UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

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 0-16132

CELGENE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		22-2711928
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
86 Morris Avenue, Summit, NJ		07901
(Address of principal executive offices)		(Zip Code)

(908) 673-9000

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 þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated þ          Accelerated o          Non-accelerated o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No þ

At October 30, 2007, 385,860,205 shares of Common Stock, par value $.01 per share, were outstanding.

 

 

CELGENE CORPORATION

FORM 10-Q TABLE OF CONTENTS

				Page No.
PART I		FINANCIAL INFORMATION
Item 1		Unaudited Consolidated Financial Statements
		Consolidated Statements of Operations –
		Three- and Nine-month Periods Ended September 30, 2007 and 2006			3
		Consolidated Balance Sheets –
		As of September 30, 2007 and December 31, 2006			4
		Consolidated Statements of Cash Flows –
		Nine-month Periods Ended September 30, 2007 and 2006			5
		Notes to Unaudited Consolidated Financial Statements			7
Item 2		Management's Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3		Quantitative and Qualitative Disclosures About Market Risk			30
Item 4		Controls and Procedures			32
PART II		OTHER INFORMATION
Item 1		Legal Proceedings			32
Item 1A		Risk Factors			34
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3		Defaults Upon Senior Securities			34
Item 4		Submission of Matters to a Vote of Security Holders			34
Item 5		Other Information			35
Item 6		Exhibits			35
		Signatures			36
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART 1 — FINANCIAL INFORMATION

CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenue:
Net product sales		$	331,169			$	223,105			$	919,910			$	559,749
Collaborative agreements and other revenue			4,616				4,632				14,520				12,848
Royalty revenue			14,123				17,102				56,800				51,322
Total revenue			349,908				244,839				991,230				623,919
Expenses:
Cost of goods sold			34,079				34,205				84,835				91,148
Research and development			130,545				66,756				300,054				178,298
Selling, general and administrative			97,309				89,592				318,716				239,495
Total expenses			261,933				190,553				703,605				508,941
Operating income			87,975				54,286				287,625				114,978
Other income and expense:
Interest and investment income, net			28,296				9,253				79,447				22,102
Equity in losses of affiliated companies			1,106				736				3,338				5,202
Interest expense			2,614				2,361				7,913				7,086
Other income (expense), net			732				1,134				(3,345	)			4,193
Income before income taxes			113,283				61,576				352,476				128,985
Income tax provision			74,450				41,139				201,364				82,916
Net income		$	38,833			$	20,437			$	151,112			$	46,069
Net income per common share:
Basic		$	0.10			$	0.06			$	0.40			$	0.13
Diluted		$	0.09			$	0.05			$	0.36			$	0.12
Weighted average shares:
Basic			383,774				351,200				380,841				347,687
Diluted			432,817				404,858				431,208				403,092

See accompanying Notes to Consolidated Financial Statements

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

		September 30, 2007				December 31, 2006
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	1,040,735			$	1,439,415
Marketable securities available for sale			1,488,970				542,805
Accounts receivable, net of allowances of $5,511 and $6,625 at September 30, 2007 and December 31, 2006, respectively			146,416				127,777
Inventory			56,198				25,371
Deferred income taxes			65,731				87,979
Other current assets			97,885				87,657
Total current assets			2,895,935				2,311,004
Property, plant and equipment, net			175,589				146,645
Investment in affiliated companies			15,089				16,379
Intangible assets, net			97,469				100,509
Goodwill			40,098				38,494
Other assets			149,005				122,760
Total assets		$	3,373,185			$	2,735,791
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	24,691			$	24,410
Accrued expenses			154,393				112,992
Income taxes payable			893				84,859
Convertible notes			399,731				—
Current portion of deferred revenue			7,792				7,647
Other current liabilities			25,794				9,795
Total current liabilities			613,294				239,703
Convertible notes			—				399,889
Deferred revenue, net of current portion			62,583				63,027
Non-current income taxes payable			158,171				—
Other non-current liabilities			59,811				56,995
Total liabilities			893,859				759,614
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock, $.01 par value per share, 5,000,000 shares authorized; none outstanding at September 30, 2007 and December 31, 2006, respectively			—				—
Common stock, $.01 par value per share, 575,000,000 shares authorized; issued 389,778,741 and 380,092,309 shares at September 30, 2007 and December 31, 2006, respectively			3,898				3,801
Common stock in treasury, at cost; 4,026,116 and 4,057,553 shares at September 30, 2007 and December 31, 2006, respectively			(149,519	)			(148,097	)
Additional paid-in capital			2,519,085				2,209,889
Retained earnings (deficit)			49,339				(101,773	)
Accumulated other comprehensive income			56,523				12,357
Total stockholders’ equity			2,479,326				1,976,177
Total liabilities and stockholders’ equity		$	3,373,185			$	2,735,791

See accompanying Notes to Consolidated Financial Statements

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

		Nine-Month Periods Ended
		September 30,
		2007				2006
Cash flows from operating activities:
Net income		$	151,112			$	46,069
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of long-term assets			22,502				18,647
Provision for accounts receivable allowances			6,353				2,086
Realized loss on marketable securities available for sale			4,085				3,992
Unrealized loss on value of EntreMed warrants			130				298
Equity in losses of affiliated companies			2,910				4,865
Non-cash share-based compensation expense			41,630				58,802
Amortization of discount on marketable securities available for sale, net			(2,575	)			(2,374	)
Amortization of debt issuance cost			1,832				1,832
Deferred income taxes			(4,334	)			(23,350	)
Shares issued for employee benefit plans			6,436				6,518
Other			(1,946	)			(2,642	)
Change in current assets and liabilities:
Increase in accounts receivable			(23,148	)			(37,857	)
Increase in inventory			(34,480	)			(13,650	)
Increase in other operating assets			(11,088	)			(45,439	)
Increase (decrease) in accounts payable and accrued expenses			61,162				(28,993	)
Increase in income tax payable			93,085				56,178
Decrease in deferred revenue			(2,733	)			(2,154	)
Net cash provided by operating activities			310,933				42,828
Cash flows from investing activities:
Capital expenditures			(38,447	)			(31,919	)
Proceeds from sales and maturities of marketable securities available for sale			1,462,836				563,548
Purchases of marketable securities available for sale			(2,362,302	)			(581,060	)
Investment in affiliated companies			(1,621	)			(2,000	)
Purchases of long-term investments			(23,356	)			(625	)
Net cash used in investing activities			(962,890	)			(52,056	)
Cash flows from financing activities:
Net proceeds from exercise of common stock options and warrants			136,033				67,982
Excess tax benefit from share-based compensation arrangements			112,614				57,799
Net cash provided by financing activities			248,647				125,781
Effect of currency rate changes on cash and cash equivalents			4,630				3,796
Net increase (decrease) in cash and cash equivalents			(398,680	)			120,349
Cash and cash equivalents at beginning of period			1,439,415				123,316
Cash and cash equivalents at end of period		$	1,040,735			$	243,665

