Celgene Corp. (CELG)

Analysis of Inventory

Difficulty: Advanced

Inventory Accounting Policy

Inventories are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Celgene periodically reviews the composition of inventory in order to identify obsolete, slow-moving or otherwise non-saleable items. If non-saleable items are observed and there are no alternate uses for the inventory, Celgene will record a write-down to net realizable value in the period that the decline in value is first recognized. Included in inventory are raw materials used in the production of preclinical and clinical products, which are charged to research and development expense when consumed.

Celgene capitalizes inventory costs associated with certain products prior to regulatory approval of products, or for inventory produced in new production facilities, when management considers it highly probable that the pre-approval inventories will be saleable. The determination to capitalize is based on the particular facts and circumstances relating to the expected regulatory approval of the product or production facility being considered, and accordingly, the time frame within which the determination is made varies from product to product. The assessment of whether or not the product is considered highly probable to be saleable is made on a quarterly basis and includes, but is not limited to, how far a particular product or facility has progressed along the approval process, any known safety or efficacy concerns, potential labeling restrictions and other impediments. Celgene could be required to write down previously capitalized costs related to pre-launch inventories upon a change in such judgment, or due to a denial or delay of approval by regulatory bodies, a delay in commercialization or other potential factors. As of December 31, 2017, the carrying value of pre-approval inventory was not material.

Source: Celgene Corp., Annual Report

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Inventory Disclosure

Celgene Corp., Statement of Financial Position, Inventory

USD $ in millions

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Raw materials	289	274	201	200	147
Work in process	89	87	120	102	100
Finished goods	163	137	122	92	93
Inventory	541	498	443	393	340

Source: Based on data from Celgene Corp. Annual Reports

Item	Description	The company
Raw materials	Carrying amount as of the balance sheet date of unprocessed items to be consumed in the manufacturing or production process. Also includes purchased parts that will be used as components of a finished product.	Celgene Corp.'s raw materials increased from 2015 to 2016 and from 2016 to 2017.
Work in process	Carrying amount as of the balance sheet date of merchandise or goods which are partially completed, are generally comprised of raw materials, labor and factory overhead costs, and which require further materials, labor and overhead to be converted into finished goods, and which generally require the use of estimates to determine percentage complete and pricing.	Celgene Corp.'s work in process declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Finished goods	Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale.	Celgene Corp.'s finished goods increased from 2015 to 2016 and from 2016 to 2017.
Inventory	Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer).	Celgene Corp.'s inventory increased from 2015 to 2016 and from 2016 to 2017.

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