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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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 02139-4234
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-0400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
COMMON STOCK PURCHASE WARRANTS
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of the registrant's Common Stock and number of Rights
outstanding as of January 31, 1998: 19,311,003. The number of Common Stock
Purchase Warrants outstanding as of January 31, 1998: 2,125,225.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $62 million as of January 31, 1998, based on the
last reported sales price of the registrant's Common Stock on the Nasdaq
National Market on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement (the "Proxy Statement") to be used
in connection with the Registrant's 1998 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K.
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PART I
BUSINESS
THE COMPANY
ARIAD Pharmaceuticals, Inc. ("ARIAD" or the "Company") 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.
SIGNAL TRANSDUCTION INHIBITORS. ARIAD is designing drugs that inhibit signal
transduction pathways in cells responsible for osteoporosis, allergy/asthma and
immune-related diseases such as transplant rejection and rheumatoid arthritis.
In each of these programs, the Company has identified intracellular signaling
protein targets that it believes are critical to the disease process. ARIAD
scientists are employing the Company's advanced drug discovery platform to
design and develop small molecules that bind to these proteins and block their
ability to transmit signals within the cell. In the case of osteoporosis, ARIAD
is developing small molecules designed to bind to Src, an intracellular
signaling protein that the Company believes is critical to the function of
osteoclasts, the cells that resorb bone. By inhibiting the function of Src, it
may be possible to correct the imbalance between bone resorption and bone
formation that causes osteoporosis. In November 1995, ARIAD entered into an
agreement with Hoechst Marion Roussel ("HMR") (the "1995 HMR Osteoporosis
Agreement") to develop Src inhibitors for the treatment of osteoporosis and
related bone diseases. HMR agreed to invest up to $40 million in cash, of which
$10 million was paid upon closing and up to $30 million will fund research at
ARIAD over a five-year period, including $10 million to be paid upon the
achievement of certain research milestones. HMR also agreed to fund all
preclinical and clinical research activities of the program. ARIAD has developed
small-molecule drugs that bind selectively to Src and inhibit bone resorption in
cellular assays. The Company's lead compounds in the osteoporosis program are
currently being evaluated in vivo in animal models of osteoporosis.
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ORALLY ACTIVE THERAPEUTIC PROTEINS. ARIAD regulated gene expression technology
(ARGENT(TM)) is a novel and proprietary system designed to provide a means to
control cellular activities, such as protein production, using small-molecule
drugs. ARGENT(TM) can potentially be applied broadly in many areas of drug
discovery, in gene and cell therapy, in manufacturing of biological products and
in genomics research. ARIAD's leading application of the technology is in the
development of orally active therapeutic proteins. Currently, proteins such as
erythropoietin (anemia), interferon-alpha (hepatitis) or growth hormone
(pituitary dysfunction) must be delivered by injection. This mode of
administration can be inconvenient and uncomfortable to the patient and can
result in circulating protein levels that fluctuate well above and below the
optimal therapeutic dose. In addition, some potentially useful protein therapies
are unavailable, because they cannot be administered effectively by injection.
Using ARGENT(TM), it may be possible to genetically engineer a patient's cells
to produce a therapeutic protein of choice in vivo in response to a proprietary
small-molecule drug. This approach could provide physicians with the ability to
administer and control protein therapy in a manner consistent with conventional
pharmaceutical dosing (i.e., with a pill). It may also improve the ability to
maintain stable and effective levels of therapeutic protein in the body. ARIAD
is currently testing ARGENT(TM) orally activated protein therapy in animal
models. In vivo proof-of-concept studies have been completed using growth
hormone and erythropoietin. Further preclinical studies and manufacturing
scale-up efforts are under way.
