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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: SEPTEMBER 30, 1998
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)
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<CAPTION>
<S> <C>
DELAWARE 22-3106987
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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
November 5, 1998 was 21,927,504.
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ARIAD PHARMACEUTICALS, INC.
TABLE OF CONTENTS
-----------------
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PART I. FINANCIAL INFORMATION Page No.
- ---- ------------------------ --------
<S> <C>
ITEM 1. UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - September 30, 1998
and December 31, 1997 ............................................ 1
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30, 1998 and 1997.... 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997..................... 3
Notes to Unaudited Condensed Consolidated Financial Statements.... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................... 7
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 12
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,516,564 $13,858,910
Marketable securities 10,403,886 15,500,547
Prepaid expenses, inventory and other assets 2,491,120 758,463
----------- -----------
Total current assets 17,411,570 30,117,920
----------- -----------
Property and equipment:
Leasehold improvements 12,540,585 12,350,100
Equipment and furniture 4,416,803 5,549,127
----------- -----------
Total 16,957,388 17,899,227
Less accumulated depreciation and amortization 8,324,505 6,459,857
----------- -----------
Property and equipment, net 8,632,883 11,439,370
----------- -----------
Investment in Genomics Center 1,891,031 1,418,864
----------- -----------
Intangible and other assets, net 4,212,068 4,433,022
----------- -----------
Total $32,147,552 $47,409,176
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,849,536 $ 1,816,583
Accounts payable 2,954,042 3,299,168
Accrued liabilities 2,925,793 2,849,353
Advance from Genomics Center 1,345,845 2,502,921
Deferred revenue 611,115 3,111,114
----------- -----------
Total current liabilities 9,686,331 13,579,139
----------- -----------
Long-term debt 3,764,796 5,156,219
----------- -----------
Deferred revenue 300,000
------------
Stockholders' equity:
Series B convertible preferred stock, $.01 par value; authorized,
5,000,000 shares; issued and outstanding, 2,526,316 shares in
1998 and 1997 (liquidation preference, $24,000,000) 25,263 25,263
Common stock, $.001 par value; authorized, 60,000,000 shares;
issued and outstanding, 21,920,402 shares in 1998 and
19,308,605 shares in 1997 21,920 19,309
Additional paid-in capital 104,299,743 94,833,479
Net unrealized gain (loss) on marketable securities 9,942 (47,572)
Accumulated deficit (85,660,443) (66,456,661)
----------- -----------
Stockholders' equity 18,696,425 28,373,818
----------- -----------
Total $32,147,552 $47,409,176
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
1998 1997 1998 1997
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Research revenue
(principally related parties) $ 3,658,801 $ 2,235,806 $ 9,733,270 $ 6,698,348
Interest income 220,925 511,237 829,672 1,329,167
----------- ----------- ------------ -----------
Total revenue 3,879,726 2,747,043 10,562,942 8,027,515
----------- ----------- ------------ -----------
Operating expenses:
Research and development 10,661,808 4,666,954 27,387,451 13,197,182
General and administrative 629,581 591,869 2,005,630 2,075,751
Interest expense 115,519 152,676 373,643 264,189
----------- ----------- ------------ -----------
Total operating expenses 11,406,908 5,411,499 29,766,724 15,537,122
----------- ----------- ------------ -----------
Net loss $(7,527,182) $(2,664,456) $(19,203,782) $(7,509,607)
=========== =========== ============ ===========
Net loss per share (basic and diluted) $ (.34) $ (.14) $ (.93) $ (.39)
=========== =========== ============ ===========
Weighted average number of shares of
common stock outstanding 21,886,079 19,297,504 20,645,620 19,235,918
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
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ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
------------ ------------
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Cash flows from operating activities:
Net loss $(19,203,782) $ (7,509,607)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,556,336 1,813,729
Deferred revenue (2,799,999) (2,499,999)
Stock-based compensation 50,529 52,726
Increase (decrease) from:
Prepaid expenses, inventory and other current assets (1,732,657) (523,487)
Accounts receivable - related party 2,000,000
Other assets 138,123 (311,094)
Accounts payable (345,126) 2,407,274
Accrued liabilities 76,440 253,072
Advance from Genomics Center (1,157,076) 2,103,163
------------ ------------
Net cash used in operating activities (22,417,212) (2,214,223)
------------ ------------
Cash flows from investing activities:
Acquisitions of marketable securities (14,042,569) (23,881,266)
Proceeds from sales and maturities of marketable securities 19,104,065 13,277,940
Investment in Genomics Center (4,320,652) (1,255,836)
Return of investment in Genomics Center 3,819,025
Investment in property and equipment, net (1,486,036) (7,109,953)
Acquisitions of licensed technology and patents (486,717) (1,939,704)
------------ ------------
Net cash provided by (used in) investing activities 2,587,116 (20,908,819)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs 9,226,060
Proceeds from issuance of series B preferred stock 24,000,000
Repayment of borrowings (1,358,470) (1,328,296)
Proceeds from borrowings 6,000,000
Proceeds from sale/leaseback of equipment 2,427,875 1,148,026
Proceeds from exercise of stock options 192,285 183,068
------------ ------------
Net cash provided by financing activities 10,487,750 30,002,798
------------ ------------
Net (decrease) increase in cash and equivalents (9,342,346) 6,879,756
Cash and equivalents, beginning of period 13,858,910 2,906,851
------------ ------------
Cash and equivalents, end of period $ 4,516,564 $ 9,786,607
============ ============
</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 September 30, 1998 and December 31, 1997 and the results of operations for
the three-month and nine-month periods ended September 30, 1998 and 1997.
