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`10-K 1 a2014123110k.htm 10-K
`Table of Contents
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`UNITED STATES
`
`SECURITIES AND EXCHANGE COMMISSION
`
`Washington, D.C. 20549
`
`FORM 10-K
`
`(Mark one)
`
`x
`
`o
`
`ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`For the fiscal year ended December 31, 2014
`
`or
`
`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)
`
`86 Morris Avenue
`Summit, New Jersey
`(Address of principal executive offices)
`
`22-2711928
`(I.R.S. Employer Identification No.)
`
`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
`
`Contingent Value Rights
`
`NASDAQ Global Select Market
`
`NASDAQ Global Market
`
`Securities registered pursuant to Section 12(g) of the Act: None
`
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
`
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
`
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
`preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
`90 days. Yes x No o
`
`Indicate by check mark whether the registrant has submitted electronically 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 x No o
`
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
`registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
`
`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.
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`CELGENE EXHIBIT 2021
`Coalition for Affordable Drugs VI LLC (Petitioner) v. Celgene Corporation (Patent Owner)
`Case IPR2015-01103
`
`

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`Large accelerated filer x
`
`Accelerated filer o
`
`Non-accelerated filer o
`
`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 x
`
`(Do not check if a smaller reporting company)
`
`The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2014, the last business day of the registrant's most recently completed
`second quarter, was $68,638,903,046 based on the last reported sale price of the registrant's Common Stock on the NASDAQ Global Select Market on that date.
`
`There were 800,590,656 shares of Common Stock outstanding as of February 12, 2015.
`
`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, 2014. The
`proxy statement is incorporated herein by reference into the following parts of the Form 10-K:
`
`Part II, Item 5.(d)
`
`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.
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`Certain Relationships and Related Transactions, and Director Independence.
`
`Part III, Item 14.
`
`Principal Accountant Fees and Services.
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`Table of Contents
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`CELGENE CORPORATION
`
`ANNUAL REPORT ON FORM 10-K
`
`TABLE OF CONTENTS
`
`Item No.
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`Page
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`1.
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`1A.
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`1B.
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`2.
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`3.
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`4.
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`5.
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`6.
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`7.
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`7A.
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`8.
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`9.
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`9A.
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`9B.
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`10.
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`11.
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`12.
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`13.
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`14.
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`15.
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`Business
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`Risk Factors
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`Unresolved Staff Comments
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`Properties
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`Legal Proceedings
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`Mine Safety Disclosures
`
`Part I
`
`Part II
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`Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
`Securities
`
`Selected Financial Data
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`Management's Discussion and Analysis of Financial Condition and Results of Operations
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`Quantitative and Qualitative Disclosures About Market Risk
`
`Financial Statements and Supplementary Data
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`Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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`Controls and Procedures
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`Other Information
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`Directors, Executive Officers and Corporate Governance
`
`Executive Compensation
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`Part III
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`Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
`
`Certain Relationships and Related Transactions, and Director Independence
`
`Principal Accountant Fees and Services
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`Part IV
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`Exhibits, Financial Statement Schedules
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`Signatures and Power of Attorney
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`Table of Contents
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`ITEM 1. BUSINESS
`
`PART I
`
`Celgene Corporation, together with its subsidiaries (collectively “we,” “our,” “us,” “Celgene” or the “Company”), is an integrated
`global biopharmaceutical company engaged primarily in the discovery, development and commercialization of innovative therapies
`for the treatment of cancer and inflammatory diseases through gene and protein regulation. We are dedicated to innovative research
`and development designed to bring new therapies to market and we are involved in research in several scientific areas designed to
`deliver proprietary next-generation therapies, targeting areas including intracellular signaling pathways, protein homeostasis and
`epigenetics in cancer and immune cells, immunomodulation in cancer and autoimmune diseases and therapeutic application of cell
`therapies. Celgene Corporation was incorporated in the State of Delaware in 1986.
`
`Our primary commercial stage products include REVLIMID®, ABRAXANE®, POMALYST®/IMNOVID®, VIDAZA®, azacitidine
`for injection (generic version of VIDAZA®), THALOMID® (sold as THALOMID® or Thalidomide CelgeneTM outside of the U.S.),
`OTEZLA® and ISTODAX®. OTEZLA® was approved by the U.S. Food and Drug Administration (FDA) in March 2014 for the
`treatment of adult patients with active psoriatic arthritis and in September 2014 for the treatment of patients with moderate to severe
`plaque psoriasis who are candidates for phototherapy or systemic therapy. In January 2015, OTEZLA® was approved by the
`European Commission (EC) for the treatment of both psoriasis and psoriatic arthritis in certain adult patients. We began recognizing
`revenue related to OTEZLA® during the second quarter of 2014. Additional sources of revenue include royalties from Novartis
`Pharma AG (Novartis) on their sales of FOCALIN XR® and the entire RITALIN® family of drugs, the sale of products and services
`through our Celgene Cellular Therapeutics (CCT) subsidiary and other licensing arrangements.