FUNCTIONAL GENOMICS. In March 1997, ARIAD established a joint venture with HMR
to pursue functional genomics. The objective of the joint venture, called the
Hoechst-ARIAD Genomics Center, LLC (the "Genomics Center"), is to identify genes
that encode targets for small-molecule drug discovery and novel therapeutic
proteins through the development and integrated application of advanced
technologies in molecular and cellular genetics and bioinformatics. Operating
costs of the Genomics Center are shared equally by ARIAD and HMR, and each
company has the right to select for further development 50% of the genes
identified by the joint venture as potential sources of small-molecule drug
targets or therapeutic proteins. ARIAD and HMR have agreed to commit $85 million
to fund the operating expenses, capital expenditures and other costs of the
Genomics Center until March 2002. The Genomics Center currently is focusing on
identifying genes that play a critical role in osteoporosis, atherosclerosis,
cancer and osteoarthritis.
The Company's business strategy is to create multiple business opportunities
based on its expertise in signal transduction technology. The key elements of
this strategy include: (i) continuing to develop comprehensive and highly
integrated capabilities in multiple aspects of drug discovery and development;
(ii) seeking collaborations that will provide access to complementary
technologies and research capabilities or commercialization expertise; (iii)
pursuing drug discovery programs with the potential to create multiple product
candidates; and (iv) when possible, retaining defined clinical development and
commercialization rights and the flexibility to pursue product opportunities
independently.
All of ARIAD's compounds are currently in research or preclinical development,
and none has entered human clinical trials or has been submitted to the U.S.
Food and Drug Administration (the "FDA") or any other regulatory agency for
marketing approval.
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ARIAD'S BUSINESS STRATEGY
ARIAD's strategy is to apply its knowledge of signal transduction pathways and
the genes that regulate them to discover, develop and commercialize novel
pharmaceutical products. To fulfill this objective, ARIAD has assembled, through
internal efforts and strategic collaborations, a broad portfolio of advanced
technologies for pharmaceutical discovery and development. The integrated
application of these technologies has allowed the Company to pursue multiple
business opportunities, each with a diversity of potential products (Figure 1).
The key elements of ARIAD's business strategy are described below.
FIGURE 1
ARIAD'S RESEARCH AND DEVELOPMENT STRATEGY
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
TARGET IDENTIFICATION VALIDATED SMALL-MOLECULE INTEGRATED DRUG DISCOVERY SMALL-MOLECULE DRUGS
AND VALIDATION DRUG TARGETS
(FUNCTIONAL GENOMICS)
* Bioinformatics * Molecular Cell Biology * Signal Transduction
* Genetic Screens * Structure Determination Inhibitors
* Differential Gene * Molecular Modeling * Orally Active Therapeutic
Expression * Combinatorial Chemistry Proteins
* Protein Trapping * Novel Natural Products * Cell Therapy Regulators
* Mouse Models VALIDATED PROTEINS * Robotic High-Throughput
Screening DNA/PROTEIN DRUGS
* Novel Cellular Assays
* Animal Models and * Gene Therapy Products
Transgenics * Recombinant Proteins
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
MAINTAIN A BROAD AND INTEGRATED PORTFOLIO OF ADVANCED DRUG DISCOVERY
CAPABILITIES. ARIAD has established integrated capabilities in multiple aspects
of drug discovery, including target identification and validation (functional
genomics), structure-based drug design and molecular modeling, combinatorial
chemistry, bioinformatics, novel assays and high-throughput screening, medicinal
chemistry, and pharmacology. Rather than focusing on a narrow aspect of modern
drug discovery such as combinatorial chemistry or assay development, ARIAD's
integrated approach enables the Company to pursue the drug discovery and
development process from the identification of a critical gene to the
optimization of a compound ready for clinical testing. The Company believes that
this comprehensive approach to drug discovery provides ARIAD with opportunities
to retain a larger portion of the commercial value of its potential products and
can be applied to a broad spectrum of small-molecule drug targets in addition to
those involved in signal transduction pathways.
ESTABLISH STRATEGIC COLLABORATIONS TO ACCESS COMPLEMENTARY TECHNOLOGIES AND
ACCELERATE DRUG DEVELOPMENT. ARIAD actively pursues collaborations with
pharmaceutical and biotechnology companies to accelerate the development,
testing and regulatory approval of its products. Certain of its collaborations
are designed principally to access complementary technologies and research
capabilities. For example, ARIAD has partnered with Genovo, Inc. ("Genovo") to
gain access to gene transfer technology for use in its orally active therapeutic
protein program. Other collaborations, such as the 1995 HMR Osteoporosis
Agreement, are established primarily to gain access to clinical research and
commercialization capabilities. In addition to partially offsetting the risks
and expenses associated with drug development, the Company believes that this
partnering strategy creates the opportunity to leverage the knowledge gained
through each
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collaboration into additional drug discovery opportunities in other areas.