See accompanying Notes to Consolidated Financial Statements

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

		Nine-Month Periods Ended
		September 30,
		2007				2006
Supplemental schedule of non-cash investing and financing activity:
Change in net unrealized loss on marketable securities available for sale		$	43,988			$	7,986
Matured shares tendered in connection with stock option exercises		$	(6,457	)		$	(85,876	)
Conversion of convertible notes		$	130			$	22
Supplemental disclosure of cash flow information:
Interest paid		$	5,250			$	5,250
Income taxes paid		$	—			$	24,071

See accompanying Notes to Consolidated Financial Statements

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business and Basis of Presentation: Celgene Corporation and its subsidiaries (collectively “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 through regulation of cellular, genomic and proteomic targets. The Company’s commercial stage programs include pharmaceutical sales of REVLIMID^®, THALOMID^®, ALKERAN^® and sales of FOCALIN^TM to Novartis Pharma AG, or Novartis; a licensing agreement with Novartis which entitles the Company to royalties on FOCALIN XR^TM and the entire RITALIN^® family of drugs; a licensing and product supply agreement with Pharmion Corporation for its sales of thalidomide in licensed territories; and sales of tissue and cellular products and services through its Cellular Therapeutics subsidiary.

The accompanying unaudited consolidated financial statements have been prepared from the books and records of the Company pursuant to U.S. generally accepted accounting principles for interim information and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in complete annual financial statements have been condensed or omitted. The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. All inter-company transactions and balances have been eliminated. Investments in limited partnerships and interests in which the Company has an equity interest of 50% or less and does not otherwise have a controlling financial interest are accounted for by either the equity or cost method. Certain reclassifications have been made to the prior period’s consolidated financial statements in order to conform to the current period’s presentation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Interim results may not be indicative of the results that may be expected for the full year. In the opinion of management, these financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim consolidated financial statements.

Recent Accounting Principles: In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140,” or SFAS 155, which permits a fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation. The Company has adopted the provisions of SFAS 155 effective January 1, 2007 and has determined that it had no impact on its consolidated financial statements.

In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48, or FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, or SFAS 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 effective January 1, 2007 and had no cumulative effect adjustment related to the adoption. See Note 10, “Income Taxes,” for additional information.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, or SFAS 157, which establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Where applicable, SFAS 157 simplifies and codifies related guidance within generally accepted accounting principles. SFAS 157 will be effective for the Company beginning January 1, 2008. The Company is currently evaluating the impact of the adoption of SFAS 157, if any, will have on its consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

In December 2006, the FASB issued FSP EITF Issue No. 00-19-2, “Accounting for Registration Payment Arrangements,” or FSP 00-19-2, which addresses an issuer’s accounting for registration payment arrangements. FSP 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” FSP 00-19-2 was issued in December 2006 and was effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that were entered into or modified subsequent to the issuance of FSP 00-19-2. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of FSP 00-19-2, it is effective for financial statements issued for fiscal years beginning after December 15, 2006. The Company has adopted the provisions of FSP 00-19-2 effective January 1, 2007 and has determined that the adoption had no impact on its consolidated financial statements. See Note 7, “Convertible Debt,” for additional information.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” or SFAS 159, which provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159’s objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and the highlight the effect of a company’s choice to use fair value on its earnings. It also requires a company to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the balance sheet. SFAS 159 will be effective for the Company beginning January 1, 2008. The Company is currently evaluating the impact of the adoption of SFAS 159, if any, will have on its consolidated financial statements.

On May 2, 2007, the FASB issued FASB Staff Position FIN 48-1, or FSP FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48”. FSP FIN 48-1 provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The Company retroactively adopted the provisions of FSP FIN 48-1 effective January 1, 2007 and has determined that it had no impact on its consolidated financial statements.

In June 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue No. 07-3, “Accounting for Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities”, or EITF 07-3, which provides that non-refundable advance payments for future research and development activities should be deferred and capitalized until the related goods are delivered or the related services are performed. EITF 07-3 will be effective for the Company on a prospective basis beginning January 1, 2008.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

2. Earnings Per Share (EPS)

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 adjusted to add back the after-tax amount of interest recognized in the period associated with any convertible debt issuance that may be dilutive by the weighted-average number of common shares outstanding during the period increased to include all additional common shares that would have been outstanding as if the outstanding convertible debt was converted into shares of common stock and assuming potentially dilutive common shares resulting from option exercises had been issued and any proceeds thereof used to repurchase common stock at the average market price during the period. The proceeds used to repurchase common stock are assumed to be the sum of the amount to be paid to the Company 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.

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net income		$	38,833			$	20,437			$	151,112			$	46,069
Interest expense on convertible debt, net of tax			1,392				1,393				4,177				4,178
Net income for diluted computation		$	40,225			$	21,830			$	155,289			$	50,247
Weighted average shares:
Basic			383,774				351,200				380,841				347,687
Effect of dilutive securities:
Options, warrants and other incentives			16,042				20,637				17,366				22,384
Convertible debt			33,001				33,021				33,001				33,021
Diluted			432,817				404,858				431,208				403,092
Net Income Per Share:
Basic		$	0.10			$	0.06			$	0.40			$	0.13
Diluted		$	0.09			$	0.05			$	0.36			$	0.12

The total number of potential common shares excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 4,855,003 and 1,872,512 shares for the three-month periods ended September 30, 2007 and 2006, respectively. The total number of potential common shares excluded from the diluted earnings per share computation for the nine-month periods ended September 30, 2007 and 2006 was 5,464,407 and 2,893,814 shares, respectively.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

3. Comprehensive Income

The components of comprehensive income, representing the change in equity from non-owner sources, consists of net income, changes in currency translation adjustments and the after-tax effects of changes in net unrealized gains (losses) on marketable securities classified as available for sale.

