Executive Summary
Celgene Corporation and its subsidiaries (collectively "we" or "our") is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases. In March 2008, we acquired Pharmion Corporation to enhance our portfolio of therapies for patients with life-threatening illnesses worldwide with the addition of Pharmion's marketed products, and several products in development for the treatment of hematological and solid tumor cancers. By combining this new product portfolio with our existing operational and financial capabilities, we enlarged our global market share through increased product offerings and expanded clinical, regulatory and commercial capabilities.
Our primary commercial stage products include REVLIMID®, THALOMID® and VIDAZA®. REVLIMID® is an oral immunomodulatory drug marketed for multiple myeloma patients who have received at least one prior therapy and for treatment of patients with transfusion-dependent anemia due to low- or intermediate-1-risk MDS associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities. THALOMID® is marketed for patients with newly diagnosed multiple myeloma and for the acute treatment of the cutaneous manifestations of moderate to severe ENL, an inflammatory complication of leprosy. VIDAZA® is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. VIDAZA® was licensed from Pharmacia & Upjohn, now part of Pfizer, and is marketed for the treatment of all subtypes of MDS. VIDAZA® was granted orphan drug designation by the FDA for the treatment of MDS in the United States through May 2011. In December 2008, VIDAZA® was granted full marketing authorization by the EC for the treatment of adult patients who are not eligible for haematopoietic stem cell transplantation with Intermediate-2 and high-risk MDS according to the IPSS or CMML with 10-29 percent marrow blasts without myeloproliferative disorder, or AML with 20-30 percent blasts and multi-lineage dysplasia, according to WHO classification.
We continue to invest substantially in research and development, and the drug candidates in our pipeline are at various stages of preclinical and clinical development. These candidates include our IMiDs® compounds, which are a class of compounds proprietary to us and having certain immunomodulatory and other biologically important properties in addition to our leading oral anti-inflammatory agents and cell products. We believe that our primary commercial stage products and depth of our product pipeline provide the catalysts for future growth.
For the year ended December 31, 2008, we reported revenue of $2.255 billion, a net loss of $1.534 billion and a diluted loss per share of $3.46. Revenue increased by $849.0 million in 2008 compared to 2007 primarily due to the expanded use of REVLIMID® and the acquisition of former Pharmion products, including VIDAZA® and THALOMID® outside of the United States. The net loss and loss per share amounts were primarily due to IPR&D charges and amortization of acquired intangible assets related to the Pharmion acquisition, in addition to the expensing of the October 3, 2008 royalty obligation payment to Pfizer that related to the unapproved forms of VIDAZA®.

