Celgene Corporation

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Celgene Corporation

7 Powder Horn Drive
Warren, New Jersey 07059
U.S.A.
Telephone: (732) 271-1001
Fax: (732) 271-4184
Web site: http://www.celgene.com

Public Company
Incorporated: 1986
Employees: 679
Sales: $271.47 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: CELG
NAIC: 541710 Research and Development in the Physical Sciences and Engineering; 325412 Pharmaceutical Preparation Manufacturing; 325998 All Other Miscellaneous Chemical Product Manufacturing

Celgene Corporation is a biopharmaceutical company focused on developing and marketing therapies to treat leprosy, cancer, and immunological diseases. The company's technology centers on using small molecules to prevent tumors from forming blood vessels and regulating the pathways of cellular, genomic, and proteomic targets. Celgene markets a brand of thalidomide called Thalomid, a product first introduced by the company to treat complications of leprosy.

Origins

Celgene underwent several permutations during its development, subsisting on one type of business and then delving into another line of work before ultimately gaining prominence as a biotechnology company that relied on one of the most notorious pharmaceutical products in history. Celgene began as a unit of Celanese Corp., a major chemical company that specialized in man-made fibers. The business unit took the definition of its business scope from its parent company, instructed by Celanese to apply biotechnology to the production of fine and specialty chemicals. Celgene's progenitor pursued such work until a dramatic development in Celanese's history directly influenced its biotechnology unit. In 1986, Celanese merged with another large chemical company, American Hoechst Corp., a transaction that ushered in an era of freedom for the business that would become Celgene. As part of the merger process, Celanese's biotechnology unit was spun off into a separate enterprise, Celgene Corporation.

Celgene's first leader as an independent company was Louis Fernandez, an executive of consequence that gave the young company legitimacy in the industry. Fernandez joined Celgene as its chief executive officer in 1986, four months after retiring as chairman of Monsanto Company, one of the largest chemical companies in the world. Joining Fernandez were a number of high-profile executives who served as Celgene's board of directors, a list of corporate luminaries that included Frank Cary, a former chief executive officer of IBM, John Horan, a former chief executive officer of Merck, and the chief executive officer of Chase Manhattan, Willard Butcher. Guided by this list of distinguished executives, Celgene's scientists and engineers focused their efforts on a field close to Fernandez's heart, bioremediation. Celgene concentrated on the research and development of chemical and biotreatment processes for the chemical and pharmaceutical industries. Fernandez, in one of his last moves as Monsanto's chairman, helped form Clean Sites Inc., a nonprofit organization dedicated to accelerating the cleanup of toxic waste dumps. The mandate of Clean Sites dovetailed with Celgene's purpose, presenting Fernandez with an opportunity that prompted him to forsake retirement.

Celgene worked on finding bacteria capable of eliminating toxic waste. One of the company's most significant discoveries was a microorganism that digested toluene—a highly toxic gasoline additive—and broke it down into water and carbon dioxide, rendering it harmless. "Microorganisms are little bugs," Fernandez explained in a January 30, 1989 interview with Fortune, "and like all bugs, they have to eat. So when you find organisms that love hazardous wastes, why, you let them at it." The bioremediation field showed promise, but it did not catapult Celgene anywhere close to the multi-billion-dollar stature of Monsanto. Celgene posted $2.3 million in sales in 1988, almost the same amount the company collected a decade later in an entirely different line of business.

Celgene Changes Its Strategic Course in the Early 1990s

As Celgene entered the 1990s, it continued to look for biological solutions to the problems of hazardous waste, but—almost accidentally—the company began moving toward entering a new line of business. The circumstance that eventually led to Celgene's destiny occurred in 1991, when the company's vice-president, Sol Barer, and its chief scientist went to meet Gilla Kaplan at New York's Rockefeller University. The Celgene pair went to discuss a project about developing a drug to treat tuberculosis, but Kaplan interjected. "You know," Kaplan said, according to a March 28, 2004 interview with The Star-Ledger, "this is all very interesting. But I think I have a better project for you." Kaplan's suggestion involved a drug named thalidomide, a name that rekindled dreadful memories for those within and without the pharmaceutical industry.

Thalidomide first appeared in Germany in October 1957, when the drug was marketed as a sedative. Soon, the drug gained favor as a treatment for morning sickness, finding a receptive audience among pregnant women. Tragedy soon followed, as the use of thalidomide led to a surge of birth defects and the infamous appellation, "Thalidomide Babies." Thalidomide, it was discovered, stopped the growth of blood cells necessary for fetal development and for the growth of arms and legs. Children were born with horrible deformities, the most common of which, Pharcomelia, described the flipper-like limbs of Thalidomide Babies. At its peak, thalidomide was prescribed to pregnant women in 46 countries, resulting in roughly 20,000 infants born during the 1960s with deformities caused by the drug. Thalidomide became the scourge of the pharmaceutical industry. The drug was taken off the market in the early 1960s, as affected children and their parents dealt with the horrific consequences of its use.