The results of operations for the three-month and nine-month periods ended
September 30, 1998 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 September 30,
1998 and December 31, 1997, the Company's marketable securities consisted of the
following:
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<CAPTION>
Aggregate Amortized Gross Unrealized
1998 Fair Value Cost Basis Gains Losses
- ---- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 301,486 $ 300,061 $ 2,084 $ (659)
Corporate debt securities 10,102,400 10,093,883 27,987 (19,470)
----------- ----------- ---------- ---------
Total $10,403,886 $10,393,944 $ 30,071 $ (20,129)
=========== =========== ========== =========
1997
- ----
U.S. Government obligations $ 2,974,292 $ 3,006,012 $ (31,720)
Corporate debt securities 12,526,255 12,542,107 $ 2,680 (18,532)
----------- ----------- ---------- ---------
Total $15,500,547 $15,548,119 $ 2,680 $ (50,252)
=========== =========== ========== =========
</TABLE>
At September 30, 1998, approximately $9,319,000 of investments in marketable
securities had contractual maturities of one year or less. Realized gains and
losses on sales of marketable securities were not material during the quarter
ended September 30, 1998; the net unrealized gain of $9,942 is included in
stockholders' equity.
At September 30, 1998, marketable securities amounting to $5,824,000 were
pledged through November 12, 1998 to secure the principal amounts of the
Company's bank term note and capital lease obligation with its principal bank.
As a result of pledging these securities, under the terms of the agreement,
the interest rate on the note was adjusted downward to 90-day LIBOR plus 1.25%
from prime plus 1%.
3. INVENTORY
Inventories are carried at cost using the first-in, first-out method and are
charged to research and development expense when consumed. Inventory consisted
of bulk pharmaceutical material to be
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used for multiple preclinical and clinical drug development programs and
amounted to $892,000 at September 30, 1998.
4. NET LOSS PER SHARE
Net loss per share amounts have been computed based on the weighted average
number of shares outstanding during each period. Because of the net loss
reported in each period, diluted and basic per share amounts are the same.
5. HOECHST-ARIAD GENOMICS CENTER, LLC
In March 1997, the Company entered into an agreement which established a 50/50
joint venture with Hoechst Marion Roussel ("HMR") to pursue functional genomics
with the goal of identifying genes that encode novel therapeutic proteins and
small-molecule drug targets (the "1997 HMR Genomics Agreement"). The joint
venture, named the Hoechst-ARIAD Genomics Center, LLC (the "Genomics Center"),
is located at the Company's research facilities in Cambridge, Massachusetts.
Under the terms of the 1997 HMR Genomics Agreement, the Company and HMR agreed
to commit $85,000,000 to the establishment of the Genomics Center and its first
five years of operation. The Company and HMR agreed to jointly fund $78,500,000
of operating and related costs, and ARIAD agreed to invest up to $6,500,000 in
leasehold improvements and equipment for use by ARIAD in conducting research on
behalf of the Genomics Center. HMR committed to provide ARIAD with capital
adequate to fund ARIAD's share of such costs through the purchase of up to
$49,000,000 of ARIAD series B preferred stock over the five-year period,
including an initial investment of $24,000,000, which was completed in March
1997. From the formation of the Genomics Center through September 30, 1998, the
Company invested $6,500,000 in leasehold improvements and equipment and funded
$7,146,000 in operating and related costs. Should ARIAD and HMR determine that
the Genomics Center requires funds in excess of those committed, ARIAD may fund
its share of the excess through a loan facility made available by HMR. Funds
borrowed by ARIAD pursuant to such loan facility, if any, will bear interest at
the ninety (90) day LIBOR rate plus 0.25% and are repayable by 2003 in cash or
series B preferred stock, at the Company's option.
