F. Hoffman-La Roche, which potentially competes in clinical trials with our ®TNF-a inhibitors, in addition to other oncology products in general;

    Johnson & Johnson, Pfizer, and Abbott Laboratories also compete with our oral anti-inflammatory programs;

    Novartis, which potentially competes with our compounds and kinase programs;

    Pfizer, which potentially competes in clinical trials with our kinase inhibitors; and

    Sanofi, which competes with ABRAXANE®, in addition to other oncology products in general.

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Many of these companies have considerably greater financial, technical and marketing resources than we do. This enables them, among other things, to make greater research and development investments and spread their research and development costs, as well as their marketing and promotion costs, over a broader revenue base. Our competitors may also have more experience and expertise in obtaining marketing approvals from the FDA, and other regulatory authorities. We also experience competition from universities and other research institutions, and in some instances, we compete with others in acquiring technology from these sources. The pharmaceutical industry has undergone, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical advances in the field are made and become more widely known. The development of products, including generics, or processes by our competitors with significant advantages over those that we are seeking to develop could cause the marketability of our products to stagnate or decline.

A decline of global economic conditions could adversely affect our results of operations.

Sales of our products are dependent, in large part, on reimbursement from government health administration authorities, private health insurers, distribution partners and other organizations. As a result of global credit and financial market conditions, these organizations may be unable to satisfy their reimbursement obligations or may delay payment. In addition, U.S. federal and state health authorities may reduce Medicare and Medicaid reimbursements, and private insurers may limit access to and reimbursement for our products. A reduction in the availability or extent of reimbursement could negatively affect our product sales, revenue and cash flows.

See our discussion of accounts receivable from Spain, Italy and Portugal in the Management Discussion and Analysis section of this Annual Report on Form 10-K, under the caption "Liquidity and Capital Resources" for details related to amounts receivable from the government owned or controlled hospitals in Spain, Italy and Portugal.

Due to tightened global credit, there may be a disruption or delay in the performance of our third-party contractors, suppliers or collaborators. We rely on third parties for several important aspects of our business, including portions of our product manufacturing, royalty revenue, clinical development of future collaboration products, conduct of clinical trials and raw materials. If such third parties are unable to satisfy their commitments to us, our business could be adversely affected.

We may be required to modify our business practices, pay fines and significant expenses or experience losses due to litigation or governmental investigations.

From time to time, we may be subject to litigation or governmental investigation on a variety of matters in the United States or foreign jurisdictions, including, without limitation, regulatory, intellectual property, product liability, antitrust, consumer, false claims, whistleblower, Qui Tam, privacy, anti-kickback, anti-bribery, environmental, commercial, securities and employment litigation and claims and other legal proceedings that may arise from the conduct of our business.

Our activities relating to the sale and marketing and the pricing of our products are subject to extensive regulation in the United States and foreign jurisdictions. Like many companies in our industry, we have from time to time received inquiries and subpoenas and other types of

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information requests from government authorities, and we have been subject to claims and other actions related to our business activities.

We are also subject to significant product liability risks as a result of the testing of our products in human clinical trials and for products that we sell after regulatory approval. Although we have insurance coverage with respect to potential product liability claims, there can be no guarantee that insurance coverage will be adequate or continue to be available at sufficient levels to fully cover claims that may arise in the future.

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

In the first quarter of 2011, the United States Attorney's Office for the Central District of California informed us that they are investigating possible off-label marketing and improper payments to physicians in connection with the sales of THALOMID® and REVLIMID®. In the third quarter of 2012, we learned that two other United States Attorneys' offices (the Northern District of Alabama and the Eastern District of Texas) and various state Attorneys General are conducting related investigations. We are cooperating with these investigations.

While the ultimate outcome of investigations and legal proceedings are difficult to predict, adverse resolutions or settlements of those matters may have a material adverse effect on our results of operations, cash flows or financial condition and result in, among other things:

    rulings that are materially unfavorable to us, including significant damage awards, fines or penalties, and administrative remedies, such as exclusion and/or debarment from government programs, or other rulings that prevent us from operating our business in a certain manner;

    changes to our business operations to avoid perceived risks associated with such litigation or investigations;

    modification of our business practices;

    product recalls;

    reputational damage and decreased demand for our products; and

    expenditure of significant time and resources, which may divert the attention of our management and interfere with the pursuit of our strategic objectives.

While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. It also is not possible to

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obtain insurance to protect against all potential risks and liabilities. If any litigation or governmental investigation were to have a material adverse result, there could be a material impact on our results of operations, cash flows or financial condition. See also "Legal Proceedings" contained in Part I, Item 3 of this Annual Report on Form 10-K.

The development of new biopharmaceutical products involves a lengthy and complex process, and we may be unable to commercialize any of the products we are currently developing.

Many of our drug candidates are in the early or mid-stages of research and development and will require the commitment of substantial financial resources, extensive research, development, preclinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. This process involves a high degree of risk and takes many years. Our product development efforts with respect to a product candidate may fail for many reasons, including the failure of the product candidate in preclinical studies; adverse patient reactions to the product candidate or indications or other safety concerns; insufficient clinical trial data to support the effectiveness or superiority of the product candidate; our inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner; our failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate, the facilities or the process used to manufacture the product candidate; or changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or of an existing product for a new indication no longer desirable. Moreover, our commercially available products may require additional studies with respect to approved indications as well as new indications pending approval.

The stem cell products that we are developing through our Celgene Cellular Therapeutics, or CCT, subsidiary may represent substantial departures from established treatment methods and will compete with a number of traditional products and therapies which are now, or may be in the future, manufactured and marketed by major pharmaceutical and biopharmaceutical companies. Furthermore, public attitudes may be influenced by claims that stem cell therapy is unsafe, and stem cell therapy may not gain the acceptance of the public or the medical community.

Due to the inherent uncertainty involved in conducting clinical studies, we can give no assurances that our studies will have a positive result or that we will receive regulatory approvals for our new products or new indications.

Manufacturing and distribution risks including a disruption at certain of our manufacturing and distribution sites, would significantly interrupt our production capabilities, which could result in significant product delays and adversely affect our results.

We have our own manufacturing facilities for many of our products and we have contracted with third-party manufacturers and distributors to provide active pharmaceutical ingredient, or API, encapsulation, finishing services, packaging and distribution services to meet our needs. These operations expose us to risks that include the possibility that our or our suppliers' manufacturing processes and distribution channels could be partially or completely disrupted by a fire, natural disaster, terrorist attack, governmental action or military action. In the case of a disruption, we may need to establish alternative manufacturing sources for these products. This would likely lead to substantial production delays as we build or locate replacement facilities and seek and

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obtain the necessary regulatory approvals. If this occurs, and our finished goods inventories are insufficient to meet demand, we may be unable to satisfy customer orders on a timely basis, if at all. Further, our business interruption insurance may not adequately compensate us for any losses that may occur and we would have to bear the uncovered cost of any disruption. For these reasons, a significant disruptive event affecting these manufacturing facilities or sites could materially and adversely affect our business and results of operations. In addition, if we inaccurately predict market demand for our products, we may be unable to sufficiently increase production capacity to satisfy demand or may incur costs associated with excess inventory that we manufacture.

In all the countries where we sell our products, governmental regulations exist to define standards for manufacturing, packaging, labeling, distribution and storing. All of our suppliers of raw materials, contract manufacturers and distributors must comply with these regulations, as applicable. In the United States, the FDA requires that all suppliers of pharmaceutical bulk material and all manufacturers of pharmaceuticals for sale in or from the United States achieve and maintain compliance with the FDA's current Good Manufacturing Practice regulations and guidelines. Our failure to comply, or failure of our third-party manufacturers to comply with applicable regulations could result in sanctions being imposed on them or us, including fines, injunctions, civil penalties, disgorgement, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products. In addition, before any product batch produced by our manufacturers can be shipped, it must conform to release specifications pre-approved by regulators for the content of the pharmaceutical product. If the operations of one or more of our manufacturers were to become unavailable for any reason, any required FDA review and approval of the operations of an alternative supplier could cause a delay in the manufacture of our products.

If our outside manufacturers do not meet our requirements for quality, quantity or timeliness, or do not achieve and maintain compliance with all applicable regulations, our ability to continue supplying such products at a level that meets demand could be adversely affected.

We have contracted with distributors, to distribute REVLIMID®, THALOMID®, VIDAZA®, ABRAXANE® and ISTODAX®. If our distributors fail to perform and we cannot secure a replacement distributor within a reasonable period of time, we may experience adverse effects to our business and results of operations.

We are continuing to establish marketing and distribution capabilities in international markets with respect to our products. At the same time, we are in the process of obtaining necessary governmental and regulatory approvals to sell our products in certain countries. If we have not successfully completed and implemented adequate marketing and distribution support services upon our receipt of such approvals, our ability to effectively launch our products in these countries would be severely restricted.

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The consolidation of drug wholesalers and other wholesaler actions could increase competitive and pricing pressures on pharmaceutical manufacturers, including us.

We sell our pharmaceutical products in the United States primarily through wholesale distributors and contracted pharmacies. These wholesale customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This distribution network is continuing to undergo significant consolidation. As a result, a smaller number of large wholesale distributors and pharmacy chains control a significant share of the market. We expect that consolidation of drug wholesalers and pharmacy chains will increase competitive and pricing pressures on pharmaceutical manufacturers, including us. In addition, wholesalers may apply pricing pressure through fee-for-service arrangements, and their purchases may exceed customer demand, resulting in reduced wholesaler purchases in later quarters. We cannot assure you that we can manage these pressures or that wholesaler purchases will not decrease as a result of this potential excess buying.

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

We cannot ensure that our compliance controls, policies and procedures will in every instance protect us from acts committed by our employees, agents, contractors or collaborators that would violate the laws or regulations of the jurisdictions in which we operate, including without limitation, employment, foreign corrupt practices, environmental, competition and privacy laws. Such improper actions could subject us to civil or criminal investigations, monetary and injunctive penalties and could adversely impact our ability to conduct business, our results of operations and our reputation.

The integration of acquired businesses may present significant challenges to us.

We may face significant challenges in effectively integrating entities and businesses that we may acquire and we may not realize the benefits anticipated from such acquisitions. Achieving the anticipated benefits of our acquired businesses will depend in part upon whether we can integrate our businesses in an efficient and effective manner. Our integration of acquired businesses involves a number of risks, including, but not limited to:

    demands on management related to the increase in our size after the acquisition;

    the diversion of management's attention from the management of daily operations to the integration of operations;

    higher integration costs than anticipated;

    failure to achieve expected synergies and costs savings;

    difficulties in the assimilation and retention of employees;

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    difficulties in the assimilation of different cultures and practices, as well as in the assimilation of broad and geographically dispersed personnel and operations; and

    difficulties in the integration of departments, systems, including accounting systems, technologies, books and records, and procedures, as well as in maintaining uniform standards and controls, including internal control over financial reporting required by the Sarbanes-Oxley Act of 2002 and related procedures and policies.

If we cannot successfully integrate acquired businesses we may experience material negative consequences to our business, financial condition or results of operations. Successful integration of acquired businesses will depend on our ability to manage these operations, to realize opportunities for revenue growth presented by product offerings and expanded geographic market coverage and, to some degree, to eliminate redundant and excess costs.

An inability to continue to attract and retain key leadership, managerial, commercial and scientific talent could adversely affect our business.

The success of our business depends, in large part, on our continued ability to (i) attract and retain highly qualified management, scientific, manufacturing and commercial personnel, (ii) successfully integrate large numbers of new employees into our corporate culture and (iii) develop and maintain important relationships with leading research and medical institutions and key distributors. Competition for these types of personnel and relationships is intense.

Among other benefits, we use share-based compensation to attract and retain personnel. Share-based compensation accounting rules require us to recognize all share-based compensation costs as expenses. These or other factors could reduce the number of share-based compensation awards we grant under our incentive plan. We cannot be sure that we will be able to attract or retain skilled personnel or maintain key relationships, or that the costs of retaining such personnel or maintaining such relationships will not materially increase.

We could be subject to significant liability as a result of risks associated with using hazardous materials in our business.

We use certain hazardous materials in our research, development, manufacturing and general business activities. While we believe we are currently in substantial compliance with the federal, state and local laws and regulations governing the use of these materials, we cannot be certain that accidental injury or contamination will not occur. If an accident or environmental discharge occurs, or if we discover contamination caused by prior operations, including by prior owners and operators of properties we acquire, we could be liable for cleanup obligations, damages and fines. This could result in substantial liabilities that could exceed our insurance coverage and financial resources. Additionally, the cost of compliance with environmental and safety laws and regulations may increase in the future, requiring us to expend more financial resources either in compliance or in purchasing supplemental insurance coverage.

Changes in our effective income tax rate could adversely affect our results of operations.

We are subject to income taxes in both the United States and various foreign jurisdictions, and our domestic and international tax liabilities are largely dependent upon the distribution of

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income among these different jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate. These factors include, but are not limited to, interpretations of existing tax laws, the accounting for stock options and other share-based compensation, changes in tax laws and rates, future levels of research and development spending, changes in accounting standards, changes in the mix of earnings in the various tax jurisdictions in which we operate, the outcome of examinations by the U.S. Internal Revenue Service and other jurisdictions, the accuracy of our estimates for unrecognized tax benefits and realization of deferred tax assets, and changes in overall levels of pre-tax earnings. The impact on our income tax provision resulting from the above-mentioned factors and others may be significant and could have an impact on our results of operations.

Currency fluctuations and changes in exchange rates could increase our costs and may cause our profitability to decline.

We collect and pay a substantial portion of our sales and expenditures in currencies other than the U.S. dollar. Therefore, fluctuations in foreign currency exchange rates affect our operating results.

We utilize foreign currency forward contracts and option contracts, which are derivative instruments, to manage foreign currency risk, but not to engage in currency speculation. We use these derivative instruments to hedge certain forecasted transactions and balance sheet exposures denominated in foreign currencies. The use of these derivative instruments is intended to mitigate the exposure of these risks with the intent to reduce our risk or cost, but may not fully offset any change in operating results as a consequence of fluctuations in foreign currencies. Any significant foreign exchange rate fluctuations could adversely affect our financial condition and results of operations. For additional information, see Part II, Item 8, Note 5 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

We may experience an adverse market reaction if we are unable to meet our financial reporting obligations.

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

The price of our common stock may fluctuate significantly and you may lose some or all of your investment in us.

The market for our shares of common stock may be subject to conditions that cause prices to fluctuate significantly. The following key factors may have an adverse impact on the market price of our common stock:

    results of our clinical trials or adverse events associated with our marketed products;

    fluctuations in our commercial and operating results;

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    announcements of technical or product developments by us or our competitors;

    market conditions for pharmaceutical and biotechnology stocks in particular;

    stock market conditions generally;

    changes in governmental regulations and laws, including, without limitation, changes in tax laws, health care legislation, environmental laws, competition laws, and patent laws;

    new accounting pronouncements or regulatory rulings;

    public announcements regarding medical advances in the treatment of the disease states that we are targeting;

    patent or proprietary rights developments;

    changes in pricing and third-party reimbursement policies for our products;

    the outcome of litigation involving our products or processes related to production and formulation of those products or uses of those products;

    other litigation or governmental investigations;

    competition; and

    investor reaction to announcements regarding business or product acquisitions.

In addition, our operations may be materially impacted by conditions affecting global markets generally. Global markets may be adversely affected by many factors beyond our control, including global, regional and industrial economic instability and market volatility, sovereign debt issues, rising interest rates or inflation, terrorism or political uncertainty. A market downturn in general and/or in the biopharmaceutical sector in particular, may adversely affect the market price of our securities, which may not necessarily reflect the actual or perceived value of our company.

Our business could be adversely affected if we are unable to service our obligations under our incurred indebtedness.

We have incurred various forms of indebtedness including senior notes, commercial paper, and a senior unsecured credit facility. Our ability to pay interest, principal amounts when due at maturity, to comply with debt covenants or to repurchase the senior notes if a change of control occurs will depend upon, among other things, continued commercial success of our products and other factors that affect our future financial and operating performance, including, without limitation, prevailing economic conditions and financial, business, and regulatory factors, many of which are beyond our control.

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If we are unable to generate sufficient cash flow to service the debt service requirements under our incurred indebtedness, we may be forced to take actions such as:

    restructuring or refinancing our debt;

    seeking additional debt or equity capital;

    reducing or delaying our business activities, acquisitions, investments or capital expenditures, including research and development expenditures; or

    selling assets, businesses, products or other potential revenue streams.

Such measures might not be successful and might not enable us to service our obligations under our indebtedness. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms, if at all.

A breakdown or breach of our information technology systems could subject us to liability or interrupt the operation of our business.

We rely upon our information technology systems and infrastructure for our business. The size and complexity of our computer systems make them potentially vulnerable to breakdown, malicious intrusion and random attack. Likewise, data privacy breaches by employees and others who access our systems may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. While we believe that we have taken appropriate security measures to protect our data and information technology systems, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business.

We have certain charter and by-law provisions that may deter a third-party from acquiring us and may impede the stockholders' ability to remove and replace our management or board of directors.

Our board of directors has the authority to issue, at any time, without further stockholder approval, up to 5,000,000 shares of preferred stock, and to determine the price, rights, privileges and preferences of those shares. An issuance of preferred stock could discourage a third-party from acquiring a majority of our outstanding voting stock. Additionally, our by-laws contain provisions intended to strengthen the board's position in the event of a hostile takeover attempt. These provisions could impede the stockholders' ability to remove and replace our management and/or board of directors. Furthermore, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law, which may also dissuade a potential acquirer of our common stock.

In addition to the risks relating to our common stock, holders of our contingent value right, or CVRs, are subject to additional risks.

On October 15, 2010, we acquired all of the outstanding common stock of Abraxis and in connection with our acquisition, CVRs, were issued under a CVR Agreement entered into between us and American Stock Transfer & Trust Company, LLC, as trustee. Pursuant to the CVR Agreement, each holder of a CVR is entitled to receive a pro rata portion, based on the number of CVRs then outstanding, of certain milestone and net sales payments if certain

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specified conditions are satisfied. For more information, see Part II, Item 8, Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

In addition to the risks relating to our common stock, CVR holders are subject to additional risks, including:

    an active public market for the CVRs may not continue to exist or the CVRs may trade at low volumes, both of which could have an adverse effect on the resale price, if any, of the CVRs;

    in the absence of an active public market for the CVRs, the market price and trading volume of the CVRs may be volatile;

    if the clinical approval milestones specified in the CVR Agreement are not achieved for any reason within the time periods specified therein, and if net sales do not exceed the thresholds set forth in the CVR Agreement for any reason within the time periods specified therein, no payment will be made under the CVRs and the CVRs will expire valueless;

    since the U.S. federal income tax treatment of the CVRs is unclear, any part of any CVR payment could be treated as ordinary income and required to be included in income prior to the receipt of the CVR payment;

    any payments in respect of the CVRs are subordinated to the right of payment of certain of our other indebtedness;

    we may under certain circumstances redeem the CVRs; and

    upon expiration of our obligations to achieve each of the CVR milestones and to commercialize ABRAXANE® or any of the other Abraxis pipeline products, we may discontinue such efforts, which would have an adverse effect on the value, if any, of the CVRs.

AVAILABLE INFORMATION

Our Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K are electronically filed with or furnished to the SEC, and all such reports and amendments to such reports filed have been and will be made available, free of charge, through our website (http://www.celgene.com) as soon as reasonably practicable after such filing. Such reports will remain available on our website for at least 12 months. The contents of our website are not incorporated by reference into this Annual Report on Form 10-K. The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F Street, NW, Washington, D.C. 20549.

The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

Our corporate headquarters are located in Summit, New Jersey and our international headquarters are located in Boudry, Switzerland. Summarized below are the locations, primary usage and approximate square footage of the facilities we own worldwide:

Location   Primary Usage   Approximate
Square Feet
 
Summit, New Jersey   Administration, marketing, research     400,000  
Phoenix, Arizona   Manufacturing and warehousing     247,000  
Boudry, Switzerland   Manufacturing and administration     148,000  
Zofingen, Switzerland   Manufacturing     12,000  

We occupy the following facilities, located in the United States, under operating lease arrangements, none of which are individually material to us. Under these lease arrangements, we may be required to reimburse the lessors for real estate taxes, insurance, utilities, maintenance and other operating costs. All leases are with unaffiliated parties.