`
`We continue to invest substantially in research and development in support of multiple ongoing proprietary clinical development
`programs which support our existing products and pipeline of new drug candidates. REVLIMID® is in several phase III trials across
`a range of hematological malignancies that include multiple myeloma, lymphomas, chronic lymphocytic leukemia (CLL) and
`myelodysplastic syndromes (MDS). POMALYST®/IMNOVID® was approved in the United States and the European Union for
`indications in multiple myeloma based on phase II and phase III trial results, respectively, and an additional phase III trial is
`underway with POMALYST®/IMNOVID® in relapsed and refractory multiple myeloma. Phase III trials are also underway for
`CC-486 in MDS and acute myeloid leukemia (AML) and ISTODAX® in first-line peripheral T-cell lymphoma (PTCL). In solid
`tumors, ABRAXANE® is currently in various stages of investigation for breast, pancreatic and non-small cell lung cancers. In
`inflammation and immunology, OTEZLA® is being evaluated in phase III trials for Behçet's disease and expanded indications in
`psoriatic arthritis and psoriasis. Also in the inflammation and immunology therapeutic area, we have acquired a global development
`and commercialization license to GED-0301 from Nogra Pharma Limited and have initiated a multi-trial clinical program that is
`designed to support global registrations of GED-0301 in Crohn's disease. For more information see Note 2 of Notes to Consolidated
`Financial Statements contained in this Annual Report on Form 10-K.
`
`Beyond our phase III programs, we have access to a growing early-to-mid-stage pipeline of novel potential therapies to address
`significant unmet medical needs that consists of new drug candidates and cell therapies developed in-house, licensed from other
`companies or able to be optioned from collaboration partners.
`
`We believe that continued use of our primary commercial stage products, participation in research and development collaboration
`arrangements, depth of our product pipeline, regulatory approvals of new products and expanded use of existing products will
`provide the catalysts for future growth.
`
`The diseases that our primary commercial stage products are approved to treat are described below for the major markets of the
`United States, the European Union and Japan. Approvals in other international markets are indicated in the aggregate for the disease
`indication that most closely represents the majority of the other international approvals.
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`Table of Contents
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`REVLIMID® (lenalidomide): REVLIMID® is an oral immunomodulatory drug marketed in the United States and many international
`markets for the treatment of patients as indicated below:
`
`Disease
`
`Geographic Approvals
`
`Multiple myeloma (MM)
`
`Multiple myeloma in combination with dexamethasone, in
`patients who have received at least one prior therapy
`
`Multiple myeloma in combination with dexamethasone for
`newly diagnosed patients
`
`Adult patients with previously untreated multiple myeloma
`who are not eligible for transplant
`
`Myelodysplastic syndromes (MDS)
`
`Transfusion-dependent anemia due to low- or intermediate-
`1-risk MDS associated with a deletion 5q abnormality with
`or without additional cytogenetic abnormalities
`
`Transfusion-dependent anemia due to low- or intermediate-
`1-risk MDS in patients with isolated deletion 5q cytogenetic
`abnormality when other options are insufficient or
`inadequate
`
`- United States
`- European Union
`- Japan
`- Other international markets
`
`- United States (Approved February 2015)
`
`- European Union (Approved February 2015)
`
`- United States
`- Other international markets
`
`- European Union
`
`MDS with a deletion 5q cytogenetic abnormality. The
`efficacy or safety of REVLIMID for International Prognostic
`Scoring System (IPSS) intermediate-2 or high risk MDS has
`not been established.
`
`- Japan
`
`Mantle cell lymphoma (MCL) in patients whose disease has
`relapsed or progressed after two prior therapies, one of which
`included bortezomib
`
`- United States
`
`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,
`and CLL. In December 2014, the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use
`(CHMP) adopted a positive opinion for continuous oral treatment with REVLIMID® in adult patients with previously untreated
`multiple myeloma who are not eligible for stem cell transplantation. In February 2015, the indication for REVLIMID® in
`combination with dexamethasone was expanded by the FDA to include the treatment of newly diagnosed multiple myeloma
`(NDMM) in the United States and REVLIMID® was approved in the EU for the treatment of adult patients with previously
`untreated multiple myeloma who are not eligible for transplant.