Factors Affecting Future Results
Future operating results will depend on many factors, including demand for our existing products, regulatory approvals of our products and product candidates, the timing and market acceptance of new products launched by us or competing companies, the timing of research and development milestones, challenges to our intellectual property and our ability to control costs. See also Risk Factors contained in Part I, Item 1A of this Annual Report on Form 10-K. Some of the more significant factors that we are focused on include:
The ability of our products to successfully penetrate and expand in relevant markets:REVLIMID® was approved by the FDA, the EC, the Swissmedic, the TGA, and in October 2008 by Health Canada for treatment in combination with dexamethasone for multiple myeloma patients who have received at least one prior therapy. In addition, REVLIMID® was approved by the FDA and the Canadian Therapeutic Products Directorate for treatment of patients with transfusion-dependent anemia due to low- or intermediate-1-risk MDS, associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities. We do not have long-term data on the use of the product and cannot predict whether REVLIMID® will continue to gain the acceptance of regulators, physicians, patients and other key opinion leaders as a relatively safe and effective drug that has certain advantages as compared to existing or future therapies. We are also seeking to introduce REVLIMID® in additional international markets as well as obtaining approvals for additional indications both in the United States and internationally. A delay in gaining the requisite regulatory approvals could negatively impact our growth plans.
THALOMID® was approved by the FDA for treatment in combination with dexamethasone for patients with newly diagnosed multiple myeloma and is also approved for the treatment and suppression of cutaneous manifestations of ENL, an inflammatory complication of leprosy. In April 2008, the TGA approved a supplemental filing granting THALOMID® marketing approval for use in combination with melphalan and prednisone for patients with untreated multiple myeloma or ineligible for high dose chemotherapy and also granted THALOMID® marketing approval in combination with dexamethasone for induction therapy prior to high dose chemotherapy with autologous stem cell rescue, for the treatment of patients with untreated multiple myeloma. In addition, in April 2008, THALOMID® was granted full marketing authorization by the EC for use in combination with melphalan and prednisone as a treatment for patients with newly diagnosed multiple myeloma. If unexpected adverse experiences are reported in connection with the use of THALOMID® by patients, physician and patient comfort with the product could be undermined, the commercial success of THALOMID® could be affected and the acceptance of our other products, including REVLIMID®, may be adversely impacted.
VIDAZA® has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. VIDAZA® was licensed from Pharmacia & Upjohn, now part of Pfizer, and was approved by the FDA for the treatment of all subtypes of MDS. Additionally, VIDAZA® was granted orphan drug designation by the FDA for the treatment of AML. In December 2008, VIDAZA® was granted full marketing authorization by the EC for the treatment of adult patients who are not eligible for haematopoietic stem cell transplantation with Intermediate-2 and high-risk MDS according to the IPSS or CMML with 10-29 percent marrow blasts without myeloproliferative disorder, or AML with 20-30 percent blasts and multi-lineage dysplasia, according to WHO classification.
Our ability to advance regulatory and clinical programs: Many of our drug candidates are in the early or mid-stages of research and development and will require the commitment of substantial financial resources, extensive research, development, preclinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. Moreover, our commercially available products may require additional studies with respect to approved indications as well as new indications pending approval. If it becomes too expensive to sustain our present commitment of resources on a long-term basis, we will be unable to continue certain necessary research and development activities. Furthermore, we cannot be certain that our clinical testing will render satisfactory results, or that we will receive required regulatory approvals for our new products or new indications. A major objective of our ongoing clinical programs is to broaden our knowledge about the full potential of REVLIMID® and our other proprietary IMiDs® compounds and to continue to evaluate them in a broad range of hematological malignancies and other cancers. Our near-term focus is on evaluating REVLIMID® as a treatment of CLL and NHL.

Competitive Risks: While competition could limit our products' sales, we do not believe that competing products would eliminate their use entirely. Moreover, while generic competitors have and could seek to challenge our THALOMID® franchise, we own intellectual property which includes, for example, U.S. patents covering our S.T.E.P.S.® distribution program for the safe distribution and appropriate use of thalidomide, which all physicians, patients and pharmacies prescribing, receiving or dispensing thalidomide in the United States must follow. We also have exclusive rights to several issued patents covering THALOMID® formulations, as well as the use of THALOMID® in oncology and other therapeutic areas.
Results of Operations -Fiscal Years Ended December 31, 2008, 2007 and 2006 Total Revenue: Total revenue and related percentages for the years ended December 31, 2008, 2007 and 2006 were as follows:

                                                                                         % Change
                                                                                    2008          2007
                                                                                   versus        versus
In thousands $                      2008             2007            2006           2007          2006

Net product sales:
REVLIMID ®                       $ 1,324,671      $   773,877      $ 320,558          71.2 %       141.4 %
THALOMID ®                           504,713          447,089        432,950          12.9 %         3.3 %
VIDAZA ®                             206,692                -              -           N/A           N/A
ALKERAN ®                             81,734           73,551         50,337          11.1 %        46.1 %
Other                                 19,868            5,924          7,760         235.4 %       -23.7 %

Total net product sales          $ 2,137,678      $ 1,300,441      $ 811,605          64.4 %        60.2 %
Collaborative agreements and
other revenue                         14,945           20,109         18,189         -25.7 %        10.6 %
Royalty revenue                      102,158           85,270         69,079          19.8 %        23.4 %

Total revenue                    $ 2,254,781      $ 1,405,820      $ 898,873          60.4 %        56.4 %