Location   Primary Usage   Approximate
Square Feet
 
Berkeley Heights, New Jersey   Office space     282,900  
San Diego, California   Research     255,200  
Warren, New Jersey   Office space and research     177,500  
Basking Ridge, New Jersey   Office space     95,900  
San Francisco, California   Office space and research     55,900  
Durham, North Carolina   Clinical trial management     36,000  
Melrose Park, Illinois   Research     35,000  
Overland Park, Kansas   Office space     29,600  
Cedar Knolls, New Jersey   Office space and stem cell recovery     25,300  
Bedford, Massachusetts   Office space     23,000  
Los Angeles, California   Office space     6,000  
Destin, Florida   Office space     1,600  

We also lease a number of offices under various lease agreements outside of the United States for which the minimum annual rents may be subject to specified annual rent increases. At December 31, 2012, the non-cancelable lease terms for our operating leases expire at various dates between 2013 and 2023 and in some cases include renewal options. The total amount of rent expense recorded for all leased facilities in 2012 was $35.4 million.

ITEM 3.    LEGAL PROCEEDINGS

We and certain of our subsidiaries are involved in various patent, trademark, commercial and other claims; government investigations; and other legal proceedings that arise from time to time

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in the ordinary course of business. Like many companies in our industry, we have from time to time received inquiries and subpoenas and other types of information requests from government authorities, and we have been subject to claims and other actions related to our business activities. While the ultimate outcome of investigations and legal proceedings are difficult to predict, adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, product recalls, incurrence of costs and payment of significant penalties, which may have a material adverse effect on our results of operations, cash flows or financial condition.

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

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

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

In the first quarter of 2011, the United States Attorney's Office for the Central District of California informed us that they are investigating possible off-label marketing and improper payments to physicians in connection with the sales of THALOMID® and REVLIMID®. In the third quarter of 2012, we learned that two other United States Attorneys' offices (the Northern District of Alabama and the Eastern District of Texas) and various state Attorneys General are conducting related investigations. We are cooperating with these investigations.

REVLIMID®:    We have publicly announced that we received a Notice Letter dated August 30, 2010, sent from Natco Pharma Limited of India ("Natco") notifying us of Natco's Abbreviated New Drug Application, or ANDA, which contains Paragraph IV certifications against certain of Celgene's patents that are listed in the U.S. Federal Drug Administration's, or FDA, Approved Drug Products With Therapeutic Equivalence Evaluations (the "Orange Book") for REVLIMID® (lenalidomide). Under the Hatch-Waxman Act of 1984, a generic manufacturer may file an ANDA containing a certification (a "Paragraph IV certification") challenging the validity or infringement of a patent listed in the Orange Book. Natco's Notice letter alleges, among other things, that certain claims of United States Patent Nos. 5,635,517 (the "'517 patent"), 6,045,501 (the "'501 patent"), 6,315,720 (the "'720 patent"), 6,555,554 (the "'554 patent"), 6,561,976 (the "'976 patent"), 6,561,977 (the "'977 patent"), 6,755,784 (the "'784 patent"), 7,119,106 (the "'106 patent") and 7,465,800 (the "800 patent") are invalid, unenforceable, and/or not infringed. Natco's Notice Letter was sent in connection with its filing of an ANDA seeking permission from the FDA to market a generic version of 25mg, 15mg, 10mg and 5mg REVLIMID® capsules.

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On October 8, 2010, we filed an infringement action in the United States District Court of New Jersey against Natco in response to the Notice Letter with respect to the '517 patent, the '501 patent, United States Patent No. 6,281,230 (the "'230 patent"), the '720 patent, the '554 patent, the '976 patent, the '977 patent, the '784 patent, the '106 patent and the '800 patent.

Natco responded to our infringement action on November 18, 2010, with its Answer, Affirmative Defenses and Counterclaims. Natco has alleged (through Affirmative Defenses and Counterclaims) that the patents are invalid, unenforceable, and/or not infringed by Natco's proposed generic products. After filing the infringement action, we learned the identity of Natco's U.S. partner, Arrow International Limited ("Arrow"), and filed an amended complaint on January 7, 2011, adding Arrow as a defendant. On March 25, 2011, We filed a second amended complaint naming Natco, Arrow and Watson Laboratories, Inc. (a wholly-owned subsidiary of Actavis, Inc. (formerly known as Watson Pharmaceuticals, Inc.), which is Arrow's parent) as defendants. Those three entities remain the current defendants in that action.

On June 12, 2012, we received a Second Notice Letter from Natco, notifying us of Natco's submission in its ANDA of new, additional Paragraph IV certifications against the '517 patent, the '230 patent and United States Patent Nos. 7,189,740 (the "'740 patent"), 7,855,217 (the "'217 patent") and 7,968,569 (the "'569 patent"). On July 20, 2012, we filed a new infringement action in the United States District Court of New Jersey against Natco, Arrow, Watson Laboratories, Inc. and Actavis, Inc. in response to the Second Notice Letter with respect to the '517 patent, the '230 patent, the '740 patent, and the '569 patent, as well as two non-Orange Book listed patents, United States Patent Nos. 7,977,357 (the "'357 patent") and 8,193,219 (the "'219 patent"). Natco filed its Answer and Counterclaims on September 28, 2012. Natco's counterclaims in the second action are similar to its counterclaims in the first action. In the second action, Natco added counterclaims against United States Patent No. 8,204,763 (the "'763 patent"), which Celgene has not asserted against Natco. Celgene has moved to dismiss those counterclaims related to the '763 patent for lack of subject matter jurisdiction.

A revised Scheduling Order was entered by the Court on November 9, 2012, setting the close for fact discovery on August 14, 2013. A Markman hearing is currently expected to be fully briefed by the end of July 2013. Dates for a Markman hearing and trial have yet to be set.

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

However, if Natco is successful in challenging our patents, and the FDA were to approve Natco's ANDA with a comprehensive education and risk management program for a generic version of lenalidomide and a generic product were to be introduced, sales of REVLIMID® could be significantly reduced in the United States, which would have a material adverse effect on our results of operations, cash flows and financial condition.

ABRAXANE®:    On December 14, 2011, Cephalon, Inc. and Acusphere, Inc. filed a complaint against us in the United States District Court for the District of Massachusetts, alleging, among other things, that the making, using, selling, offering to sell, and importing of ABRAXANE®

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brand drug infringes claims of United States Patent No. RE40,493. Plaintiffs are seeking damages and injunctive relief. We intend to vigorously defend against this infringement suit. If the suit against us is successful, we may have to pay damages, ongoing royalties and may have to license rights from plaintiffs. However, we believe that (a) it is unlikely that the plaintiffs in this matter will prevail and (b) the ultimate outcome will not have a material adverse effect on our financial condition or results of operations.

VIDAZA®:    On September 28, 2012, we were named as a defendant in a complaint filed by Ivax LLC (formerly Ivax Corporation) in the United States District Court for the Southern District of Florida. Ivax LLC alleges that we have infringed the claims of United States Patent No. 7,759,481 by making, using, and selling VIDAZA® brand drug in the United States. We filed an answer to this complaint on October 19, 2012. We filed a motion for judgment on the pleadings on November 15, 2012, to which Ivax LLC filed an opposition on December 7, 2012. We intend to vigorously defend against this infringement suit. If the suit against us is successful, we may have to pay damages, ongoing royalties or license rights from the plaintiff. However, we believe (a) that it is unlikely that the plaintiff in this matter will prevail and (b) that the ultimate outcome will not have a material adverse effect on our financial condition or results of operations.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)   MARKET INFORMATION

Our common stock is traded on the NASDAQ Global Select Market under the symbol "CELG." The following table sets forth, for the periods indicated, the intra-day high and low prices per share of common stock on the NASDAQ Global Select Market:

 
  High   Low  

2012

             

Fourth Quarter

  $ 82.78   $ 71.23  

Third Quarter

    78.63     61.89  

Second Quarter

    80.42     58.53  

First Quarter

    78.83     66.28  

2011

             

Fourth Quarter

  $ 68.25   $ 59.32  

Third Quarter

    65.86     51.70  

Second Quarter

    61.70     54.83  

First Quarter

    60.90     48.92  

Comparison of Five Year Cumulative Total Returns*

GRAPHIC

 
  Cumulative Total Return  
 
  12/07   12/08   12/09   12/10   12/11   12/12  

Celgene Corporation

  $ 100.00   $ 119.63   $ 120.49   $ 127.98   $ 146.29   $ 169.81  

S&P 500

    100.00     63.45     79.90     91.75     93.67     108.55  

NASDAQ Composite

    100.00     60.20     87.33     103.05     102.26     120.36  

NASDAQ Biotechnology

    100.00     87.73     101.71     117.17     131.30     173.67  
    *
    $100 Invested on 12/31/07 in Stock or Index – Including Reinvestment of Dividends, Fiscal Year Ended December 31.

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(b)   HOLDERS

The closing sales price per share of common stock on the NASDAQ Global Select Market on February 7, 2013 was $97.84. As of February 7, 2013, there were approximately 480 holders of record of our common stock.

(c)   DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

(d)   EQUITY COMPENSATION PLAN INFORMATION

We incorporate information regarding the securities authorized for issuance under our equity compensation plan into this section by reference from the section entitled "Equity Compensation Plan Information" to be included in the proxy statement for our 2013 Annual Meeting of Stockholders.

(e)   REPURCHASE OF EQUITY SECURITIES

Since April 2009, our Board of Directors has approved repurchases of up to an aggregate of $6.500 billion of our common stock, including $2.500 billion approved by our Board of Directors in June 2012. Approved amounts exclude share repurchase transaction fees.

As of December 31, 2012, an aggregate 74,465,418 common shares were repurchased under the program at an average price of $62.62 per common share and cost of $4.663 billion, excluding share repurchase transaction fees.

The following table presents the total number of shares purchased during the three-month period ended December 31, 2012, the average price paid per share, the number of shares that were purchased and the approximate dollar value of shares that still could have been purchased, pursuant to our publicly announced repurchase program:

Period   Total Number of
Shares Purchased
  Average Price Paid
per Share
  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
  Approximate Dollar
Value of Shares That
May Yet be Purchased
Under the Plans or
Programs
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 1 - October 31

    2,350,000   $ 77.09     2,350,000   $ 2,236,000,482  

November 1 - November 30

    1,648,467   $ 75.25     1,648,467   $ 2,111,990,848  

December 1 - December 31

    3,458,925   $ 79.55     3,458,925   $ 1,836,885,988  

During the period covered by this report, we did not sell any of our equity shares that were not registered under the Securities Act of 1933, as amended.

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ITEM 6.    SELECTED FINANCIAL DATA

The following Selected Consolidated Financial Data should be read in conjunction with our Consolidated Financial Statements and the related Notes thereto, Management's Discussion and Analysis of Financial Condition and Results of Operations and other financial information included elsewhere in this Annual Report on Form 10-K. The data set forth below with respect to our Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 and the Consolidated Balance Sheet data as of December 31, 2012 and 2011 are derived from our Consolidated Financial Statements which are included elsewhere in this Annual Report on Form 10-K and are qualified by reference to such Consolidated Financial Statements and related Notes thereto. The data set forth below with respect to our Consolidated Statements of Income for the years ended December 31, 2009 and 2008 and the Consolidated Balance Sheet data as of December 31, 2010, 2009 and 2008 are derived from our Consolidated Financial Statements, which are not included elsewhere in this Annual Report on Form 10-K (amounts in thousands, except per share data).

 
  Years ended December 31,  
 
  2012   2011   2010   2009   2008  

Consolidated Statements of Income:

                               

Total revenue

  $ 5,506,713   $ 4,842,070   $ 3,625,745   $ 2,689,893   $ 2,254,781  

Costs and operating expenses

    3,760,271     3,399,317     2,636,110     1,848,367     3,718,999  
                       

Operating income (loss)

    1,746,442     1,442,753     989,635     841,526     (1,464,218 )
                       

Interest and investment income, net

    15,260     25,860     44,757     76,785     84,835  

Interest (expense)

    (63,205 )   (42,737 )   (12,634 )   (1,966 )   (4,437 )

Other income (expense), net

    (17,006 )   (6,354 )   (9,148 )   59,358     14,995  
                       

Income (loss) before tax

    1,681,491     1,419,522     1,012,610     975,703     (1,368,825 )

Income tax provision

    225,311     102,066     132,418     198,956     164,828  
                       

Net income (loss)

  $ 1,456,180   $ 1,317,456   $ 880,192   $ 776,747   $ (1,533,653 )

Less: Net loss attributable to non-controlling interests

    -       694     320     -       -    
                       

Net income (loss) attributable to Celgene

  $ 1,456,180   $ 1,318,150   $ 880,512   $ 776,747   $ (1,533,653 )
                       

Net income (loss) per share attributable to Celgene:

                               

Basic

  $ 3.38   $ 2.89   $ 1.90   $ 1.69   $ (3.46 )

Diluted

  $ 3.30   $ 2.85   $ 1.88   $ 1.66   $ (3.46 )

Weighted average shares:

                               

Basic

    430,927     455,348     462,298     459,304     442,620  

Diluted

    440,796     462,748     469,517     467,354     442,620  

 

 
  As of December 31,  
 
  2012   2011   2010   2009   2008  

Consolidated Balance Sheets Data:

                               

Cash, cash equivalents and marketable securities

  $ 3,900,270   $ 2,648,154   $ 2,601,301   $ 2,996,752   $ 2,222,091  

Total assets

    11,734,306     10,005,910     10,177,162     5,389,311     4,445,270  

Short-term borrowings

   
308,459
   
526,684
   
-  
   
-  
   
-  
 

Long-term debt, net of discount

    2,771,333     1,275,585     1,247,584     -       -    

Retained earnings (accumulated deficit)

    3,022,596     1,566,416     248,266     (632,246 )   (1,408,993 )

Total equity

    5,694,467     5,512,727     5,995,472     4,394,606     3,491,328  

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

EXECUTIVE SUMMARY

Celgene Corporation (collectively with its subsidiaries, "we," "our," "us," "Celgene" or the "Company") is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. We are dedicated to innovative research and development, designed to bring new therapies to market and are involved in research in several scientific areas that may deliver proprietary next-generation therapies, targeting areas such as intracellular signaling pathways in cancer and immune cells, immunomodulation in cancer and autoimmune diseases, and therapeutic application of cell therapies. Celgene was incorporated in the State of Delaware in 1986.

Our primary commercial stage products include REVLIMID®, VIDAZA®, ABRAXANE®, THALOMID® (inclusive of Thalidomide Celgene®), and ISTODAX®. POMALYST® (pomalidomide) was approved by the U.S. Food and Drug Administration, or FDA, in February 2013 for patients with multiple myeloma who have received at least two prior therapies, including lenalidomide and bortezomib, and have demonstrated disease progression on or within 60 days of completion of the last therapy.

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

    VIDAZA® is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. VIDAZA® is a Category 1 recommended treatment for patients with intermediate-2 and high-risk MDS, according to the National Comprehensive Cancer Network, and is marketed in the United States for the treatment of all subtypes of MDS. The U.S. regulatory exclusivity for VIDAZA® expired in May 2011. If a generic version of VIDAZA® is successfully launched, we may quickly lose a significant portion of our sales for this product in the United States. In Europe, VIDAZA® is marketed for the treatment of intermediate-2 and high-risk MDS, as well as acute myeloid leukemia, or AML, with 30% blasts and has been granted orphan drug designation for the treatment of MDS and AML. European regulatory exclusivity is expected to continue through 2018.

    ABRAXANE® is a solvent-free chemotherapy treatment option for metastatic breast cancer which was developed using our proprietary nab® technology platform. This protein-bound chemotherapy agent combines paclitaxel with albumin. It is approved for the treatment of metastatic breast cancer in the United States and many international markets and for the treatment of non-small cell lung cancer in the United States. In January 2013, we announced the results from a phase III trial for ABRAXANE® in

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      combination with gemcitabine in treatment-naïve patients with metastatic pancreatic cancer. The ABRAXANE® combination demonstrated a statistically significant improvement in overall survival compared to patients receiving gemcitabine alone. Based on these results, we plan to submit dossiers for registration in the U.S. and Europe during the first half of 2013 followed by submissions in other countries and regions during the second half of 2013. ABRAXANE® is currently in various stages of investigation for the treatment of the following cancers: expanded applications for metastatic breast; malignant melanoma; and bladder and ovarian. In October 2012, the FDA approved ABRAXANE® for the first-line treatment of locally advanced or metastatic non-small cell lung cancer, or NSCLC, in combination with carboplatin, in patients who are not candidates for curative surgery or radiation therapy. The FDA approval was based on tumor response rates and did not result in the use of a marketing label that includes a progression-free survival claim, and accordingly, the Contingent Value Rights, or CVR, milestone payment, as described in Note 2 of the Notes to the Consolidated Financial Statements included elsewhere in this report, has not been achieved.

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

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

    POMALYST® (pomalidomide) was approved by the FDA in February 2013 for patients with multiple myeloma who have received at least two prior therapies, including lenalidomide and bortezomib, and have demonstrated disease progression on or within 60 days of completion of the last therapy, and is under review by the EMA for use in Europe. POMALYST® is a proprietary, distinct, small molecule that is administered orally and modulates the immune system and other biologically important targets. POMALYST® is also being evaluated in a phase III clinical trial for the treatment of myelofibrosis, in multiple trials in various phases for expanded usage in multiple myeloma, and in a phase II trial for systemic sclerosis.

Additional sources of revenue include royalties from Novartis on their sales of FOCALIN XR® and the entire RITALIN® family of drugs, the sale of services through our Celgene Cellular Therapeutics subsidiary, and other licensing agreements.

We continue to invest substantially in research and development in support of multiple ongoing clinical proprietary development programs which support our existing products and pipeline of new drug candidates. REVLIMID is in several phase III trials across a range of hematological

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malignancies that include newly diagnosed multiple myeloma and maintenance, lymphomas, chronic lymphocytic leukemia, or CLL, and MDS. Phase III trials with POMALYST® in relapsed refractory multiple myeloma and myelofibrosis, in addition to VIDAZA for AML, and CC-486 for MDS and AML are also underway. In solid tumors, we are evaluating ABRAXANE in a phase III trial for metastatic melanoma. Our lead product candidate in Inflammation & Immunology, apremilast, is being evaluated in a broad phase III program for psoriatic arthritis, psoriasis, and ankylosing spondylitis.

Beyond our phase III programs is a growing early-to-mid-stage pipeline of novel therapies addressing significant unmet medical needs, including CC-292 (BTK inhibitor), CC-223 (dual TORK inhibitor), CC-115 (dual TORK/DNA PK inhibitor), CC-122 (pleiotropic pathway modulator), CC-220 and CC-11050 (anti-inflammatory), PDA-001 and PDA-002 (cellular therapies), in addition to partnered molecules ACE-011 (ActR fusion protein), ACE-536 (GDF trap), and EPZ-5676 (DOT1L inhibitor).

We believe that continued acceptance of our primary commercial stage products, participation in research and development collaboration arrangements, depth of our product pipeline, regulatory approvals of new products, and expanded use of existing products will provide the catalysts for future growth.

The following table summarizes total revenue and earnings for the years ended December 31, 2012, 2011 and 2010 (dollar amounts in thousands, except per share data):

 
   
   
   
  % Change  
 
  Years Ended December 31,  
 
  2012
versus
2011
  2011
versus
2010
 
 
  2012   2011   2010  

Total revenue

  $ 5,506,713   $ 4,842,070   $ 3,625,745     13.7 %   33.5 %

Net income attributable to Celgene

  $ 1,456,180   $ 1,318,150   $ 880,512     10.5 %   49.7 %

Diluted earnings per share attributable to Celgene

  $ 3.30   $ 2.85   $ 1.88     15.8 %   51.6 %

Revenue increased by $664.6 million in 2012 compared to 2011 primarily due to the continued growth in sales of REVLIMID®, VIDAZA® and ABRAXANE® in both U.S. and international markets. The $138.0 million increase in net income and $0.45 increase in diluted earnings per share in 2012 compared to 2011 reflected a higher level of net product sales, reduction in amortization of acquired intangible assets, primarily due to certain intangible assets becoming fully amortized at the end of 2011, and a decrease in cost of goods sold resulting from the 2011 inclusion of inventory step-up amortization for sales of ABRAXANE®. These favorable items were partly offset by an increase in the fair value of our liability related to publicly traded CVRs that were issued as part of the acquisition of Abraxis, increase in payments related to research and development collaboration arrangements and increase in marketing activity, primarily related to prelaunch expenses for POMALYST® and ABRAXANE® for new indications.

