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 include REVLIMID®, THALOMID® (inclusive of Thalidomide CelgeneTM and Thalidomide PharmionTM, subsequent to the acquisition of Pharmion Corporation, or Pharmion) and VIDAZA®. ALKERAN® was licensed from GlaxoSmithKline, or GSK, and sold under our label through March 31, 2009, the conclusion date of the ALKERAN® license with GSK. REVLIMID® is an oral immunomodulatory drug marketed in the United States and Europe for patients with multiple myeloma who have received at least one prior therapy and in the United States and Canada for the treatment of transfusion-dependent anemia due to low- or intermediate-1-risk myelodysplastic syndromes, or MDS, associated with a deletion 5q cytogenetic abnormality with or without additional cytogenetic abnormalities. THALOMID® is marketed for patients with newly diagnosed multiple myeloma and for the acute treatment of the cutaneous manifestations of moderate to severe erythema nodosum leprosum, or ENL, an inflammatory complication of leprosy. VIDAZA® is a pyrimidine nucleoside analog that has been shown to reverse the effects of DNA hypermethylation and promote subsequent gene re-expression. VIDAZA® is marketed in the United States for the treatment of all subtypes of MDS. In Europe, VIDAZA® is marketed 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 International Prognostic Scoring System, or IPSS, or chronic myelomonocytic leukaemia, or CMML, with 10-29 percent marrow blasts without myeloproliferative disorder, or acute myeloid leukemia, or AML, with 20-30 percent blasts and multi-lineage dysplasia, according to World Health Organization, or WHO, classification. VIDAZA® was granted orphan drug designation by the U.S. Food and Drug Administration, or FDA, for the treatment of MDS in the United States through May 2011. In addition, VIDAZA® has received orphan drug designation for the treatment of MDS and AML in the European Union expiring December 2018. In the third quarter of 2009, the National Comprehensive Cancer Network, or NCCN, upgraded VIDAZA® to a Category 1 recommended treatment for patients with intermediate-2 and high-risk MDS, which reinforces current clinical utilization in the United States and supports ongoing regulatory filings internationally.
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 continued acceptance of our primary commercial stage products, depth of our product pipeline, regulatory approvals of both new products and expanded use of existing products provide the catalysts for future growth. See also Risk Factors contained in

The following table summarizes total revenue and earnings for the three- and nine-month periods ended September 30, 2009 and 2008:

                                                      Three-Month Periods Ended
                                                            September 30,                             Percent
(Amounts in thousands, except earnings per share)       2009               2008        Increase       Change

Total revenue                                       $     695,137       $  592,465     $ 102,672          17.3 %
Net income                                          $     216,815       $  136,814     $  80,001          58.5 %
Diluted earnings per share                          $        0.46       $     0.29     $    0.17          58.6 %



                                                      Nine-Month Periods Ended
                                                            September 30,                              Percent
(Amounts in thousands, except earnings per share)       2009             2008          Increase        Change

Total revenue                                       $  1,928,856     $  1,626,527     $   302,329          18.6 %
Net income (loss)                                   $    522,532     $ (1,384,391 )   $ 1,906,923           N/A
Diluted earnings (loss) per share                   $       1.12     $      (3.17 )   $      4.29           N/A

The increase in revenue for the three- and nine-month periods ended September 30, 2009 compared to the three- and nine-month periods ended September 30, 2008 was primarily due to continued growth of REVLIMID® and VIDAZA® in both U.S. and international markets. Net income and diluted earnings per share for the three- and nine-month periods ended September 30, 2009 reflect the continued growth in sales of REVLIMID® and VIDAZA®, partly offset by increased spending for new product launches, research and development and expansion of our international operations. The nine-month period ended September 30, 2008 included a $1.74 billion charge for acquired in-process research and development related to the Pharmion acquisition in March 2008. Results of Operations:
Three-Month Periods Ended September 30, 2009 and 2008 Total Revenue: Total revenue and related percentages for the three-month periods ended September 30, 2009 and 2008 were as follows:

                                         Three-Month Periods Ended
                                               September 30,                 Increase         Percent
(Amounts in thousands)                     2009               2008          (Decrease)        Change