2008 compared to 2007: Total revenue increased by $849.0 million, or 60.4%, in 2008 compared to 2007. This increase is due to increased revenue in the United States of $379.8 million, or 31.6%, compared to 2007 and increased revenue in international markets of $469.2 million, or 230.2%.
2007 compared to 2006: Total revenue increased by $506.9 million, or 56.4%, in 2007 compared to 2006. This increase is due to increased revenue in the United States of $356.6 million, or 42.2%, compared to 2006 and increased revenue in international markets of $150.3 million, or 281.2%. Net Product Sales:
2008 compared to 2007: REVLIMID® net sales increased by $550.8 million, or 71.2%, in 2008 compared to 2007 primarily due to increased sales in the United States and continued expansion in international markets. Increased market penetration and the increase in duration of patients using REVLIMID® in multiple myeloma accounted for most of the U.S. growth. International sales growth primarily reflects the impact of the June 2007 EC's approval for the use of REVLIMID® for treatment in combination with dexamethasone of patients with multiple myeloma who have received at least one prior therapy and continued expansion in international markets and subsequent pricing, reimbursement and marketing approvals in each country. REVLIMID® continued to receive positive clinical study results which were reported at major medical conferences and in peer-reviewed publications.

THALOMID® net sales increased by $57.6 million, or 12.9%, in 2008 compared to 2007 primarily due to the 2008 inclusion of international sales, resulting from the acquisition of Pharmion. In addition, U.S. price increases were offset by lower sales volumes.
VIDAZA® represents sales recorded subsequent to the March 7, 2008 Pharmion acquisition in both the United States and international markets.
ALKERAN® net sales increased by $8.2 million, or 11.1%, in 2008 compared to 2007 primarily due to an increase in unit sales of the injectable form. The agreement with GSK to distribute, promote and sell ALKERAN® expires on March 31, 2009 and will not be renewed.
Net product sales increased by $837.2 million, or 64.4% in 2008 compared to 2007. The change was comprised of net volume increases of $742.8 million, or 57.1%, as well as price increases of $93.0 million, or 7.2%, and impact of foreign exchange of $1.4 million, or 0.1%.
2007 compared to 2006: REVLIMID® net sales increased in 2007 compared to 2006 primarily due to the product's expanded use in the United States resulting from the FDA's June 2006 approval for treatment in combination with dexamethasone of patients with multiple myeloma who have received at least one prior therapy in multiple myeloma and growth in Europe resulting from the June 2007 EC's approval for the use of REVLIMID® in this same indication. Also contributing to the increase in sales were price increases and increased sales from our European Named Patient Program, or NPP, which offers European patients in need of treatment access to REVLIMID® on a compassionate use basis.
Net sales of THALOMID® were higher in 2007 compared to 2006 primarily due to price increases, partly offset by lower sales volumes as written prescriptions declined, reflecting the expanded use of REVLIMID®.
ALKERAN® net sales were higher in 2007 compared to 2006 primarily due to increased prices and a decrease in product returns.
Gross to Net Sales Accruals: We record gross to net sales accruals for sales returns and allowances; sales discounts; government rebates; and chargebacks and distributor service fees.
• We base our sales returns allowance on estimated on-hand retail/hospital inventories, measured end-customer demand as reported by third-party sources, actual returns history and other factors, such as the trend experience for lots where product is still being returned or inventory centralization and rationalization initiatives conducted by major pharmacy chains, as applicable. If the historical data we use to calculate these estimates does not properly reflect future returns, then a change in the allowance would be made in the period in which such a determination is made and revenues in that period could be materially affected. Under this methodology, we track actual returns by individual production lots. We analyze historic returns experience on closed lots and historical return trend rates on open lots. Any changes from the historical trend rates are considered in determining the current sales return allowance. THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a result, wholesalers do not stock the product. REVLIMID® is distributed primarily through contracted specialty pharmacies lending itself to tighter controls of inventory quantities within the supply channel and, thus, resulting in lower returns activity to date. VIDAZA® and ALKERAN® are sold in the United States to pharmaceutical wholesalers, who in turn distribute product to physicians, retail pharmacies, hospitals and other institutional customers.

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

• Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs. U.S. Medicaid rebate accruals are based on historical payment data and estimates of future Medicaid beneficiary utilization applied to the Medicaid unit rebate amount formula established by the Center for Medicaid and Medicare Services. Certain foreign markets have government-sponsored programs that require rebates to be paid and accordingly the rebate accruals are determined primarily on estimated eligible sales.

• Chargebacks 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. On January 28, 2008, the Fiscal Year 2008 National Defense Authorization Act was enacted, which expands TRICARE to include prescription drugs dispensed by TRICARE retail network pharmacies. TRICARE rebate accruals reflect this program expansion and are based on estimated Department of Defense eligible sales multiplied by the TRICARE rebate formula.