Kaplan's mention of thalidomide as a drug for a small company like Celgene to base its existence on was a proposal rife with complexities. The process of taking any drug through regulatory and approval processes was exceptionally lengthy and risky. For a drug like thalidomide, the path to market promised to be strewn with even more formidable obstacles. There were thalidomide victims' groups who likely would oppose the drug's re-introduction with the same zeal of a mother opposing the parole of her child's killer. Further, the Food and Drug Administration (FDA), the federal agency whose consent meant everything to any pharmaceutical company, had sufficient cause never to entertain the possibility of thalidomide entering the U.S. market. In some ways, the very essence of the FDA was tied to keeping thalidomide out of the U.S. market.

By the beginning of the 1960s, when doctors in countries such as Germany, Canada, England, and Australia were prescribing the drug for morning sickness treatment, the application for U.S. approval landed at the desk of the FDA's Frances Kelsey. At the time, approving a drug for public use was a perfunctory process, with scant attention paid to the possible damages of a drug. Thalidomide was Kelsey's first case as an FDA researcher, which further diminished the odds that thalidomide would be denied approval. Kelsey, however, noticed the disturbing occurrence of birth defects and denied approval. Fewer than 20 cases of thalidomide-caused birth defects occurred in the United States because of Kelsey's scrutiny. The FDA, largely because of the thalidomide case, gained a higher state of legitimacy and began to transform into the watchdog organization it later became. When Kaplan suggested thalidomide to Barer, the FDA had every reason to distance itself from the drug that had helped it establish its reputation, a crucible not forgotten by Kelsey, who was an FDA official when Kaplan met Barer in 1991.

There was a litany of reasons for Barer to dismiss the idea of delving into the development of thalidomide, but he listened to Kaplan. Kaplan explained that new research showed thalidomide could treat the painful skin lesions caused by leprosy. There were also indications that the drug could treat AIDS and cancer. Rockefeller University, Kaplan explained, needed a business partner to explore the potential of thalidomide further. Celgene, Barer responded, needed to find a drug to develop. The pair agreed to answer each other's needs, leading to Celgene's 1992 acquisition of exclusive worldwide rights for thalidomide. "It was greeted with a lot of skepticism by the Wall Street community and internally, too," Barer reflected in a March 28, 2004 interview with the Star-Ledger. "People said, 'You're going to take the most vilified drug in history, and you're going to build a pharmaceutical company around it?' "

Company Perspectives:

Celgene is a pharmaceutical company encompassing research, development, manufacturing, and sales and marketing. At Celgene, our mission is to employ our strong research capabilities and expertise toward the discovery, development and commercialization of small molecules for cancer and immunological diseases.

Celgene's bold undertaking soon diverted its attention away from bioremediation. The company discontinued its biotreatment operations in 1994 to devote itself exclusively to the commercialization of thalidomide. Celgene racked up huge annual losses as it conducted experiments and clinical trials, endeavoring to gain approval from the FDA. The company was financially strapped, barely able to keep afloat as it labored in the lab and outside the lab, building the necessary political relationships to bring thalidomide to market. Much of the company's ability to survive during these difficult years was credited to its management, a team led by Barer, who was promoted to president in 1993, and John Jackson, who became Celgene's chief executive officer and chairman in January 1996. A veteran of American Cyanamid and Merck & Co., Jackson was running his own consultancy business, Gemini Medical, when he joined Celgene. "The company was on death's door," a friend remarked in a March 28, 2004 interview with the Star-Ledger, remembering his surprise when he learned of Jackson's decision to head Celgene. "I thought, 'Boy, is this guy nuts or what?' " Jackson, in an October 18, 1999 interview with Bioworld Financial Watch, explained why he took the job: "I thought that the potential of thalidomide coming back to the market to treat serious, debilitating, life-threatening diseases would be a very worthwhile project. At the same time, it was a tremendous challenge working with the FDA and other interested parties."

Jackson's marketing and business experience complemented Barer's scientific expertise. Celgene would need both skill sets from its leadership as it continued along its controversial path. In 1997, the company desperately needed the talents of Jackson, as it teetered on the brink of insolvency. At one point during the year, the company only had two week's worth of cash left, but Jackson, with the help of some of the Marines he served with in Vietnam, was able to secure $18 million in capital to keep the company alive. His intervention was timely; within a year Celgene succeeded in gaining approval from the FDA to market thalidomide.