A summary of comprehensive income for the three- and nine-month periods ended September 30, 2007 and 2006 follows:

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net income		$	38,833			$	20,437			$	151,112			$	46,069
Other comprehensive income:
Unrealized gains on marketable securities available for sale, net of tax			24,981				7,936				24,278				1,597
Reclassification adjustment for losses included in net income			2,639				319				4,085				3,986
Total unrealized gains on marketable securities available for sale, net of tax			27,620				8,255				28,363				5,583
Currency translation adjustments			9,908				4,710				15,803				(323	)
Total other comprehensive income			37,528				12,965				44,166				5,260
Comprehensive income		$	76,361			$	33,402			$	195,278			$	51,329

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

4. Cash, Cash Equivalents and Marketable Securities Available-for-Sale

Money market funds of $1.014 billion and $1.401 billion at September 30, 2007 and December 31, 2006, respectively, were recorded at cost, which approximates fair value and are included in cash and cash equivalents.

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated fair value of available-for-sale securities by major security type and class of security at September 30, 2007 and December 31, 2006 were as follows:

						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
September 30, 2007		Cost				Gain				Loss				Value
Mortgage-backed obligations		$	205,251			$	858			$	(327	)		$	205,782
U.S. Treasury securities			155,851				540				(55	)			156,336
U.S. government-sponsored agency securities			1,018,927				6,195				(941	)			1,024,181
Corporate debt securities			13,462				18				(848	)			12,632
Other asset-backed securities			546				—				—				546
Marketable equity securities			20,212				69,281				—				89,493
Total available-for-sale marketable securities		$	1,414,249			$	76,892			$	(2,171	)		$	1,488,970

						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
December 31, 2006		Cost				Gain				Loss				Value
Mortgage-backed obligations		$	62,137			$	281			$	(426	)		$	61,992
U.S. Treasury securities			53,260				—				(497	)			52,763
U.S. government-sponsored agency securities			349,756				70				(3,771	)			346,055
Corporate debt securities			13,477				17				(470	)			13,024
Other asset-backed securities			17,315				1,731				—				19,046
Marketable equity securities			20,212				29,713				—				49,925
Total available-for-sale marketable securities		$	516,157			$	31,812			$	(5,164	)		$	542,805

Mortgage-backed obligations include fixed rate asset-backed securities issued by the Federal National Mortgage Association, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. U.S. government-sponsored agency securities include general unsecured obligations of the issuing agency. Other asset-backed securities are securities backed by collateral other than mortgage obligations. Unrealized losses for mortgage-backed obligations, U.S. Treasury securities and U.S. government-sponsored agency securities were primarily due to increases in interest rates. Unrealized losses for corporate debt were due to increases in interest rates as well as widening credit spreads. The Company has sufficient liquidity and intends to hold these securities with unrealized losses until the market value recovers. Moreover, the Company believes it is probable that it will collect all amounts due according to the contractual terms of the individual investments.

During the nine-month period ended September 30, 2007, the Company determined that certain of its other asset-backed securities had sustained an other-than-temporary impairment due to a reduction in their future estimated cash flows and, as a result, the Company recognized an impairment loss of $3.0 million, of which $0.6 million related to a security which was subsequently sold. Impairment losses are recorded in interest and investment income, net.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

Duration of debt securities classified as available-for-sale at September 30, 2007 was as follows:

		Amortized				Fair
		Cost				Value
Duration of one year or less		$	385,673			$	386,531
Duration of one through three years			869,601				873,382
Duration of three through five years			118,691				119,046
Duration of five years or more			20,072				20,518
Total		$	1,394,037			$	1,399,477

5. Inventory

A summary of inventories by major category at September 30, 2007 and December 31, 2006 follows:

		September 30,				December 31,
		2007				2006
Raw materials		$	11,834			$	10,133
Work in process			18,941				4,715
Finished goods			25,423				10,523
Total		$	56,198			$	25,371

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

6. Investment in Affiliated Companies

A summary of the Company’s equity investment in affiliated companies follows:

		September 30,				December 31,
		2007				2006
Investment in EntreMed Inc. equity		$	232			$	2,609
Excess of investment over share of EntreMed Inc. equity (1)			12,464				12,690
Investment in EntreMed Inc.		$	12,696			$	15,299
Investment in Burrill Life Sciences, LLP			2,393				1,080
Investment in affiliated companies		$	15,089			$	16,379

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
Equity in Losses of Affiliated Companies		2007				2006				2007				2006
Celgene’s share of affiliated companies losses (2)(3)		$	1,031			$	661			$	3,112			$	4,976
Amortization of intangibles			75				75				226				226
Equity in losses of affiliated companies		$	1,106			$	736			$	3,338			$	5,202

(1)		Consists of intangible assets and goodwill of $75 and $12,389, respectively, at September 30, 2007 and $301 and $12,389, respectively, at December 31, 2006.
(2)		The Company records its interest and share of losses in EntreMed Inc. based on its common stock ownership, which was 12.31% and 10.73% at September 30, 2007 and 2006, respectively.
(3)		The nine-month period ended September 30, 2006 includes $3.1 million related to the Company’s share of EntreMed’s in-process research and development write-down related to its acquisition of Miikana Therapeutics Inc. on January 10, 2006.

The fair value of the Company’s common stock investment in EntreMed Inc. at September 30, 2007 was $11.1 million, or $1.6 million below its carrying value. The Company believes that this unfavorable position is temporary and no impairment loss was recognized.

