<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON; D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------ -----
COMMISSION FILE NUMBER: 0-21696
ARIAD PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3106987
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26 LANDSDOWNE STREET, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-0400
Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report: Not Applicable
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares of the Registrant's common stock outstanding as of May 1,
1996 was 18,984,036.
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ARIAD PHARMACEUTICALS, INC.
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
- - ------------------------------- --------
ITEM 1. UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 ...................................... 1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995. ................ 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995. ................ 3
Notes to Unaudited Condensed Consolidated Financial
Statements ................................................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................ 6
PART II. OTHER INFORMATION
- - --------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 9
<PAGE> 3
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,329,841 $ 3,750,082
Marketable securities 17,109,877 23,306,152
Prepaid expenses and other 669,283 504,460
------------ ------------
Total current assets 24,109,001 27,560,694
------------ ------------
Property and equipment:
Leasehold improvements 6,997,424 6,978,006
Equipment and furniture 3,573,875 3,100,507
------------ ------------
Total 10,571,299 10,078,513
Less accumulated depreciation and amortization 3,648,893 3,365,904
------------ ------------
Property and equipment, net 6,922,406 6,712,609
------------ ------------
Licensed technology and patent application costs, net 1,234,850 1,080,823
------------ ------------
Other assets, net 2,127,237 1,847,604
------------ ------------
Total $ 34,393,494 $ 37,201,730
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,460,695 $ 1,460,695
Accounts payable 1,147,552 677,918
Accrued liabilities 605,765 760,165
Deferred revenue 3,666,665 3,666,665
------------ ------------
Total current liabilities 6,880,677 6,565,443
------------ ------------
Long-term debt 1,319,344 1,540,727
------------ ------------
Deferred revenue 5,577,779 6,411,113
------------ ------------
Stockholders' equity:
Common stock, $.001 par value; authorized, 60,000,000
shares; issued and outstanding, 18,984,036 in
1996 and 18,965,728 shares in 1995 18,984 18,966
Additional paid-in capital 70,466,957 70,428,410
Net unrealized loss on marketable securities (169,858) (113,273)
Accumulated deficit (49,700,389) (47,649,656)
------------ ------------
Stockholders' equity 20,615,694 22,684,447
------------ ------------
Total $ 34,393,494 $ 37,201,730
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
1
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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenue:
Research revenue $ 2,058,334 $ 175,000
Interest income 347,725 331,140
----------- -----------
Total revenue 2,406,059 506,140
----------- -----------
Operating expenses:
Research and development 3,702,205 3,345,007
General and administrative 682,971 616,339
Interest expense 71,616 92,709
----------- -----------
Total operating expenses 4,456,792 4,054,055
----------- -----------
Net loss $(2,050,733) $(3,547,915)
=========== ===========
Net loss per share $ (.11) $ (.22)
=========== ===========
Weighted average number of shares
of common stock outstanding 18,976,539 15,911,658
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE> 5
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,050,733) $(3,547,915)
Adjustments to reconcile net loss to net cash used in operating
activites:
Depreciation and amortization 537,572 357,864
Deferred revenue (833,334)
Stock-based compensation 1,951
Increase (decrease) from:
Prepaid expenses and other (164,823) (69,159)
Other assets (441,982) (101,727)
Accounts payable 469,634 (223,954)
Accrued liabilities (154,400) 45,140
------------ -----------
Net cash used in operating activities (2,636,115) (3,539,751)
------------ -----------
Cash flows from investing activities:
Acquisitions of marketable securities (6,835,149) (2,754,966)
Proceeds from sale and maturities of marketable securities 12,956,040 3,370,701
Investment in property and equipment, net (349,978) (58,572)
Acquisitions of licensed technology and patents (227,462) (144,365)
------------ -----------
Net cash provided by investing activities 5,543,451 412,798
------------ -----------
Cash flows from financing activities:
Repayment of borrowings (364,191) (335,716)
Proceeds from exercise of stock options 36,614
Proceeds from sale/leaseback of equipment 263,826
Purchase of warrants (50,000)
------------ -----------
Net cash used in financing activities (327,577) (121,890)
------------ -----------
Net increase (decrease) in cash and equivalents 2,579,759 (3,248,843)
Cash and equivalents, beginning of period 3,750,082 8,074,320
------------ -----------
Cash and equivalents, end of period $ 6,329,841 $ 4,825,477
============ ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. Management Statement
--------------------
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of March 31, 1996 and December 31, 1995 and the
results of operations for the three-month periods ended March 31, 1996 and
1995. Certain reclassifications have been made to the 1995 financial
statements to conform with the 1996 presentation.
The results of operations for the three-month period ended March 31, 1996
are not necessarily indicative of the results to be expected for the full
year.
