<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: JUNE 30, 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 August
1, 1996 was 19,003,944.
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ARIAD PHARMACEUTICALS, INC.
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
- -------------------------------- --------
<S> <C>
ITEM 1. UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 ................................................ 1
Condensed Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 1996 and 1995 ............. 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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 .................................. 5
PART II. OTHER INFORMATION
- ----------------------------
ITEM 1. LEGAL PROCEEDINGS..................................................... 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................. 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................................... 9
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,278,029 $ 3,750,082
Marketable securities 14,425,422 23,306,152
Prepaid expenses and other 610,622 504,460
------------ ------------
Total current assets 21,314,073 27,560,694
------------ ------------
Property and equipment:
Leasehold improvements 6,997,749 6,978,006
Equipment and furniture 4,174,346 3,100,507
------------ ------------
Total 11,172,095 10,078,513
Less accumulated depreciation and amortization 3,933,426 3,365,904
------------ ------------
Property and equipment, net 7,238,669 6,712,609
------------ ------------
Licensed technology and patent application costs, net 1,311,364 1,080,823
------------ ------------
Other assets, net 1,679,279 1,847,604
------------ ------------
Total $ 31,543,385 $ 37,201,730
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,653,129 $ 1,460,695
Accounts payable 867,999 677,918
Accrued liabilities 436,749 760,165
Deferred revenue 3,666,665 3,666,665
------------ ------------
Total current liabilities 6,624,542 6,565,443
------------ ------------
Long-term debt 1,401,350 1,540,727
------------ ------------
Deferred revenue 4,744,447 6,411,113
------------ ------------
Stockholders' equity:
Common stock, $.001 par value; authorized, 60,000,000
shares; issued and outstanding, 19,003,944 in
1996 and 18,965,728 shares in 1995 19,004 18,966
Additional paid-in capital 70,508,522 70,428,410
Net unrealized loss on marketable securities (164,565) (113,273)
Accumulated deficit (51,589,915) (47,649,656)
------------ ------------
Stockholders' equity 18,773,046 22,684,447
------------ ------------
Total $ 31,543,385 $ 37,201,730
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
1
<PAGE> 4
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Research revenue $ 2,093,332 $ 175,000 $ 4,151,666 $ 350,000
Interest income 288,598 343,890 636,323 675,030
----------- ----------- ----------- -----------
Total revenue 2,381,930 518,890 4,787,989 1,025,030
----------- ----------- ----------- -----------
Operating expenses:
Research and development 3,685,457 3,308,613 7,387,662 6,653,620
General and administrative 519,345 596,584 1,202,316 1,212,923
Interest expense 66,654 84,995 138,270 177,704
----------- ----------- ----------- -----------
Total operating expenses 4,271,456 3,990,192 8,728,248 8,044,247
----------- ----------- ----------- -----------
Net loss $(1,889,526) $(3,471,302) $(3,940,259) $(7,019,217)
=========== =========== =========== ===========
Net loss per share $ (.10) $ (.19) $ (.21) $ (.41)
=========== =========== =========== ===========
Weighted average number of shares
of common stock outstanding 18,986,829 18,064,123 18,981,684 16,987,891
</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>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,940,259) $ (7,019,217)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,062,430 687,312
Deferred revenue (1,666,666)
Stock-based compensation 9,930
Increase (decrease) from:
Prepaid expenses and other (106,162) (85,526)
Other assets (154,326) (121,492)
Accounts payable 190,081 (136,086)
Accrued liabilities (323,426) 83,561
------------ ------------
Net cash used in operating activities (4,928,398) (6,591,448)
------------ ------------
Cash flows from investing activities:
Acquisitions of marketable securities (11,121,994) (10,123,008)
Proceeds from sale and maturities of marketable
securities 19,873,770 5,239,699
Investment in property and equipment, net (1,140,052) (126,964)
Acquisitions of licensed technology and patents (325,126) (178,988)
------------ ------------
Net cash provided by (used in) investing activities 7,286,598 (5,189,261)
------------ ------------
Cash flows from financing activities:
Repayment of borrowings (736,530) (671,430)
Proceeds from sale/leaseback of equipment 836,057 263,826
Proceeds from issuance of common stock, net of issuance costs 7,000,000
Proceeds from exercise of stock options 70,220 75,466
Purchase of warrants (50,000)
------------ ------------
Net cash provided by financing activities 169,747 6,617,862
------------ ------------
Net increase (decrease) in cash and equivalents 2,527,947 (5,162,847)
Cash and equivalents, beginning of period 3,750,082 8,074,320
------------ ------------
Cash and equivalents, end of period $ 6,278,029 $ 2,911,473
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 6
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 June 30, 1996 and December 31, 1995 and the
results of operations for the three-month and six-month periods ended June
30, 1996 and 1995. Certain reclassifications have been made to the 1995
financial statements to conform with the 1996 presentation.