7. Convertible Debt

Convertible Notes: In June 2003, the Company issued an aggregate principal amount of $400.0 million of unsecured convertible notes due June 2008. The notes have a five-year term and a coupon rate of 1.75% payable semi-annually on June 1 and December 1. Each $1,000 principal amount of convertible notes is convertible into 82.5592 shares of common stock as adjusted, or a conversion price of $12.1125 per share, which represented a 50% premium to the closing price on May 28, 2003 of the Company’s common stock of $8.075 per share, after adjusting prices for the two-for-one stock splits affected on February 17, 2006 and October 22, 2004. The debt issuance costs related to these convertible notes, which totaled approximately $12.2 million, are classified under other assets on the consolidated balance sheet and are being amortized over five years, assuming no conversion. Under the terms of the purchase agreement, the noteholders at September 30, 2007 can convert the outstanding notes at any time into 33,001,483 shares of common stock at the conversion price. In addition, the noteholders have the right to require the Company to redeem the notes in cash at a price equal to 100% of the principal amount to be redeemed, plus accrued interest, prior to maturity in the event of a change of control and certain other transactions defined as a “fundamental change” in the indenture governing the notes. Subsequent to the September 2003 issuance date, an immaterial amount of principal has been converted into common stock.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

In June 2007, the Company’s convertible notes were reclassified from long-term convertible notes to current convertible notes, due to their maturity in June 2008. Based on the price of our common stock at September 30, 2007, the Company expects noteholders to convert the notes into shares of common stock and does not expect such conversion to have a material impact on its financial condition, liquidity or capital resources.

At September 30, 2007 and December 31, 2006, the fair value of the Company’s convertible notes outstanding exceeded the carrying value by approximately $1.954 billion and $1.507 billion, respectively.

Under the Registration Rights Agreement for the notes, or the Registration Rights Agreement, the Company could be subject to liquidated damages if the effectiveness of the registration statement covering the convertible debt is not maintained at any time prior to the earlier of: (i) two years after the conversion of the last convertible note into common stock or (ii) September 2010. The Company believes the likelihood of occurrence of such event is remote and, as such, the Company has not recorded a liability for liquidated damages at September 30, 2007. In the unlikely event that it becomes probable that the Company would have to pay liquidated damages under the Registration Rights Agreement, the Company has estimated the maximum potential liquidated damages as of September 30, 2007 to be approximately $2.0 million per year. Such damages (a) would accrue only with respect to the shares of the Company’s common stock (underlying the notes) that were not already sold by the holder (under the registration statement or pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended) and that were not eligible for sale without a registration statement, (b) would accrue only for the period during which the registration statement was not effective, subsequent to its initial effectiveness and (c) would be settled in cash in accordance with the terms of the Registration Rights Agreement.

8. Intangible Assets and Goodwill

Intangible Assets: A summary of intangible assets by category follows:

		Gross								Intangible				Weighted
		Carrying				Accumulated				Assets,				Average
September 30, 2007		Value				Amortization				Net				Life (Years)
Penn T supply agreements		$	112,980			$	(19,743	)		$	93,237				12.9
License			4,250				(538	)			3,712				13.8
Technology			293				(30	)			263				12.0
Acquired workforce			308				(51	)			257				5.0
Total		$	117,831			$	(20,362	)		$	97,469				12.9

		Gross								Intangible				Weighted
		Carrying				Accumulated				Assets,				Average
December 31, 2006		Value				Amortization				Net				Life (Years)
Penn T supply agreements		$	108,462			$	(12,296	)		$	96,166				12.9
License			4,250				(307	)			3,943				13.8
Technology			122				(12	)			110				12.0
Acquired workforce			295				(5	)			290				5.0
Total		$	113,129			$	(12,620	)		$	100,509				12.9

The $4.7 million increase in gross carrying value of intangible assets from December 31, 2006 to September 30, 2007 was principally due to the impact of foreign currency translation.

Amortization of acquired intangible assets was approximately $2.4 million and $2.3 million for the three-month periods ended September 30, 2007 and 2006, respectively, and $7.1 million and $6.7 million for the nine-month periods ended September 30, 2007 and 2006, respectively. Assuming no changes in the gross carrying amount of intangible assets, the amortization of intangible assets for the next five fiscal years is estimated to be approximately $9.6 million per year.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

Goodwill: At September 30, 2007, the Company’s goodwill related to the October 21, 2004 acquisition of Penn T Limited. The change in carrying value of goodwill is summarized as follows:

Balance, December 31, 2006		$	38,494
Foreign currency translation			1,604
Balance, September 30, 2007		$	40,098

9. Share-Based Compensation

Effective June 12, 2007, the Company amended the 1995 Non-Employee Directors’ Incentive Plan to increase the number of options to purchase common stock granted to each new Non-Employee Director, from 20,000 to 25,000 and to increase the quarterly grants of options from 3,750 (15,000 annually) to 4,625 (18,500 annually). Effective August 22, 2007, the Company amended the 1998 Stock Incentive Plan (the “1998 Plan”) to provide for continued vesting of stock options and stock appreciation rights, granted on or after September 1, 2007, during the three-year period following a participant’s “retirement” (as defined in the 1998 Plan), provided that the Compensation Committee under the 1998 Plan or its designee receives not less than six months written notice of the participant’s intent to retire.

The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three- and nine-month periods ended September 30, 2007 and 2006:

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2007				2006				2007				2006
Cost of good sold		$	582			$	413			$	1,378			$	1,332
Research and development			5,220				2,689				11,165				10,038
Selling, general and administrative			9,274				20,091				24,281				47,325
Other income and expense, net			—				—				4,806				—
Total share-based compensation expense		$	15,076			$	23,193			$	41,630			$	58,695

As of September 30, 2007, there was $142.9 million of unrecognized compensation costs related to Company’s various stock-based plans. These costs will be recognized over an expected remaining weighted-average period of 2.0 years.