PURSUE DRUG DISCOVERY PROGRAMS WITH MULTIPLE PRODUCT OPPORTUNITIES. The
Company's broad drug discovery platform is designed to create multiple product
opportunities. For example, while the Company's signal transduction inhibitor
program currently focuses on osteoporosis and immune and inflammatory diseases,
the knowledge acquired in these programs may be applied to the development of
novel small-molecule drugs for other illnesses, such as cancer and infectious
diseases. Similarly, the initial products in ARIAD's orally active therapeutic
protein program are being designed to replace existing injectable protein
therapeutics, such as growth hormone and erythropoietin, but the technology may
also be applied to the controlled delivery in vivo of a broad range of newly
identified therapeutic proteins. The functional genomics program is designed to
identify multiple small-molecule drug targets and novel therapeutic proteins.
While these drug targets and therapeutic proteins may be developed by ARIAD
independently, they may be licensed to partners or sold as well.
RETAIN DEFINED COMMERCIALIZATION RIGHTS. ARIAD has structured its strategic
alliances and joint ventures to preserve, whenever possible, the flexibility to
develop certain product opportunities independently or with third parties. For
example, in the osteoporosis collaboration with HMR, ARIAD has the option to
participate in the clinical development and commercialization of certain
products for nonosteoporosis indications in North America. Additionally, ARIAD
has retained the commercialization rights to its other signal transduction
inhibitor programs that are based on its understanding of specific intracellular
proteins. While ARIAD has partnered with Genovo for the joint development and
commercialization of therapeutic proteins delivered by ARGENT(TM) in muscle and
skin cells, the Company retains the right to pursue independently all other
applications of ARGENT(TM). ARIAD's selections of the small-molecule drug
targets or novel proteins, if any, that arise out of the Genomics Center may be
developed independently or with partners.
ARIAD DRUG DISCOVERY PROGRAMS
Cellular responses are controlled by external signals that stimulate or inhibit
intracellular events. The process by which an external signal is transmitted
into and within a cell to elicit a response is referred to as signal
transduction. Signal transduction is generally initiated by the interaction of
extracellular factors (e.g., ligands such as hormones, adhesion molecules or
neurotransmitters) with receptors on the cell surface. These extracellular
signals are transduced to the inner face of the cell membrane, causing the
intracellular portion of the receptor to interact with specific contact sites
(domains) on intracellular signaling proteins. The initial intracellular
receptor-target interactions stimulate a series of additional protein
interactions which disseminate the signal throughout the cell along
intracellular pathways, thereby producing a specific cellular response.
ARIAD believes that the protein-protein and protein-DNA interactions that make
up signal transduction pathways represent excellent targets for drug discovery
and development. By inhibiting signaling protein interactions, it may be
possible to shut down the cellular responses that are responsible for diseases
such as osteoporosis, rheumatoid arthritis or allergy/asthma. By activating
these interactions, it may be possible to gain
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control of cellular responses, thereby causing cells to produce therapeutic
compounds themselves.
ARIAD's drug discovery process begins with an effort to identify and evaluate
potential targets. Using molecular biology, molecular and cellular genetics and
other techniques of modern biology, the Company identifies and selects those
intracellular signaling interactions that are either (i) responsible for a
specific disease, or (ii) able to be exploited for the controlled production of
useful cellular proteins. These targets then become the basis for efforts to
design small-molecule signal transduction inhibitor drugs and small-molecule
activated protein drugs, respectively.