The Company also entered into agreements with the Genomics Center to provide
research and administrative services (the "Services Agreements") to the Genomics
Center on a cost reimbursement basis. ARIAD's costs of providing the research
and administrative services to the Genomics Center are charged to research and
development expense and general and administrative expense in the condensed
consolidated financial statements. Under the Services Agreements, ARIAD bills
the Genomics Center for 100% of its costs of providing the research and
administrative services; however, because ARIAD is providing 50% of the funding
of the Genomics Center, ARIAD recognizes as revenue only 50% of the billings to
the Genomics Center. The remaining 50% is accounted for as a return of ARIAD's
investment in the Genomics Center. Revenue recognized pursuant to the Services
Agreements amounted to $3,717,000 and $696,000 for the nine months ended
September 30, 1998 and 1997, respectively. The Genomics Center had total assets
of $3,671,000 at September 30, 1998 and incurred a net loss of $8,073,000 and
$1,377,000 for the nine months ended September 30, 1998 and 1997, respectively.
6. STOCKHOLDERS' EQUITY
On May 11, 1998, the Company completed a private placement of 2,537,500 shares
of common stock to a group of institutional investors at a price of $4.00 per
share and received net proceeds of approximately $9,200,000 after deducting
selling commissions and offering expenses. The shares were registered under the
Securities Act of 1933, as amended.
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7. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires businesses to disclose comprehensive income
and its components in their general-purpose financial statements. In accordance
with SFAS No. 130, the comprehensive loss for the nine months ended
September 30, 1998 would include the net unrealized gain on marketable
securities of $57,514, resulting in a comprehensive loss of $19,146,268.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about a company's
operating segments, will be effective for the Company's financial statements for
the year ending December 31, 1998. The Company has not yet completed its
analysis of whether operating segment reporting will be required.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 1999. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. Management is currently assessing
the impact of SFAS No. 133 on the financial statements of the Company. The
Company will adopt this accounting standard on January 1, 2000, as required.
8. SUBSEQUENT EVENT
On November 12, 1998, the Company announced that it had completed a private
placement of 5,000 shares of Series C Convertible Preferred Stock ("Series C
Stock") to a group of institutional investors (the "Investors") and received
proceeds of approximately $5,000,000. Each share of Series C Stock has a stated
value of $1,000, plus an accrual amount equal to 5% per annum, and is
convertible into common stock of the Company beginning on a date approximately
three months after the initial closing, subject to acceleration in certain
instances (the "Convertibility Date") at a conversion price equal to the lower
of a variable conversion price (the "Variable Price") or a maximum conversion
price (the "Maximum Price"). Subject to certain adjustments, the Variable Price
for any given conversion will be based on the average of the four lowest
closing bid prices for the common stock during the 22 trading days preceding
the date of conversion. Subject to certain adjustments, the Maximum Price for
all conversions will be 120% of the Variable Price at a date to be selected by
the Company on or prior to the Convertibility Date.
Under the Securities Purchase Agreement, dated as of November 9, 1998, between
the Company and the Investors (the "Purchase Agreement"), subject to certain
conditions and limitations, the Company will be required to sell and the
Investors will be required to purchase an additional aggregate of up to 5,000
shares of Series C Stock no later than the Convertibility Date. Also under the
Purchase Agreement, the Investors will have the right, commencing approximately
seven months after the Convertibility Date, to purchase one additional share of
Series C Stock for each share then held by such Investor and each share that
had been converted prior to such time at the Maximum Price, if any, up to an
aggregate of 10,000 shares of Series C Stock. The Purchase Agreement further
provides that, during a six-month period commencing approximately seven months
after the Convertibility Date and subject to certain conditions, the Company
will have the right to require the Investors to purchase up to an aggregate of
5,000 additional shares of Series C Stock. Under certain circumstances and at
certain prices, the Company may elect to redeem any shares of Series C Stock
that are presented for conversion.