The weighted-average grant-date fair value of the stock options granted during the three-month periods ended September 30, 2007 and 2006 was $23.55 per share and $20.03 per share, respectively. The weighted-average grant-date fair value of the stock options granted during the nine-month periods ended September 30, 2007 and 2006 was $23.09 per share and $16.82 per share, respectively. There have been no significant changes to the assumptions used to estimate the fair value of options granted during the three- and nine-month periods ended September 30, 2007, as compared to December 31, 2006.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

Stock option transactions for the nine months ended September 30, 2007 under all plans are as follows:

						Weighted				Weighted
						Average				Average				Aggregate
						Exercise				Remaining				Intrinsic
						Price				Contractual				Value
		Options				Per Option				Term (Years)				(In Thousands)
Outstanding at December 31, 2006			37,111,688			$	18.18				6.0			$	959,600
Changes during the period:
Granted			4,948,070				58.28
Exercised			(9,454,166	)			14.00
Forfeited			(677,282	)			27.37
Expired			(2,700	)			22.86
Outstanding at September 30, 2007			31,925,610			$	25.43				6.1			$	1,464,609
Vested or expected to vest at September 30, 2007			31,132,182			$	25.03				6.0			$	1,440,720
Vested at September 30, 2007			21,539,187			$	18.90				5.0			$	1,128,908

The total fair value of shares vested during the nine-month periods ended September 30, 2007 and 2006 was $26.4 million and $20.2 million, respectively. The total intrinsic value of stock options exercised during the nine-month periods ended September 30, 2007 and 2006 was $435.4 million and $370.2 million, respectively. The Company primarily utilizes newly issued shares to satisfy the exercise of stock options.

10. Income Taxes

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of those deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods available to it for tax reporting purposes and other relevant factors. Significant judgment is required in making this assessment.

The Company adopted the provisions of FIN 48 and FSP FIN 48-1 effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company had no cumulative effect adjustment related to the adoption.

The Company’s tax returns have been audited by the Internal Revenue Service, or IRS, through the fiscal year ended December 31, 2003. Tax returns for the fiscal years ended December 31, 2004 and 2005 are currently under examination by the IRS. The Company is also subject to audits by various state and foreign taxing authorities, which are not material to the Company’s tax positions as of September 30, 2007.

The Company regularly reevaluates its tax positions and the associated interest and penalties, if applicable, resulting from audits of federal, state and foreign income tax filings, as well as changes in tax law that would reduce the technical merits of the position to below more likely than not. The Company believes that its accruals for tax liabilities are adequate for all open years. Many factors are considered in making these evaluations, including past history, recent interpretations of tax law and the specifics of each matter. Because tax regulations are subject to interpretation and tax litigation is inherently uncertain, these evaluations can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. These evaluations are based on estimates and assumptions that have been deemed reasonable by management. However, if management’s estimates are not representative of actual outcomes, the Company’s results of operations could be materially impacted.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

Unrecognized tax benefits, represented by liabilities on the balance sheet and all subject to audit, arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. Included with the associated liability is gross accrued interest of approximately $3.0 million, as of January 1, 2007, upon adoption of FIN 48. The liability for unrecognized tax benefits was $85.2 million at January 1, 2007. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Virtually all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. Changes to the amount of unrecognized tax benefits from January 1, 2007 relate primarily to current year operations. There are no unrecognized tax benefits as of September 30, 2007 for which it is reasonably possible that there will be a significant change in the next 12 months. The liability for unrecognized tax benefits is expected to increase in the next 12 months relating to operations occurring in that period.

During the nine-month period ended September 30, 2007, the Company recorded a deferred tax benefit of approximately $7.0 million, as a result of a research and experimentation tax credit study covering prior years. In addition, the Company generated research and experimentation tax credits of $18.1 million during the nine-month period ended September 30, 2007 related to stock option compensation for which no deferred tax benefit was recorded. Under SFAS 123R, excess tax benefits related to stock option compensation are recognized in the period in which such benefits are realized through the reduction of income taxes payable. These tax benefits will be recorded as an increase in additional paid-in capital when realized. Also, during the nine-month period ended September 30, 2007, the Company recorded a deferred tax expense of approximately $4.0 million to adjust deferred tax assets and liabilities for the effect of changes in state and foreign tax rates.

During the nine-month period ended September 30, 2006, the Company recorded a tax benefit of approximately $6.1 million primarily related to the resolution of certain tax positions taken on the Company’s income tax returns for fiscal years ended December 31, 2000-2002 with the completion of audits for that period.

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Forward-Looking Information

Certain statements contained or incorporated by reference in this Quarterly Report on Form 10-Q are forward-looking statements concerning our business, results of operations, economic performance and financial condition based on our current expectations. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those implied by such forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on any forward-looking statements.

Executive Summary

Celgene Corporation and its subsidiaries (collectively “we” or “our”) is a global integrated biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. Our primary commercial stage products are REVLIMID^® (lenalidomide) and THALOMID^® (thalidomide). We also sell ALKERAN^®, which we obtain through a supply and distribution agreement with GlaxoSmithKline, or GSK, and FOCALIN^TM, which we sell exclusively to Novartis Pharma AG, or Novartis. Our international operations are in the early stages of development and we expect them to provide a more significant contribution to future financial results as our products obtain additional regulatory approval for sale in foreign markets. Other sources of revenue include royalties which we primarily receive from Novartis on its sales of the entire family of RITALIN^® drugs and FOCALIN XR^TM, in addition to revenues from collaborative agreements and licensing fees.

For the quarter ended September 30, 2007, we reported revenue of $349.9 million, net income of $38.8 million and diluted earnings per share of $0.09, representing increases of 42.9%, 90.0% and 80.0%, respectively, compared to the three-month period ended September 30, 2006. This increase primarily reflects the expanded use of REVLIMID^®, partly offset by increased operating expenses required to support our on-going expansion and higher income taxes. On a year-to-date basis, revenues, net income and diluted per share earnings were $991.2 million, $151.1 million and $0.36, representing increases of 58.9%, 228.0% and 200.0%, respectively, compared to the nine-month period ended September 30, 2006.

Our future growth and operating results will depend on continued acceptance of our currently marketed products, regulatory approvals of both new products and the expanded use of existing products, depth of our product pipeline and ability to commercialize these products, competition to our marketed products and challenges to our intellectual property. We continue to expand our international infrastructure in anticipation of international regulatory approvals and commercialization of our products. See also Risk Factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and Part II, Item 1A of this Form 10-Q.