SIGNAL TRANSDUCTION INHIBITOR PROGRAM
ARIAD believes that the intracellular protein interactions that make up signal
transduction pathways are excellent targets for pharmacologic intervention. In
each of ARIAD's signal transduction inhibitor projects, the Company seeks to:
(i) discover an intracellular signaling pathway that is critical to the process
of a major disease or disorder; (ii) identify an intracellular signaling protein
that is essential to that pathway; (iii) determine the specific binding domain
of the protein responsible for transduction of the signal; and (iv) design a
small-molecule drug that binds to the targeted domain, thereby inhibiting the
transmission of the signal and halting the disease process (Figure 2). ARIAD's
primary signal transduction inhibitor projects focus on intracellular pathways
that the Company believes are critically involved in osteoporosis,
immune-related diseases and allergy/asthma. For each of these diseases and
disorders, ARIAD scientists have identified signaling proteins that the Company
believes are essential for the disease process. The Company is currently
optimizing and testing small-molecule compounds that bind to specific domains on
these proteins.
FIGURE 2
NORMAL SIGNAL TRANSDUCTION SIGNAL PATHWAY INHIBITED
[DESCRIPTION TO COME]
Drug Discovery Process
The essential elements of ARIAD's signal transduction inhibitor drug discovery
process are summarized below:
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Identification of intracellular targets - ARIAD employs molecular cell biology,
molecular and cellular genetics and bioinformatics to identify specific
intracellular signaling proteins that represent validated targets for
pharmacologic intervention. When selecting these targets, ARIAD considers the
following criteria:
- - The targeted signaling pathway is well-characterized and implicated in an
important human disease.
- - The targeted protein is critical to the disease pathway.
- - The domains involved in the interaction of the targeted protein with other
proteins in the signaling pathway are amenable to structural analysis using
the tools of structure-based drug design such as nuclear magnetic resonance
("NMR") spectroscopy or x-ray crystallography.
- - The sites of contact between domains are relatively small and thus able to
be blocked with a small-molecule compound.
Based on these criteria, ARIAD scientists are targeting a class of intracellular
protein binding domains called SH2 domains. These domains are found on multiple
signaling proteins that are critical to specific disease processes. While SH2
domains as a group share common structural attributes that may confer efficiency
to the drug design process, SH2 domains associated with specific signaling
proteins display unique binding characteristics which the Company believes
should provide the opportunity to achieve a high degree of selectivity in
compounds designed to block these targeted signaling proteins. By focusing on a
family of targets that are critical to multiple diseases, ARIAD hopes to
transfer the knowledge gained in designing one SH2 inhibitor drug to the design
of subsequent SH2 inhibitors for other disease applications. This ability to
leverage knowledge of target structure and small-molecule inhibitor design could
result in a faster and more efficient drug discovery process.
Structure determination - ARIAD chemists determine the detailed
three-dimensional molecular structure of the targeted protein domain through the
use of advanced biophysical imaging techniques, such as NMR spectroscopy and
x-ray crystallography.
Lead compound identification - Once the structural information for a given
target is determined, ARIAD scientists use two integrated approaches to identify
small molecules that may block that target. In the first approach, ARIAD
chemists use the structural information as a blueprint for the design and
synthesis of individual small molecules that are intended to bind to the domain
and block the target protein's interaction with other proteins in the signal
transduction pathway. In the second approach, ARIAD scientists use combinatorial
chemistry to efficiently produce large "libraries" of small molecules with
diverse chemical characteristics. The Company believes that its approach to
combinatorial chemistry -- using the molecular structure of the target protein
to bias the compounds produced in the Company's libraries -- should increase the
probability of producing a compound that binds to the targeted domain. By
determining the molecular structure of combinatorial compounds that bind well or
poorly to the domains, ARIAD chemists can further bias succeeding
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generations of combinatorial compound libraries in an iterative effort to
identify selective and powerful signal transduction inhibitor drugs.
Assay systems - The ability of ARIAD's compounds to bind to the target protein's
domain is determined in proprietary assay systems. The Company has developed
novel in vitro binding assays based on fluorescence polarization technology.
These assays are highly sensitive and adaptable to high-throughput screening
systems. ARIAD has also designed cell-based assays to validate leads identified
in screening. These assays are helpful in determining whether compounds can pass
through cell membranes, bind selectively to the target and block the disease
process. Compounds that perform effectively in ARIAD's assay systems are
evaluated further in the Company's validated animal models of specific diseases.