`
`REVLIMID® is distributed in the United States through contracted pharmacies under the REVLIMID® Risk Evaluation and
`Mitigation Strategy (REMS) 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 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.
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`ABRAXANE® (paclitaxel albumin-bound particles for injectable suspension): ABRAXANE® is a solvent-free chemotherapy
`product which was developed using our proprietary nab® technology platform. This protein-bound chemotherapy agent combines
`paclitaxel with albumin. ABRAXANE® is approved for the treatment of patients as indicated below:
`
`Disease
`
`Geographic Approvals
`
`Breast Cancer
`
`Metastatic breast cancer, after failure of combination
`chemotherapy for metastatic disease or relapse within six
`months of adjuvant chemotherapy. Prior therapy should have
`included an anthracycline unless clinically contraindicated.
`
`Metastatic breast cancer in adult patients who have failed
`first-line treatment for metastatic disease for whom standard,
`anthracycline containing therapy is not indicated
`
`- United States
`- Other international markets
`
`- European Union
`
`Breast cancer
`
`- Japan
`
`Non-Small Cell Lung Cancer (NSCLC)
`
`Locally advanced or metastatic NSCLC, as first-line treatment
`in combination with carboplatin, in patients who are not
`candidates for curative surgery or radiation therapy
`
`- United States
`- Other international markets
`
`NSCLC
`
`Pancreatic Cancer
`
`- Japan
`
`Metastatic adenocarcinoma of the pancreas, a form of
`pancreatic cancer, as first line treatment in combination with
`gemcitabine
`
`- United States
`- European Union
`- Other international markets
`
`Unresectable pancreatic cancer
`
`- Japan (Approved December 2014)
`
`Gastric cancer
`
`- Japan
`
`ABRAXANE® is currently in various stages of investigation for breast cancer, pancreatic cancer and non-small cell lung cancer
`(NSCLC) and is currently under review by the EMA for first-line treatment of NSCLC in adult patients who are not candidates for
`potentially curative surgery.
`
`POMALYST®/IMNOVID®-(pomalidomide)1: POMALYST®/IMNOVID® is a proprietary, distinct, small molecule that is
`administered orally and modulates the immune system and other biologically important targets. POMALYST®/IMNOVID®
`received its first approvals from the FDA and the EC during 2013 for the treatment of patients as indicated below:
`
`Disease
`
`Geographic Approvals
`
`Multiple myeloma for patients 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
`
`- United States
`
`Relapsed and refractory multiple myeloma, in combination with
`dexamethasone, for adult patients who have received at least
`two prior therapies including both lenalidomide and bortezomib
`and have demonstrated disease progression on the last therapy
`1 We received FDA approval for pomalidomide under the trade name POMALYST®. We received EC approval for pomalidomide under
`the trade name IMNOVID®.
`
`- European Union
`
`POMALYST®/IMNOVID® is also being evaluated 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 REMSTM program, which is a proprietary risk-management distribution program tailored specifically to provide for
`the safe and appropriate distribution and use of POMALYST®. Internationally, IMNOVID® is distributed under mandatory
`risk-management distribution programs tailored to meet local authorities' specifications to provide for the safe and appropriate
`distribution and use of IMNOVID®. These programs may vary by country and, depending upon the country and the design of the
`risk-management program, the product is sold through hospitals or retail pharmacies.
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`VIDAZA® (azacitidine for injection): VIDAZA® is a pyrimidine nucleoside analog that has been shown to reverse the effects of
`DNA hypermethylation and promote subsequent gene re-expression. VIDAZA® is a Category 1 recommended treatment for patients
`with intermediate-2 and high-risk MDS, according to the National Comprehensive Cancer Network. The U.S. regulatory exclusivity
`for VIDAZA® expired in May 2011. After the launch of a generic version of VIDAZA® in the United States by a competitor in
`September 2013, we experienced a significant reduction in our U.S. sales of VIDAZA®. In 2013, we also contracted with Sandoz
`AG to sell a generic version of VIDAZA® in the United States, which we supply. Regulatory exclusivity for VIDAZA® is expected
`to continue in Europe through 2018. VIDAZA® is marketed in the United States and many international markets for the treatment of
`patients as indicated below:
`
`Disease
`
`Geographic Approvals
`
`Myelodysplastic syndromes (MDS)
`
`All French-American-British (FAB) subtypes
`
`- United States
`
`Intermediate-2 and high-risk MDS
`
`MDS
`
`- European Union
`- Other international markets
`
`- Japan
`
`Chronic myelomonocytic leukemia with 10% to 29% marrow
`blasts without myeloproliferative disorder
`
`- European Union
`- Other international markets
`
`Acute myeloid leukemia (AML) with 20% to 30% blasts and
`multi-lineage dysplasia
`
`- European Union
`- Other international markets
`
`azacitidine for injection (generic version of VIDAZA®): We contracted with Sandoz AG to sell azacitidine for injection, which they
`launched after the introduction of a generic version of VIDAZA® in the United States by a competitor in September 2013. We
`recognize net product sales from our sales of azacitidine for injection to Sandoz AG.