In September 2007, REVLIMID^® was granted approval by the Swiss Agency for Therapeutic Products, or Swissmedic, for use in combination with dexamethasone as a treatment for patients with multiple myeloma who have received at least one prior therapy. In June 2007, full marketing authorization was granted to REVLIMID^® by the European Commission for use in this same indication. We are currently working with the appropriate regulatory authorities to determine next steps for pricing, reimbursement and distribution. A Marketing Authorization Application, or MAA, seeking approval to market REVLIMID^® for treatment of transfusion-dependent anemia due to low-or-intermediate-1 risk

myelodysplastic syndromes associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities continues to be evaluated by the European Medicines Agency’s, or EMEA, Committee for Medicinal Products for Human Use, or CHMP. Other international regulatory initiatives include MAAs currently being evaluated by the Therapeutic Goods Administration in Australia and Health Canada. In April 2007, the Eastern Cooperative Oncology Group reported that its Data Monitoring Committee’s review of preliminary results from a large, randomized clinical trial for patients with newly diagnosed multiple myeloma found that the use of a low-dose of dexamethasone in combination with REVLIMID^® suggests survival advantage for patients when compared to the higher, standard-dose of dexamethasone that is used in combination with REVLIMID^® to treat the disease. These results were also presented at the June 2007 annual American Society of Clinical Oncology medical conference. The regulatory utility of these findings are unclear at this time.

Over the past several years, we have made substantial investments in research and development in support of our existing products, proprietary IMiDs^® compounds and other pipeline products as we continue to evaluate them in a broad range of hematological malignancies, other cancers and other diseases. REVLIMID^® is currently being evaluated as a treatment for non-Hodgkin’s lymphomas, or NHL, and chronic lymphocytic leukemia, or CLL. In May 2007, we announced plans to advance the development of leading oral anti-inflammatory candidates across a broad range of inflammatory diseases. Our oral TNF alpha inhibitor and anti-inflammatory agent, CC-10004 (apremilast), has demonstrated favorable activity and side effect profiles in placebo controlled proof-of-mechanism trials in moderate to severe psoriasis. We also opened our Investigational New Drug application to evaluate CC-4047 (pomalidomide) in a U.S. proof-of-principle study in sickle cell anemia. We are also evaluating CC-4047 for treatment in other diseases including myelofibrosis, myeloma and solid tumor cancers.

In September 2007, we entered into a research collaboration with Array BioPharma Inc., or Array, focused on the discovery, development and commercialization of novel therapeutics in cancer and inflammation. We made an upfront payment of $40.0 million to Array, and, in return, Array granted us an option to select drugs developed under the collaboration that are directed to two of four mutually selected discovery targets. Array will be responsible for all discovery and clinical development through Phase I or Phase IIa. At that time, we will have the option to select drugs resulting from up to two of these four therapeutic programs and will receive exclusive worldwide rights to those drugs, except for Array’s limited co-promotional rights in the U.S. Additionally, Array is entitled to receive, for each drug, potential milestone payments of approximately $200.0 million, 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.

Results of Operations —
Three-Month Periods Ended September 30, 2007 and 2006

Total Revenue: Total revenue and related percentages for the three-month periods ended September 30, 2007 and 2006 were as follows:

		Three-Month Period Ended
		September 30,								Increase				Percent
(In thousands $)		2007				2006				(Decrease)				Change
Net product sales:
REVLIMID®		$	199,261			$	101,314			$	97,947				96.7	%
THALOMID®			110,730				108,370				2,360				2.2	%
ALKERAN®			18,858				12,171				6,687				54.9	%
FOCALINTM			2,219				1,178				1,041				88.4	%
Other			101				72				29				40.3	%
Total net product sales			331,169				223,105				108,064				48.4	%
Collaborative agreements and other revenue			4,616				4,632				(16	)			-0.3	%
Royalty revenue			14,123				17,102				(2,979	)			-17.4	%
Total revenue		$	349,908			$	244,839			$	105,069				42.9	%

Net Product Sales: The increase in REVLIMID^® net sales for the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 reflects the product’s expanded use in the United States resulting from approval by the Food and Drug Administration, or FDA, in June 2006 for multiple myeloma and growth in Europe, reflecting the recent European Commission approval. This increase was partially offset by higher gross to net sales deductions.

THALOMID^® was approved by the FDA in May 2006 in combination with dexamethasone for the treatment of patients with newly diagnosed multiple myeloma and in July 1998 for the treatment of acute cutaneous manifestations of moderate to severe erythema nodosum leprosum, or ENL, and as maintenance therapy for prevention and suppression of the cutaneous manifestation of ENL recurrence. THALOMID^® recorded a sales increase for the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 due to price increases which more than offset a decrease in unit volumes resulting from a slight reduction in dosage and patients migrating to REVLIMID^®. The U.S. introduction of the 150mg dosage also contributed to the sales increase. Partially offsetting the increase in THALOMID^® net sales were higher gross to net sales deductions which reflect an anticipated increase in use of REVLIMID^®.

ALKERAN^®, which is licensed from GSK and sold under the Celgene label, is approved by the FDA for the palliative treatment of multiple myeloma and carcinoma of the ovary. Net sales were higher in the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 due to increases in both units and pricing for the injectable form.

In April 2000, we licensed to Novartis the worldwide rights (excluding Canada) to FOCALIN^TM and FOCALIN XR^TM, which are approved for the treatment of attention deficit hyperactivity disorder, or ADHD. We retained the rights to these products for the treatment of oncology-related disorders. We sell FOCALIN^TM exclusively to Novartis and also supply them with FOCALIN XR^TM, for which we receive a royalty. Sales of FOCALIN^TM increased by $1.0 million in the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006.

Collaborative Agreements and Other Revenue: Revenues from collaborative agreements and other sources totaled $4.6 million for each of the three-month periods ended September 30, 2007 and 2006.

Royalty Revenue: Royalty revenue, primarily comprised of amounts earned from Novartis on their sales of Ritalin^® and FOCALIN XR^TM, decreased by $3.0 million for the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006. This decrease was due to a decline in Novartis’ sales volume which was impacted by a drawdown of its wholesalers’ inventories.