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Results of Operations:

Fiscal Years Ended December 31, 2012, 2011 and 2010

Total Revenue:    Total revenue and related percentages for the years ended December 31, 2012, 2011 and 2010 were as follows (dollar amounts in thousands, except per share data):

 
   
   
   
  % Change  
 
  2012   2011   2010   2012
versus
2011
  2011
versus
2010
 

Net product sales:

                               

REVLIMID®

  $ 3,766,640   $ 3,208,153   $ 2,469,183     17.4 %   29.9 %

VIDAZA®

    823,191     705,327     534,302     16.7 %   32.0 %

ABRAXANE®

    426,675     385,905     71,429     10.6 %   N/A  

THALOMID®

    302,136     339,067     389,605     (10.9 )%   (13.0 )%

ISTODAX®

    50,001     30,921     15,781     61.7 %   95.9 %

Other

    16,956     30,317     28,138     (44.1 )%   7.7 %
                       

Total net product sales

  $ 5,385,599   $ 4,699,690   $ 3,508,438     14.6 %   34.0 %

Collaborative agreements and other revenue

    10,711     19,500     10,540     (45.1 )%   85.0 %

Royalty revenue

    110,403     122,880     106,767     (10.2 )%   15.1 %
                       

Total revenue

  $ 5,506,713   $ 4,842,070   $ 3,625,745     13.7 %   33.5 %
                       

Total revenue increased by $664.6 million, or 13.7%, to $5.507 billion in 2012 compared to 2011, reflecting increases of $309.1 million, or 10.8%, in the United States, and $355.5 million, or 17.9%, in international markets. The $1.216 billion, or 33.5%, increase in 2011 compared to 2010 included increases of $672.4 million, or 30.7%, in the United States and $544.0 million, or 37.8%, in international markets.

Net Product Sales:    Total net product sales for 2012 increased by $685.9 million, or 14.6%, to $5.386 billion compared to 2011. The increase was comprised of net volume increases of $559.1 million and price increases of $162.2 million, partly offset by an unfavorable impact from foreign exchange of $35.4 million. The increase in price was primarily due to price increases on REVLIMID®, VIDAZA® and THALOMID® in the U.S. market.

Total net product sales for 2011 increased by $1.191 billion, or 34.0%, to $4.7 billion compared to 2010. The increase was comprised of net volume increases of $1.157 billion, price decreases of $4.9 million and a favorable impact from foreign exchange of $38.7 million. The decrease in prices was primarily due to increased Medicare Part D Coverage Gap rebates resulting from the Health Care Reform Act and an increase in rebates to U.S. and international governments resulting from their attempts to reduce health care costs, partly offset by product price increases.

REVLIMID® net sales increased by $558.5 million, or 17.4%, to $3.767 billion in 2012 compared to 2011, primarily due to increased unit sales in both U.S. and international markets. Increases in market penetration, treatment duration of patients using REVLIMID® in multiple myeloma and

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price contributed to U.S. growth. The growth in international markets resulted from volume increases, primarily driven by increased duration of use and market share gains.

Net sales of REVLIMID® increased by $739.0 million, or 29.9%, to $3.208 billion in 2011 compared to 2010, primarily due to increased unit sales in both U.S. and international markets. Increased treatment duration of patients using REVLIMID® in multiple myeloma and an increase in market penetration contributed to U.S. growth. The growth in international markets reflects the expansion of our commercial activities in addition to product reimbursement approvals and the launch of REVLIMID® in Japan in the latter part of 2010.

VIDAZA® net sales increased by $117.9 million, or 16.7%, to $823.2 million in 2012 compared to 2011, reflecting increases in both U.S. and international markets. The U.S. growth reflects an increase in volume and price. The growth in international markets was partly due to the increase in treatment duration of patients using VIDAZA® and launches of VIDAZA® in new markets, including the United Kingdom and Japan. VIDAZA® retains orphan drug exclusivity in Europe through the end of 2018 and in Japan until January 2021.

Net sales of VIDAZA® increased by $171.0 million, or 32.0%, to $705.3 million in 2011 compared to 2010, with sales increases in both U.S. and international markets. The growth in the U.S. was the result of increased volume and price. The growth in international markets was primarily due to the increase in treatment duration of patients using VIDAZA® and product launches in multiple markets, including the United Kingdom and Japan.

ABRAXANE® net sales increased by $40.8 million, or 10.6%, to $426.7 million in 2012 compared to 2011, primarily due to increased unit volumes in both U.S. and international markets, reflecting increased acceptance of the product in the treatment of metastatic breast cancer and the October 2012 approval for NSCLC.

Net sales of ABRAXANE® increased by $314.5 million to $385.9 million in 2011 compared to 2010 due to the inclusion of a full year of sales in 2011 compared to the 2.5 month period in 2010 subsequent to the acquisition of Abraxis.

THALOMID® net sales decreased by $36.9 million, or 10.9%, to $302.1 million in 2012 compared to 2011, primarily due to lower unit volumes in the United States, partly resulting from the increased use of REVLIMID®, partially offset by an increase in price and lower gross to net adjustments.

Net sales of THALOMID® decreased by $50.5 million, or 13.0%, to $339.1 million in 2011 compared to 2010, primarily due to lower unit volumes in the United States.

ISTODAX® net sales increased by $19.1 million, or 61.7%, to $50.0 million in 2012 compared to 2011, primarily due to increased unit sales in the treatment of CTCL and the June 2011 FDA approval of ISTODAX® for the treatment of PTCL in patients who have received at least one prior therapy.

Net sales of ISTODAX® increased by $15.1 million, or 95.9%, to $30.9 million in 2011 compared to 2010. ISTODAX® was launched for the treatment of CTCL in March of 2010 and was

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approved by the FDA for the treatment of PTCL in June 2011 in patients who have received at least one prior therapy.

The "other" net product sales category decreased by $13.4 million, or 44.1%, to $17.0 million in 2012 compared to 2011. The decrease was primarily due to the April 2011 sale of Abraxis non-core assets, resulting in the elimination of future Abraxis non-core product sales. Sales of Abraxis non-core products totaled $21.3 million in 2011.

"Other" net product sales in 2011 primarily included $21.3 million in Abraxis non-core product sales, $5.4 million in sales of non-core Pharmion products to be exited and $1.3 million in sales of FOCALIN®.

Collaborative Agreements and Other Revenue:    Revenue from collaborative agreements and other sources decreased by $8.8 million to $10.7 million in 2012 compared to 2011. The decrease was primarily due to a $6.3 million milestone payment received in 2011 related to VIDAZA® and a $2.4 million reduction in certain manufacturing and management fees received in 2012.

Revenue from collaborative agreements and other sources increased by $9.0 million to $19.5 million in 2011 compared to 2010, primarily due to the $6.3 million milestone payment received in February 2011 related to the approval of VIDAZA® in Japan and a $2.2 million increase in certain manufacturing and management fees received in 2011.

Royalty Revenue:    Royalty revenue decreased by $12.5 million to $110.4 million in 2012 compared to 2011, primarily due to reduced royalties earned from Novartis based upon its sales of RITALIN®, which was negatively impacted by generic competition in certain markets, partly offset by an increase in royalties from sales of FOCALIN XR®.

Royalty revenue increased by $16.1 million to $122.9 million in 2011 compared to 2010 primarily due to an increase in royalties earned from Novartis based upon its sales of FOCALIN XR® and the entire RITALIN® family of drugs. The increase was partly offset by a decrease in residual payments earned by us from the ALKERAN® revenues of GlaxoSmithKline plc, or GSK.

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

REVLIMID® is distributed in the United States primarily through contracted pharmacies under the RevAssist® program, which is a proprietary risk-management distribution program tailored specifically to provide for the safe and appropriate distribution and use of REVLIMID®. Internationally, REVLIMID® is distributed under mandatory risk-management distribution programs tailored to meet local competent authorities' specifications to provide for the product's safe and appropriate distribution and use. These programs may vary by country and, depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies. THALOMID® is distributed in the United States under our proprietary "System for Thalidomide Education and Prescribing Safety," or S.T.E.P.S.®, program which is a comprehensive education and risk-management distribution program with the objective of providing for the safe and appropriate distribution and use of THALOMID®. Internationally, THALOMID® is distributed under mandatory risk-management distribution programs tailored to meet local competent authorities' specifications to provide for the safe and appropriate distribution and use of THALOMID®. These programs may vary by country and,

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depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies. VIDAZA®, ABRAXANE® and ISTODAX® are distributed through the more traditional pharmaceutical industry supply chain and are not subject to the same risk-management distribution programs as REVLIMID® and THALOMID®.

We base our sales returns allowance on estimated on-hand retail/hospital inventories, measured end-customer demand as reported by third-party sources, actual returns history and other factors, such as the trend experience for lots where product is still being returned or inventory centralization and rationalization initiatives conducted by major pharmacy chains, as applicable. If the historical data we use to calculate these estimates do not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Under this methodology, we track actual returns by individual production lots. Returns on closed lots, that is, lots no longer eligible for return credits, are analyzed to determine historical returns experience. Returns on open lots, that is, lots still eligible for return credits, are monitored and compared with historical return trend rates. Any changes from the historical trend rates are considered in determining the current sales return allowance. As noted above, REVLIMID® is distributed primarily through hospitals and contracted pharmacies, lending itself to tighter controls of inventory quantities within the supply channel and, thus, resulting in lower returns activity. THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a result, wholesalers do not stock the product.

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

Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are generally based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. The Medicaid rebate percentage was increased and extended to Medicaid Managed Care Organizations in March 2010. The accrual of the rebates associated with Medicaid Managed Care Organizations is calculated based on estimated historical patient data related to Medicaid Managed Care Organizations. We have also analyzed actual billings received from certain states to further support the accrual rates. Subsequent to implementation of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or collectively the 2010 U.S. Health Care Reform Law, certain states have not yet submitted actual Medicaid Managed Care Organization bills, resulting in an increasing accrual balance. Effective January 1, 2011, manufacturers of pharmaceutical products are responsible for 50% of the patient's cost of branded prescription drugs related to the Medicare Part D Coverage Gap. In order to estimate the cost to us of this coverage gap responsibility, we analyze data for eligible Medicare Part D patients against data for eligible Medicare Part D patients treated with our products as well as the historical invoices. This expense is recognized throughout the year as incurred. In addition, certain international markets have government-sponsored programs that require rebates to be paid based on program specific rules and, accordingly, the rebate accruals are determined primarily on estimated eligible sales.

Rebates or administrative fees are offered to certain wholesale customers, group purchasing organizations and end-user customers, consistent with pharmaceutical industry practices.

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Settlement of rebates and fees may generally occur from one to 15 months from the date of sale. We provide a provision for rebates at the time of sale based on contracted rates and historical redemption rates. Assumptions used to establish the provision include level of wholesaler inventories, contract sales volumes and average contract pricing. We regularly review the information related to these estimates and adjust the provision accordingly.

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

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

Gross to net sales accruals and the balance in the related allowance accounts for the years ended December 31, 2012, 2011 and 2010 were as follows (in thousands):

 
  Returns
and
Allowances
  Discounts   Government
Rebates
  Chargebacks
and Distributor
Service Fees
  Total  

Balance at December 31, 2009

  $ 7,360   $ 3,598   $ 18,111   $ 29,241   $ 58,310  

Abraxis balance at October 15, 2010

    815     -         4,336     7,253     12,404  

Allowances for sales during 2010

    6,440     52,975     117,788     123,625     300,828  

Credits/deductions issued for prior year sales

    (5,764 )   (3,304 )   (14,437 )   (15,882 )   (39,387 )

Credits/deductions issued for sales during 2010

    (4,072 )   (44,997 )   (40,834 )   (96,870 )   (186,773 )
                       

Balance at December 31, 2010

  $ 4,779   $ 8,272   $ 84,964   $ 47,367   $ 145,382  

Allowances for sales during prior periods

    -         -         (5,366 )   2,047     (3,319 )

Allowances for sales during 2011

    16,757     56,110     192,118     191,765     456,750  

Credits/deductions issued for prior year sales

    (5,714 )   (4,208 )   (34,344 )   (38,162 )   (82,428 )

Credits/deductions issued for sales during 2011

    (6,848 )   (51,450 )   (100,333 )   (138,708 )   (297,339 )
                       

Balance at December 31, 2011

  $ 8,974   $ 8,724   $ 137,039   $ 64,309   $ 219,046  

Allowances for sales during prior periods

    (7,489 )   -         (13,254 )   (2,467 )   (23,210 )

Allowances for sales during 2012

    14,982     64,865     208,709     212,550     501,106  

Credits/deductions issued for prior year sales

    1,748     (4,280 )   (60,182 )   (54,757 )   (117,471 )

Credits/deductions issued for sales during 2012

    (4,945 )   (58,089 )   (146,456 )   (158,451 )   (367,941 )
                       

Balance at December 31, 2012

  $ 13,270   $ 11,220   $ 125,856   $ 61,184   $ 211,530  
                       

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A comparison of provisions for allowances for sales within each of the four categories noted above for 2012 and 2011 follows:

2012 compared to 2011:    Returns and allowances decreased by $9.3 million in 2012 compared 2011, primarily due to the reversal of approximately $7.5 million in reserves established for certain products with quality issues which were resolved in 2012 and lower returns experience on all products, partially offset by a $7.6 million increase in the returns allowance related to increased levels of VIDAZA® inventory held by distributors at the end of 2012.

Discounts increased by $8.8 million in 2012 compared to 2011, primarily due to revenue increases in the U.S. and international markets, both of which offer different discount programs, and expansion into new international markets. These amounts were partly offset by rebates related to VIDAZA® sales in the Japanese market being included in the chargebacks and distributor service fees category in 2012.

Government rebates increased by $8.7 million in 2012 compared to 2011, primarily due to an increase of approximately $15.8 million in rebates related to various U.S. programs, partly offset by a $7.0 million decrease in rebates in certain international markets. The U.S. programs increase was primarily attributable to volume increases and the refinement of accrual rates for Medicaid Managed Care Organizations and Medicare Part D Coverage Gap. The decrease in government rebates of $7.0 million in international markets was primarily driven by the refinement of select government rebates during the third quarter of 2012.

Chargebacks and distributor service fees increased by $16.3 million in 2012 compared to 2011. Chargebacks increased by approximately $2.8 million primarily due to higher sales volumes. Distributor service fees increased by approximately $13.5 million, primarily due to $8.3 million in service fees associated with higher sales of ABRAXANE® , and $7.7 million of rebates related to VIDAZA® sales in the Japanese market which were included within discounts during the 2011 period. The increases were partly offset by a $4.1 million decrease in TRICARE rebates, reflecting lower utilization of THALOMID®.

2011 compared to 2010:    Returns and allowances increased by $10.3 million in 2011 compared to 2010, including approximately $7.7 million related to provisions for products with quality issues from contract manufacturers.

Discounts increased by $3.1 million in 2011 compared to 2010, primarily due to revenue increases in the United States and international markets, both of which offer discount programs, and expansion into new international markets.

Government rebates increased by $69.0 million in 2011 compared to 2010. The increase was primarily due to an increase of $52.5 million in rebate rates in certain international markets and $23.9 million in increased costs associated with the Medicare Part D Coverage Gap, partly offset by a $5.4 million benefit related to a refinement of prior year estimates for Medicaid Managed Care Organizations.

Chargebacks and distributor service fees increased by $70.2 million in 2011 compared to 2010. Chargebacks increased by $33.3 million, including $23.2 million related to the inclusion of ABRAXANE® sales in 2011 and $8.8 million related to sales of VIDAZA®, which included

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$2.1 million related to disputed claims from 2010. Distributor service fees increased by $36.9 million, including $22.8 million in service fees primarily attributable to sales of ABRAXANE®, $7.8 million in rebates related to the launch of VIDAZA® in Japan and a $3.6 million increase in TRICARE rebates.

Cost of Goods Sold (excluding amortization of acquired intangible assets):    Cost of goods sold and related percentages for the years ended December 31, 2012, 2011 and 2010 were as follows (dollar amounts in thousands):

 
  2012   2011   2010  

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

  $ 299,124   $ 425,859   $ 306,521  

Increase (decrease) from prior year

  $ (126,735 ) $ 119,338   $ 90,232  

Percent increase (decrease) from prior year

    (29.8 )%   38.9 %   41.7 %

Percent of net product sales

    5.6 %   9.1 %   8.7 %

Cost of goods sold (excluding amortization of acquired intangible assets):    Cost of goods sold (excluding amortization of acquired intangible assets) decreased by $126.7 million to $299.1 million in 2012 compared to 2011. The decrease was primarily due to the 2011 inclusion of the following items: a $90.3 million inventory step-up amortization adjustment related to sales of ABRAXANE®, an aggregate $13.2 million in costs related to the sale of non-core Abraxis products which were divested in April 2011, $8.6 million in higher costs related to former Pharmion products to be exited and a $15.3 million higher allocation of prepaid royalties related to sales of VIDAZA®. These items were partly offset by an increase in 2012 product material costs resulting from a higher level of sales activity. As a percent of net product sales, cost of goods sold (excluding amortization of acquired intangible assets) decreased to 5.6% in 2012 compared to 9.1% in 2011. Excluding the inventory step-up amortization for ABRAXANE®, the cost of goods sold ratio in 2011 was 7.1%. The cost of goods sold ratio in 2012 was favorably impacted by 0.3% from a reduction in prepaid royalties expensed in 2012 related to sales of VIDAZA® and lower cost products, such as REVLIMID®, comprising a larger portion of total net sales.

Cost of goods sold (excluding amortization of acquired intangible assets) increased by $119.3 million to $425.9 million in 2011 compared to 2010. The increase was primarily due to the inclusion in 2011 of a $90.3 million inventory step-up amortization adjustment related to sales of ABRAXANE® subsequent to the acquisition of Abraxis compared to a $34.7 million step-up amortization adjustment included in 2010. The remainder of the increase was primarily due to an increase in material costs resulting from a higher level of sales activity. As a percent of net product sales, cost of goods sold (excluding amortization of acquired intangible assets) increased to 9.1% in 2011 compared to 8.7% in 2010 primarily due to the inventory step-up amortization adjustment for ABRAXANE®. Excluding the step-up amortization adjustments in both years, the cost of goods sold ratios were 7.1% and 7.7% in 2011 and 2010, respectively.

Research and Development:    Research and development costs are expensed as incurred and primarily include salary and benefit costs, third-party grants and fees paid to clinical research organizations, supplies and upfront and milestone payments resulting from collaboration arrangements.

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Research and development expenses and related percentages for the years ended December 31, 2012, 2011 and 2010 were as follows (dollar amounts in thousands):

 
  2012   2011   2010  

Research and development

  $ 1,724,156   $ 1,600,264   $ 1,128,495  

Increase from prior year

  $ 123,892   $ 471,769   $ 333,647  

Percent increase from prior year

    7.7 %   41.8 %   42.0 %

Percent of total revenue

    31.3 %   33.0 %   31.1 %

Research and Development:    Research and development expenses increased by $123.9 million to $1.724 billion in 2012 compared to 2011. The increase was primarily due to a $31.9 million increase in payments related to research and development collaboration arrangements, an increase in 2012 research and development project spending in support of multiple programs across a broad range of diseases and the inclusion of Avila expenses incurred subsequent to the March 2012 acquisition date. The expense for 2012 also includes a $53.4 million in-process research and development, or IPR&D, asset impairment charge related to ISTODAX® for PTCL in Europe and a $69.2 million impairment related to an adjustment to the probability weighted forecasted sales of CC-292 compared to prior estimates.