The results of operations for such periods are not necessarily indicative of
the results to be expected for the full year.
2. Marketable Securities
---------------------
<TABLE>
The Company has classified its marketable securities as available for sale
and, accordingly, carries such securities at aggregate fair value. At June
30, 1996 and December 31, 1995, the Company's marketable securities
consisted of the following:
<CAPTION>
Aggregate Amortized Gross Unrealized
1996 Fair Value Cost Basis Gains Losses
- ---- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 3,898,981 $ 4,021,813 $(122,832)
Corporate debt securities 10,276,970 10,318,703 $ 2,576 (44,309)
Certificate of deposit 249,471 249,471
----------- ----------- ------- ---------
Total $14,425,422 $14,589,987 $ 2,576 $(167,141)
=========== =========== ======= =========
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 June 30, 1996, approximately $10,326,000 of investments in marketable
securities had contractual maturities of one year or less, and approximately
$260,000 of such investments had periodic contractual maturity dates.
Realized gains and losses on sales of marketable securities were not material
during the six months ended June 30, 1996; the net unrealized loss of $164,565
is included in stockholders' equity.
4
<PAGE> 7
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 JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 1995
Revenues for the quarter ended June 30, 1996 were $2,382,000 compared to
$519,000 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") (the "HMR Agreement") (see "-- Liquidity and
Capital Resources") and government-sponsored research grants and interest income
earned on investments of cash equivalents and marketable securities. Research
revenues earned in the quarter ended June 30, 1996 increased by $1,918,000 over
the corresponding period in 1995 primarily as a result of the HMR Agreement,
which commenced in November 1995. Interest income for the current period
decreased by $55,000 in 1996 over 1995 primarily as a result of lower levels of
funds invested.
Research and development expenses increased by 11.4% to $3,685,000 for the
quarter ended June 30, 1996 from $3,309,000 for the same period in 1995 due
primarily to increased research activity as a result of the HMR Agreement. The
Company expects its research and development expenses to increase moderately as
a result of the HMR Agreement.
General and administrative expenses decreased by 13.1% to $519,000 for the
quarter ended June 30, 1996 from $597,000 for the corresponding period in 1995
primarily due to savings in insurance expense and the timing of legal expenses
associated with litigation.
The Company incurred interest expense of $67,000 for the quarter ended June 30,
1996 compared to $85,000 for the corresponding period in 1995. The decrease
resulted from a lower level of long-term debt and lower interest rates during
the period.
5
<PAGE> 8
The Company incurred losses of $1,890,000 for the quarter ended June 30, 1996
and $3,471,000 for the corresponding period in 1995, or $.10 and $.19 per share,
respectively.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995
Revenues for the six months ended June 30, 1996 were $4,788,000 compared to
$1,025,000 for the corresponding period in 1995. Interest income for the six
months ended June 30, 1996 decreased by $39,000 over the corresponding period in
1995 primarily as a result of a slightly lower level of funds invested. Research
revenue earned in 1996 increased by $3,802,000 over 1995 primarily as a result
of the HMR Agreement, which commenced in November 1995.
Research and development expenses increased by 11.0% to $7,388,000 for the six
months ended June 30, 1996 from $6,654,000 in 1995, primarily due to increased
research activity as a result of the HMR Agreement.