The offer and sale of the Series C Stock was made pursuant to Regulation D of
the Securities Act of 1933, as amended (the "Act"), and was therefore exempt
from registration under the Act. The Company has agreed to register for resale
the shares of common stock issuable upon conversion of the Series C Stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
ARIAD Pharmaceuticals, Inc. (the "Company" or "ARIAD") is engaged in the
discovery and development of novel, orally administered pharmaceuticals based on
signal transduction technology. ARIAD's comprehensive and integrated
drug-discovery platform spans from target identification and validation
(functional genomics), to structure-based drug design and combinatorial
chemistry, to medicinal chemistry and pharmacology. This "gene-to-drug" research
and development capability forms the basis for multiple business opportunities,
each with a diversity of potential products. ARIAD is currently focusing its
drug discovery efforts on (i) the development of orally administered drugs to
block signal transduction pathways that play a critical role in major diseases
such as osteoporosis, immune-related diseases and allergy/asthma, and (ii) the
development of orally active therapeutic proteins based on a system that
controls signal transduction pathways in genetically engineered cells. These
drug discovery efforts are based on validated small-molecule drug targets and
known therapeutic proteins. ARIAD is further building its gene-to-drug research
and development capability by expanding its functional genomics program. The
Company employs functional genomics to identify new drug targets for its signal
transduction inhibitor program and novel proteins for its orally active
therapeutic protein program. In each area of drug discovery, as well as in
functional genomics, the Company has entered into a significant strategic
alliance with a collaborator to complement its gene and drug discovery
technologies or to support its commercialization efforts.
Since its inception in 1991, the Company has devoted substantially all of its
resources to its research and development programs. The Company receives no
revenue from the sale of pharmaceutical products and substantially all revenue
to date has been received in connection with the Company's research
collaborations. The Company has not been profitable since inception and expects
to incur substantial and increasing operating losses for the foreseeable future,
primarily due to the expansion of its research and development programs,
including the services the Company provides to the Genomics Center pursuant to
the Services Agreements, which services are accounted for on a cost
reimbursement basis. The Company expects that losses will fluctuate from quarter
to quarter and that such fluctuations may be substantial. As of September 30,
1998, the Company had an accumulated deficit of $85,660,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUE
The Company recognized research revenue of $3,659,000 for the quarter ended
September 30, 1998 compared to $2,236,000 for the same period in 1997. Research
revenue in 1998 is comprised principally of research revenue from services
provided to the Genomics Center and the Company's 1995 collaborative research
and development agreement with HMR (the "1995 HMR Osteoporosis Agreement"). The
increase in research revenue of $1,423,000 for the quarter ended September 30,
1998 compared to the corresponding period in 1997 is a result of increased
services provided to the Genomics Center, which services commenced in the second
quarter of 1997. Research revenue resulting from the Services Agreements with
the Genomics Center is
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expected to increase over the next two years, and research revenue recognized
under the 1995 HMR Osteoporosis Agreement is expected to remain substantially
equivalent in 1998.
Interest income decreased by $290,000 to $221,000 for the quarter ended
September 30, 1998 compared to $511,000 for the same period in 1997 primarily as
a result of lower levels of funds invested during the period.
OPERATING EXPENSES
Research and development expenses increased to $10,662,000 for the quarter ended
September 30, 1998 compared to $4,667,000 for the same period in 1997 due
primarily to research services provided to the Genomics Center under the
Services Agreements and increased expenses in the orally active protein therapy
program, including manufacturing development and other preclinical development
costs. The Company expects its research and development expenses to increase
substantially over the next two years as a result of research services to be
provided to the Genomics Center as well as increased manufacturing and
preclinical development costs associated with its drug candidates and, if such
preclinical studies are successful, the subsequent cost of human clinical
trials.
General and administrative expenses increased to $630,000 for the quarter ended
September 30, 1998 compared to $592,000 for the corresponding period in 1997
primarily due to increased expenses related to the operations of the Genomics
Center in 1998.
The Company incurred interest expense of $116,000 for the quarter ended
September 30, 1998 compared to $153,000 for the corresponding period in 1997.
The decrease resulted from a lower level of long-term debt during the period.
OPERATING RESULTS
The Company incurred losses of $7,527,000 for the quarter ended September 30,
1998 and $2,664,000 for the corresponding period in 1997, or $.34 and $.14 per
share, respectively. The Company expects that substantial operating losses will
continue for several more years, will increase as its drug development
activities expand and increased research services are provided to the Genomics
Center and will fluctuate as a result of differences in the timing and
composition of revenue earned and expenses incurred.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUE
Research revenue for the nine months ended September 30, 1998 was $9,733,000
compared to $6,698,000 for the corresponding period in 1997. Research revenue
earned in 1998 increased by $3,035,000 over 1997 as a result of increased
services provided to the Genomics Center. Interest income for the nine months
ended September 30, 1998 decreased by $499,000 over the corresponding period in
1997 primarily as a result of a lower level of funds invested.
OPERATING EXPENSES
Research and development expenses increased to $27,387,000 for the nine months
ended September 30, 1998 from $13,197,000 for the corresponding period in 1997,
primarily due to research services provided to the Genomics Center under the
Services Agreements and increased expenses incurred in the orally active protein
therapy program, including manufacturing development and other preclinical
development costs.