Research and development expenses increased by $471.8 million to $1.600 billion in 2011 compared to 2010. The increase in 2011 was partly due to an increase of $230.1 million related to the Abraxis business, including a $118.0 million impairment charge related to the IPR&D acquired intangible asset. The impairment charge resulted from a change in the probability of obtaining progression-free survival labeling for the treatment of non-small cell lung cancer for ABRAXANE® in the United States. The remainder of the increase was primarily due to an increase in research and development project spending in support of multiple programs across a broad range of diseases, with late stage clinical trials completing enrollment during 2011. Expenses for 2011 also included $128.5 million in upfront payments related to research and development collaboration arrangements, a $20.0 million payment to Agios for a one year extension of our collaboration agreement and $14.5 million in milestone payments.

The following table provides a breakdown of research and development expenses (in thousands):

 
   
   
   
  Increase (Decrease)  
 
  2012   2011   2010   2012
versus
2011
  2011
versus
2010
 

Human pharmaceutical clinical programs

  $ 781,032   $ 732,366   $ 480,491   $ 48,666   $ 251,875  

Other pharmaceutical programs (1)

    428,261     406,094     374,342     22,167     31,752  

Drug discovery and development

    166,586     159,409     120,362     7,177     39,047  

Cellular therapy

    30,918     21,416     22,124     9,502     (708 )

Collaboration arrangements

    194,850     162,979     131,176     31,871     31,803  

IPR&D impairments

    122,509     118,000     -       4,509     118,000  
                       

Total

  $ 1,724,156   $ 1,600,264   $ 1,128,495   $ 123,892   $ 471,769  
                       
(1)
Other pharmaceutical programs include spending for toxicology, analytical research and development,

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We make significant investments in research and development in support of multiple ongoing proprietary clinical proprietary development programs which support both our existing products and pipeline of new drug candidates. REVLIMID is in several phase III trials across a range of hematological malignancies that include newly diagnosed multiple myeloma and maintenance, lymphomas, CLL, and non-deletion 5q MDS. Phase III trials for POMALYST® in myelofibrosis, in addition to VIDAZA in AML, and CC-486 for MDS and AML are also underway. In solid tumors, we continue to evaluate ABRAXANE in a phase III trial for metastatic melanoma and have recently completed a phase III trial for ABRAXANE® in pancreatic cancer. Our lead product candidate in Inflammation & Immunology, apremilast, is being evaluated in broad phase III programs for psoriatic arthritis, psoriasis, and ankylosing spondylitis.

Beyond our phase III programs is a growing early-to-mid-stage pipeline of novel therapies addressing significant unmet medical needs, including CC-292 (BTK inhibitor), CC-223 (dual TORK inhibitor), CC-115 (dual TORK/DNA PK inhibitor), CC-122 (pleiotropic pathway modulator), CC-220 and CC-11050 (anti-inflammatory), PDA-001 and PDA-002 (cellular therapies), in addition to partnered molecules ACE-011 (ActR fusion protein), ACE-536 (GDF trap), and EPZ-5676 (DOT1L inhibitor).

We do not collect costs on a project basis or for any category of projects for the majority of costs involved in carrying out research projects. While we do perform cost calculations to facilitate our internal evaluation of individual projects, these calculations include significant estimations and allocations that are not relevant to, or included in, our external financial reporting mechanisms. As a consequence, we do not report research and development costs at the project level.

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The following table presents significant developments in our phase III clinical trials and regulatory approval requests that occurred during the three-month period ended December 31, 2012, as well as developments that are expected to occur if the future occurrence is material and reasonably certain:

New phase III trials

Product   Disease
Indication
   
   
   

CC-486

  Lower Risk MDS1
AML2 Maintenance
           

POMALYST®

  Multiple Myeloma            

Regulatory approval requests in major markets

Product   Disease
Indication
  Major
Market
  Regulatory
Agency
  Date of
Submission

REVLIMID®

  MCL3   U.S.   FDA   Dec-12

Regulatory agency actions

Product   Disease
Indication
  Major
Market
  Regulatory
Agency
  Action

REVLIMID®

  RRMM   China   SFDA6   Approval

ABRAXANE®

  NSCLC4   U.S.   FDA   Approval

POMALYST®

  Multiple Myeloma   U.S.   FDA   Approval

ISTODAX®

  PTCL5   E.U.   CHMP7   Negative opinion on re-examination

    1    Myelodysplastic syndromes

    2    Acute myeloid leukemia

    3    Mantle cell lymphoma

    4    Non Small Cell Lung Cancer

    5    Peripheral T-Cell Lymphoma

    6    China State Food and Drug Administration

    7    European Medicines Agency's Committee for Medicinal Products for Human Use

Selling, General and Administrative:    Selling, general and administrative expenses primarily include salary and benefit costs for employees included in our sales, marketing, finance, legal and administrative organizations, costs related to the launch of new products or those approved for new indications, outside legal and professional services, donations to non-profit foundations and facilities costs.

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Selling, general and administrative expenses and related percentages for the years ended December 31, 2012, 2011 and 2010 were as follows (dollar amounts in thousands):

 
  2012   2011   2010  

Selling, general and administrative

  $ 1,373,541   $ 1,226,314   $ 950,634  

Increase from prior year

  $ 147,227   $ 275,680   $ 196,807  

Percent increase from prior year

    12.0%     29.0%     26.1%  

Percent of total revenue

    24.9%     25.3%     26.2%  

Selling, general and administrative expenses increased by $147.2 million to $1.374 billion in 2012 compared to 2011, partly due to a $72.0 million increase in donations to non-profit foundations, a $6.1 million increase in allowances for doubtful accounts related to our European operations and increased marketing activities related to the prelaunch of ABRAXANE® for first-line treatment of advanced NSCL in the United States and prelaunch activities for POMALYST® globally.

Selling, general and administrative expenses increased by $275.7 million to $1.226 billion in 2011 compared to 2010, partly due to higher marketing and sales-related expenses resulting from ongoing product launch activities, including REVLIMID® in Japan, preparation for the filing and launch of REVLIMID® in China, ISTODAX® in PTCL in the United States and ABRAXANE® in the United States and Europe. In addition, 2011 included an increase of $72.1 million in expenses related to the Abraxis business, resulting from a full year's expense being included in 2011.

Amortization of Acquired Intangible Assets:    Amortization of intangible assets acquired as a result of business combinations is summarized below for the years ended December 31, 2012, 2011 and 2010 (in thousands):

 
  2012   2011   2010  

Avila

  $ 39,381   $ -     $ -    

Abraxis

    99,618     89,259     21,648  

Gloucester

    51,500     40,217     21,833  

Pharmion

    4,000     159,750     159,750  
               

Total amortization

  $ 194,499   $ 289,226   $ 203,231  

Increase (decrease) from prior year

 
$

(94,727

)

$

85,995
 
$

119,828
 

Amortization of acquired intangible assets decreased by $94.7 million to $194.5 million in 2012 compared to 2011 primarily due to certain Pharmion intangible assets becoming fully amortized at the end of 2011, which reduced amortization expense by $155.8 million. The decrease was partly offset by intangible assets obtained in the March 2012 acquisition of Avila, which increased amortization expense by $39.4 million. In addition, the June 2011 FDA approval of ISTODAX® for treatment of PTCL in patients who have received at least one prior therapy and the October 2012 approval of ABRAXANE® in the U.S. for the treatment of NSCLC resulted in the commencement of amortization of the related intangible assets. The approval of ABRAXANE® increased amortization expense by $16.3 million and is expected to result in annual amortization expense of approximately $78.0 million over the 15 year estimated useful life of the associated intangible asset.

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Amortization of acquired intangible assets increased by $86.0 million to $289.2 million in 2011 compared to 2010. The increase in amortization expense was primarily due to a full year's amortization of intangible assets obtained in the October 2010 acquisition of Abraxis being included in 2011. In addition, in June 2011, the FDA approved ISTODAX®, which was obtained in the January 2010 acquisition of Gloucester, for treatment of PTCL in patients who have received at least one prior therapy. As a result of the FDA approval, amortization of the intangible asset commenced with an 8.8 year expected useful life, increasing amortization expense by $17.8 million.

Acquisition Related (Gains) Charges and Restructuring, net:    Acquisition related (gains) charges and restructuring, net was a net charge of $169.0 million in 2012 and a net gain of $142.3 million in 2011. The net increase of $311.3 million in 2012 compared to 2011 was primarily due to a $368.3 million change in the income statement impact related to our publicly traded contingent value rights, or CVRs. We recorded a $216.8 million charge in 2012 and a $151.5 million favorable adjustment in 2011. In addition, we recorded a $9.2 million accretion of the contingent consideration liability related to our acquisition of Avila. The increases were partly offset by a $63.6 million reduction in the contingent consideration liability related to the approval of ISTODAX® for PTCL in Europe.

Acquisition related (gains) charges and restructuring, net was a net gain of $142.3 million in 2011, primarily due to a $151.5 million favorable adjustment to the fair value of our liability related to our publicly traded CVRs. The favorable adjustment was partly offset by $4.0 million in accretion of contingent consideration related to U.S. and EU approval of ISTODAX® for treatment of PTCL and $5.2 million in restructuring and other acquisition related charges.

Interest and Investment Income, Net:    Interest and investment income, net is summarized below for the years ended December 31, 2012, 2011 and 2010 (dollar amounts in thousands):

 
  2012   2011   2010  

Interest and investment income, net

  $ 15,260   $ 25,860   $ 44,757  

Decrease from prior year

  $ (10,600 ) $ (18,897 ) $ (32,028 )

Percentage decrease from prior year

    (41.0 )%   (42.2 )%   (41.7 )%

Interest and Investment Income, Net:    Interest and investment income, net decreased by $10.6 million to $15.3 million in 2012 compared to 2011. The decrease was primarily due to a $3.7 million reduction in interest income due to lower overall interest rates, a $5.1 million net decrease in gains on sales of marketable securities and a $1.9 million net increase in the cost of amortization of discounts and premiums related to marketable securities.

Interest and investment income, net decreased by $18.9 million to $25.9 million in 2011 compared to 2010. The decrease was primarily due to a $14.2 million reduction in interest income due to lower overall yields, a $7.4 million net reduction in gains on sales of marketable securities and a $0.3 million decrease in dividend income, partly offset by a $3.0 million net decrease in the amortization of premiums and discounts related to the purchase of marketable securities.

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Interest (Expense):    Interest (expense) is summarized below for the years ended December 31, 2012, 2011 and 2010 (dollar amounts in thousands):

 
  2012   2011   2010  

Interest expense

  $ 63,205   $ 42,737   $ 12,634  

Increase from prior year

  $ 20,468   $ 30,103   $ 10,668  

Interest (expense) increased by $20.5 million to $63.2 million in 2012 compared to 2011 primarily due to interest and fees associated with the issuance of an additional $1.500 billion in senior notes in August 2012 and an increase in interest on Commercial Paper borrowings, which was in effect for full year 2012.

Interest expense increased by $30.1 million to $42.7 million in 2011 compared to 2010. The increase was primarily due to a $29.6 million increase in interest accrued on the $1.250 billion in senior notes issued in October 2010 and to the issuance of commercial paper beginning in September 2011.

Other Income (Expense), Net:    Other income, net is summarized below for the years ended December 31, 2012, 2011 and 2010 (in thousands):

 
  2012   2011   2010  

Other income (expense), net

  $ (17,006 ) $ (6,354 ) $ (9,148 )

Increase (decrease) from prior year

  $ (10,652 ) $ 2,794   $ (68,506 )

Other income (expense), net was a net expense of $17.0 million in 2012 and primarily included $25.5 million in impairment losses related to cost method investments and net foreign exchange losses/forward point amortization of $8.4 million, partly offset by a $7.4 million gain on the sale of equity securities, net gains of $3.7 million related to the short period in June 2012 when certain treasury rate lock agreements were not designated as hedges and a $3.7 million economic development grant from the State of New Jersey. Included in 2011 were net foreign exchange losses/forward point amortization of $10.9 million and equity method investment losses of $2.8 million, partly offset by a $2.9 million gain on the sale of non-core assets and $3.6 million in economic development grant proceeds received from the State of New Jersey.

Income Tax Provision:    The income tax provision increased by $123.2 million to $225.3 million in 2012 compared to 2011. The full year 2012 underlying effective tax rate of 13.5% reflects the impact of our global business footprint. The increase in the underlying effective tax rate from 2011 reflects a decrease in tax benefits from certain acquisition-related items. The effective tax rate for 2012 was reduced by 0.1 percentage points as a result of discrete items, including tax benefits related to the settlement of tax examinations and expirations of statutes of limitations offset by an increase in deferred tax liabilities recorded on certain unremitted foreign earnings previously treated as permanently reinvested in such foreign jurisdictions and tax expense related to the filing of our 2011 income tax returns with certain items being less favorable than originally estimated. The U.S. research and development tax credit expired on December 31, 2011 and was retroactively reinstated in the first quarter of 2013. The tax benefit of our 2012 research credit will be recorded in the first quarter of 2013. This change in tax law does not have a significant impact on our income tax provisions.

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The income tax provision decreased by $30.4 million to $102.1 million in 2011 compared to 2010. The full year 2011 underlying effective tax rate of 11.5% reflects the impact of our global business footprint, the favorable impact of a shift in earnings between the United States and lower tax foreign jurisdictions, and tax deductions related to our acquisitions. The decrease in the underlying effective tax rate also reflects benefits from an increase in acquisition-related charges, including an IPR&D asset impairment charge of $118.0 million and a non-taxable gain from a decrease in the fair value of our liability under the CVR Agreement related to the acquisition of Abraxis of $151.5 million. The effective tax rate was reduced by 4.3 percentage points in 2011 as a result of discrete items which included tax benefits related to a foreign tax credit, a decrease in unrecognized tax benefits for certain ongoing income tax audits and expirations of statutes of limitations, and a net tax benefit related to changes in state tax laws.

The income tax provision for 2010 included a full year underlying effective tax rate of 15.9%. The effective tax rate was reduced by 2.8 percentage points in 2010 as a result of discrete items which included tax benefits related to a settlement of a tax examination and a reduction in a valuation allowance related to certain tax carryforwards, partially offset by an increase in unrecognized tax benefits for certain ongoing income tax audits.

Net Income:    Net income and per common share amounts for the years ended December 31, 2012, 2011 and 2010 were as follows (dollar amounts in thousands, except per share data):

 
  2012   2011   2010  

Net income attributable to Celgene

  $ 1,456,180   $ 1,318,150   $ 880,512  

Per common share amounts:

                   

Basic

  $ 3.38   $ 2.89   $ 1.90  

Diluted

  $ 3.30   $ 2.85   $ 1.88  

Weighted average shares:

                   

Basic

    430,927     455,348     462,298  

Diluted

    440,796     462,748     469,517  

The $138.0 million increase in net income and $0.45 increase in diluted earnings per share in 2012 compared to 2011 reflected a higher level of net product sales, reduction in amortization of acquired intangible assets primarily due to certain intangible assets becoming fully amortized at the end of 2011 and a decrease in cost of goods sold, resulting from the 2011 inclusion of inventory step-up amortization for sales of ABRAXANE®. These favorable items were partly offset by an increase in the fair value of our liability related to publicly traded CVRs, an increase in payments related to research and development collaboration arrangements and increase in marketing activity, primarily related to prelaunch expenses for POMALYST® and ABRAXANE® for new indications. Earnings per diluted share were also favorably impacted in 2012 by the repurchase of 28.6 million common shares under our common share repurchase program, reducing our outstanding share base.

Net income for 2011 reflects the earnings impact from higher sales of REVLIMID®, VIDAZA® and a full year's sales of ABRAXANE®. The favorable impact of higher revenues was partly offset by increased spending for new product launches, research and development activities, expansion of our international operations, increase in amortization of intangible assets related to

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acquisitions and an increase in interest expense related to the issuance of senior notes in October 2010. Earnings per diluted share were also favorably impacted in 2011 by the repurchase of 38.3 million common shares under our common share repurchase program, reducing our outstanding share base.

Liquidity and Capital Resources

The following table summarizes the components of our financial condition for the years ended December 31, 2012, 2011 and 2010 (in thousands):

 
   
   
   
  Increase (Decrease)  
 
  2012   2011   2010   2012
versus
2011
  2011
versus
2010
 

Financial assets:

                               

Cash and cash equivalents

  $ 2,090,387   $ 1,859,464   $ 1,351,128   $ 230,923   $ 508,336  

Marketable securities available for sale

    1,809,883     788,690     1,250,173   $ 1,021,193   $ (461,483 )
                       

Total financial assets

  $ 3,900,270   $ 2,648,154   $ 2,601,301   $ 1,252,116   $ 46,853  
                       

Debt:

                               

Short-term borrowings

  $ 308,459   $ 526,684   $ -     $ (218,225 ) $ 526,684  

Long-term debt, net of discount

    2,771,333     1,275,585     1,247,584     1,495,748     28,001  
                       

Total debt

  $ 3,079,792   $ 1,802,269   $ 1,247,584   $ 1,277,523   $ 554,685  
                       

Working capital (1)

  $ 3,767,525   $ 2,659,970   $ 2,835,427   $ 1,107,555   $ (175,457 )
                       
(1)
Includes cash, cash equivalents and marketable securities available for sale, accounts receivable, net of allowances, inventory and other current assets, less short-term borrowings, accounts payable, accrued expenses, income taxes payable and other current liabilities.

We rely primarily on positive cash flows from operating activities, proceeds from sales of available-for-sale marketable securities, and borrowings in the form of long-term notes payable and short-term Commercial Paper to provide for our liquidity requirements. We expect continued growth in our expenditures, particularly those related to research and development, clinical trials, commercialization of new products, international expansion and capital investments. However, we anticipate that existing cash and cash equivalent balances, marketable securities available for sale, cash generated from operations and existing sources of and access to financing are adequate to fund our operating needs, capital expenditures, debt service requirements and our plans to repurchase stock or pursue other strategic business initiatives for the foreseeable future.

Many of our operations are conducted outside the United States, and significant portions of our cash, cash equivalents and short-term investments are held internationally. As of December 31, 2012, we held approximately $2.700 billion of these short-term funds in foreign tax jurisdictions. The amount of funds held in U.S. tax jurisdictions can fluctuate due to the timing of receipts and payments in the ordinary course of business and due to other reasons, such as repurchases of our

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common stock and business-development activities. As part of our ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows (both inflows and outflows). Repatriation of overseas funds can result in additional U.S. federal, state and local income tax payments. We record U.S. deferred tax liabilities for certain unremitted earnings, but when amounts earned overseas are expected to be permanently reinvested outside of the U.S., no accrual for U.S. taxes is provided. During 2012, we concluded that approximately $900.0 million of our foreign earnings may not be required for use in offshore operations and may be available for use in the United States. These earnings are no longer treated as permanently reinvested, and accordingly, we recorded a deferred tax liability of $316.5 million for the estimated U.S. federal and state income taxes that may be incurred should these earnings be repatriated. The remaining foreign earnings are unremitted and expected to be permanently reinvested outside the U.S. We do not rely on these unremitted earnings as a source of funds for our domestic business as we expect to have sufficient current cash resources combined with future cash flows in the United States to fund our U.S. operational and strategic needs.

Share Repurchase Program:    Our Board of Directors has approved an aggregate $6.500 billion stock repurchase program of which we have approximately $1.837 billion remaining for future share repurchases. During 2012, we used $2.044 billion for repurchases of our common stock, measured on a settlement date basis.

Components of Working Capital

Cash, Cash Equivalents and Marketable Securities Available for Sale:    We invest our excess cash primarily in money market funds, U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities, non-U.S. government agency and Supranational securities and global corporate debt securities. All liquid investments with maturities of three months or less from the date of purchase are classified as cash equivalents and all investments with maturities of greater than three months from the date of purchase are classified as marketable securities available for sale. We determine the appropriate classification of our investments in marketable debt and equity securities at the time of purchase. The $1.252 billion increase in cash, cash equivalents and marketable securities available for sale at December 31, 2012 compared to 2011 was primarily due to the issuance of $1.500 billion in senior notes in August 2012 and by cash generated from operations, partly offset by $2.044 billion paid under our share repurchase program, $352.2 million paid for the acquisition of Avila, and a net repayment of $217.4 million in short-term borrowings.