Thalidomide Entering the Market in 1998

In July 1998, the FDA approved the use of thalidomide, marketed by Celgene under the brand Thalomid, for treating leprosy. Barer commented on the event, saying in a July 16, 1998 interview with Knight Ridder/Tribune Business News: "It's an historic event for us. It's our first product and there can be nothing more important for a pharmaceutical company, especially a small one like ours." Randolph Warren, head of the Thalidomide Victims Association of Canada, offered his reaction in the same article. "We knew it was coming, but this is a very somber day for us. There ought to be a skull and crossbones on the package." The concern was justifiable, and both the FDA and Celgene acknowledged the hazards inherent in introducing thalidomide into the market. Thalomid became the most restricted drug ever sold in the United States, subject to an elaborate distribution system designed by the FDA in conjunction with patient advocacy groups and Celgene. The FDA stipulated that Thalomid could be prescribed only by doctors who registered with a special FDA program. Weekly pregnancy tests were to be given to female patients during the first month of Thalomid therapy, and once monthly for the duration of its use. Female patients were required to use two forms of contraception simultaneously, while male patients were given written and oral warnings of the risk of contraception failure and the need to use condoms. Photographs of children afflicted with thalidomide-caused birth defects were inserted in the drug's packaging to ensure that patients were aware of the risks involved.

Celgene began shipping Thalomid in September 1998. Despite the excitement at Celgene's New Jersey headquarters, the financial gains from the release of Thalomid were expected to be only modest in size. Fewer than 100 new cases of leprosy were reported each year in the United States and roughly 4,000 people were afflicted with the disease in North America, presenting the company with a very small potential customer base. Celgene hoped to broaden Thalomid's scope, however, and seek approval from the FDA to sell the drug as a treatment for cancer and AIDs patients.

Celgene in the 21st Century

Celgene's history of recording annual losses continued as the company exited the 1990s and entered the 21st century. The company hoped to gain financial success by using thalidomide as a springboard to build a pipeline of drugs whose chemical structures were derived from thalidomide. These offshoots, or thalidomide analogs, were called IMiDS, immunomodulatory drugs that were small-molecule, orally-administered compounds that modulated the immune system. Celgene achieved promising success in using one such IMiD to treat multiple myeloma, a cancer of the plasma cells. The company also began advancing the development of a drug it called Revlimid, which, Celgene-sponsored studies showed, was a stronger, safer version of Thalomid.

Celgene completed two important acquisitions at the turn of the millennium, purchases that opened up new avenues of opportunities while it pursued business opportunities related to thalidomide and its analogs. In 2000, the company acquired Signal Pharmaceutical Inc., a privately held, California-based biopharmaceutical company, in a stock-for-stock-merger worth an estimated $200 million. Signal focused on discovering and developing new classes of drugs that regulated genes associated with disease. In 2003, Celgene acquired New Jersey-based Anthrogenesis Corp. in a $45 million deal. Anthrogenesis was a biotherapeutics company involved in the recovery of stem cells from human placental tissue following the completion of a full-term, successful pregnancy.

As Celgene plotted its future course, the potential for long-term financial success was present, but the true measure of any biopharmaceutical company rested on turning potential into reality. Celgene was just beginning to reap the rewards of its research and development efforts as it entered the mid-2000s. In 2003, for the first time in its history, the company posted an annual profit, recording $13.5 million in net income. The company also had accumulated a sizeable deficit by the end of its 17th year as an independent concern, registering $308 million of debt. The future success of Celgene rested on the effectiveness of Thalomid and its derivatives in treating various forms of cancer and AIDs, the outcome of which would determine whether Barer's gamble in 1991 would have a long-term payoff.

Principal Subsidiaries

Signal Pharmaceuticals, Inc.; Anthrogenesis Corp.; Celgene International, Inc.; Celgene Cellular Therapeutics; Celgene International SARL (Switzerland).

Key Dates:

1980:: Celgene's precursor is formed as a unit of Celanese Corp.
1986:: Celgene is spun off as a separate company.
1987:: Celgene completes its initial public offering of stock.
1992:: Celgene acquires the rights to thalidomide.
1996:: John Jackson is appointed Celgene's chief executive officer and chairman.
1998:: Celgene begins shipping Thalomid.
2000:: Signal Pharmaceuticals Inc. is acquired
2003:: Celgene records its first annual profit.

Principal Competitors

Bristol Myers Squibb Co.; Amgen Inc.; Genentech Inc.; Aventis Inc.; Novartis AG; AstraZeneca p.l.c.; Millennium Pharmaceuticals Inc.; Genta Co.; Cell Therapeutics Inc.; Vertex Pharmaceuticals Inc.; Biogen IDEC Inc.; Ilex Oncology Inc.