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General and administrative expenses decreased to $2,006,000 for the nine months
ended September 30, 1998 compared to $2,076,000 for the corresponding period in
1997, primarily due to the nonrecurrence in 1998 of administrative expenses
incurred in connection with the formation of the Genomics Center in 1997.
The Company incurred interest expense of $374,000 for the nine months ended
September 30, 1998 compared to $264,000 for the corresponding period in 1997 as
a result of a higher level of long-term debt.
OPERATING RESULTS
The Company incurred losses of $19,204,000 for the nine months ended September
30, 1998 and $7,510,000 for the corresponding period in 1997, or $.93 and $.39
per share, respectively. The Company expects that substantial operating losses
will continue for several more years, may increase as its drug development
activities expand and increased research services are provided to the Genomics
Center and will fluctuate as a result of differences in the timing and
composition of revenue earned and expenses incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and investments in property and
equipment primarily through the private placement and public offering of its
securities, including the sale of series B preferred stock to HMR, supplemented
by the issuance of long-term debt, sale/leaseback and capital lease
transactions, interest income, government-sponsored research grants and research
revenue under the 1995 HMR Osteoporosis Agreement and the 1997 HMR Genomics
Agreement.
As of September 30, 1998, the Company had cash, cash equivalents and marketable
securities totaling $14,920,000 , and working capital of $7,725,000 compared to
cash, cash equivalents and marketable securities totaling $29,359,000 and
working capital amounting to $16,539,000 at December 31, 1997.
The primary uses of cash during the nine months ended September 30, 1998 were
$22,417,000 to finance the Company's operations and working capital
requirements, including an annual payment of $3,000,000 for access to various
genomics databases, $1,486,000 to purchase laboratory equipment, $1,358,000 to
repay long-term debt, $502,000 for net investment in the Genomics Center and
$487,000 to acquire intellectual property. The primary sources of cash during
the nine months ended September 30, 1998 were $9,226,000 in net proceeds from
the private placement of common stock, $2,428,000 from the sale/leaseback of
laboratory equipment and $5,061,000 of net proceeds from the sale and maturity
of marketable securities.
On May 11, 1998, the Company completed a private placement of 2,537,500 shares
of common stock to a group of institutional investors at a price of $4.00 per
share and received net proceeds of approximately $9,200,000 after deducting
selling commissions and offering expenses. The shares were registered under the
Securities Act of 1933, as amended.
On November 12, 1998, the Company announced that it had completed a private
placement of 5,000 shares of Series C Convertible Preferred Stock to a group of
institutional investors and received proceeds of approximately $5,000,000.
In March 1997, the Company entered into a 50/50 joint venture with HMR to pursue
functional genomics with the goal of identifying genes that encode novel
therapeutic proteins and small-molecule drug targets. The Company and HMR agreed
to commit up to $85,000,000 to the establishment of the Genomics Center and its
first five years of operation. The Company and HMR agreed to jointly fund
$78,500,000 of operating and related costs, and ARIAD agreed to
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<PAGE> 12
fund up to $6,500,000 in leasehold improvements and equipment for use by ARIAD
in conducting research on behalf of the Genomics Center. HMR committed to
provide ARIAD with capital adequate to fund ARIAD's share of such costs through
the purchase of up to $49,000,000 of series B preferred stock over the five-year
period, including an initial investment of $24,000,000. From the formation of
the Genomics Center through September 30, 1998, the Company invested $6,500,000
in leasehold improvements and equipment and funded $7,146,000 in operating and
related costs.
Pursuant to the 1997 HMR Genomics Agreement, on March 18, 1997, HMR purchased
2,526,316 shares of the Company's series B preferred stock for $24,000,000.
During the period from 1999 to 2002, to fund its commitment to the Genomics
Center, the Company may, at its option, require HMR to make additional purchases
of up to $25,000,000 of series B preferred stock at purchase prices based on a
premium to the market price of the common stock at the time of each subsequent
purchase (unless the market price of the common stock exceeds a predetermined
ceiling, in which case the purchase price will be equal to the market price).
Should ARIAD and HMR determine that the Genomics Center requires funds in excess
of those committed, ARIAD may fund its share of the excess through a loan
facility made available by HMR. Funds borrowed by ARIAD pursuant to such loan
facility, if any, will bear interest at the ninety (90) day LIBOR rate plus
0.25% and are repayable by 2003 in cash or series B preferred stock, at the
Company's option.
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 for the next
six to nine months. 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 earlier.
Year 2000
The year 2000 issue relates to a complex of potential problems arising from the
ways in which computer software can handle dates. Many older systems use a
two-digit date format, which may create ambiguities in passing into a new
century. As a result, certain computers will be unable to distinguish the year
2000 from the year 1900, as "00" is all that will appear in the date field.