See Critical Accounting Policies for further discussion of gross to net sales accruals.
Gross to net sales accruals and the balance in the related allowance accounts for the years ended December 31, 2008, 2007 and 2006 were as follows:

                                    Returns                                            Chargebacks
                                      and                            Government         and Dist.
In thousands $                     Allowances       Discounts         Rebates         Service Fees         Total

Balance at December 31, 2005      $      5,017      $    1,447      $     20,960      $       6,778      $   34,202
Allowances for sales during
2006                                    23,944          18,847            22,353             57,750         122,894
Allowances for sales during
prior periods                           30,607              34                 -                  -          30,641
Credits/deductions issued for
prior year sales                       (35,624 )        (1,481 )         (20,357 )           (6,315 )       (63,777 )
Credits/deductions issued for
sales during 2006                      (14,464 )       (16,551 )         (15,488 )          (47,580 )       (94,083 )

Balance at December 31, 2006      $      9,480      $    2,296      $      7,468      $      10,633      $   29,877
Allowances for sales during
2007                                    22,303          27,999            28,420             72,982         151,704
Allowances for sales during
prior periods                           17,498               -                 -             (2,776 )        14,722
Credits/deductions issued for
prior year sales                       (26,979 )        (2,206 )          (7,071 )           (6,725 )       (42,981 )
Credits/deductions issued for
sales during 2007                       (5,568 )       (25,194 )         (19,615 )          (65,275 )      (115,652 )

Balance at December 31, 2007      $     16,734      $    2,895      $      9,202      $       8,839      $   37,670
Pharmion balance at March 7,
2008                                       926             283             1,266              2,037           4,512
Allowances for sales during
2008                                    20,624          36,024            35,456            100,258         192,362
Credits/deductions issued for
prior year sales                       (17,066 )        (2,428 )          (7,951 )           (4,127 )       (31,572 )
Credits/deductions issued for
sales during 2008                       (3,419 )       (33,115 )         (27,163 )          (83,621 )      (147,318 )

Balance at December 31, 2008      $     17,799      $    3,659      $     10,810      $      23,386      $   55,654

2008 compared to 2007: Returns and allowances decreased by $19.2 million in 2008 compared 2007 primarily due to reduced THALOMID® inventory in the sales channel resulting from the 2007 THALOMID® inventory centralization and rationalization at several major pharmacy chains, which also resulted in additional returns during 2007. In addition, 2007 includes an increase in THALOMID® returns resulting from the anticipated increase in use of REVLIMID® in multiple myeloma. We anticipate another inventory centralization and rationalization initiative to be conducted by a major pharmacy chain in early 2009 and believe that our ending returns and allowances reserve reflects the anticipated effects thereof. Discounts increased by $8.0 million in 2008 compared to 2007 primarily due to increased sales of REVLIMID® as well as the inclusion of former Pharmion products, which resulted in additional discounts taken.