Clinical candidate selection - The goal of ARIAD's signal transduction inhibitor
discovery and optimization process is to develop a proprietary, small-molecule
compound that is stable, cell-membrane permeable, suitable for oral
administration and safe and therapeutically effective based on in vitro assays
and in vivo studies. Such a compound may then become a candidate for initial
clinical trials.
PRIMARY SIGNAL TRANSDUCTION INHIBITOR DRUG DISCOVERY PROJECTS
Osteoporosis - Osteoporosis is characterized by progressive loss of bone
architecture and mineralization leading to the loss of bone strength and an
increased fracture rate. The skeleton is constantly being remodeled by a balance
between cells that lay down new bone (osteoblasts) and those cells that break
down or resorb bone (osteoclasts). A prolonged imbalance of resorption over
formation can occur in post-menopausal women, as well as in men and women with
certain disorders such as renal osteodystrophy, hypercalcemia and Paget's
disease. This imbalance leads to weaker bone structure and a higher risk of
fractures. These fractures often heal poorly and result in substantial costs to
the healthcare system.
Osteoporosis afflicts an estimated 25 million people in the United States and
more than 200 million people worldwide. The estimated cost of treatment and care
for osteoporosis and related fractures exceeds $10 billion per year in the
United States alone. Because bone loss occurs gradually over time and without
symptoms, osteoporosis is often left untreated until it becomes severe.
According to the National Osteoporosis Foundation, 80% of those afflicted with
osteoporosis are women. Many osteoporosis patients who sustain the bone
fractures caused by this disease suffer a distinct loss of mobility, and nearly
one quarter of those who fracture their hips die within six months.
Current therapies for osteoporosis include calcitonin, estrogen replacement
therapy and bisphosphonates. Both calcitonin and estrogen replacement attempt to
maintain bone mass by decreasing the rate at which bone is naturally resorbed by
the body. While these therapies can help mitigate the effects of osteoporosis,
they are not cures. Recent studies have suggested that estrogen replacement
therapy may increase the risk of breast cancer in post-menopausal women.
Bisphosphonates are a more recent form of therapy for osteoporosis. While these
compounds appear to perform better than calcitonin and estrogen replacement
therapy in some patients, their mechanism of action is not well understood, and
they have been associated with undesirable side effects.
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ARIAD's approach for treating osteoporosis is to develop small-molecule drugs
that bind to the SH2 domain of Src, an intracellular signaling protein that is
implicated in the bone resorption activity of osteoclasts. The Company believes
that Src is a key mediator in osteoclast-induced bone resorption based on
experiments in mice that have had Src genetically removed. These animals
experience a condition known as osteopetrosis, or "stone bone," which is
characterized by thickening of the bone. Additional research has shown that
osteoclasts from mice that lack Src are incapable of resorbing bone. Although
Src appears essential for bone resorption by osteoclasts, it does not appear to
be critical to the function of other cells. Therefore, the Company believes that
Src inhibitors can be safe and effective treatments for osteoporosis.
In November 1995, ARIAD entered into a collaboration with HMR to develop
small-molecule inhibitors of Src for the treatment of osteoporosis and related
hyperresorptive bone diseases. Under the terms of this collaboration, HMR made
an initial cash payment to ARIAD of $10 million and agreed to provide up to $20
million of research support payments over a five-year period and up to $10
million upon the attainment of certain research milestones. In addition, HMR
agreed to fund all preclinical and clinical development costs for products that
emerge from the collaboration. HMR will pay royalties to ARIAD on net sales of
any products successfully commercialized out of this collaboration, if any.
ARIAD attained the first $2 million research milestone in 1996 after
successfully designing small-molecule compounds that block the SH2 domain of Src
and retard bone resorption in in vitro and ex vivo assays, respectively. During
1997, ARIAD scientists further improved the potency and selectivity of the
leading Src inhibitor compounds and began testing these compounds in in vivo
animal models of osteoporosis. ARIAD researchers continue to optimize the
leading Src inhibiting compounds with the goal of identifying a candidate for
human clinical trials.