The Company has a Year 2000 Plan, which it is actively pursuing to address the
Company's year 2000 issues. The Company's Year 2000 Plan focuses on each of the
Company's internal systems and third parties with which the Company has a
significant relationship.
The Company's Year 2000 Plan relating to its internal systems consists of three
phases: assessment, testing and implementation. The Company is currently in the
assessment phase and anticipates commencing the testing phase during the first
quarter of 1999. The Company believes that all material systems will be
compliant by the year 2000 and that the cost to address this issue is not
material. Nevertheless, the Company will create contingency plans for certain
internal systems, if necessary.
All organizations dealing with the year 2000 must address the effect this issue
will have on their significant business relationships including both suppliers
and customers. The Company is undertaking steps to work with key third parties
to understand their ability to continue providing services and products through
the change to the year 2000. If any significant year 2000 problems are
identified with key third parties, contingency plans will be developed.
10
<PAGE> 13
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 risks and
uncertainties regarding the receipt of revenues under the Company's 1995 HMR
Osteoporosis Agreement and the Services Agreements, the actual research and
development expenses and other costs associated with the Genomics Center, the
success of the Company's preclinical studies, the ability of the Company to
commence clinical studies, the ability of the Company to successfully resolve
the Year 2000 issue, the adequacy of the Company's capital resources and
the availability of additional funding, as well as general 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. As a result of these factors, actual events or results could differ
materially from those described herein.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibit is filed herewith:
27.1 Financial Data Schedule
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
Executive Vice President and
Chief Financial Officer
(Duly authorized Officer and Principal
Financial Officer)
Date: November 13, 1998
12
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
<S> <C>
3.1 CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED (1)
3.2 BY-LAWS OF THE COMPANY, AS AMENDED (1)
3.3 AMENDMENT OF CERTIFICATE OF INCORPORATION OF THE COMPANY, DATED APRIL 8, 1994 (2)
3.4 AMENDMENT OF CERTIFICATE OF INCORPORATION OF THE COMPANY, DATED OCTOBER 4, 1994 (5)
3.5 CERTIFICATE OF DESIGNATIONS IN RESPECT OF SERIES B PREFERRED STOCK OF THE COMPANY (8)
3.6 AMENDMENT OF BY-LAWS OF THE COMPANY, ADOPTED SEPTEMBER 16, 1994 (5)
3.7 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK OF
THE COMPANY (10)
4.1 FORM OF ARIAD PHARMACEUTICALS, INC. COMMON STOCK PURCHASE WARRANT (1)
4.2 PRINCIPAL STOCKHOLDERS' AGREEMENT, DATED AS OF JANUARY 5, 1992, AMONG ARIAD PHARMACEUTICALS, INC.,
DAVID BLECH, DAVID BLECH AS TRUSTEE OF THE BLECH FAMILY TRUST, MARK S. GERMAIN, HARVEY J. BERGER,
HARVEY J. BERGER AND WENDY S. BERGER AS TRUSTEES OF THE BERGER FAMILY TRUST, AVALON VENTURES AND
AVALON VENTURES IV. (1)
4.3 FORM OF WARRANT AGREEMENT (WITH FORM OF WARRANT). (3)
4.4 RIGHTS AGREEMENT, DATED AS OF DECEMBER 15, 1994, BETWEEN THE COMPANY AND STATE STREET BANK AND TRUST
COMPANY, WHICH INCLUDES THE CERTIFICATE OF DESIGNATIONS IN RESPECT OF THE SERIES A PREFERRED STOCK,
AS EXHIBIT A, THE FORM OF RIGHT CERTIFICATE AS EXHIBIT B AND THE SUMMARY OF RIGHTS TO PURCHASE SERIES A
PREFERRED STOCK AS EXHIBIT C. PURSUANT TO THE RIGHTS AGREEMENT, RIGHT CERTIFICATES WILL NOT BE MAILED
UNTIL AFTER THE SEPARATION DATE (AS DEFINED THEREIN). (4)
4.5 AMENDMENT, DATED AS OF APRIL 24, 1995, TO RIGHTS AGREEMENT, DATED AS OF DECEMBER 15, 1994, BETWEEN ARIAD