2. Marketable Securities
---------------------
The Company has classified its marketable securities as available for sale
and accordingly, carries such securities at aggregate fair value. At March
31, 1996 and December 31, 1995, the Company's marketable securities
consisted of the following:
<TABLE>
<CAPTION>
1996 Aggregate Amortized Gross Unrealized
---- Fair Value Cost Basis Gains Losses
---------- ---------- ----- ------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 6,321,019 $ 6,446,952 $ 687 $(126,620)
Corporate debt securities 10,539,387 10,583,312 3,579 (47,504)
Certificate of deposit 249,471 249,471
----------- ----------- ------- ---------
Total $17,109,877 $17,279,735 $ 4,266 $(174,124)
=========== =========== ======= =========
1995
----
U.S. Government obligations $14,871,417 $14,981,763 $ 2,623 $(112,969)
Corporate debt securities 8,185,264 8,188,191 19,376 (22,303)
Certificate of deposit 249,471 249,471
----------- ----------- ------- ---------
Total $23,306,152 $23,419,425 $21,999 $(135,272)
=========== =========== ======= =========
</TABLE>
At March 31, 1996, approximately $14,000,000 of investments in marketable
securities had contractual maturities of one year or less, and approximately
$340,000 of such investments had periodic contractual maturity dates.
Realized gains and losses on sales of marketable securities were not
material during the quarter ended March 31, 1996; the net unrealized loss
of $169,858 is included in stockholders' equity.
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3. Adoption of New Accounting Pronouncements
-----------------------------------------
Effective January 1, 1996, the Company adopted Statement of Accounting
Standards No.123, "Accounting For Stock-Based Compensation" ("Statement
123"). The Company has continued to account for its stock-based
transactions to employees in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and will include
the pro forma disclosures required by Statement 123, if material, in its
annual financial statements for 1996. For stock option grants to
nonemployees, the Company follows the provisions of Statement 123,
calculates compensation expense using a fair value-based method and
amortizes compensation expense over the vesting period. During the quarter
ended March 31, 1996, the Company granted options to purchase 30,000 shares
of common stock to nonemployees, resulting in compensation expense of
$1,951.
Also, effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement
121"). Statement 121 requires that long-lived assets held and used by an
entity be reviewed for impairment whenever circumstances indicate that
the carrying amount of an asset may not be recoverable. It also requires
that long-lived assets to be disposed of be reported at the lower of the
carrying amount or fair value less the cost to sell. The adoption of
Statement 121 did not have a material effect on the Company's financial
position or results of operations for the quarter ended March 31, 1996.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ARIAD was formed in 1991 to pursue the discovery and development of
pharmaceuticals based on an understanding of intracellular signal transduction
pathways and their role in disease. ARIAD combines the knowledge of molecular
cell biology with an advanced capability in structure-based drug design and
combinatorial chemistry in an effort to create a new class of biopharmaceuticals
capable of treating a broad range of diseases. ARIAD has focused its drug
discovery efforts on two major programs: 1) the development of small-molecule
drugs that inhibit critical signal transduction pathways in cells responsible
for allergy and asthma, immune-related disorders and osteoporosis; and 2) the
development of small-molecule drugs that control signal transduction pathways in
genetically engineered cells to provide a means to regulate protein production
in gene and cell therapy.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1995
The Company had revenues of $2,406,000 for the quarter ended March 31, 1996
compared to $506,000 for the same period in 1995. Revenues are comprised
principally of research revenues from the collaborative research and development
agreement with Hoechst Marion Roussel ("HMR") and government-sponsored research
grants and interest income earned on investments of cash equivalents and
marketable securities. Research revenues earned in the quarter ended March 31,
1996 increased by $1,883,000 over the corresponding period in 1995 primarily as
a result of research activity under the collaborative research and development
agreement with HMR that commenced in November 1995. Interest income for the
current period increased by $17,000 in 1996 over 1995 primarily as a result of
higher levels of funds invested.
Research and development expenses increased to $3,702,000 for the quarter ended
March 31, 1996 from $3,345,000 for the same period in 1995 due to increased
research activity as a result of the HMR agreement and the amortization of costs
incurred in connection with the HMR agreement which were deferred. The Company
expects its research and development expenses to increase moderately as a result
of the HMR agreement.
General and administrative expenses increased to $683,000 for the quarter ended
March 31, 1996 from $616,000 for the corresponding period in 1995 primarily due
to increased legal expenses for litigation, offset somewhat by savings in
insurance expense.
6
<PAGE> 9
The Company incurred interest expense of $72,000 for the quarter ended March 31,
1996 compared to $93,000 for the corresponding period in 1995. The decrease
resulted from a lower level of long-term debt during the period.
The Company incurred losses of $2,051,000 for the quarter ended March 31, 1996
and $3,548,000 for the corresponding period in 1995, or $.11 and $.22 per share,
respectively. The Company expects that operating losses will continue for
several more years and may increase as its activities expand and may fluctuate
as a result of differences in the timing and composition of revenue earned and
expenses incurred.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had cash, cash equivalents and marketable
securities totaling $23,440,000 and working capital of $17,228,000 compared to
cash, cash equivalents and marketable securities totaling $27,056,000 and
working capital amounting to $20,995,000 at December 31, 1995.