Immune-Related Diseases - Organ transplant rejection and autoimmune disorders,
such as rheumatoid arthritis, multiple sclerosis and inflammatory bowel disease,
are caused by unwanted reactions by the human immune system. Transplant
rejection occurs when the immune system recognizes transplanted tissue as
foreign and mounts an attack against it. Autoimmune disorders are the result of
the body's immune system failing to distinguish "self" from "nonself" and
attacking normal tissue. Currently, no universally effective treatment exists
for most autoimmune disorders, and the incidence of such diseases is increasing.
A critical step in the human immune response is the activation of white blood
cells called T cells. The process of T cell activation is initiated when
specific antigens bind to the extracellular portion of the T cell receptor.
Binding of the T cell receptor to its antigen target activates a signaling
pathway within the T cell leading to a full-scale immune response. The goal of
ARIAD's immune-related disease program is to develop a small-molecule
immunosuppressive drug that effectively treats autoimmune disorders and
transplant rejection by specifically inhibiting the intracellular signaling
protein interactions that lead to T cell activation.
ARIAD is using structure-based drug design and structure-based combinatorial
chemistry
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to develop inhibitors of an intracellular signaling protein called ZAP. ZAP is
expressed exclusively within T cells and has been shown in published studies to
be essential for antigen-induced T cell activation. Molecular, genetic and
biochemical studies have confirmed that ZAP binds to the intracellular portion
of the T cell receptor and that blocking this interaction can prevent T cell
activation. In addition, published studies have shown that humans that have a
genetic defect in ZAP are severely immunodeficient. This research suggests that
a small-molecule drug that selectively blocks ZAP may represent an effective
immunosuppressive agent that may not exhibit the side effects associated with
existing immunosuppressive drugs, such as cyclosporine or tacrolimus.
ARIAD scientists were the first to determine and publish the molecular structure
of the tandem SH2 domains of ZAP and the nature of their interaction with the T
cell receptor. Using this information, as well as the knowledge of
SH2-inhibiting compounds gained in the osteoporosis program, ARIAD has
identified lead molecules on which to base its efforts to develop ZAP-inhibiting
drugs. These compounds have been shown to bind selectively to ZAP SH2 domains in
in vitro binding assays. The Company is evaluating these compounds in T cell
activation assays in order to select the most promising compounds to undergo
optimization and animal testing in models of immune-related disease.
Allergy and Asthma - Allergic diseases are among the most common chronic
disorders in the industrialized world, and asthma is one of the most severe
forms of allergic disease. The incidence, severity and death rate from allergy
and asthma have been increasing for a decade with a significant overall
healthcare cost.
Allergic reactions are caused when an allergen, such as pollen, enters the body
and is bound by IgE antibodies on the surface of mast cells. Mast cells are
found throughout the body, but are most heavily concentrated in the membranes
lining the nose, lungs and gastrointestinal tract where they encounter most
common allergens. When the mast cell encounters an allergen, an intracellular
signaling pathway is activated which causes the mast cell to respond by
secreting proinflammatory mediators such as histamine, leukotrienes,
prostaglandins, tryptase and cytokines. These mediators are released into the
bloodstream and in turn cause the itching, coughing, sneezing and breathing
difficulties that characterize allergies.
Currently available therapies for allergy and asthma are designed to block the
effects of specific proinflammatory mediators, but these drugs have limited
effectiveness since any single mediator can cause the symptoms of allergy.
Rather than blocking a specific mediator after its release from the activated
mast cell, ARIAD seeks to develop small-molecule compounds that inhibit the
intracellular signaling pathways within the mast cell that are responsible for
the production and release of multiple allergic mediators. This approach has the
potential to block a broad array of allergic mediators prior to their release
into the bloodstream.
ARIAD is targeting Syk, a signaling protein which it believes is responsible for
the activation of signaling pathways in mast cells that lead to the release of
allergic mediators. By developing small molecules that bind to the SH2 domains
of Syk, thereby blocking its interaction with the mast cell receptor, it may be
possible to down-regulate the production and release of multiple allergic
mediators with a single drug.