PHARMACEUTICALS, INC. AND STATE STREET BANK AND TRUST COMPANY. (6)
4.6 STOCK PURCHASE AGREEMENT, DATED AS OF APRIL 24, 1995, BETWEEN ARIAD PHARMACEUTICALS, INC. AND BIOTECH
TARGET S.A. (7)
10.1 LEASE AGREEMENT, DATED JANUARY 8, 1992, BETWEEN ARIAD PHARMACEUTICALS, INC. AND FOREST CITY CAMBRIDGE,
INC. (1)
10.2 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 1, 1992, BETWEEN ARIAD PHARMACEUTICALS, INC. AND
HARVEY J. BERGER, M.D. (1)
10.3 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 3, 1992, BETWEEN ARIAD PHARMACEUTICALS, INC. AND
JOAN S. BRUGGE, PH.D. (1)
10.4 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 1, 1992, BETWEEN ARIAD PHARMACEUTICALS, INC. AND
CHARLES C. CABOT III. (1)
10.5 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF JANUARY 1, 1992, BETWEEN ARIAD PHARMACEUTICALS, INC. AND
JAY R. LAMARCHE. (1)
10.6 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 14, 1991, BETWEEN ARIAD PHARMACEUTICALS, INC. AND
MANFRED WEIGELE, PH.D. (1)
10.7 LOAN AND SECURITY AGREEMENT, DATED SEPTEMBER 23, 1992, BY AND BETWEEN ARIAD PHARMACEUTICALS, INC., ARIAD
CORPORATION AND BAYBANK BOSTON, N.A. AND RELATED INSTRUMENTS AND DOCUMENTS. (1)
10.8 LOAN AGREEMENT, DATED OCTOBER 28, 1992, AMONG ARIAD CORPORATION, ARIAD PHARMACEUTICALS, INC. AND THE
MASSACHUSETTS BUSINESS DEVELOPMENT CORPORATION AND RELATED INSTRUMENTS AND DOCUMENTS. (1)
10.9 EQUIPMENT LEASE AGREEMENT, DATED DECEMBER 10, 1992, BY AND BETWEEN ARIAD CORPORATION AND GENERAL ELECTRIC
CAPITAL CORPORATION. (1)
10.10 MASTER LEASE AGREEMENT, DATED DECEMBER 21, 1992, BY AND BETWEEN ARIAD CORPORATION AND COMDISCO, INC. (1)
10.11 ARIAD PHARMACEUTICALS, INC. 1991 STOCK OPTION PLAN FOR EMPLOYEES, AS AMENDED. (5)
10.12 ARIAD PHARMACEUTICALS, INC. 1991 STOCK OPTION PLAN FOR DIRECTORS. (1)
10.13 ARIAD RETIREMENT SAVINGS PLAN. (1)
10.14 AMENDED AND RESTATED AGREEMENT DATED AS OF DECEMBER 12, 1997 BETWEEN THE BOARD OF TRUSTEES OF THE LELAND
STANFORD JUNIOR UNIVERSITY AND ARIAD GENE THERAPEUTICS, INC. (9)
10.15 AMENDMENT, DATED APRIL 19, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
HARVEY J. BERGER, M.D. (3)
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
<S> <C>
10.16 AMENDMENT, DATED MARCH 2, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
JOAN S. BRUGGE, PH.D. (3)
10.17 AMENDMENT, DATED MARCH 2, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
CHARLES C. CABOT III. (3)
10.18 AMENDMENT, DATED MARCH 2, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
JAY R. LAMARCHE. (3)
10.19 AMENDMENT, DATED MARCH 2, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
MANFRED WEIGELE, PH.D. (3)
10.20 UNIT PURCHASE AND TECHNOLOGY RIGHT OF FIRST NEGOTIATION AGREEMENT,
DATED MAY 5, 1994, AMONG GENENTECH, INC., ARIAD PHARMACEUTICALS, INC. AND
ARIAD GENE THERAPEUTICS, INC. (3)
10.21 AMENDMENT NO. 2, DATED JUNE 30, 1994, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC.
AND HARVEY J. BERGER, M.D. (5)
10.22 ARIAD PHARMACEUTICALS, INC. 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. (5)
10.23 COLLABORATIVE RESEARCH AND LICENSE AGREEMENT, DATED NOVEMBER 5, 1995, BETWEEN ROUSSEL UCLAF AND ARIAD
PHARMACEUTICALS, INC. (7)
10.24 LICENSE AGREEMENT DATED AS OF SEPTEMBER 12, 1996 BETWEEN MOCHIDA PHARMACEUTICALS CO., LTD. AND ARIAD
PHARMACEUTICALS, INC. (8)
10.25 JOINT VENTURE AGREEMENT DATED AS OF FEBRUARY 14, 1997 BETWEEN GENOVO, INC. AND ARIAD GENE THERAPEUTICS,
INC. (8)
10.26 JOINT VENTURE MASTER AGREEMENT DATED AS OF MARCH 4, 1997 BETWEEN HOECHST MARION ROUSSEL, INC. AND ARIAD
PHARMACEUTICALS, INC. (8)
10.27 STOCK PURCHASE, STANDSTILL AND REGISTRATION RIGHTS AGREEMENT DATED AS OF MARCH 4, 1997 BETWEEN HOECHST
MARION ROUSSEL, INC. AND ARIAD PHARMACEUTICALS, INC. (8)
10.28 COLLABORATIVE AGREEMENT DATED AS OF MARCH 4, 1997 BETWEEN INCYTE PHARMACEUTICALS, INC. AND ARIAD
PHARMACEUTICALS, INC. (8)
10.29 AMENDMENT, DATED JANUARY 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
HARVEY J. BERGER, M.D. (8)