`
`THALOMID® (thalidomide): THALOMID®, sold as THALOMID® or Thalidomide CelgeneTM outside of the United States, is
`administered orally for the treatment of diseases as indicated below:
`
`Disease
`
`Geographic Approvals
`
`Multiple myeloma
`
`Newly diagnosed multiple myeloma, in combination with
`dexamethasone
`
`- United States
`
`Thalomid in combination with dexamethasone is indicated for
`induction therapy prior to high dose chemotherapy with
`autologous stem cell rescue, for the treatment of patients with
`untreated multiple myeloma
`
`- Other international markets
`
`Multiple myeloma after failure of standard therapies (relapsed
`or refractory)
`
`- Other international markets
`
`Thalidomide CelgeneTM in combination with melphalan and
`prednisone as a first line treatment for patients with untreated
`multiple myeloma who are aged sixty-five years of age or
`older or ineligible for high dose chemotherapy
`
`- European Union
`- Other international markets
`
`Erythema nodosum leprosum
`
`Cutaneous manifestations of moderate to severe erythema
`nodosum leprosum (ENL), an inflammatory complication of
`leprosy
`
`- United States
`- Other international markets
`
`Maintenance therapy for prevention and suppression of the
`cutaneous manifestation of ENL recurrence
`
`- United States
`- Other international markets
`
`THALOMID® is distributed in the United States under our THALOMID REMSTM program, which is a proprietary
`risk-management distribution program tailored specifically to provide for the safe and appropriate distribution and use of
`THALOMID®. Internationally, THALOMID® and Thalidomide CelgeneTM are also distributed under mandatory risk-management
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`distribution programs tailored to meet local authorities' specifications to provide for the safe and appropriate distribution and use of
`THALOMID® and Thalidomide CelgeneTM. These programs may vary by country and, depending upon the country and the design
`of the risk-management program, the products are sold through hospitals or retail pharmacies.
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`OTEZLA® (apremilast): OTEZLA® is an oral small-molecule inhibitor of phosphodiesterase 4 (PDE4) specific for cyclic adenosine
`monophosphate (cAMP). PDE4 inhibition results in increased intracellular cAMP levels. During 2014 and January 2015,
`OTEZLA® received initial approvals in the U.S. and EU as indicated below:
`
`Disease
`
`Geographic Approvals
`
`Psoriatic arthritis
`
`Adult patients with active psoriatic arthritis
`
`- United States (Approved March 2014)
`
`Adult patients with active psoriatic arthritis who have had an
`inadequate response or who have been intolerant to a prior
`DMARD therapy
`
`Psoriasis
`
`Patients with moderate to severe plaque psoriasis who are
`candidates for phototherapy or systemic therapy
`
`Adult patients with moderate to severe chronic plaque
`psoriasis who failed to respond to or who have a
`contraindication to, or are intolerant to other systemic therapy
`including cyclosporine, methotrexate or psoralen and
`ultraviolet-A light
`
`- European Union (Approved January 2015)
`
`- United States (Approved September 2014)
`- Other international markets
` (Approvals beginning November 2014)
`
`- European Union (Approved January 2015)
`
`ISTODAX® (romidepsin): ISTODAX® is administered by intravenous infusion for the treatment of diseases as indicated below and
`has received orphan drug designation for the treatment of non-Hodgkin’s T-cell lymphomas, including CTCL and PTCL.
`
`Disease
`
`Geographic Approvals
`
`Cutaneous T-cell lymphoma (CTCL) in patients who have
`received at least one prior systemic therapy
`
`- United States
`- Other international markets
`
`Peripheral T-cell lymphoma (PTCL) in patients who have
`received at least one prior therapy
`
`- United States
`- Other international markets
`
`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®. We receive royalties from Novartis on their sales of these products.
`
`PRECLINICAL AND CLINICAL-STAGE PIPELINE
`
`Our preclinical and clinical-stage pipeline of new drug candidates and cell therapies is highlighted by multiple classes of both small
`molecule and biologic therapeutic agents designed to selectively regulate disease-associated genes and proteins. These product
`candidates are at various stages of preclinical and clinical development.
`
`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-α, leukotrienes and nitric oxide synthase.