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ARIAD scientists have demonstrated that Syk is a critical component in mast cell
activation. In addition, they have determined the three-dimensional structure of
the Syk protein SH2 domains using NMR spectroscopy. With this structural
information and knowledge gained from the Company's other signal transduction
inhibitor programs, the Company intends to design and develop small-molecule Syk
inhibitors for evaluation in in vitro, cellular and in vivo assays of mast cell
activation and allergy/asthma.
ORALLY ACTIVE PROTEIN THERAPY PROGRAM
While ARIAD's signal transduction inhibitor program is based on identifying
small- molecule drugs that block intracellular protein interactions, the orally
active protein therapy program is based on the use of small-molecule drugs to
promote and regulate intracellular protein interactions. ARIAD is applying its
expertise in regulating signaling pathways to develop a system to control the
administration of therapeutic proteins delivered by gene therapy.
Gene therapy is the genetic modification of cells to produce specific
therapeutic proteins needed to eliminate or modulate disease. Cells can be
removed from a patient, genetically modified and transplanted back into the
patient (ex vivo gene therapy), or cells can be modified in the body through the
administration of a vector that delivers the gene into certain cells (in vivo
gene therapy). Gene therapy can therefore be thought of as an in vivo protein
production and delivery system. ARIAD believes that most diseases currently
treated by the administration of injectable recombinant proteins, such as
anemia, hepatitis, multiple sclerosis and pituitary disorders, are candidates
for gene therapy. However, current gene therapy strategies have been limited by
difficulties in achieving adequate levels of therapeutic protein production, the
lack of a means to control effectively the dose of the protein produced by
genetically modified cells and the inability to discontinue therapy should it
become unwanted or unnecessary.
ARIAD has developed a proprietary technology called ARGENT(TM) that it believes
will address the key issues facing the practical clinical use of proteins
delivered by gene therapy: (i) efficiently and safely delivering genetic
material directly to the patient's cells; (ii) causing those cells to produce
efficacious and sustainable levels of therapeutic proteins; (iii) controlling
protein production levels in a manner consistent with conventional
pharmaceutical dosing; and (iv) providing the ability to terminate treatment if
the therapeutic need ceases or if undesirable side effects occur.
ARIAD Regulated Gene Expression Technology (ARGENT(TM))
ARGENT(TM) (ARIAD Regulated Gene Expression Technology) is based on the
principle that intracellular activities are regulated by specific protein
interactions. By selecting protein interactions that produce a desired cellular
response, and engineering those proteins to interact only in the presence of a
novel small-molecule drug, it may be possible to bring complex biological
responses under direct pharmacologic control. Applying this principal to gene
therapy, ARIAD researchers are developing products to provide precise control
over therapeutic protein production within the body through the administration
of orally bioavailable drugs. If successfully developed, ARGENT(TM) orally
active protein therapy would be administered as follows: Patients would receive
an injection of genetic
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material (DNA) that would equip certain of their cells to produce a desired
therapeutic protein, such as erythropoietin. These patients would then take a
pill to activate therapeutic protein production in a dose-dependent manner. The
Company believes that this application of ARGENT(TM) would allow the physician
to manage protein therapy by varying the dosage regimen of the pill.
The ARGENT(TM) therapeutic protein delivery system takes advantage of the
observation that transcription factors, intracellular signaling molecules that
are responsible for activating genes to produce proteins, are organized into two
discrete functional domains: one that recognizes and binds to DNA and a second
that interacts with the transcriptional machinery and activates expression of
the target gene. By selecting a specific DNA-binding domain and an unrelated
transcriptional activation domain, and genetically engineering each domain to
include a specific drug binding site, ARIAD has developed a system which it
believes can control the activity of the transcription factor -- and therefore
the expression of the therapeutic gene -- through the administration of a
proprietary, orally bioavailable drug (Figure 3).