Marketable securities available for sale are carried at fair value, held for an unspecified period of time and are intended for use in meeting our ongoing liquidity needs. Unrealized gains and losses on available-for-sale securities, which are deemed to be temporary, are reported as a separate component of stockholders' equity, net of tax. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses and other than temporary impairment charges, is included in interest and investment income, net. For more information related to the fair value and valuation of our marketable securities, see Note 4 to the Notes to the Consolidated Financial Statements included elsewhere in this report.

Accounts Receivable, Net:    Accounts receivable, net increased by $15.0 million to $960.5 million at the end of 2012 compared to 2011. The impact of increased U.S. and international sales of

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REVLIMID®, VIDAZA® and ABRAXANE® was partly offset by increased collections in certain markets. Sales made outside the United States typically have payment terms that are greater than 60 days, thereby extending collection periods beyond those in the United States. We expect our accounts receivable balance to continue to grow as our international sales continue to expand.

We continue to monitor economic conditions, including the volatility associated with international economies, the sovereign debt crisis in certain European countries and associated impacts on the financial markets and our business. Our current business model in these markets is typically to sell our products directly to principally government owned or controlled hospitals, which in turn directly deliver critical care to patients. Our products are used to treat life-threatening diseases and we believe this business model enables timely delivery and adequate supply of products. Many of the outstanding receivable balances are related to government-funded hospitals and we believe the receivable balances are ultimately collectible. Similarly, we believe that future sales to these customers will continue to be collectible.

The credit and economic conditions within Spain, Italy, Portugal and Greece, as well as increasing sales levels in those countries have resulted in, and may continue to result in, an increase in the average length of time it takes to collect accounts receivable. Our total net receivables in Spain, Italy and Portugal are composed almost entirely of amounts receivable from government-owned or controlled hospitals and the public sector and amounted to $324.2 million in 2012 compared to $396.1 million in 2011. Approximately $51.9 million of the $324.2 million receivable in 2012 was greater than one year past due. Our exposure to the sovereign debt crisis in Greece is limited, as we do not have a material amount of receivables in Greece. We maintain timely and direct communication with hospital customers in Spain, Italy and Portugal regarding both the current and past due receivable balances. We continue to receive payments from these countries, and closely monitor the plans for payment at the regional government level. Payments from customers in these countries are not received on regular intervals and several months could elapse between significant payments. This payment pattern was observed in Spain earlier in 2012, where a significant portion of aged receivables were paid in late June and early July 2012. We also regularly request and receive positive confirmation of the validity of our receivables from most of the regional governmental authorities. We have the option to pursue legal action against certain of our customers. In view of the protracted timeline associated with collecting the outstanding balances through legal action and the current direct communication with our customers, in many instances, we do not believe pursuing legal action to be the best approach for any of the parties involved.

In determining the appropriate allowance for doubtful accounts for Spain, Italy, and Portugal, we considered that the balance of past due receivables is related to sales made to government-owned or supported customers. We regularly monitor developments in Europe to assess whether the level of risk of default for any customers has increased and note the ongoing efforts by the European Union, European Monetary Union and International Monetary Fund to support countries with large public deficits and outstanding debt balances. We also monitor the efforts of individual countries to support their regions with large public deficits and outstanding debt balances. We have not experienced significant losses or write-offs with respect to the collection of our accounts receivable in these countries as a result of their economic difficulties and we do not expect to have write-offs or adjustments to accounts receivable which would have a material adverse impact on our financial position or results of operations.

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Inventory:    Inventory balances increased by $69.9 million to $259.5 million at the end of 2012 compared to 2011. The increase was primarily due to increases in REVLIMID®, VIDAZA® and ABRAXANE® inventories, attributable to higher anticipated sales levels.

Other Current Assets:    Other current assets decreased by $74.9 million to $320.2 million at the end of 2012 compared to 2011 primarily due to a $64.1 million decrease in prepaid taxes and a $60.0 million decrease in the fair value of foreign currency forward contracts, partly offset by an increase in other prepaid accounts.

Commercial Paper:    In September 2011, we entered into a commercial paper program, or the Program, under which we issue unsecured commercial paper notes, or Commercial Paper, on a private placement basis up to a maximum aggregate amount outstanding at any time of $1.000 billion, the proceeds of which will be used for general corporate purposes. The maturities of the Commercial Paper may vary, but may not exceed 270 days from the date of issue. The Commercial Paper is sold under customary terms to a dealer or in the commercial paper market and is issued at a discount from par or, alternatively, is sold at par and bears varying interest rates on a fixed or floating basis. Borrowings under the Program are accounted for as short-term borrowings. As of December 31, 2012, $308.5 million of Commercial Paper was outstanding bearing an effective interest rate of 0.5%.

Senior Unsecured Credit Facility:    In September 2011, we entered into a senior unsecured revolving credit facility, or the Credit Facility, providing for revolving credit in the aggregate amount of $1.000 billion. Subject to certain conditions, we have the right to increase the amount of the Credit Facility (but in no event more than one time per annum), up to a maximum aggregate amount of $1.250 billion.

The Credit Facility has a five-year term and amounts may be borrowed for working capital, capital expenditures and other corporate purposes. The Credit Facility serves as backup liquidity for our Commercial Paper borrowings. As of December 31, 2012 there was no outstanding borrowing against the Credit Facility.

The Credit Facility contains affirmative and negative covenants including certain customary financial covenants. We were in compliance with all debt covenants as of December 31, 2012.

Accounts Payable, Accrued Expenses and Other Current Liabilities:    Accounts payable, accrued expenses and other current liabilities increased by $391.0 million to $1.353 billion at the end of 2012 compared to 2011. The increase was primarily due to a $277.4 million reclassification of the liability associated with our publicly traded CVRs from non-current to current, a $51.5 million increase in clinical trial accruals, a $17.4 million increase in the contingent consideration related to the January 2012 Avila acquisition and a $16.6 million increase in accrued interest.

Income Taxes Payable (Current and Non-Current):    Income taxes payable decreased by $446.5 million to $200.0 million at the end of 2012 compared to 2011, primarily from tax payments of $469.6 million, the application of previously refundable prepaid income taxes of $11.4 million, a tax benefit of stock options of $43.4 million, net deferred intercompany credits of $50.3 million offset by the current provision for income taxes of $125.1 million, which includes a benefit related to tax settlements of $373.0 million.

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Senior Notes:    In August 2012, we issued an additional $1.500 billion principal amount of senior notes consisting of $500.0 million aggregate principal amount of 1.90% Senior Notes due 2017, or the 2017 notes, and $1.000 billion aggregate principal amount of 3.25% Senior Notes due 2022 (the "2022 notes" and, together with the 2017 notes, referred to herein as the "2012 issued notes"). The 2012 issued notes were issued at 99.786% and 99.949% of par, respectively, and the discount is being amortized as additional interest expense over the period from issuance through maturity. Offering costs of approximately $11.7 million have been recorded as debt issuance costs on our Consolidated Balance Sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the notes is payable semi-annually in arrears on February 15 and August 15 each year beginning February 15, 2013 and the principal on each note is due in full at their respective maturity dates. The notes may be redeemed at our option, in whole or in part, at any time at a redemption price defined in a make-whole clause equaling accrued and unpaid interest plus the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of interest and principal discounted to the date of redemption on a semi-annual basis plus 20 basis points in the case of the 2017 notes and 25 basis points in the case of the 2022 notes. If we experience a change of control accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property. The carrying value of the senior notes was $2.771 billion at December 31, 2012.

Cash flows from operating, investing and financing activities for the years ended December 31, 2012, 2011 and 2010 were as follows (in thousands):

 
   
   
   
  Increase (Decrease)  
 
  2012   2011   2010   2012
versus
2011
  2011
versus
2010
 

Net cash provided by operating activities

  $ 2,018,553   $ 1,776,110   $ 1,181,556   $ 242,443   $ 594,554  

Net cash provided by (used in) investing activities

  $ (1,553,592 ) $ 377,696   $ (2,107,305 ) $ (1,931,288 ) $ 2,485,001  

Net cash provided by (used in) financing activities

  $ (248,728 ) $ (1,622,030 ) $ 1,177,167   $ 1,373,302   $ (2,799,197 )

Operating Activities:    Net cash provided by operating activities increased by $242.4 million to $2.019 billion in 2012 compared to 2011. The increase in net cash provided by operating activities was primarily attributable to an expansion of our operations and related increase in net earnings.

Net cash provided by operating activities in 2011 increased by $594.6 million to $1.776 billion as compared to 2010. The increase in net cash provided by operating activities was primarily attributable to an expansion of our operations and related increase in net earnings, partially

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offset by the increase in accounts receivable associated with expanding international sales, which take longer to collect, and the timing of receipts and payments in the ordinary course of business.

Investing Activities:    Net cash used in investing activities in 2012 changed to a net usage of $1.554 billion compared to $377.7 million of net cash provided by investing activities in 2011. The decrease in net cash provided by investing activities was principally related to a cash use of $1.025 billion for net purchases of marketable securities available for sale during 2012 compared to net sales of $481.8 million in 2011, plus usages of $352.2 million for the acquisition of Avila and $48.9 million for the purchase of intellectual property and other assets.

Net cash provided by investing activities in 2011 changed to a positive $377.7 million compared to a net cash use of $2.107 billion in 2010. The 2010 investing activities included net cash used in the acquisition of Abraxis of $2.315 billion and the acquisition of Gloucester of $337.6 million.

Financing Activities:    Net cash used in financing activities in 2012 was $248.7 million compared to a net cash use of $1.622 billion in 2011. The $1.373 billion decrease in net cash used in financing activities in 2012 was primarily attributable to $1.487 billion of proceeds from the issuance of long-term debt, partially offset by $217.4 million of net repayments of short-term borrowing in 2012 compared to $525.7 million of net short-term borrowing in 2011. During 2012 and 2011, we used $2.044 billion and $2.189 billion, respectively, for repurchases of our common stock, measured on a settlement date basis.

Net cash used in financing activities in 2011 was $1.622 billion compared to net cash provided of $1.177 billion in 2010. The $2.799 billion decrease in net cash provided by financing activities in 2011 was primarily attributable to proceeds from the issuance of long-term debt in 2010 that provided net cash of $1.237 billion and the $2.189 billion in common share repurchases in 2011 under the common share repurchase program.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2012 (in thousands):

 
  Payment Due By Period  
 
  Less than
1 Year
  1 to 3 Years   3 to 5 Years   More than
5 Years
  Total  

Senior notes (1)

  $ 88,250   $ 676,500   $ 652,000   $ 2,299,500   $ 3,716,250  

Short-term borrowings

    308,459     -       -       -       308,459  

Operating leases

    50,532     95,715     66,763     67,950     280,960  

Other contract commitments

    67,710     15,644     6,054     -       89,408  
                       

Total

  $ 514,951   $ 787,859   $ 724,817   $ 2,367,450   $ 4,395,077  
                       
(1)
The senior note obligation amounts include future principal and interest payments.

Senior Notes:    In August 2012, we issued $1.500 billion principal amount of senior notes consisting of $500.0 million aggregate principal amount of 1.90% Senior Notes due 2017, and

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$1.000 billion aggregate principal amount of 3.25% Senior Notes due 2022. The 2012 issued notes were issued at 99.786% and 99.949% of par, respectively, and the discount is being amortized as additional interest expense over the period from issuance through maturity. Offering costs of approximately $11.7 million have been recorded as debt issuance costs on our Consolidated Balance Sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the notes is payable semi-annually in arrears on February 15 and August 15 each year beginning February 15, 2013 and the principal on each note is due in full at their respective maturity dates. The notes may be redeemed at the option of the Company, in whole or in part, at any time at a redemption price defined in a make-whole clause equaling accrued and unpaid interest plus the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of interest and principal discounted to the date of redemption on a semi-annual basis plus 20 basis points in the case of the 2017 notes and 25 basis points in the case of the 2022 notes. If we experience a change of control accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property.

In October 2010, we issued a total of $1.250 billion principal amount of senior notes consisting of $500.0 million aggregate principal amount of 2.45% Senior Notes due 2015, $500.0 million aggregate principal amount of 3.95% Senior Notes due 2020 and $250.0 million aggregate principal amount of 5.7% Senior Notes due 2040.

Short-term Borrowings:    Contractual obligations related to short-term borrowings included principal, interest and fees of $308.5 million related to commercial paper outstanding at December 31, 2012.

Operating Leases:    We lease office and research facilities under various operating lease agreements in the United States and various international markets. The non-cancelable lease terms for operating leases expire at various dates between 2013 and 2023 and include renewal options. In general, we are also required to reimburse the lessors for real estate taxes, insurance, utilities, maintenance and other operating costs associated with the leases. For more information on the major facilities that we occupy under lease arrangements refer to Part I, Item 2, "Properties" of this Annual Report on Form 10-K.

Other Contract Commitments:    Other contract commitments of $89.4 million on December 31, 2012 include $64.1 million in contractual obligations related to product supply contracts. In addition, we have committed to invest an aggregate $25.0 million in two investment funds over a ten-year period, which is callable at any time. On December 31, 2012, our remaining investment commitment was $5.4 million.

Collaboration Arrangements:    We have entered into certain research and development collaboration agreements with third parties that include the funding of certain development, manufacturing and commercialization efforts with the potential for future milestone and royalty payments upon the achievement of pre-established developmental, regulatory and/or commercial targets. Our obligation to fund these efforts is contingent upon continued involvement in the programs and/or the lack of any adverse events which could cause the discontinuance of the

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programs. Due to the nature of these arrangements, the future potential payments related to the attainment of specified development and regulatory approval milestones over a period of several years are inherently uncertain, and accordingly, no amounts have been recorded for these future potential payments in our Consolidated Balance Sheets at December 31, 2012 and 2011 contained in this Annual Report on Form 10-K. Potential milestone payments total approximately $6.202 billion, including approximately $4.284 billion contingent on the achievement of various research, development and regulatory approval milestones and approximately $1.918 billion in sales-based milestones. The most significant collaboration agreements are identified in Note 17 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

New Accounting Principles

In July 2012, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2012-02, "Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," or ASU 2012-02. ASU 2012-02 allows a company the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under that option, a company would no longer be required to calculate the fair value of an indefinite-lived intangible asset unless the company determines, based on that qualitative assessment, that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. ASU 2012-02 is effective for annual and interim indefinite-lived intangible asset impairment tests performed for periods beginning after September 15, 2012. Early adoption is permitted and we adopted this standard in the fourth quarter of 2012. The adoption of ASU 2012-02 did not have a material impact on our financial position or results of operations.

Critical Accounting Estimates and Significant Accounting Policies

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report, we believe the following accounting estimates and policies to be critical:

Revenue Recognition:    Revenue from the sale of products is recognized when title and risk of loss of the product is transferred to the customer. Provisions for discounts, early payments, rebates, sales returns and distributor chargebacks under terms customary in the industry are provided for in the same period the related sales are recorded. We record estimated reductions to revenue for volume-based discounts and rebates at the time of the initial sale. The estimated reductions to revenue for such volume-based discounts and rebates are based on the sales terms, historical experience and trend analysis.

We recognize revenue from royalties based on licensees' sales of our products or products using our technologies. Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured. If royalties cannot be reasonably estimated or collectability of a royalty amount is not reasonably assured, royalties are recognized as revenue when the cash is received.

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

We base our sales returns allowance on estimated on-hand retail/hospital inventories, measured end-customer demand as reported by third-party sources, actual returns history and other factors, such as the trend experience for lots where product is still being returned or inventory centralization and rationalization initiatives conducted by major pharmacy chains, as applicable. If the historical data we use to calculate these estimates do not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Under this methodology, we track actual returns by individual production lots. Returns on closed lots, that is, lots no longer eligible for return credits, are analyzed to determine historical returns experience. Returns on open lots, that is, lots still eligible for return credits, are monitored and compared with historical return trend rates. Any changes from the historical trend rates are considered in determining the current sales return allowance. REVLIMID® is distributed primarily through hospitals and contracted pharmacies, lending itself to tighter controls of inventory quantities within the supply channel and, thus, resulting in lower returns activity. THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a result, wholesalers do not stock the product.

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

Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are generally based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. The Medicaid rebate percentage was increased and extended to Medicaid Managed Care Organizations in March 2010. The accrual of the rebates associated with Medicaid Managed Care Organizations is calculated based on estimated historical patient data related to Medicaid Managed Care Organizations. We have also analyzed actual billings received from certain states to further support the accrual rates. Subsequent to implementation of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or collectively the 2010 U.S. Health Care Reform Law, certain states have not yet submitted actual Medicaid Managed Care Organization bills, resulting in an increase in the accrual balance. Effective January 1, 2011, manufacturers of pharmaceutical products are responsible for 50% of the patient's cost of branded prescription drugs related to the Medicare Part D Coverage Gap. In order to estimate the cost to us of this coverage gap responsibility, we analyze data for eligible Medicare Part D patients against data for eligible Medicare Part D patients treated with our products as well as the historical invoices. This expense is recognized throughout the year as incurred. In addition, certain international markets have government-sponsored programs that require rebates to be paid based on program specific rules and, accordingly, the rebate accruals are determined primarily on estimated eligible sales.

Rebates or administrative fees are offered to certain wholesale customers, group purchasing organizations and end-user customers, consistent with pharmaceutical industry practices. Settlement of rebates and fees may generally occur from one to 15 months from the date of sale. We provide a provision for rebates at the time of sale based on contracted rates and historical redemption rates. Assumptions used to establish the provision include level of wholesaler

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inventories, contract sales volumes and average contract pricing. We regularly review the information related to these estimates and adjust the provision accordingly.

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

Allowance for Doubtful Accounts:    We estimate an allowance for doubtful accounts primarily based on the credit worthiness of our customers, historical payment patterns, aging of receivable balances and general economic conditions, including publicly available information on the credit worthiness of countries themselves and provinces or areas within such countries where they are the ultimate customers.

Income Taxes:    We utilize 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 years in which the temporary differences are expected to reverse. We provide a valuation allowance when it is more likely than not that deferred tax assets will not be realized.

We account for interest and penalties related to uncertain tax positions as part of our provision for income taxes. These unrecognized tax benefits relate primarily to issues common among multinational corporations in our industry. We apply a variety of methodologies in making these estimates which include studies performed by independent economists, advice from industry and subject experts, evaluation of public actions taken by the U.S. Internal Revenue Service and other taxing authorities, as well as our own industry experience. We provide estimates for unrecognized tax benefits. If our estimates are not representative of actual outcomes, our results of operations could be materially impacted.

We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of deferred tax assets, including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, carryforward periods available to us for tax reporting purposes, various income tax strategies and other relevant factors. Significant judgment is required in making this assessment and, to the extent future expectations change, we would have to assess the recoverability of our deferred tax assets at that time. At December 31, 2012, it was more likely than not that we would realize our deferred tax assets, net of valuation allowances.

Share-Based Compensation:    The cost of share-based compensation is recognized in the Consolidated Statements of Income based on the fair value of all awards granted, using the Black-Scholes method of valuation for stock options. The fair values of restricted stock units and performance restricted stock units are based on the market value of our Common Stock on the date of grant. The fair value of each award is determined and the compensation cost is

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recognized over the service period required to obtain full vesting. Compensation cost to be recognized reflects an estimate of the number of awards expected to vest after taking into consideration an estimate of award forfeitures based on actual experience.

Other-Than-Temporary Impairments of Available-For-Sale Marketable Securities:    A decline in the market value of any available-for-sale marketable security below its cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to operations and a new cost basis for the security established. The determination of whether an available-for-sale marketable security is other-than-temporarily impaired requires significant judgment and requires consideration of available quantitative and qualitative evidence in evaluating the potential impairment. Factors evaluated to determine whether the investment is other-than-temporarily impaired include: significant deterioration in the issuer's earnings performance, credit rating, asset quality, business prospects of the issuer, adverse changes in the general market conditions in which the issuer operates, length of time that the fair value has been below our cost, our expected future cash flows from the security, our intent not to sell, an evaluation as to whether it is more likely than not that we will not have to sell before recovery of our cost basis, and issues that raise concerns about the issuer's ability to continue as a going concern. Assumptions associated with these factors are subject to future market and economic conditions, which could differ from our assessment.