`
`Next generation of Cereblon Modulatory drugs: CC-122 (a PPMTM Pleiotropic Pathway Modifier) and CC-220 represent novel
`compounds that are in phase I clinical trials for hematological and solid tumor cancers and inflammation and immunology diseases.
`They have been differentiated from previous compounds (such as Thalidomide, Lenalidomide and Pomalidomide) and have been
`developed based on our scientific understanding of Cereblon-mediated protein homeostasis.
`
`Cellular therapies: At CCT we are conducting research with 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.
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`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.
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`We are developing our cellular therapies, PDA-001 (IV formulation) and PDA-002 (IM/SC injectable formulation), with the
`initiation of a PDA-001 phase I safety and dose finding study for Crohn’s disease and a PDA-002 phase II study in peripheral
`arterial diseases. 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 tumors is currently in progress.
`
`Sotatercept (ACE-011) and luspatercept (ACE-536): We have collaborated with Acceleron Pharma, Inc. (Acceleron) to develop
`sotatercept and luspatercept to treat anemia in patients with rare blood disorders. Several phase II trials are in progress to evaluate
`the use of sotatercept or luspatercept in the treatment of anemia in patients with rare blood disorders and chronic kidney disease,
`beta-thalassemia and MDS.
`
`mTOR pathway inhibitors: CC-223 and CC-115 target the important cancer pathway that is dysregulated in a large proportion of
`cancers. In particular, activity is being investigated in lymphomas, hepatocellular and prostate cancers in phase I/II trials.
`
`Epigenetics: The current insights into molecular regulation of genetic information (Epigenetics) has the potential to transform
`human diseases. Celgene has two epigenetic modifiers on the market, VIDAZA® and ISTODAX®. In addition, we are collaborating
`with Epizyme Inc. (Epizyme) to develop EPZ-5676 for AML.
`
`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 $2.431 billion in 2014, $2.226 billion in 2013 and $1.724 billion
`in 2012. The product candidates in our pipeline are at various stages of preclinical and clinical development. The path to regulatory
`approval ordinarily includes three phases of clinical trials in which we collect data to support an application to regulatory authorities
`to allow us to market a product for treatment of a specified disease. There are many difficulties and uncertainties inherent in
`research and development of new products, resulting in a high rate of failure. To bring a drug from the discovery phase to regulatory
`approval, and ultimately to market, takes many years and significant cost. Failure can occur at any point in the process, including
`after the product is approved, based on post-marketing events or developments. New product candidates that appear promising in
`development may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns,
`inability to obtain necessary regulatory approvals, limited scope of approved uses, reimbursement challenges, difficulty or excessive
`costs of manufacture, alternative therapies or infringement of the patents or intellectual property rights of others. Uncertainties in the
`FDA approval process and the approval processes in other countries can result in delays in product launches and lost market
`opportunities. Consequently, it is very difficult to predict which products will ultimately be submitted for approval, which will
`obtain approval and which will be commercially viable and generate profits. Successful results in preclinical or clinical studies may
`not be an accurate predictor of the ultimate safety or effectiveness of a drug or product candidate.
`
`Phase I Clinical Trials
`
`Phase I clinical trials begin when regulatory agencies allow initiation of clinical investigation of a new drug or product
`candidate and usually involve up to 80 healthy volunteers or subjects. These trials study a drug's safety profile, and may include
`a preliminary determination of a drug or product candidate's safe dosage range. The phase I clinical trial also determines how a
`drug is absorbed, distributed, metabolized and excreted by the body, and therefore the potential duration of its action. Phase I
`clinical trials generally take from one to three years to complete.
`
`Phase II Clinical Trials
`
`Phase II clinical trials are conducted on a limited number of subjects with the targeted disease. An initial evaluation of the
`drug's effectiveness on subjects is performed and additional information on the drug's safety and dosage range is obtained.
`Phase II clinical trials normally include up to several hundred subjects and may take as many as two to three years to complete.
`
`Phase III Clinical Trials
`
`Phase III clinical trials are typically controlled multi-center trials that involve a larger target patient population that normally
`consists of from several hundred to several thousand subjects to ensure that study results are statistically significant. During
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`phase III clinical trials, physicians monitor subjects to determine efficacy and to gather further information on safety. These
`trials are generally global in nature and are designed to generate the clinical data necessary to submit an application for
`marketing approval to regulatory agencies. Phase III testing varies by disease state, but can often last from two to seven years.
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`Regulatory Review
`
`If a product candidate successfully completes clinical trials and is submitted to governmental regulators, such as the FDA in the
`United States or the EC 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 to evaluate the submission. There is no guarantee that a potential
`treatment will receive marketing a