Net product sales:
REVLIMID®                              $     449,586       $  342,620      $    106,966           31.2 %
THALOMID®                                    110,019          132,368           (22,349 )        -16.9 %
VIDAZA®                                      103,096           63,531            39,565           62.3 %
ALKERAN®                                           -           21,802           (21,802 )       -100.0 %
Other                                          5,266            6,696            (1,430 )        -21.4 %

Total net product sales                $     667,967       $  567,017      $    100,950           17.8 %
Collaborative agreements and other
revenue                                        2,381            2,402               (21 )         -0.9 %
Royalty revenue                               24,789           23,046             1,743            7.6 %

Total revenue                          $     695,137       $  592,465      $    102,672           17.3 %

REVLIMID® net sales increased by $107.0 million to $449.6 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to increased unit sales in both U.S. and international markets. Increased market penetration and the increase in duration of patients using REVLIMID® in multiple myeloma contributed to U.S. growth. The growth in international markets reflects the expansion of our commercial activities in over 70 countries and product reimbursement approvals. THALOMID® net sales decreased by $22.3 million to $110.0 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008. The decrease was primarily due to lower unit volumes in the United States resulting from the increased use of REVLIMID®. VIDAZA® net sales increased by $39.6 million to $103.1 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to the December 2008 full marketing authorization granted by the European Commission, or 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 of VIDAZA®.
ALKERAN® was licensed from GSK and sold under our label through March 31, 2009, the conclusion date of the ALKERAN® license with GSK.
Total net product sales for the three-month period ended September 30, 2009 increased by $101.0 million, or 17.8%, compared to the three-month period ended September 30, 2008. The change was comprised of net volume increases of $99.9 million and price increases of $20.1 million, partly offset by the unfavorable impact from foreign exchange of $19.0 million.
Collaborative Agreements and Other Revenue: Revenues from collaborative agreements and other sources totaled $2.4 million for the three-month periods ended September 30, 2009 and 2008. The primary source of revenues for both three-month periods was related to the sales of services through our Cellular Therapeutics subsidiary.
Royalty Revenue: Royalty revenue increased by $1.7 million to $24.8 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to the inclusion of residual payments earned by us based upon GSK's ALKERAN® revenues subsequent to the conclusion of the ALKERAN® license with GSK. Royalty income also reflects amounts received from Novartis Pharma AG, or Novartis, on sales of the entire family of RITALIN® drugs and FOCALIN XR®.
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.
• THALOMID® is distributed in the United States under our "System for Thalidomide Education and Prescribing Safety," or S.T.E.P.S.®, program which we developed and is a proprietary comprehensive education and risk-management distribution program with the objective of providing for the safe and appropriate distribution and use of THALOMID®. Internationally, THALOMID® is also distributed under mandatory risk-management distribution programs tailored to meet local competent authorities' specifications to help ensure the safe and appropriate distribution and use of THALOMID®. These programs may vary by country and, depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies. REVLIMID® is distributed in the United States primarily through contracted pharmacies under the RevAssist® program, which is a proprietary risk-management distribution program tailored specifically to help ensure the safe and appropriate distribution and use of REVLIMID®. Internationally, REVLIMID® is also distributed under mandatory risk-management distribution programs tailored to meet local competent authorities' specifications to help ensure the safe and appropriate distribution and use of REVLIMID®. These programs may vary by country and, depending upon the country and the design of the risk-management program, the product may be sold through hospitals or retail pharmacies. VIDAZAâ is distributed through the more traditional pharmaceutical industry supply chain. VIDAZAâis not subjected to the same risk-management distribution programs as THALOMID®and REVLIMID®. It may be stocked by multiple wholesalers and prescribed by physicians without prior preauthorization.

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. Returns on closed lots, that is, lots no longer eligible for return credits, are analyzed to determine historical returns experience. Returns on open lots, that is, lots still eligible for return credits, are monitored and compared with historical return trend rates. Any changes from the historical trend rates are considered in determining the current sales return allowance. THALOMID® is drop-shipped directly to the prescribing pharmacy and, as a result, wholesalers do not stock the product. REVLIMID® is distributed primarily through hospitals and contracted pharmacies lending itself to tighter controls of inventory quantities within the supply channel and, thus, resulting in lower returns activity to date.