General and administrative expenses remained relatively unchanged at $1,202,000
for the six months ended June 30, 1996 compared to $1,213,000 for the
corresponding period in 1995.
The Company incurred interest expense of $138,000 for the six months ended June
30, 1996 compared to $178,000 for the corresponding period in 1995. The decrease
results from a lower level of long-term debt and lower interest rates.
The Company incurred losses of $3,940,000 for the six months ended June 30, 1996
and $7,019,000 for the corresponding period in 1995, or $.21 and $.41 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 June 30, 1996, the Company had cash, cash equivalents and marketable
securities totaling $20,703,000 and working capital of $14,690,000 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 six months ended June 30, 1996 were
$4,928,000 to finance the Company's operations and working capital requirements,
$1,140,000 to purchase equipment, $325,000 to acquire licensed technology and
patents and $737,000 to repay long-term debt. During the six months ended June
30, 1996, net proceeds of $836,000 from the sale/leaseback of laboratory
equipment were received.
6
<PAGE> 9
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 HMR Agreement.
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 HMR 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 nonosteoporosis 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
$1,000,000 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 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 recognized under the Agreement amounted to
$1,833,000 and $3,667,000 for the three months and six months ended June 30,
1996, respectively.
From its inception and through June 30, 1996, the Company has invested an
aggregate of $17,828,000 in property and equipment, including $6,998,000 in
leasehold improvements and $10,830,000 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. These 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 $836,000 and
$598,000 under this agreement in 1996 and 1995, respectively. The capital lease
obligations are payable in monthly installments of $33,772. 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.
7
<PAGE> 10
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.
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 1. LEGAL PROCEEDINGS
As previously reported, the Company was named as a defendant in a purported
class action lawsuit that commenced in the United States District Court for the
Southern District of New York on October 21, 1994 (the "Blech Securities
Litigation"). The Company filed a motion to dismiss the Blech Securities
Litigation, and on June 6, 1996, the Court granted that motion as to the
Company. Although the Court gave plaintiffs an opportunity to replead their
allegations, the Company was not named as a defendant in the amended complaint
that plaintiffs subsequently filed.
As previously reported, the Company was also named as a defendant in a purported
class action lawsuit that commenced on June 8, 1995 in the United States
District Court for the Southern District of New York (the "Degulis Action"). The
Company filed a motion to dismiss the Degulis Action, and on June 6, 1996, the
Court denied the motion. The Company intends to continue to defend vigorously
the Degulis Action.
Other than the Degulis Action, the Company is not party to any legal
proceedings.
8
<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on June 18, 1996. Of 18,984,036
shares issued and outstanding and eligible to vote as of the record date of
April 22, 1996, a quorum of 16,105,640 shares or 84.8% of the eligible shares
were present.
<TABLE>
The only action taken at such meeting was the re-election of the following
Class 2 Directors:
<CAPTION>
Number of Shares
--------------------------------------
For Withheld Authority
---------- ------------------
<S> <C> <C>
Philip Felig, M.D. 15,731,110 374,530
Peter T. Joseph 15,726,539 379,101
Jay R. LaMarche 15,731,510 374,130
Joel S. Marcus 15,731,510 374,130
</TABLE>
Continuing Class 3 Directors (terms to expire 1997):
Harvey J. Berger, M.D.
Vaughn D. Bryson
Sandford D. Smith
Raymond S. Troubh
Continuing Class 1 Directors (terms to expire 1998):
Joan S. Brugge, Ph.D.
Edgar Haber, M.D.
Frank J. Hoenemeyer
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended June 30, 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: August 9, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,278,029
<SECURITIES> 14,425,422
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,314,073
<PP&E> 11,172,095
<DEPRECIATION> 3,933,426
<TOTAL-ASSETS> 31,543,385
<CURRENT-LIABILITIES> 6,624,542
<BONDS> 1,401,350
<COMMON> 19,004
0
0
<OTHER-SE> 18,754,042
<TOTAL-LIABILITY-AND-EQUITY> 31,543,385
<SALES> 0
<TOTAL-REVENUES> 4,787,989
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,589,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,270
<INCOME-PRETAX> (3,940,259)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,940,259)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