Gross to Net Sales Accruals: We accrue for sales returns, discounts, Medicaid rebates and distributor charge-backs and service fees. Allowances for sales returns are based on among other things: actual returns history for consumed lots, returns trend experience for lots where product is still being returned, levels of inventory in the distribution channel and the introduction of competing products. Discount accruals are based on payment terms extended to customers. Medicaid rebate accruals are based on historical payment data and estimates of future Medicaid beneficiary utilization. Distributor charge-back 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 services accruals are based on contractual fees to be paid to the wholesale distributor for services provided. Gross to net sales accruals and the balance in the related allowance accounts for the three-month periods ended September 30, 2007 and 2006 were as follows:

		Sales												Distributor
		Return								Medicaid				Charge-backs
2007		Allowances				Discounts				Rebates				and Services				Total
Balance at June 30, 2007		$	14,944			$	2,617			$	9,167			$	9,058			$	35,786
Allowances for sales during 2007			4,015				7,640				6,626				19,083				37,364
Allowances for sales during prior periods			6,022				—				—				—				6,022
Credits issued for prior year sales			(4,010	)			(23	)			(29	)			—				(4,062	)
Credits issued for sales during 2007			(1,545	)			(7,151	)			(5,930	)			(16,514	)			(31,140	)
Balance at September 30, 2007		$	19,426			$	3,083			$	9,834			$	11,627			$	43,970

		Sales												Distributor
		Return								Medicaid				Charge-backs
2006		Allowances				Discounts				Rebates				and Services				Total
Balance at June 30, 2006		$	11,637			$	1,752			$	7,225			$	7,629			$	28,243
Allowances for sales during 2006			6,346				5,015				4,289				16,645				32,295
Allowances for sales during prior periods			2,479				—				—				—				2,479
Credits issued for prior year sales			(5,454	)			—				(86	)			—				(5,540	)
Credits issued for sales during 2006			(3,513	)			(4,708	)			(4,458	)			(14,521	)			(27,200	)
Balance at September 30, 2006		$	11,495			$	2,059			$	6,970			$	9,753			$	30,277

Sales return allowances increased in the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006. The higher allowances in the three-month period ended September 30, 2007 were the result of planned THALOMID^â inventory centralization and rationalization at several major pharmacy chains which primarily relates to sales made during prior periods, as well as the expected increase in THALOMID^® returns resulting from the anticipated increase in use of REVLIMID^® in multiple myeloma as a result of recent clinical data. The increase in allowances was partially offset by lower Alkeran injectable returns for the three-month period ended September 30, 2007. Discounts increased in the current year quarter primarily from increased sales of REVLIMID^®.

Medicaid rebate allowances increased in the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 primarily due to price increases for both THALOMID^® and REVLIMID^â as well as increased unit sales of REVLIMID^â. Our Medicaid rebate accruals are based on the Medicaid Unit Rebate Amount formula established by the Center for Medicaid and Medicare Services using the estimated Medicaid dispense quantities. We base the estimated Medicaid dispense quantities on the previous quarter actual Medicaid dispenses, which individual states typically begin reporting to us approximately 45 days after the close of each quarter.

Distributor charge-backs increased in the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 primarily due to REVLIMID^®, THALOMID^® and ALKERAN^® IV price increases, which increased the differential between annual contract pricing available to federally funded healthcare providers and our wholesale acquisition cost.

Operating Costs and Expenses: Operating costs, expenses and related percentages for the three-month periods ended September 30, 2007 and 2006 were as follows:

		Three-Month Period Ended
		September 30,								Increase				Percent
		2007				2006				(Decrease)				Change
Cost of goods sold		$	34,079			$	34,205			$	(126	)			-0.4	%
Percent of net product sales			10.3	%			15.3	%
Research and development		$	130,545			$	66,756			$	63,789				95.6	%
Percent of total revenue			37.3	%			27.3	%
Selling, general and administrative		$	97,309			$	89,592			$	7,717				8.6	%
Percent of total revenue			27.8	%			36.6	%

Cost of Goods Sold: Cost of goods sold decreased slightly in the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 partly due to lower material costs for the injectable form of ALKERAN^® which offset higher costs and royalties related to higher unit sales of REVLIMID^®. The increase in REVLIMID^® sales had a favorable impact on cost of goods sold as a percent of net product sales, since the product carries a lower cost of sales relative to our other products.

Research and Development: Research and development expenses increased by $63.8 million for the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 primarily due to charges for our $40.0 million collaborative research and development arrangement for early stage compounds with Array and $1.1 million collaborative research and development arrangement with PTC Therapeutics. In addition, expenses increased related to clinical development and support of multiple programs across a broad range of cancers, including NHL. Expenses to support ongoing research of other compounds, such as the IMiD^® CC-4047 (pomalidomide), as well as our kinase and ligase inhibitor programs and placental-derived stem/progenitor cell program, also increased. Tumor flare reaction and tumor lysis syndrome were observed in approximately 3% of CLL patients treated with REVLIMID^®. As a result of these findings, we temporarily delayed the enrollment of new patients into our CLL-001 study and amended the protocol to begin patients at a lower, better tolerated dose with a dose escalation. The amended protocol was then reinitiated and is open for enrollment.

In addition to the $41.1 million of research and development expenses due to our collaborative arrangements noted above, research and development expenses for the three-month period ended September 30, 2007 consisted of $32.3 million spent on human pharmaceutical clinical programs; $42.7 million spent on other pharmaceutical programs, including toxicology, analytical research and development, drug discovery, quality and regulatory affairs; $10.4 million spent on biopharmaceutical discovery and development programs; and $4.0 million spent on placental stem/progenitor cell and biomaterials programs. For the three-month period ended September 30, 2006, research and development expenses consisted of $24.9 million spent on human pharmaceutical clinical programs; $28.5 million spent on other pharmaceutical programs, including toxicology, analytical research and development, drug discovery, quality and regulatory affairs; $9.9 million spent on biopharmaceutical discovery and development programs; and $3.5 million spent on placental stem/progenitor cell and biomaterials programs.

Selling, General and Administrative: Selling, general and administrative expenses increased by $7.7 million for the three-month period ended September 30, 2007 compared to the three-month period ended September 30, 2006 primarily due to an increase in donations to support non-profit foundations that assist patients with the co-payments; an increase in sales force costs related to REVLIMID^® product launch preparation activities in Europe, and continued international expansion throughout Europe, Japan, Australia and Canada.