Derivatives and Hedging Activities:    All derivative instruments are recognized on the balance sheet at their fair value. Changes in the fair value of derivative instruments are recorded each period in current earnings or other comprehensive income (loss), depending on whether a derivative instrument is designated as part of a hedging transaction and, if it is, the type of hedging transaction. For a derivative to qualify as a hedge at inception and throughout the hedged period, we formally document the nature and relationships between the hedging instruments and hedged item. We assess, both at inception and on an on-going basis, whether the derivative instruments that are used in cash flow hedging transactions are highly effective in offsetting the changes in cash flows of hedged items. We assess hedge effectiveness on a quarterly basis and record the gain or loss related to the ineffective portion of derivative instruments, if any, to current earnings. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting and any related unrealized gain or loss on the derivative instrument is recognized in current earnings. We use derivative instruments, including those not designated as part of a hedging transaction, to manage our exposure to movements in foreign exchange and interest rates. The use of these derivative instruments modifies the exposure of these risks with the intent to reduce our risk or cost. We do not use derivative instruments for speculative trading purposes and are not a party to leveraged derivatives.

Investments in Other Entities:    We hold a portfolio of investments in equity securities and certain investment funds that are accounted for under either the equity method or cost method. Investments in companies or certain investment funds over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in other income (expense), net. Our cost method and equity method investments are included in other assets on the Consolidated Balance Sheets.

All of our investments are reviewed on a regular basis for possible impairment. If an investment's fair value is determined to be less than its net carrying value and the decline is determined to be other-than-temporary, the investment is written down to its fair value. Such an evaluation is

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judgmental and dependent on specific facts and circumstances. Factors considered in determining whether an other-than-temporary decline in value has occurred include: market value or exit price of the investment based on either market-quoted prices or future rounds of financing by the investee; length of time that the market value was below its cost basis; financial condition and business prospects of the investee; our intent and ability to retain the investment for a sufficient period of time to allow for recovery in market value of the investment; issues that raise concerns about the investee's ability to continue as a going concern; and any other information that we may be aware of related to the investment.

Accounting for Long-Term Incentive Plans:    We have established a Long-Term Incentive Plan, or LTIP, designed to provide key officers and executives with performance-based incentive opportunities contingent upon achievement of pre-established corporate performance objectives covering a three-year period. We currently have three separate three-year performance cycles running concurrently ending December 31, 2013, 2014 and 2015. Performance measures for the performance cycle ending in 2013 are based on the following components in the last year of the three-year cycle: 25% on non-GAAP earnings per share; 25% on non-GAAP net income; and 50% on total non-GAAP revenue, as defined. The performance cycles ending in 2014 and 2015 are based on the following components: 37.5% on non-GAAP earnings per share; 37.5% on total non-GAAP revenue, as defined; and 25% on relative total shareholder return, which is a measurement of our stock price performance during the year compared with a group of other companies in the biopharmaceutical industry.

Payouts may be in the range of 0% to 200% of the participant's salary for the LTIPs. Such awards are payable in cash or common stock or a mixture of cash and common stock, which will be determined by the Compensation Committee at the time of award delivery. For awards payable in common stock, the number of shares is determined using the average closing price for the 30 trading days prior to the beginning of the cycle. Payments made in common stock are restricted from trading for a period of three years. We accrue the long-term incentive liability over each three-year cycle. Prior to the end of a three-year cycle, the accrual is based on an estimate of our level of achievement during the cycle. Upon a change in control, participants will be entitled to an immediate payment equal to their target award or, if higher, an award based on actual performance through the date of the change in control.

Accruals recorded for the LTIP entail making certain assumptions concerning future non-GAAP earnings per share, non-GAAP net income and non-GAAP revenues, as defined; the actual results of which could be materially different than the assumptions used. Accruals for the LTIP are reviewed on a regular basis and revised accordingly so that the liability recorded reflects updated estimates of future payouts. In estimating the accruals, management considers actual results to date for the performance period, expected results for the remainder of the performance period, operating trends, product development, pricing and competition.

Valuation of Goodwill, Acquired Intangible Assets and IPR&D:    We have recorded goodwill, acquired intangible assets and IPR&D primarily through the acquisitions of Pharmion, Gloucester, Abraxis and Avila. When identifiable intangible assets, including in-process research and development, are acquired, we determine the fair values of these assets as of the acquisition date. Discounted cash flow models are typically used in these valuations if quoted market prices

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are not available, and the models require the use of significant estimates and assumptions including but not limited to:

    projecting regulatory approvals,

    estimating future cash flows from product sales resulting from completed products and in-process projects and

    developing appropriate discount rates and probability rates

Goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination accounted for by the acquisition method of accounting and is not amortized, but subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We test our goodwill annually for impairment each November 30. We are organized as a single reporting unit and therefore the goodwill impairment test is done using our overall market value, as determined by our traded share price, as compared to our book value of net assets.

Intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events occur. Intangible assets related to IPR&D product rights are treated as indefinite-lived intangible assets and not amortized until the product is approved for sale by regulatory authorities in specified markets. At that time, we will determine the useful life of the asset, reclassify the asset out of IPR&D and begin amortization. Impairment testing is also performed at least annually or when a triggering event occurs that could indicate a potential impairment. Such test entails completing an updated discounted cash flow model to estimate the fair value of the asset. Our existing IPR&D product rights were obtained in the acquisitions of Gloucester and Avila. The Gloucester related product rights will become definite-lived intangibles when marketing approval is received for ISTODAX® for treatment of PTCL in the European Union. The Avila related product rights will become definite-lived intangibles when marketing approval is received for CC-292 for any indication in any major market.

Valuation of Contingent Consideration Resulting from a Business Combination:    We record contingent consideration resulting from a business combination at its fair value on the acquisition date, and for each subsequent reporting period revalue these obligations and record increases or decreases in their fair value as an adjustment to operating earnings in the consolidated statements of income. Changes to contingent consideration obligations can result from movements in publicly traded share prices of CVRs, adjustments to discount rates and periods, updates in the assumed achievement or timing of any development milestones or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. The assumptions related to determining the value of a contingent consideration include a significant amount of judgment and any changes in the assumptions could have a material impact on the amount of contingent consideration expense recorded in any given period. Our contingent consideration liabilities were acquired in the acquisitions of Gloucester, Abraxis, and Avila. The fair values of the Gloucester and Avila contingent consideration liabilities are based on the discount rate, probability and estimated timing of cash milestone payments to the former shareholders or each company. The fair value of the Abraxis

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contingent consideration liability is based on the quoted market price of the publicly traded CVRs.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion provides forward-looking quantitative and qualitative information about our potential exposure to market risk. Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings.

We have established guidelines relative to the diversification and maturities of investments to maintain safety and liquidity. These guidelines are reviewed periodically and may be modified depending on market conditions. Although investments may be subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. At December 31, 2012, our market risk sensitive instruments consisted of marketable securities available for sale, our long-term debt and certain foreign exchange contracts.

Marketable Securities Available for Sale:    At December 31, 2012, our marketable securities available for sale consisted of U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities, non-U.S. government, agency and Supranational securities, global corporate debt securities and a marketable equity security. U.S. government-sponsored agency securities include general unsecured obligations either issued directly by or guaranteed by U.S. Government Sponsored Enterprises. U.S. government-sponsored agency MBS include mortgage backed securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. Non-U.S. government, agency and Supranational securities consist of direct obligations of highly rated governments of nations other than the United States, obligations of sponsored agencies and other entities that are guaranteed or supported by highly rated governments of nations other than the United States. Corporate debt – global includes obligations issued by investment-grade corporations including some issues that have been guaranteed by governments and government agencies.

Marketable securities available for sale are carried at fair value, held for an unspecified period of time and are intended for use in meeting our ongoing liquidity needs. Unrealized gains and losses on available-for-sale securities, which are deemed to be temporary, are reported as a separate component of stockholders' equity, net of tax. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses and other than temporary impairment charges, is included in interest and investment income, net.

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As of December 31, 2012, the principal amounts, fair values and related weighted-average interest rates of our investments in debt securities classified as marketable securities available for sale were as follows (in thousands):

 
  Duration  
 
  Less than 1 Year   1 to 3 Years   3 to 5 Years   Total  

Principal amount

  $ 580,241   $ 1,136,106   $ 61,355   $ 1,777,702  

Fair value

  $ 587,170   $ 1,159,017   $ 63,400   $ 1,809,587  

Weighted average interest rate

    0.4%     0.5%     1.0%     0.5%  

Long-Term Debt:    In August 2012, we issued a total of $1.500 billion principal amount of senior notes consisting of $500.0 million aggregate principal amount of 1.90% Senior Notes due 2017and $1.000 billion aggregate principal amount of 3.25% Senior Notes due 2022. The 2012 issued notes were issued at 99.786% and 99.949% of par, respectively, and the discount is being amortized as additional interest expense over the period from issuance through maturity. Offering costs of approximately $11.7 million have been recorded as debt issuance costs on our Consolidated Balance Sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the notes is payable semi-annually in arrears on February 15 and August 15 each year beginning February 15, 2013 and the principal on each note is due in full at their respective maturity dates. The notes may be redeemed at our option, in whole or in part, at any time at a redemption price defined in a make-whole clause equaling accrued and unpaid interest plus the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of interest and principal discounted to the date of redemption on a semi-annual basis plus 20 basis points in the case of the 2017 notes and 25 basis points in the case of the 2022 notes. If a change of control occurs accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property.

On October 7, 2010, we issued a total of $1.250 billion principal amount of senior notes consisting of $500.0 million aggregate principal amount of 2.45% Senior Notes due 2015, $500.0 million aggregate principal amount of 3.95% Senior Notes due 2020 and $250.0 million aggregate principal amount of 5.7% Senior Notes due 2040. The notes were issued at 99.854%, 99.745% and 99.813% of par, respectively, and the discount amortized as additional interest expense over the period from issuance through maturity. Offering costs of approximately $10.5 million have been recorded as debt issuance costs on our consolidated balance sheet and are amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the notes is payable semi-annually in arrears on April 15 and October 15 of each year and the principal on each note is due in full at their respective maturity dates. The notes may be redeemed at our option, in whole or in part, at any time at a redemption price equaling accrued and unpaid interest plus the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of interest and principal. If we experience a change of control accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid

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interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property.

At December 31, 2012, the fair value of our senior notes outstanding was $2.893 billion.

MARKET RISK MANAGEMENT

Our revenue and earnings, cash flows and fair values of assets and liabilities can be impacted by fluctuations in foreign exchange rates and interest rates. We manage the impact of foreign exchange rate and interest rate movements through operational means and through the use of various financial instruments, including derivative instruments such as foreign currency options, foreign currency forward contracts, treasury rate lock agreements and interest rate swap contracts.

Foreign Currency Risk Management

We have established revenue hedging and balance sheet risk management programs to mitigate volatility in future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.

Through our revenue hedging program, we endeavor to reduce the impact of possible unfavorable changes in foreign exchange rates on our future U.S. dollar cash flows that are derived from foreign currency denominated sales. To achieve this objective, we hedge a portion of our forecasted foreign currency denominated sales that are expected to occur in the foreseeable future, typically no more than three years into the future. We manage our anticipated transaction exposure principally with foreign currency forward contracts and occasionally foreign currency put and call options.

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

We enter into foreign currency forward contracts to protect against changes in anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with non-functional currency denominated revenues and expenses of foreign subsidiaries. The foreign currency forward hedging contracts outstanding at December 31, 2012 and 2011 had settlement dates within 36 months. These foreign currency forward contracts are designated as cash flow hedges and, to the extent effective, any unrealized gains or losses on them are reported in other comprehensive income (loss), or OCI, and reclassified to operations in the same periods during which the underlying hedged transactions affect operations. Any ineffectiveness on these foreign currency forward contracts is reported in other income

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(expense), net. Foreign currency forward contracts entered into to hedge forecasted revenue and expenses were as follows at December 31, 2012 and 2011:

 
  Notional Amount  
Foreign Currency
  2012   2011  

Australian Dollar

  $ 5,076   $ 17,169  

British Pound

    77,914     53,764  

Canadian Dollar

    134,366     67,281  

Euro

    969,296     714,446  

Japanese Yen

    236,212     606,538  

Swiss Franc

    -       49,182  
           

Total

  $ 1,422,864   $ 1,508,380  
           

We consider the impact of our own and the counterparties' credit risk on the fair value of the contracts as well as the ability of each party to execute its obligations under the contract on an ongoing basis. As of December 31, 2012, credit risk did not materially change the fair value of our foreign currency forward contracts.

We also enter into foreign currency forward contracts to reduce exposures to foreign currency fluctuations of certain recognized assets and liabilities denominated in foreign currencies. These foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Income in other income (expense), net in the current period. The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding at December 31, 2012 and 2011 were $795.4 million and $916.9 million, respectively.

Although not predictive in nature, we believe a hypothetical 10% threshold reflects a reasonably possible near-term change in foreign currency rates. Assuming that the December 31, 2012 exchange rates were to change by a hypothetical 10%, the fair value of the foreign currency forward contracts would change by approximately $227.9 million. However, since the contracts either hedge specific forecasted intercompany transactions denominated in foreign currencies or relate to assets and liabilities denominated in currencies other than the entities' functional currencies, any change in the fair value of the contract would be either reported in other comprehensive income and reclassified to earnings in the same periods during which the underlying hedged transactions affect earnings or re-measured through earnings each period along with the underlying asset or liability

Foreign Currency Option Contracts:    During 2012, we began hedging a portion of our future foreign currency exposure by utilizing a strategy that involves both a purchased local currency put option and a written local currency call option that are accounted for as hedges of future sales denominated in Euros. Specifically, we sell (or write) a local currency call option and purchase a local currency put option with the same expiration dates and amounts but with different strike prices; this combination of transactions is generally referred to as a "collar". The expiration dates and notional amounts correspond to the amount and timing of forecasted future foreign currency sales. If the U.S. dollar weakens relative to the currency of the hedged anticipated sales, the purchased put option value reduces to zero and we benefit from the increase in the U.S. dollar

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equivalent value of our anticipated foreign currency cash flows, however this benefit would be capped at the strike level of the written call, which forms the upper end of the collar. The premium collected from the call option partially offsets the premium paid for the purchased put option, resulting in a net cost for the collars.

In order to fully offset the net cost of the collars, we also sold local currency put options with a lower strike price and the same expiration dates and amounts as the option contracts that were used to hedge sales. These written put options introduced risk of loss if the U.S. dollar were to strengthen beyond the strike price of the written put options. In December 2012, we entered into purchased put options that are not designated as hedges in order to partially offset the risk of loss that would be incurred on the written put options if the US dollar were to strengthen beyond the strike price of the written put. Gains and losses associated with the non-hedge put options have been recorded on the income statement as other income (expense), net.

Foreign currency option contracts entered into to hedge forecasted revenue and expenses were as follows at December 31, 2012:

Foreign Currency Option
  Notional Amount*
2012
 

Designated as hedging activity:

       

Purchased Put

  $ 228,779  

Written Call

  $ 235,920  

Not designated as hedging activity:

       

Purchased Put

  $ 160,493  

Written Put

  $ (215,952 )
*
U.S. Dollar notional amounts are calculated as the hedged local currency amount multiplied times the strike value of the foreign currency option. The local currency notional amounts of our purchased put, and written call that are designated as hedging activity are equal to each other.

Although not predictive in nature, we believe a hypothetical 10% threshold reflects a reasonably possible near-term change in foreign currency rates. Assuming that the December 31, 2012 exchange rates were to change by a hypothetical 10%, the fair value of the foreign currency option contracts that are designated as hedges would change by approximately $24.1 million. However, since the foreign currency option contracts designated as hedges hedge specific forecasted intercompany transactions denominated in foreign currencies, any change in the fair value of the contract would be either reported in other comprehensive income and reclassified to earnings in the same periods during which the underlying hedged transactions affect earnings or re-measured through earnings each period along with the underlying asset or liability. Assuming that the December 31, 2012 exchange rates were to change by a hypothetical 10%, the fair value of the foreign currency option contracts that are not designated as hedges would decrease by approximately $0.9 million if the U.S. Dollar were to strengthen, and would increase by approximately $2.2 million if the U.S. Dollar were to weaken. This impact would be recorded to income during the period during which the change in currency rates occurred.

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Interest Rate Risk Management

Treasury Rate Lock Agreements:    During 2012, we entered into treasury rate lock agreements, or treasury rate locks, in anticipation of issuing fixed-rate notes that were issued in August 2012. With the exception of a short period in June when certain outstanding treasury rate locks were not designated as hedges, our treasury rate locks are designated as cash flow hedges and, to the extent effective, any realized or unrealized gains or losses on them are reported in OCI and will be recognized in income over the life of the anticipated fixed-rate notes. Treasury rate locks were settled during 2012 which resulted in losses of $35.3 million that were recorded to OCI. During the short period in June when we had outstanding treasury rate locks that were not considered hedging instruments, we recorded the change in fair value of $3.7 million in other income (expense), net. No material amounts were recorded in income during 2012 or 2011 as a result of hedge ineffectiveness or hedge components excluded from the assessment of effectiveness. At December 31, 2012 we had no outstanding treasury rate locks.

Interest Rate Swap Contracts:    From time to time we hedge the fair value of certain debt obligations through the use of interest rate swap contracts. The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in interest rates. Since the specific terms and notional amount of the swap are intended to match those of the debt being hedged, it is assumed to be a highly effective hedge and all changes in fair value of the swaps are recorded on the Consolidated Balance Sheets with no net impact recorded in income. Any net interest payments made or received on interest rate swap contracts are recognized as interest expense.

In 2011, we settled outstanding interest rate swap contracts we entered into with respect to our $500.0 million 2.45% fixed notes due in 2015 resulting in the receipt of $34.3 million. The proceeds from the settlements are being accounted for as a reduction of current and future interest expense associated with these notes. During 2012, we terminated the hedging relationship on $800.0 million notional amount of swap contracts that had been entered into earlier in 2012 as hedges of our 1.9% fixed rate notes due in 2017 and our 3.25% fixed rate notes due in 2022 by settling certain of the contracts and entering into offsetting contracts for those not settled. This resulted in gains of $5.0 million that are being accounted for as a reduction of current and future interest expense associated with these notes.

At December 31, 2012, we were a party to pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes. Our swap contracts outstanding at December 31, 2012 consisted of $100.0 million aggregate notional amount maturing in 2017, which effectively convert a portion of our $500.0 million, 1.90% fixed-rate notes due in 2017 to a floating rate and $200.0 million aggregate notional amount maturing in 2022, which effectively converts a portion of our $1.000 billion, 3.25% fixed-rate notes due in 2022 to a floating rate.

In January 2013 we entered into additional interest rate swap contracts with notional amounts of $400.0 million related to our 1.90% fixed-rate notes due in 2017 and $800.0 million related to our 3.25% fixed-rate notes due in 2022.