Government rebates increased by $7.0 million in 2008 compared to 2007 primarily due to the increased international government rebates resulting from our global expansion, as well as the inclusion of former Pharmion products. Chargebacks and distributor service fees increased by $30.1 million in 2008 compared to 2007 primarily due to the new TRICARE rebate program, as well as the inclusion of former Pharmion products.
2007 compared to 2006: Sales return allowances decreased in 2007 compared to 2006 due primarily to lower returns of ALKERAN® IV resulting from improved expiration dating on 2006 and 2007 product sales. In addition, THALOMID® returns were lower than the prior year primarily due to a 2006 THALOMID® returns initiative undertaken by one large retail pharmacy chain. In response to this initiative, we introduced single sleeves of THALOMID® for sale in June of 2006. Previously, THALOMID® was sold only in multi-sleeve package configurations. The additional trade package configuration enabled all retailers to more efficiently manage their THALOMID® inventories resulting in lower 2007 returns. This decrease was partly offset by current year THALOMID®returns, reflecting the impact of a 2007 inventory centralization and rationalization initiative conducted by several major pharmacy chains. Under this initiative, inventory was redistributed amongst individual chain stores in a S.T.E.P.S.®compliant manner. This resulted in an increase in THALOMID® returns as these major pharmacy chains more effectively managed their inventory levels at the chain stores. Discounts increased in 2007 compared to 2006 due primarily to increased sales of REVLIMID®.
Government rebate allowances increased in 2007 compared to 2006 due to increased sales of REVLIMID® as well as price increases for both THALOMID® and REVLIMID®. 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. REVLIMID® dispenses increased resulting from the introduction of the 15mg and 25mg strength tablets.
Distributor chargebacks increased in 2007 compared to 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. Collaborative Agreements and Other Revenue:
2008 compared to 2007: Revenues from collaborative agreements and other sources totaled $14.9 million and $20.1 million for 2008 and 2007, respectively. The $5.2 million decrease in 2008 compared to 2007 was primarily due to the elimination of license fees and amortization of deferred revenues related to Pharmion.
2007 compared to 2006: Revenues from collaborative agreements and other sources increased by $1.9 million in 2007 from the $18.2 million recorded in 2006. The increase was primarily due to an increase in license fees generated from our S.T.E.P.S.® program and an increase in umbilical cord blood enrollment, collection and storage fees generated through our LifeBank USASM business. Royalty Revenue:
2008 compared to 2007: Revenues from royalties totaled $102.2 million in 2008, representing an increase of $16.9 million compared to 2007. The increase was primarily due to amounts received from Novartis on sales of FOCALIN XR®, partly due to patients transitioning from FOCALIN® to FOCALIN XR®. We sell FOCALIN® to Novartis and receive royalties on sales of Novartis' FOCALIN XR®.

2007 compared to 2006: Revenues from royalties totaled $85.3 million in 2007, representing an increase of $16.2 million compared to 2006. The increase was primarily due to amounts received from Novartis on sales of their entire family of Ritalin® drugs and FOCALIN XR®. Royalty revenue totaled $69.1 million in 2006.
Cost of Goods Sold (excluding amortization expense): Cost of goods sold and related percentages for the years ended December 31, 2008, 2007 and 2006 were as follows:

In thousands $                                           2008           2007           2006

Cost of goods sold (excluding amortization expense)    $ 258,267      $ 130,211      $ 125,759
Increase from prior year                               $ 128,056      $   4,452      $  44,974
Percent increase from prior year                            98.3 %          3.5 %         55.7 %
Percent of net product sales                                12.1 %         10.0 %         15.5 %

2008 compared to 2007: Cost of goods sold increased by $128.1 million in 2008 compared to 2007 primarily due to the inclusion of costs related to VIDAZA® and THALOMID®, which were obtained in the Pharmion acquisition. Also included in 2008 is $24.6 million of the $25.0 million of inventory step-up cost related to the acquisition date fair value of former Pharmion inventories. Cost of sales also increased due to an increase in material costs for ALKERAN® for injection and an increase in unit volume for REVLIMID®, resulting in higher royalties. As a percent of net product sales, cost of goods sold increased to 12.1% in the 2008 from 10.0% in 2007 primarily due to the inclusion of higher costs for VIDAZA® and ALKERAN® and the $24.6 million of inventory step-up cost. 2007 compared to 2006: Cost of goods sold increased in 2007 compared to 2006 primarily due to increases in REVLIMID® material costs and royalty payments related to both REVLIMID® and THALOMID® as sales increased for these two products. The increase was partly offset by lower ALKERAN® material costs related to ALKERAN® for injection. As a percentage of net product sales, cost of goods sold decreased from 15.5% in 2006 to 10.0% in 2007 primarily due to the growth of REVLIMID® and that product's lower cost relative to our other products and sales price increases.
Research and Development: Research and development expenses and related percentages for the years ended December 31, 2008, 2007 and 2006 were as follows:

         In thousands $                       2008          2007          2006

         Research and development           $ 931,218     $ 400,456     $ 259,956
         Increase from prior year           $ 530,762     $ 140,500     $  66,890
         Percent increase from prior year       132.5 %        54.0 %        34.6 %
         Percent of total revenue                41.3 %        28.5 %        28.9 %

2008 compared to 2007: Research and development expenses increased by $530.8 million in 2008 compared to 2007, primarily due to a $303.1 million charge for the October 3, 2008 royalty obligation payment to Pfizer that related . . .