Interest and Investment Income, Net: Interest and investment income, net was $28.3 million for the three-month period ended September 30, 2007, representing an increase of $19.0 million over the $9.3 million recorded for the three-month period ended September 30, 2006. The increase was due to higher average cash, cash equivalents and marketable securities balances resulting from the November 2006 issuance of an additional 20,000,000 shares of our common stock, which generated net proceeds of $1.006 billion. In addition, the three-month periods ended September 30, 2007 and 2006 included other-than-temporary impairment losses on marketable securities available for sale of $1.8 million and $0.3 million, respectively.

Equity in Losses of Affiliated Companies: Under the equity method of accounting, we recorded losses of $1.1 million and $0.7 million for the three-month periods ended September 30, 2007 and 2006, respectively. The increase in losses was primarily due to increased losses related to our investment in EntreMed.

Interest Expense: Interest expense was $2.6 million and $2.4 million for the three-month periods ended September 30, 2007 and 2006, respectively. The $0.2 million increase related to the note payable to Siegfried Ltd. and Siegfried Dienste AG (collectively “Siegfried”) in connection with our December 2006 purchase of an active pharmaceutical ingredient, or API, manufacturing facility in Zofingen, Switzerland.

Other Income (Expense), Net: Other income (expense), net was a net income of $0.7 million for the three-month period ended September 30, 2007 and net income of $1.1 million for the three-month period ended September 30, 2006. The decrease for the three-month period ended September 30, 2007 was due to a decrease in foreign exchange gains.

Income Tax Provision: The income tax provision for the three-month period ended September 30, 2007 was $74.5 million and reflects an effective tax rate of 65.7%. The effective tax rate reflects the tax expense impact of certain expenses incurred in taxing jurisdictions outside the United States for which we do not presently receive a tax benefit and nondeductible expenses, which include share-based compensation expense related to incentive stock options. The effective tax rate also reflects a tax expense of approximately $4.0 million to adjust deferred tax assets and liabilities for the effect of changes in tax rates. The income tax provision for the three-month period ended September 30, 2006 was $41.1 million, reflecting an effective tax rate of 66.8%. The decrease in the effective tax rate was primarily due to higher earnings in the three-month period ended September 30, 2007.

Results of Operations —
Nine-Month Periods Ended September 30, 2007 and 2006

Total Revenue: Total revenue and related percentages for the nine-month periods ended September 30, 2007 and 2006 were as follows:

		Nine-Month Period Ended
		September 30,								Increase				Percent
(In thousands $)		2007				2006				(Decrease)				Change
Net product sales:
REVLIMID®		$	526,457			$	196,777			$	329,680				167.5	%
THALOMID®			334,472				322,774				11,698				3.6	%
ALKERAN®			53,560				34,918				18,642				53.4	%
FOCALINTM			5,171				4,945				226				4.6	%
Other			250				335				(85	)			-25.4	%
Total net product sales			919,910				559,749				360,161				64.3	%
Collaborative agreements and other revenue			14,520				12,848				1,672				13.0	%
Royalty revenue			56,800				51,322				5,478				10.7	%
Total revenue		$	991,230			$	623,919			$	367,311				58.9	%

Net Product Sales: REVLIMID^® net sales increased in the nine-month period ended September 30, 2007 compared to the nine-month period ended September 30, 2006 primarily due to the product’s expanded use in the United States resulting from the FDA’s June 2006 approval in multiple myeloma and growth in Europe, resulting from the recent European Commission’s approval in multiple myeloma. The establishment of our European Named Patient Program, or NPP, which offers European patients in need of treatment access to REVLIMID^®, also contributed to the increase in sales.

Net sales of THALOMID^® were higher for the nine-month period ended September 30, 2007 compared to the nine-month period ended September 30, 2006 primarily due to price increases and lower gross to net adjustments. These favorable impacts were partly offset by lower sales volumes resulting from average daily dose declines.

ALKERAN^® net sales were higher in the nine-month period ended September 30, 2007 compared to the nine-month period ended September 30, 2006 as declines in unit sales for both tablet and injectable forms were offset by higher pricing for the injectable form and lower gross to net deductions.

Collaborative Agreements and Other Revenue: Revenues from collaborative agreements and other sources totaled $14.5 million and $12.8 million for the nine-month periods ended September 30, 2007 and 2006, respectively. The $1.7 million increase in the nine-month period ended September 30, 2007 was primarily due to license fees generated from our S.T.E.P.S.^® program and umbilical cord blood enrollment, collection and storage fees generated through our LifeBank USA^SM business.

Royalty Revenue: Royalty revenue increased by $5.5 million for the nine-month period ended September 30, 2007 compared to the nine-month period ended September 30, 2006 primarily due to amounts received from Novartis on its sales of FOCALIN XR^TM.

Gross to Net Sales Accruals: Gross to net sales accruals and the balance in the related allowance accounts for the nine-month periods ended September 30, 2007 and 2006 were as follows:

		Sales												Distributor
		Return								Medicaid				Charge-backs
2007		Allowances				Discounts				Rebates				And Services				Total
Balance at December 31, 2006		$	9,480			$	2,296			$	7,468			$	10,633			$	29,877
Allowances for sales during 2007			15,165				20,036				20,858				52,303				108,362
Allowances for sales during prior periods			13,522				—				—				—				13,522
Credits issued for prior year sales			(14,517	)			(2,206	)			(7,060	)			(6,725	)			(30,508	)
Credits issued for sales during 2007			(4,224	)			(17,043	)			(11,432	)			(44,584	)			(77,283	)
Balance at September 30, 2007		$	19,426			$	3,083			$	9,834			$	11,627			$	43,970

		Sales												Distributor
		Return								Medicaid				Charge-backs
2006		Allowances				Discounts				Rebates				And Services				Total
Balance at December 31, 2005		$	5,017			$	1,447			$	20,960			$	6,778			$	34,202
Allowances for sales during 2006			23,805				13,502				16,116				43,135				96,558
Allowances for sales during prior periods			25,457				—				—				463				25,920
Credits issued for prior year sales			(30,475	)			(1,479	)			(20,348	)			(6,314	)			(58,616	)
Credits issued for sales during 2006			(12,309	)			(11,411	)			(9,758	)			(34,309	)			(67,787	)
Balance at September 30, 2006		$	11,495			$	2,059			$	6,970			$	9,753			$	30,277