• 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 and distributor service fees 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 is a health care program of the U.S. Department of Defense Military Health System that provides civilian health benefits for military personnel, military retirees and their dependents. TRICARE rebate accruals reflect this program expansion and are based on estimated Department of Defense eligible sales multiplied by the TRICARE rebate formula.

See Critical Accounting Estimates and Significant 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 three-month periods ended September 30, 2009 and 2008 were as follows:

                               Returns                                             Chargebacks
(Amounts in thousands)           and                             Government         and Dist.
2009                          Allowances        Discounts         Rebates         Service Fees         Total

Balance at June 30, 2009     $      8,589      $     4,162      $      9,401      $      27,035      $  49,187
Allowances for sales
during 2009                         5,421            9,897            14,513             22,904         52,735
Credits/deductions issued
for prior year sales                    -                -                 -                 (5 )           (5 )
Credits/deductions issued
for sales during 2009              (6,886 )         (9,680 )          (8,811 )          (18,621 )      (43,998 )

Balance at September 30,
2009                         $      7,124      $     4,379      $     15,103      $      31,313      $  57,919




                               Returns                                             Chargebacks,
(Amounts in thousands)           and                             Government         and Dist.
2008                          Allowances        Discounts         Rebates          Service Fees         Total

Balance at June 30, 2008     $     17,949      $     3,195      $     23,481      $       20,571      $  65,196
Allowances for sales
during 2008                           948            9,065             9,579              22,514         42,106
Credits/deductions issued
for prior year sales               (2,439 )              -               (44 )               (22 )       (2,505 )
Credits/deductions issued
for sales during 2008                (686 )         (9,188 )          (9,319 )           (22,996 )      (42,189 )

Balance at September 30,
2008                         $     15,772      $     3,072      $     23,697      $       20,067      $  62,608

A comparison of allowances for sales within each of the four categories noted above for the three-month periods ended September 30, 2009 and 2008, respectively, follows:
Returns and allowances increased by $4.5 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to revenue increases in the 2009 period compared to the 2008 period and the favorable impact on 2008 of the completed THALOMID® centralization and rationalization programs at several major pharmacy chains. Discounts increased by $0.8 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to revenue increases in the United States and international markets, which offer different discount programs.
Government rebates increased by $4.9 million in the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to increased sales of REVLIMID® in the United States and international markets.
Chargebacks and distributor service fees increased by $0.4 million in the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to higher distributor service fees partially offset by decreased chargebacks resulting from lower volumes of products with higher chargeback rates in the 2009 period compared to the 2008 period.

Operating Costs and Expenses: Operating costs, expenses and related percentages for the three-month periods ended September 30, 2009 and 2008 were as follows:

                                         Three-Month Periods Ended
                                               September 30,                 Increase         Percent
(Amounts in thousands)                     2009               2008          (Decrease)         Change

Cost of goods sold (excluding
amortization of acquired intangible
assets)                                $      52,058       $   70,534      $    (18,476 )         -26.2 %
Percent of net product sales                     7.8 %           12.4 %

Research and development               $     193,362       $  160,911      $     32,451            20.2 %
Percent of total revenue                        27.8 %           27.2 %

Selling, general and administrative    $     192,512       $  168,607      $     23,905            14.2 %
Percent of total revenue                        27.7 %           28.5 %

Amortization of acquired intangible
assets                                 $      21,111       $   32,833      $    (11,722 )         -35.7 %

Cost of Goods Sold (excluding amortization of acquired intangible assets): Cost of goods sold (excluding amortization of acquired intangible assets) decreased by $18.5 million to $52.1 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to the March 31, 2009 conclusion date of the ALKERAN®license with GSK, reducing cost of goods sold by $13.8 million compared to the three-month period ended September 30, 2008. In addition, the three-month period ended September 30, 2008 included a $7.5 million inventory step-up adjustment related to the March 7, 2008 acquisition of Pharmion. As a percent of net product sales, cost of goods sold (excluding amortization of acquired intangible assets) decreased to 7.8% in the 2009 three-month period from 12.4% in the 2008 three-month period primarily due to the lack of ALKERAN® sales in the 2009 three-month period, which sales carried a higher cost to sales ratio relative to our other products, and the 2008 inventory step-up adjustment.
Research and Development: Research and development expenses increased by $32.5 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 primarily due to spending increases related to drug discovery and clinical research and development in support of multiple programs across a broad range of diseases.
The following table provides a breakdown of research and development expenses:

                                            Three-Month Periods Ended
                                                  September 30,                Increase
 (Amounts in thousands)                       2009               2008         (Decrease)

 Human pharmaceutical clinical programs   $     100,497       $   83,347     $     17,150
 Other pharmaceutical programs                   66,810           53,479           13,331
 Drug discovery and development                  22,535           19,825            2,710
 Placental stem cell and biomaterials             3,520            4,260             (740 )

 Total                                    $     193,362       $  160,911     $     32,451

Other pharmaceutical programs for the three-month periods ended September 30, 2009 and 2008 include spending for toxicology, analytical research and development, quality and regulatory affairs.

Research and development expenditures support ongoing clinical progress in multiple proprietary development programs for REVLIMIDâ and other IMiDsâcompounds; VIDAZAâ; amrubicin, our lead compound for small cell lung cancer; apremilast (CC-10004), our lead anti-inflammatory compound that inhibits PDE-4, which results in the inhibition of multiple proinflammatory mediators such as TNF-? and which is currently being evaluated in Phase II clinical trials in the treatment of psoriasis and psoriatic arthritis; pomalidomide and CC-11050, which are currently either being evaluated in Phase I clinical trials or for which Phase II clinical trials are planned or ongoing; our kinase and ligase inhibitor programs; as well as the placental stem cell program. During the three-month period ended September 30, 2009, REVLIMIDâ received additional regulatory approvals in several international markets.
Selling, General and Administrative: Selling, general and administrative expenses increased by $23.9 million to $192.5 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008. The increase was primarily due to marketing and sales related expense increases of $17.6 million and an $8.4 million increase in donations to non-profit foundations. Marketing and sales related expenses include ongoing product launch activities and the continued expansion of our international commercial activities.
Amortization of Acquired Intangible Assets: Amortization of acquired intangible assets decreased by $11.7 million for the three-month period ended September 30, 2009 compared to the three-month period ended September 30, 2008 due to several intangible assets acquired from the Pharmion acquisition becoming fully amortized during the fourth quarter of 2008 and third quarter of 2009. Interest and Investment Income, Net: Interest and investment income was $20.5 million for the three-month period ended September 30, 2009, representing an increase of $0.8 million from the $19.7 million recorded for the three-month period ended September 30, 2008. The increase was due to higher invested balances and realized gains on sales of securities, offset, in part, by lower yields on invested balances during the three-month period ended September 30, 2009 compared to the comparable period in 2008.
Equity in Losses of Affiliated Companies: Under the equity method of accounting, we recorded losses of $0.3 million and $2.3 million for the three-month periods ended September 30, 2009 and 2008, respectively. The loss for the three-month period ended September 30, 2008 included an impairment charge of $1.6 million, which related to an affiliate company investee based on a decrease in fair value below our cost, along with our evaluation of several other factors affecting the investee.
Interest Expense: Interest expense was $0.5 million for each of the three-month periods ended September 30, 2009 and 2008.
Other Income, Net: Other income, net was $14.9 million and $2.5 million for the three-month periods ended September 30, 2009 and 2008, respectively. The $12.4 million increase in other income was primarily due to net gains on foreign currency forward contracts that have not been designated as hedges entered into in order to offset net foreign exchange gains and losses in addition to net realized and unrealized foreign exchange transaction gains.
Income Tax Provision: The income tax provision for the three-month period ended September 30, 2009 was $53.9 million with an effective tax rate of 19.9%, which reflects the impact from our low tax manufacturing operations and our overall global mix of income. Tax expense included the favorable impact of a shift in projected earnings between U.S. and lower foreign tax jurisdictions for the remainder of 2009. It also included a $5.4 million net tax benefit which was primarily the result of filing our 2008 income tax returns with certain items being more favorable than originally estimated, partially offset by an increase in unrecognized tax benefits related to ongoing income tax audits. The income tax provision for the three-month period ended September 30, 2008 was $42.1 million with an effective tax rate of 23.5%.

Results of Operations:
Nine-Month Periods Ended September 30, 2009 and 2008
Total Revenue: Total revenue and related percentages for the nine-month periods
ended September 30, 2009 and 2008 were as follows:

                                          Nine-Month Periods Ended
. . .