10.30 AMENDMENT, DATED JANUARY, 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC.
AND JAY R. LAMARCHE (8)
10.31 AMENDMENT, DATED JANUARY 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
CHARLES C. CABOT III (8)
10.32 AMENDMENT, DATED JANUARY 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
MANFRED WEIGELE, PH.D. (8)
10.33 AMENDMENT, DATED JANUARY 1, 1997, TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ARIAD PHARMACEUTICALS, INC. AND
MICHAEL GILMAN, PH.D. (8)
10.34 CONSULTING AGREEMENT, DATED JULY 1, 1997, BETWEEN ARIAD PHARMACEUTICALS, INC. AND JOAN S. BRUGGE, PH.D. (8)
10.35 ARIAD PHARMACEUTICALS, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN (8)
10.36 AMENDMENT TO THE 1991 STOCK OPTION PLAN FOR EMPLOYEES AND CONSULTANTS (8)
10.37 AMENDMENT TO THE 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (8)
10.38 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT DATED JUNE 27, 1997 WITH BANKBOSTON, N.A. AS SUCCESSOR IN
INTEREST TO BAYBANK, N.A. (8)
10.39 LICENSE AGREEMENT, DATED JULY 17, 1997, BETWEEN ARIAD PHARMACEUTICALS, INC. AND
MITOTIX INC. (8)
10.40 TECHNOLOGY PURCHASE AND SALE AGREEMENT AND RELATED AGREEMENTS, DATED JULY 17, 1997, BETWEEN ARIAD
PHARMACEUTICALS, INC. AND MITOTIX, INC. (8)
10.41 ARIAD PHARMACEUTICALS, INC. 1997 EXECUTIVE COMPENSATION PLAN (9)
21.1 SUBSIDIARIES OF THE COMPANY. (3)
27.1 FINANCIAL DATA SCHEDULE (10)
</TABLE>
---------------
(1) Incorporated by reference to Registration Statement on Form 10 of
the Company filed with the Securities and Exchange Commission on
June 25, 1993.
(2) Incorporated by reference to Form 10-K of the Company for the
fiscal year ended December 31, 1993 filed with the Securities and
Exchange Commission on April 15, 1994.
14
<PAGE> 17
(3) Incorporated by reference to Registration Statement on Form S-1 of
the Company (No. 33-76414) filed with the Securities and Exchange
Commission on March 11, 1994.
(4) Incorporated by reference to Form 8-K of the Company filed with
the Securities and Exchange Commission on December 21, 1994.
(5) Incorporated by reference to Form 10-K of the Company for the
fiscal year ended December 31, 1994 filed with the Securities and
Exchange Commission on March 30, 1995.
(6) Incorporated by reference to Form 8-K of the Company filed with
the Securities and Exchange Commission on May 15, 1995.
(7) Incorporated by reference to Form 10-K of the Company for the
fiscal year ended December 31, 1995 filed with the Securities and
Exchange Commission on March 15, 1996.
(8) Incorporated by reference to Forms 10-Q of the Company filed with
the Securities and Exchange Commission on May 12, 1997, August 12,
1997 and November 12, 1997.
(9) Incorporated by reference to Form 10-K of the Company for the
fiscal year ended December 31, 1997 filed with the Securities and
Exchange Commission on March 6, 1998.
(10) Incorporated by reference to Form 8-K of the Company filed with
the Securities and Exchange Commission on November 12, 1998.
(11) Filed herewith.
15
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,516,564
<SECURITIES> 10,403,886
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,411,570
<PP&E> 16,957,388
<DEPRECIATION> 8,324,505
<TOTAL-ASSETS> 32,147,552
<CURRENT-LIABILITIES> 9,686,331
<BONDS> 3,764,796
0
25,263
<COMMON> 21,920
<OTHER-SE> 18,649,242
<TOTAL-LIABILITY-AND-EQUITY> 32,147,552
<SALES> 0
<TOTAL-REVENUES> 10,562,942
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<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,393,081
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<INTEREST-EXPENSE> 373,643
<INCOME-PRETAX> (19,203,782)
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