The primary uses of cash during the three months ended March 31, 1996 were
$2,636,000 to finance the Company's operations and working capital requirements,
$350,000 to purchase equipment, $227,000 to acquire licensed technology and
patents and $364,000 to repay long-term debt. The primary sources of cash during
the quarter ended March 31, 1996 were net proceeds of $6,121,000 from the sale
and maturity of marketable securities.
The Company has financed its operations and investments in property and
equipment primarily through the private placement and public offering of its
securities supplemented by the issuance of long-term debt, sale/leaseback and
capital lease transactions, interest income, government-sponsored research
grants and, commencing in November 1995, the collaborative research and
development agreement with HMR.
In November 1995, the Company entered into an agreement with HMR to collaborate
on the discovery and development of drugs to treat osteoporosis and related bone
diseases, one of the Company's signal transduction drug discovery programs.
Under the agreement, the Company granted to HMR exclusive rights to develop and
commercialize these drugs worldwide. ARIAD has the right, under certain
circumstances, to participate in the development and commercialization of these
products for certain non-osteoporosis indications in North America. Under the
terms of the agreement, HMR made an initial cash payment to the Company of
$10,000,000, will provide research funding in equal quarterly amounts of up to
an aggregate of $20,000,000 over a five-year period and will provide an
aggregate of up to $10,000,000 upon the attainment of certain research
milestones. In addition, HMR has established a dedicated research group to
collaborate with the Company on the discovery of osteoporosis drugs and has
agreed to fund all of the preclinical and
7
<PAGE> 10
clinical development costs for products that emerge from the collaboration. The
agreement further provides for the payment of royalties to the Company based on
product sales. HMR may elect to terminate the agreement and further payment
obligations after three years, if certain scientific milestones have not been
achieved, whereupon all rights would revert back to the Company. Revenue earned
under the agreement amounted to $1,833,000 for the three months ended March 31,
1996.
From its inception and through March 31, 1996, the Company has invested an
aggregate of $17,124,000 in property and equipment, including $6,997,000 in
leasehold improvements and $10,127,000 in laboratory equipment and furniture. An
aggregate of $6,553,000 of equipment and furniture was sold in the four years
prior to 1996, pursuant to sale/leaseback transactions under its lease credit
facilities. The lease agreements, which are classified as operating leases for
financial reporting purposes, have terms ranging from three to four years.
Pursuant to a commitment from its principal equipment lessor, the Company has
$1,000,000 of additional lease credit available through 1996.
In 1995, the Company arranged a $2,000,000 capital lease line with its principal
bank under which it may finance, over a four-year period, the purchase of
equipment. The Company placed equipment with an acquisition cost of $153,000 and
$598,000 under this agreement in 1996 and 1995, respectively. The capital lease
obligations are payable in monthly installments of $16,912. The agreements under
which these lease obligations and other long-term debt were issued contain
certain restrictive covenants that limit the amount of additional indebtedness,
capital spending and stock redemption; prohibit dividend distributions; and
require the Company to maintain certain minimum levels of net worth, working
capital and liquid assets.
The Company will require substantial additional funding for its research and
product development programs, for operating expenses, for the pursuit of
regulatory clearances and for building manufacturing, sales and marketing
capabilities. Adequate funds for these purposes, whether obtained through
financial markets or collaborative or other arrangements with corporate
partners, or from other sources, may not be available when needed or on terms
acceptable to the Company.
The Company believes that its available cash and existing sources of funding
will be adequate to satisfy its capital and operating requirements through
mid-1998. However, there can be no assurance that changes in the Company's
research and development plans or other events affecting the Company's operating
expenses will not result in the Company depleting its funds before that time.
8
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SECURITIES LITIGATION REFORM ACT
Safe harbor statement under the Private Securities Litigation Reform Act of
1995: Except for the historical information contained in this Quarterly Report
on Form 10-Q, the matters discussed herein are forward-looking statements that
involve risks and uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices, and other factors discussed
under the heading "Cautionary Statement Regarding Forward-Looking Statements" in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
March 31, 1996.
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARIAD Pharmaceuticals, Inc.
(Registrant)
By: /s/ Jay R. LaMarche
------------------------
Jay R. LaMarche
Senior Vice President, Finance and
Chief Financial Officer
(Duly authorized Officer and Principal
Financial Officer)
Date: May 8, 1995
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,329,841
<SECURITIES> 17,109,877
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,109,001
<PP&E> 10,571,299
<DEPRECIATION> 3,648,893
<TOTAL-ASSETS> 34,393,494
<CURRENT-LIABILITIES> 6,880,677
<BONDS> 1,319,344
<COMMON> 18,984
0
0
<OTHER-SE> 20,596,710
<TOTAL-LIABILITY-AND-EQUITY> 34,393,494
<SALES> 0
<TOTAL-REVENUES> 2,406,059
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,385,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,616
<INCOME-PRETAX> (2,050,733)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,050,733)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