A sensitivity analysis to measure potential changes in the market value of our debt and interest rate swap contracts from a change in interest rates indicated that a one percentage point increase in interest rates at December 31, 2012 would have reduced the aggregate fair value of our net payable by $169.3 million. A one percentage point decrease at December 31, 2012 would have increased the aggregate fair value of our net payable by $188.7 million.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CELGENE CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Celgene Corporation:

We have audited the accompanying consolidated balance sheets of Celgene Corporation and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule, "Schedule II – Valuation and Qualifying Accounts." These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Celgene Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2013 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

Short Hills, New Jersey

February 15, 2013

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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

 
  December 31,  
 
  2012   2011  

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 2,090,387   $ 1,859,464  

Marketable securities available for sale

    1,809,883     788,690  

Accounts receivable, net of allowances of $32,988 and $18,855 at December 31, 2012 and 2011, respectively

    960,521     945,531  

Inventory

    259,495     189,573  

Deferred income taxes

    93,168     116,751  

Other current assets

    320,211     395,094  

Assets held for sale

    -         58,122  
           

Total current assets

    5,533,665     4,353,225  

Property, plant and equipment, net

   
578,362
   
506,042
 

Intangible assets, net

    3,100,423     2,844,698  

Goodwill

    2,042,773     1,887,220  

Other assets

    479,083     414,725  
           

Total assets

  $ 11,734,306   $ 10,005,910  
           

Liabilities and Stockholders' Equity

             

Current liabilities:

             

Short-term borrowings

  $ 308,459   $ 526,684  

Accounts payable

    145,652     121,525  

Accrued expenses

    775,724     701,707  

Income taxes payable

    11,841     30,042  

Current portion of deferred revenue

    17,263     14,346  

Other current liabilities

    431,296     138,424  

Liabilities of disposal group

    -         7,244  
           

Total current liabilities

    1,690,235     1,539,972  

Deferred revenue, net of current portion

   
16,178
   
12,623
 

Income taxes payable

    188,181     616,465  

Deferred income taxes

    1,018,366     775,022  

Other non-current liabilities

    355,546     273,516  

Long-term debt, net of discount

    2,771,333     1,275,585  
           

Total liabilities

    6,039,839     4,493,183  
           

Commitments and Contingencies (Note 18)

             

Stockholders' Equity:

             

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

   
-    
   
-    
 

Common stock, $.01 par value per share, 575,000,000 shares authorized; issued 498,427,951 and 487,381,255 shares at December 31, 2012 and 2011, respectively

    4,984     4,874  

Common stock in treasury, at cost; 78,676,097 and 49,889,078 shares at December 31, 2012 and 2011, respectively

    (4,823,153 )   (2,760,705 )

Additional paid-in capital

    7,539,787     6,764,479  

Retained earnings

    3,022,596     1,566,416  

Accumulated other comprehensive (loss)

    (49,747 )   (62,337 )
           

Total stockholders' equity

    5,694,467     5,512,727  
           

Total liabilities and stockholders' equity

  $ 11,734,306   $ 10,005,910  
           

See accompanying Notes to Consolidated Financial Statements

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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

 
  Years Ended December 31,  
 
  2012   2011   2010  

Revenue:

                   

Net product sales

  $ 5,385,599   $ 4,699,690   $ 3,508,438  

Collaborative agreements and other revenue        

    10,711     19,500     10,540  

Royalty revenue

    110,403     122,880     106,767  
               

Total revenue

    5,506,713     4,842,070     3,625,745  
               

Expenses:

                   

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

    299,124     425,859     306,521  

Research and development

    1,724,156     1,600,264     1,128,495  

Selling, general and administrative

    1,373,541     1,226,314     950,634  

Amortization of acquired intangible assets        

    194,499     289,226     203,231  

Acquisition related (gains) charges and restructuring, net

    168,951     (142,346 )   47,229  
               

Total costs and expenses

    3,760,271     3,399,317     2,636,110  
               

Operating income

   
1,746,442
   
1,442,753
   
989,635
 

Other income and (expense):

                   

Interest and investment income, net

    15,260     25,860     44,757  

Interest (expense)

    (63,205 )   (42,737 )   (12,634 )

Other income (expense), net

    (17,006 )   (6,354 )   (9,148 )
               

Income before income taxes

    1,681,491     1,419,522     1,012,610  

Income tax provision

    225,311     102,066     132,418  
               

Net income

    1,456,180     1,317,456     880,192  

Net loss attributable to non-controlling interest

    -         694     320  
               

Net income attributable to Celgene

  $ 1,456,180   $ 1,318,150   $ 880,512  
               

Net income per share attributable to Celgene:

                   

Basic

  $ 3.38   $ 2.89   $ 1.90  

Diluted

  $ 3.30   $ 2.85   $ 1.88  

Weighted average shares:

                   

Basic

    430,927     455,348     462,298  

Diluted

    440,796     462,748     469,517  

See accompanying Notes to Consolidated Financial Statements

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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)

 
  Years Ended December 31,  
 
  2012   2011   2010  

Net income

  $ 1,456,180   $ 1,317,456   $ 880,192  
               

Other comprehensive income (loss):

                   

Foreign currency translation adjustments

    25,905     (9,847 )   (18,181 )

Pension liability adjustment

    (4,739 )   (1,546 )   (5,695 )

Change in functional currency of a foreign subsidiary

    13,145     -         57,668  

Net asset transfer of a common control foreign subsidiary

    607     (51 )   (106 )

Net unrealized gains (losses) related to cash flow hedges:

                   

Unrealized holding gains (losses), net of tax expense (benefit) of ($13,755), ($28) and ($197) for the years ended 2012, 2011 and 2010, respectively

    52,958     21,264     26,964  

Reclassification adjustment for (gains) losses included in net income, net of tax (expense) benefit of ($1,933), ($2,922) and $0 for the years ended 2012, 2011 and 2010, respectively

    (77,717 )   2,955     (47,686 )

Net unrealized gains (losses) on marketable securities available for sale:

                   

Unrealized holding gains (losses), net of tax expense (benefit) of ($135), $1,445 and $3,365 for the years ended 2012, 2011 and 2010, respectively

    1,436     2,919     10,409  

Reclassification adjustment for (gains) losses included in net income, net of tax (expense) benefit of $79, $256 and ($3,638) for the years ended 2012, 2011 and 2010, respectively

    995     (4,264 )   (7,715 )
               

Total other comprehensive income (loss)

    12,590     11,430     15,658  
               

Comprehensive income

    1,468,770     1,328,886     895,850  

Comprehensive loss attributable to non-controlling interest

    -         694     320  
               

Comprehensive income attributable to Celgene

  $ 1,468,770   $ 1,329,580   $ 896,170  
               

See accompanying Notes to Consolidated Financial Statements

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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

 
  Years Ended December 31,  
 
  2012   2011   2010  

Cash flows from operating activities:

                   

Net income

  $ 1,456,180   $ 1,317,456   $ 880,192  

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

                   

Depreciation

    84,874     71,153     54,234  

Amortization

    198,573     291,698     204,855  

Allocation of prepaid royalties

    1,444     16,742     47,241  

Provision (benefit) for accounts receivable allowances

    12,453     6,354     (2,309 )

Deferred income taxes

    100,199     (85,822 )   (103,923 )

Impairment charges

    148,010     118,000     -      

Change in value of contingent consideration

    166,374     (147,463 )   9,712  

Share-based compensation expense

    231,043     217,202     182,796  

Share-based employee benefit plan expense

    19,324     20,664     14,403  

Reclassification adjustment for cash flow hedges included in net income

    (79,650 )   33     (47,682 )

Unrealized change in value of derivative instruments

    71,682     (47,644 )   57,652  

Realized (gains) losses on marketable securities available for sale

    1,074     (3,842 )   (11,531 )

Other, net

    (3,193 )   (648 )   3,769  

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

                   

Accounts receivable

    (30,052 )   (263,130 )   (234,452 )

Inventory

    (69,680 )   70,980     18,723  

Other operating assets

    92,887     (69,288 )   (45,674 )

Assets held for sale, net

    (1,176 )   2,361     2,999  

Accounts payable and other operating liabilities

    68,191     191,239     51,557  

Payment of contingent consideration

    -         (23,324 )   -      

Income tax payable

    (455,485 )   95,326     78,110  

Deferred revenue

    5,481     (1,937 )   20,884  
               

Net cash provided by operating activities

    2,018,553     1,776,110     1,181,556  
               

Cash flows from investing activities:

                   

Proceeds from sales of marketable securities available for sale

    1,743,741     2,175,172     3,931,883  

Purchases of marketable securities available for sale

    (2,768,798 )   (1,693,380 )   (3,272,225 )

Payments for acquisition of business, net of cash acquired

    (352,245 )   -         (2,652,377 )

Purchases of intellectual property and other assets

    (48,865 )   -         -      

Proceeds from the sale of assets, net

    15,782     93,185     -      

Capital expenditures

    (111,524 )   (132,119 )   (98,632 )

(Purchases) refunds of investment securities

    (30,046 )   (59,248 )   (14,020 )

Other investing activities

    (1,637 )   (5,914 )   (1,934 )
               

Net cash provided by (used in) investing activities

    (1,553,592 )   377,696     (2,107,305 )
               

Cash flows from financing activities:

                   

Payment for treasury shares

    (2,043,570 )   (2,188,582 )   (183,116 )

Proceeds from short-term borrowing

    4,494,787     1,878,784     -      

Principal repayments on short-term borrowing

    (4,712,174 )   (1,353,061 )   -      

Payment of contingent consideration

    -         (156,676 )   -      

Proceeds from the issuance of long-term debt

    1,486,682     -         1,237,270  

Net proceeds from exercise of common stock options and warrants

    476,228     166,451     86,889  

Excess tax benefit from share-based compensation arrangements

    49,319     31,054     36,124  
               

Net cash provided by (used in) financing activities

    (248,728 )   (1,622,030 )   1,177,167  
               

Effect of currency rate changes on cash and cash equivalents

    14,690     (23,440 )   (2,462 )
               

Net increase in cash and cash equivalents

    230,923     508,336     248,956  

Cash and cash equivalents at beginning of period

    1,859,464     1,351,128     1,102,172  
               

Cash and cash equivalents at end of period

  $ 2,090,387   $ 1,859,464   $ 1,351,128  
               

See accompanying Notes to Consolidated Financial Statements

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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Dollars in thousands)

 
  Years Ended December 31,  
 
  2012   2011   2010  

Supplemental schedule of non-cash investing and financing activity:

                   

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

 
$

(1,301

)

$

(3,651

)

$

(13,808

)
               

Matured shares tendered in connection with stock option exercises

 
$

(1,182

)

$

(4,912

)

$

(8,245

)
               

Supplemental disclosure of cash flow information:

                   

Interest paid

 
$

48,421
 
$

50,192
 
$

1,752
 
               

Income taxes paid

 
$

469,570
 
$

93,019
 
$

121,976
 
               

See accompanying Notes to Consolidated Financial Statements

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CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)

 
  Celgene Corporation Shareholders    
   
 
Years Ended December 31, 2012, 2011 and 2010
  Common
Stock
  Treasury
Stock
  Additional
Paid-in
Capital
  Retained
Earnings
(Deficit)
  Accumulated
Other
Comprehensive
Income
(Loss)
  Stockholders'
Equity
  Non-
Controlling
Interest
  Total  

Balances at December 31, 2009

  $ 4,676   $ (362,521 ) $ 5,474,122   $ (632,246 ) $ (89,425 ) $ 4,394,606   $ -       $ 4,394,606  

Net income

                     
880,512
         
880,512
   
(320

)
 
880,192
 

Other comprehensive income

                (57,562 )         15,658     (41,904 )         (41,904 )

Mature shares tendered related to option exercise

          (8,245 )   7,335                 (910 )         (910 )

Exercise of stock options and warrants and conversion of
restricted stock units

    39     (1,410 )   91,039                 89,668           89,668  

Shares purchased under share repurchase program

          (183,116 )                     (183,116 )         (183,116 )

Issuance of common stock for employee benefit plans

          9,704     2,722                 12,426           12,426  

Issuance of common stock related to Abraxis acquisition

    107           617,651                 617,758           617,758  

Expense related to share-based compensation

                182,404                 182,404           182,404  

Income tax benefit upon exercise of stock options

                32,529                 32,529           32,529  

Non-controlling interest resulting from acquisition of
Abraxis, net

                                  -         11,819     11,819  
                                   

Balances at December 31, 2010

  $ 4,822   $ (545,588 ) $ 6,350,240   $ 248,266   $ (73,767 ) $ 5,983,973   $ 11,499   $ 5,995,472  

Net income

                     
1,318,150
         
1,318,150
   
(694

)
 
1,317,456
 

Other comprehensive income

                51           11,430     11,481           11,481  

Mature shares tendered related to option exercise

          (4,912 )   3,061                 (1,851 )         (1,851 )

Exercise of stock options and warrants and conversion of
restricted stock units

    52     (3 )   166,693                 166,742           166,742  

Shares purchased under share repurchase program

          (2,221,157 )                     (2,221,157 )         (2,221,157 )

Issuance of common stock for employee benefit plans

          10,955     2,644                 13,599           13,599  

Issuance of common stock related to Abraxis acquisition

                72                 72           72  

Expense related to share-based compensation

                216,628                 216,628           216,628  

Income tax benefit upon exercise of stock options

                25,090                 25,090           25,090  

Disposal of non-controlling interest

                                  -         (10,805 )   (10,805 )
                                   

Balances at December 31, 2011

  $ 4,874   $ (2,760,705 ) $ 6,764,479   $ 1,566,416   $ (62,337 ) $ 5,512,727   $ -       $ 5,512,727  

Net income

                     
1,456,180
         
1,456,180
         
1,456,180
 

Other comprehensive income

                (13,752 )         12,590     (1,162 )         (1,162 )

Mature shares tendered related to option exercise

          (1,182 )   673                 (509 )         (509 )

Exercise of stock options and warrants and conversion of
restricted stock units

    107     (10,535 )   482,936                 472,508           472,508  

Shares purchased under share repurchase program

          (2,050,731 )                     (2,050,731 )         (2,050,731 )

Issuance of common stock for employee benefit plans

    3           19,178                 19,181           19,181  

Expense related to share-based compensation

                230,500                 230,500           230,500  

Income tax benefit upon exercise of stock options

                55,773                 55,773           55,773  
                                   

Balances at December 31, 2012

  $ 4,984   $ (4,823,153 ) $ 7,539,787   $ 3,022,596   $ (49,747 ) $ 5,694,467   $ -       $ 5,694,467  
                                   

See accompanying Notes to Consolidated Financial Statements

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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except per share amounts, unless otherwise indicated)

1.     Nature of Business and Basis and Summary of Significant Accounting Policies

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

Our primary commercial stage products include REVLIMID®, VIDAZA®, ABRAXANE®, THALOMID® (inclusive of Thalidomide Celgene®), and ISTODAX®. POMALYST® was approved by the U.S. Food and Drug Administration, or FDA, in February 2013 for patients with multiple myeloma who have received at least two prior therapies, including lenalidomide and bortezomib, and have demonstrated disease progression on or within 60 days of completion of the last therapy. Additional sources of revenue include royalties from Novartis on their sales of FOCALIN XR® and the entire RITALIN® family of drugs, other licensing royalties, and the sale of services through our Celgene Cellular Therapeutics subsidiary.

The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. Investments in limited partnerships and interests where we have an equity interest of 50% or less and do not otherwise have a controlling financial interest are accounted for by either the equity or cost method. We record net income (loss) attributable to non-controlling interest, if any, in our Consolidated Statements of Income equal to the percentage of ownership interest retained in the respective operations by the non-controlling parties. Certain prior year amounts have been reclassified to conform to the current year's presentation.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. We are subject to certain risks and uncertainties related to product development, regulatory approval, market acceptance, scope of patent and proprietary rights, competition, outcome of civil and governmental proceedings, European credit risk, technological change and product liability.

Financial Instruments:    Certain financial instruments reflected in the Consolidated Balance Sheets, (e.g., cash, cash equivalents, accounts receivable, certain other assets, accounts payable, short-term borrowings and certain other liabilities) are recorded at cost, which approximates fair value due to their short-term nature. The fair values of financial instruments other than marketable securities are determined through a combination of management estimates and information obtained from third parties using the latest market data. The fair value of available-for-sale marketable securities is determined utilizing the valuation techniques appropriate to the type of security (See Note 4).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Derivative Instruments and Hedges:    All derivative instruments are recognized on the balance sheet at their fair value. Changes in the fair value of derivative instruments are recorded each period in current earnings or other comprehensive income (loss), depending on whether a derivative instrument is designated as part of a hedging transaction and, if it is, the type of hedging transaction. For a derivative to qualify as a hedge at inception and throughout the hedged period, we formally document the nature and relationships between the hedging instruments and hedged item. We assess, both at inception and on an on-going basis, whether the derivative instruments that are used in cash flow hedging transactions are highly effective in offsetting the changes in cash flows of hedged items. We assess hedge ineffectiveness on a quarterly basis and record the gain or loss related to the ineffective portion of derivative instruments, if any, to current earnings. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting and any related unrealized gain or loss on the derivative instrument is recognized in current earnings. We use derivative instruments, including those not designated as part of a hedging transaction, to manage our exposure to movements in foreign exchange and interest rates. The use of these derivative instruments modifies the exposure of these risks with the intent to reduce our risk or cost. We do not use derivative instruments for speculative trading purposes and are not a party to leveraged derivatives.

Cash, Cash Equivalents and Marketable Securities Available for Sale:    We invest our excess cash primarily in money market funds, U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities, non-U.S. government, agency and Supranational securities and global corporate debt securities. All liquid investments with maturities of three months or less from the date of purchase are classified as cash equivalents and all investments with maturities of greater than three months from date of purchase are classified as marketable securities available for sale. We determine the appropriate classification of our investments in marketable debt and equity securities at the time of purchase. Marketable securities available for sale are carried at fair value, held for an unspecified period of time and are intended for use in meeting our ongoing liquidity needs. Unrealized gains and losses on available-for-sale securities, which are deemed to be temporary, are reported as a separate component of stockholders' equity, net of tax. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses and other-than-temporary impairment charges, is included in interest and investment income, net.

A decline in the market value of any available-for-sale security below its carrying value that is determined to be other-than-temporary would result in a charge to earnings and decrease in the security's carrying value down to its newly established fair value. Factors evaluated to determine if an investment is other-than-temporarily impaired include significant deterioration in earnings performance, credit rating, asset quality or business prospects of the issuer; adverse changes in the general market condition in which the issuer operates; our intent to hold to maturity and an evaluation as to whether it is more likely than not that we will not have to sell before recovery of its cost basis; our expected future cash flows from the security; and issues that raise concerns about the issuer's ability to continue as a going concern.

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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Concentration of Credit Risk:    Cash, cash equivalents and marketable securities are financial instruments that potentially subject the Company to concentration of credit risk. We invest our excess cash primarily in money market funds, U.S. Treasury fixed rate securities, U.S. government-sponsored agency fixed rate securities, U.S. government-sponsored agency mortgage-backed fixed rate securities and FDIC guaranteed fixed rate corporate debt, non-U.S. government issued securities and non-U.S. government guaranteed securities (See Note 6). We may also invest in unrated or below investment grade securities, such as equity in private companies. We have established guidelines relative to diversification and maturities to maintain safety and liquidity. These guidelines are reviewed periodically and may be modified to take advantage of trends in yields and interest rates.

We sell our products in the United States primarily through wholesale distributors and specialty contracted pharmacies. Therefore, wholesale distributors and large pharmacy chains account for a large portion of our U.S. trade receivables and net product revenues (See Note 19). International sales are primarily made directly to hospitals, clinics and retail chains, many of which in Europe are government owned and have extended their payment terms in recent years given the economic pressure these countries are facing. We continuously monitor the creditworthiness of our customers, including these governments, and have internal policies regarding customer credit limits. We estimate an allowance for doubtful accounts primarily based on the credit worthiness of our customers, historical payment patterns, aging of receivable balances and general economic conditions, including publicly available information on the credit worthiness of countries themselves and provinces or areas within such countries where they are the ultimate customers.

We continue to monitor economic conditions, including the volatility associated with international economies, the sovereign debt crisis in certain European countries and associated impacts on the financial markets and our business. Our current business model in these markets is typically to sell our products directly to principally government owned or controlled hospitals, who in turn directly deliver critical care to patients. Our products are used to treat life-threatening diseases and we believe this business model enables timely delivery and adequate supply of products. Many of the outstanding receivable balances are related to government-funded hospitals and we believe the receivable balances are ultimately collectible. Similarly, we believe that future sales to these customers will continue to be collectible.

The credit and economic conditions within Spain, Italy, Portugal and Greece, as well as increasing sales levels in those countries have resulted in, and may continue to result in, an increase in the average length of time it takes to collect accounts receivable. Our total net receivables in Spain, Italy and Portugal are composed almost entirely of amounts receivable from government-owned or controlled hospitals and the public sector and amounted to $324.2 million at December 31, 2012 compared to $396.1 million at December 31, 2011. Approximately $51.9 million of the $324.2 million receivable at December 31, 2012 was greater than one year past due. Our exposure to the sovereign debt crisis in Greece is limited, as we do not have a material amount of receivables in Greece. We maintain timely and direct communication with hospital customers in Spain, Italy and Portugal regarding both the current and past due

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CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

receivable balances. We continue to receive payments from these countries, and closely monitor the plans for payment at the regional government level. Payments from customers in these countries are not received on regular intervals and several months could elapse between significant payments. This payment pattern was observed in Spain, where a significant portion of aged receivables were paid in late June and early July 2012. We also regularly request and receive positive confirmation of the validity of our receivables from most of the regional governmental authorities. We have the option to pursue legal action against certain of our customers. In view of the protracted timeline associated with collecting the outstanding balances through legal action and the current direct communication with our customers, in many instances, we do not believe pursuing legal action to be the best approach for any of the parties involved.

In determining the appropriate allowance for doubtful accounts for Spain, Italy and Portugal, we considered that the balance of past due receivables is related to sales made to government-owned or supported customers. We regularly monitor developments in Europe to assess whether the level of risk of default for any customers has increased and note the ongoing efforts by the European Union, European Monetary Union and International Monetary Fund to support countries with large public deficits and outstanding debt balances. We also monitor the efforts of individual countries to support their regions with large public deficits and outstanding debt balances. We have not experienced significant losses or write-offs with respect to the collection of our accounts receivable in these countries as a result of their economic difficulties and we do not expect to have write-offs or adjustments to accounts receivable which would have a material adverse impact on our financial position or results of operations.

Inventory:    Inventories are recorded at the lower of cost or market, with cost determined on a first-in, first-out basis. We periodically review the composition of inventory in order to identify obsolete, slow-moving or otherwise non-saleable items. If non-saleable items are observed and there are no alternate uses for the inventory, we will record a write-down to net realizable value in the period that the decline in value is first recognized. Included in inventory are raw materials used in the production of preclinical and clinical products, which are charged to research and development expense when consumed.

Assets Held for Sale:    Assets to be disposed of were separately presented in the consolidated balance sheet and reported at the lower of their carrying amount or fair value less costs to sell, and were not depreciated. The assets and related liabilities of a disposal group classified as held for sale were presented separately in the current asset and current liability sections of the consolidated balance sheet.

Property, Plant and Equipment:    Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation of plant and equipment is recorded using the straight-line method. Building improvements are depreciated over the remaining useful life of the building. Leasehold improvements are depreciated over the lesser of the economic useful life

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of the asset or the remaining term of the lease, including anticipated renewal options. The estimated useful lives of capitalized assets are as follows:

Buildings

  40 years

Building and operating equipment

  15 years

Manufacturing machinery and equipment

  10 years

Other machinery and equipment

  5 years

Furniture and fixtures

  5 years

Computer equipment and software

  3-7 years

Maintenance and repairs are charged to operations as incurred, while expenditures for improvements which extend the life of an asset are capitalized.

Capitalized Software Costs:    We capitalize software costs incurred in connection with developing or obtaining software. Capitalized software costs are included in property, plant and equipment, net and are amortized over their estimated useful life of three to seven years from the date the systems are ready for their intended use.

Investments in Other Entities:    We hold a portfolio of investments in equity securities and certain investment funds that are accounted for under either the equity method or cost method. Investments in companies or certain investment funds over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in other income (expense), net. Our cost method and equity method investments are included in other assets on the Consolidated Balance Sheets.

All investments are reviewed on a regular basis for possible impairment. If an investment's fair value is determined to be less than its net carrying value and the decline is determined to be other-than-temporary, the investment is written down to its fair value. Such an evaluation is judgmental and dependent on specific facts and circumstances. Factors considered in determining whether an other-than-temporary decline in value has occurred include: market value or exit price of the investment based on either market-quoted prices or future rounds of financing by the investee; length of time that the market value was below its cost basis; financial condition and business prospects of the investee; our intent and ability to retain the investment for a sufficient period of time to allow for recovery in market value of the investment; issues that raise concerns about the investee's ability to continue as a going concern; any other information that we may be aware of related to the investment.

Other Intangible Assets:    Intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets which are not amortized include acquired in-process research and development, or IPR&D, and acquired intangible assets held for sale. Amortization is initiated for IPR&D intangible assets when their useful lives have been determined. IPR&D intangible assets which are determined to have had a drop in their fair value are adjusted downward and an expense recognized on the earnings statement. These are tested at least annually or when a triggering event occurs that could indicate a potential impairment.

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Goodwill:    Goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination accounted for by the acquisition method of accounting and is not amortized, but subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We test our goodwill annually for impairment each November 30.

Impairment of Long-Lived Assets:    Long-lived assets, such as property, plant and equipment and certain other long-term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of the assets exceed their estimated future undiscounted net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceed the fair value of the assets.

Contingent Consideration from Business Combinations:    Subsequent to the acquisition date, we measure contingent consideration arrangements at fair value for each period with changes in fair value recognized in operating earnings. Changes in fair values reflect new information about related IPR&D assets and the passage of time. In the absence of new information, changes in fair value reflect only the passage of time as development work towards the achievement of the milestones progresses, and is accrued based on an accretion schedule.

Foreign Currency Translation:    Operations in non-U.S. entities are recorded in the functional currency of each entity. For financial reporting purposes, the functional currency of an entity is determined by a review of the source of an entity's most predominant cash flows. The results of operations for non-U.S. dollar functional currency entities are translated from functional currencies into U.S. dollars using the average currency rate during each month, which approximates the results that would be obtained using actual currency rates on the dates of individual transactions. Assets and liabilities are translated using currency rates at the end of the period. Adjustments resulting from translating the financial statements of our foreign entities into the U.S. dollar are excluded from the determination of net income and are recorded as a component of other comprehensive income (loss). Transaction gains and losses are recorded in other income (expense), net in the Consolidated Statements of Income. We had net foreign exchange losses of $10.8 million in 2012, $3.1 million in 2011 and $9.8 million in 2010.

Research and Development Costs:    Research and development costs are expensed as incurred. These include all internal and external costs related to services contracted by us. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval. Milestone payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product.

Income Taxes:    We utilize 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 years in which the temporary differences are expected to reverse. A valuation

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allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. We recognize the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained.

Revenue Recognition:    Revenue from the sale of products is recognized when title and risk of loss of the product is transferred to the customer. Provisions for discounts, early payments, rebates, sales returns and distributor chargebacks under terms customary in the industry are provided for in the same period the related sales are recorded.

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

Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are generally based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate formula established by the Center for Medicaid and Medicare Services. The Medicaid rebate percentage was increased and extended to Medicaid Managed Care Organizations in March 2010. The accrual of the rebates associated with Medicaid Managed Care Organizations is calculated based on estimated historical patient data related to Medicaid Managed Care Organizations. We have also analyzed actual billings received from certain states to further support the accrual rates. Subsequent to implementation of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or collectively the 2010 U.S. Health Care Reform Law, certain states have not yet submitted actual Medicaid Managed Care Organization bills, resulting in an increase in the accrual balance. Effective January 1, 2011, manufacturers of pharmaceutical products are responsible for 50% of the patient's cost of branded prescription drugs related to the Medicare Part D Coverage Gap. In order to estimate the cost to us of this coverage gap responsibility, we analyze data for eligible Medicare Part D patients against data for eligible Medicare Part D patients treated with our products as well as the historical invoices. This expense is recognized throughout the year as incurred. In addition, certain international markets have government-sponsored programs that require rebates to be paid based on program specific rules and, accordingly, the rebate accruals are determined primarily on estimated eligible sales.

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

We base our sales returns allowance on estimated on-hand retail/hospital inventories, measured end-customer demand as reported by third-party sources, actual returns history and other factors, such as the trend experience for lots where product is still being returned or inventory centralization and rationalization initiatives conducted by major pharmacy chains, as applicable. If the historical data we used to calculate these estimates does not properly reflect future returns,

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then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Under this methodology, we track actual returns by individual production lots. Returns on closed lots, that is, lots no longer eligible for return credits, are analyzed to determine historical returns experience. Returns on open lots, that is, lots still eligible for return credits, are monitored and compared with historical return trend rates. Any changes from the historical trend rates are considered in determining the current sales return allowance.

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

We record estimated reductions to revenue for free goods and volume-based discounts at the time of the initial sale. The estimated reductions to revenue for such free goods and volume-based discounts are based on the sales terms, historical experience and trend analysis. The cost of free goods is included in Cost of Goods Sold (excluding amortization of acquired intangible assets).

We recognize revenue from royalties based on licensees' sales of its products or products using its technologies. Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and collectability is reasonably assured. If royalties cannot be reasonably estimated or collectability of a royalty amount is not reasonably assured, royalties are recognized as revenue when the cash is received.

Share-Based Compensation:    We utilize share based compensation in the form of stock options, restricted stock units, or RSUs, and performance-based restricted stock units, or PSUs. Compensation expense is recognized in the Consolidated Statements of Income based on the estimated fair value of the awards at grant date. Compensation expense recognized reflects an estimate of the number of awards expected to vest after taking into consideration an estimate of award forfeitures based on actual experience and is recognized on a straight-line basis over the requisite service period, which is generally the vesting period required to obtain full vesting. Management expectations related to the achievement of performance goals associated with PSU grants is assessed regularly and that assessment is used to determine whether PSU grants are expected to vest. If performance-based milestones related to PSU grants are not met or not expected to be met, any compensation expense recognized to date associated with grants that are not expected to vest will be reversed.

The fair values of stock option grants are estimated as of the date of grant using a Black-Scholes option valuation model. The fair values of RSU and PSU grants are based on the market value of our Common Stock on the date of grant.

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Earnings Per Share:    Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period, assuming potentially dilutive common shares, resulting from option exercises, restricted stock units, warrants and other incentives had been issued and any proceeds thereof used to repurchase common stock at the average market price during the period. The assumed proceeds used to repurchase common stock is the sum of the amount to be paid to us upon exercise of options, the amount of compensation cost attributed to future services and not yet recognized and, if applicable, the amount of excess income tax benefit that would be credited to paid-in capital upon exercise.

New Accounting Pronouncements:    In June 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2011-05, "Comprehensive Income (Topic 220)," or ASU 2011-05. ASU 2011-05 was issued to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance in ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We have adopted ASU 2011-05 during the first quarter of 2012 and have presented the components of other comprehensive income in separate Consolidated Statements of Comprehensive Income.

In July 2012, the FASB issued ASU No. 2012-02, "Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," or ASU 2012-02. ASU 2012-02 allows a company the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under that option, a company would no longer be required to calculate the fair value of an indefinite-lived intangible asset unless the company determines, based on that qualitative assessment, that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. ASU 2012-02 is effective for annual and interim indefinite-lived intangible asset impairment tests performed for periods beginning after September 15, 2012. Early adoption is permitted and we have adopted this standard in the fourth quarter of 2012. The adoption of ASU 2012-02 did not have a material impact on our financial position or results of operations.

2.     Acquisitions and Divestitures

Avila Acquisition

On March 7, 2012, or the Acquisition Date, we acquired all of the outstanding common stock of Avila Therapeutics, Inc., subsequently renamed Celgene Avilomics Research, herein referred to as Avila. The acquisition resulted in Avila becoming our wholly-owned subsidiary. The results of operations for Avila are included in our consolidated financial statements from the Acquisition Date and the assets and liabilities of Avila have been recorded at their respective fair values on the Acquisition Date and consolidated with our other assets and liabilities. Avila's results of

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operations prior to the Acquisition Date were determined to be immaterial to us; therefore, pro forma financial statements are not required to be presented.

We paid $352.2 million in cash, net of cash acquired, and may make additional payments of up to an estimated maximum of $595.0 million in contingent developmental and regulatory milestone payments.

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

Our potential contingent consideration payments are classified as liabilities, which were measured at fair value as of the Acquisition Date. The range of potential milestone payments is from no payment if none of the milestones are achieved to an estimated maximum of $595.0 million if all milestones are achieved. The potential milestones consist of developmental and regulatory achievements, including milestones for the initiation of phase II and phase III studies, investigational new drug, or IND, filings, and other regulatory events.

We estimated the fair value of potential contingent consideration using a probability-weighted income approach, which reflects the probability and timing of future potential payments. This fair value measurement is based on significant input not observable in the market and thus represents a Level 3 liability within the fair value hierarchy. The resulting probability-weighted cash flows were discounted using a discount rate based on a market participant assumption.

The acquisition has been accounted for using the acquisition method of accounting which requires that assets acquired and liabilities assumed be recognized at their fair values as of the Acquisition Date and requires the fair value of acquired IPR&D to be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts.

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

 
  Fair Value at the
Acquisition Date
 

Cash

  $ 363,405  

Contingent consideration

    171,654  
       

Total fair value of consideration transferred

  $ 535,059  
       

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The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the Acquisition Date based upon their respective fair values summarized below:

 
  Amounts
Recognized as of
Acquisition Date
 

Working capital (1)

  $ 11,987  

Property, plant and equipment

    2,559  

Platform technology intangible asset (2)

    330,800  

In-process research and development product rights

    198,400  

Net deferred tax liability (3)

    (164,993 )
       

Total identifiable net assets

    378,753  

Goodwill

    156,306  
       

Net assets acquired

  $ 535,059  
       
(1)
Includes cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities.
(2)
Platform technology related to the Avilomics™ discovery platform which is being amortized over a useful life of seven years based on the estimated useful life of the platform.
(3)
Includes current deferred income tax asset of $14.7 million and non-current deferred tax liability of $179.7 million.

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

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

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. The goodwill

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recorded as part of the acquisition is largely attributable to full ownership rights to the Avilomics™ platform. We do not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the acquisition has been recorded as a non-current asset in our Consolidated Balance Sheets and is not amortized, but is subject to review for impairment annually.

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

Abraxis BioScience, Inc.

On October 15, 2010, or the Abraxis Acquisition Date, we acquired all of the outstanding common stock of Abraxis BioScience, Inc., or Abraxis, in exchange for consideration valued at the Abraxis Acquisition Date at approximately $3.205 billion, consisting of cash, stock and contingent value rights, or CVRs. The transaction, referred to as the Merger, resulted in Abraxis becoming our wholly owned subsidiary.

As discussed further under "Contingent Value Rights" below, a holder of a CVR is entitled to receive a pro rata portion of cash payments that we are obligated to pay to all holders of CVRs, which is determined by achievement of certain net sales and U.S. regulatory approval milestones. Potential cash payments to CVR holders range from no payment, if no regulatory milestones or net sales thresholds are met, to a maximum of $650.0 million in milestone payments plus payments based on annual net sales levels if all milestones are met at the earliest target dates and annual net sales exceed threshold amounts.

The Merger has been accounted for using the acquisition method of accounting which requires that most assets acquired and liabilities assumed be recognized at their fair values as of the Abraxis Acquisition Date and requires the fair value of IPR&D to be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. An aggregate $1.290 billion was the recorded value of the IPR&D asset, of which $118.0 million was subsequently recognized as impaired due to a change in the probability of obtaining progression-free survival labeling for the treatment of non-small cell lung cancer for ABRAXANE® in the United States. The remaining $1.172 billion asset was reclassified in October 2012 from an acquired IPR&D intangible to an acquired developed product rights intangible asset upon the approval of ABRAXANE® for NSCLC.

Contingent Value Rights

In connection with the Merger on October 15, 2010, CVRs were issued under a Contingent Value Rights Agreement, or CVR Agreement, entered into between Celgene and American Stock Transfer & Trust Company, LLC, as trustee. The CVRs are registered for trading on the

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NASDAQ Global Market under the symbol "CELGZ." The fair value of the liability of the Company related to payments under the CVR Agreement are subject to fluctuation based on trading prices for the publicly traded CVRs. Subsequent to the Abraxis Acquisition Date, we measured the contingent consideration represented by the CVRs at fair value with changes in fair value recognized in operating earnings.

Each holder of a CVR is entitled to receive a pro rata portion, based on the number of CVRs then outstanding, of each of the following contingent cash payments:

    Milestone Payment #1.  $250.0 million upon FDA approval of ABRAXANE® for use in the treatment of non-small cell lung cancer, or NSCLC, if such approval permits us to market ABRAXANE® with FDA approval that includes a progression-free survival, or PFS, claim, but only if this milestone is achieved no later than the fifth anniversary of the Merger.

    Milestone Payment #2.  $400.0 million (if achieved no later than April 1, 2013) or $300.0 million (if achieved after April 1, 2013 and before the fifth anniversary of the Merger) upon FDA approval of ABRAXANE® for use in the treatment of pancreatic cancer, if such approval permits us to market ABRAXANE® with FDA approval that includes an overall survival claim.

    Net Sales Payments.  For each full one-year period ending December 31 during the term of the CVR Agreement, which we refer to as a net sales measuring period (with the first net sales measuring period beginning January 1, 2011 and ending December 31, 2011):

    2.5% of the net sales of ABRAXANE® and the Abraxis pipeline products that exceed $1.000 billion but are less than or equal to $2.000 billion for such period, plus

    an additional amount equal to 5% of the net sales of ABRAXANE® and the Abraxis pipeline products that exceed $2.000 billion but are less than or equal to $3.000 billion for such period, plus

    an additional amount equal to 10% of the net sales of ABRAXANE® and the Abraxis pipeline products that exceed $3.000 billion for such period.

No payments will be due under the CVR Agreement with respect to net sales of ABRAXANE® and the Abraxis pipeline products after December 31, 2025, which we refer to as the net sales payment termination date, unless net sales for the net sales measuring period ending on December 31, 2025 are equal to or greater than $1.000 billion, in which case the net sales payment termination date will be extended until the last day of the net sales measuring period subsequent to December 31, 2025 during which net sales of ABRAXANE® and the Abraxis pipeline products are less than $1.000 billion or, if earlier, December 31, 2030. The fair value of our liability related to the CVRs was $277.4 million at the end of 2012 compared to $60.6 million at the end of 2011.

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In October 2012, the FDA approved ABRAXANE® for the first-line treatment of locally advanced or metastatic NSCLC, in combination with carboplatin, in patients who are not candidates for curative surgery or radiation therapy. The FDA approval was based on tumor response rates and did not result in the use of a marketing label that includes a progression-free survival claim, and accordingly, the CVR Milestone Payment #1, as described above, has not been achieved. This approval resulted in the related $1.172 billion intangible asset obtained from the Abraxis acquisition being reclassified in October 2012 from an acquired IPR&D intangible to an acquired developed product rights intangible asset and amortization commenced in October 2012.

Sale of Non-core Assets

The purchase of Abraxis included a number of assets that are not associated with nab® technology or ABRAXANE®. These assets, or non-core assets, consisted of a number of subsidiaries, tangible assets, equity investments, joint venture partnerships and assets that supported research and sales of products not directly related to the nab® technology or ABRAXANE®. At the time of acquisition, we committed to a plan to divest certain non-core assets and they were classified on the Consolidated Balance Sheets as of December 31, 2010 as assets held for sale and the associated liabilities were classified as liabilities of disposal group. In April 2011, we sold these non-core assets to various entities that are owned or controlled by Dr. Patrick Soon-Shiong, the former majority shareholder and executive chairman of Abraxis.

We received cash consideration of $110.0 million, 10% equity ownership in Active Biomaterials, LLC, which is an entity that was formed with certain of the non-core assets with revenue-producing potential, and a future royalty stream based on net sales of certain products of Active Biomaterials, LLC. The royalties, which commence in 2014 at the earliest and are not to exceed an annual amount of $128.0 million, will be calculated based on a range of between 10% and 12.5% of net sales of certain future products. Dr. Patrick Soon-Shiong held an option to purchase the 10% equity ownership in Active Biomaterials, LLC from us for a price of $15.0 million at any time prior to April 2013 and he exercised that option in 2012. We recorded the future royalty stream as an asset and assigned a value of $170.0 million based on its fair market value calculated as the present value of estimated future net cash flows. The sale of the non-core assets resulted in a gain of $2.9 million which was included in the Consolidated Statements of Income, in other income (expense), net. Our policy is to present gains and losses from sales of businesses as other income or expense.

Two manufacturing and research facilities located in Melrose Park, Illinois, and the equipment associated with operations at those facilities, were sold in June of 2012 to APP Pharmaceuticals, Inc. (now known as Fresenius Kabi USA, LLC), or APP, a subsidiary of Fresenius Kabi AG. APP manufactures ABRAXANE® at one of the facilities. In exchange for the facilities, we received rights to free and reduced cost manufacturing of specified quantities of ABRAXANE®, which we recorded as current or non-current assets based on anticipated timing of delivery, a five-year rent-free lease of a portion of one of th