FIGURE 3
ARGENT(TM) ORALLY ACTIVE PROTEIN THERAPY
[DESCRIPTION TO COME]
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The Company demonstrated the feasibility of its ARGENT(TM) orally activated
protein program in a study published in the Journal of Clinical Investigation
(December 1997). In this study, a team of ARIAD scientists reported for the
first time achieving control of a therapeutic gene in vivo by varying the dose
of an orally administered drug. Mice were implanted with genetically engineered
cells containing both the gene for the production of human growth hormone (hGH)
and genes which encode two fragments of a transcription factor. These
transcription factor fragments were engineered to have high affinity for
rapamycin, an orally administered drug. Consequently, when the mice were given
rapamycin, the transcription factor fragments were brought together, the target
gene was activated, and the desired therapeutic protein (in this case hGH) was
produced. Administration of rapamycin elicited dose-responsive production of
hGH, the higher the dose of rapamycin, the higher the level of hGH. The study
also demonstrated that clinically relevant levels of hGH could be detected in
the mice more than 24 hours after administration of a single dose of rapamycin.
This result is in sharp contrast to conventionally delivered recombinant hGH,
which has a half-life in mice of only a few minutes. Mice that received
engineered cells but no rapamycin did not produce hGH. Since rapamycin is a drug
that has immunosuppressive effects in humans, ARIAD has developed
nonimmunosuppressive rapamycin analogs, as well as fully synthetic drugs to bind
together (dimerize) its engineered transcription factor fragments.
To accelerate the development and commercialization of gene therapy-based
protein products, ARIAD has entered into a joint venture with Genovo, Inc., a
leader in the discovery and development of gene transfer technologies,
particularly viral and nonviral vectors. In a paper published in the journal
Nature Medicine (March 1997), scientists associated with Genovo reported that
gene transfer with Genovo's adeno-associated virus ("AAV") vectors overcame
persistent problems in gene delivery. The study, which was conducted in mice,
indicated that a high level of genes were transferred successfully using the
intramuscular injection of an AAV vector and that no detectable immune response
occurred.
The ARIAD-Genovo Joint Venture will initially seek to develop and commercialize
gene therapy-based products as alternatives for currently marketed injectable
therapeutic proteins, such as growth hormone (for pituitary disorders),
erythropoietin (for anemia) and cytokines such as alpha interferon (for cancer
and hepatitis). The current worldwide market for injected therapeutic proteins
is estimated at over $11 billion annually. In addition to developing products
itself, the joint venture will seek partnerships with companies that have a
strong strategic interest in protein therapeutics and the markets they address.
The joint venture will also seek to establish a platform for the delivery and
small-molecule control of newly identified therapeutic proteins. As the number
of new therapeutic proteins increases and as the indications for such products
expand, this market is expected to experience significant growth.
ADDITIONAL ARGENT(TM) APPLICATIONS
A second application of ARGENT(TM) is designed to provide a method for
eliminating engineered cells in vivo, should they become unnecessary or cause
undesirable side effects. In this application, cells are equipped with a gene
encoding a portion of the Fas receptor joined to a drug-binding domain. Fas
receptors, when brought together (dimerized), initiate a series of intracellular
protein interactions that result in programmed
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cell death, or apoptosis. In the absence of a separate, dedicated dimerizing
drug, the engineered Fas receptors are designed to be inactive. However, the
Company has shown in in vivo studies that when the dimerizer drug is introduced,
the Fas receptors are cross-linked, and the process of cellular self-elimination
is activated.
The ARGENT(TM) inducible apoptosis system may provide an important safety
feature to current gene therapy strategies, which are generally irreversible.
Gene therapies that cannot be withdrawn should side effects occur may be the
subject of some concern among physicians and regulatory authorities. Thus, the
Company believes that the selective elimination of engineered cells in vivo upon
the oral or intravenous administration of a specific dimerizing agent represents
an important advance in gene therapy.
The ARGENT(TM) inducible apoptosis system may also be used clinically to
optimize the safety and effectiveness of allogeneic bone marrow transplants
(BMTs). Worldwide, approximately 40,000 total BMTs are performed each year.
However, growth in the number of patients who can benefit from BMTs is limited
by a severe, often lethal complication called graft-versus-host disease (GVHD),
a condition which arises when transplanted T cells attack healthy host tissues.
By equipping transplanted T cells with the ARGENT(TM) inducible apoptosis
system, it may be possible to optimize the therapeutic effect of BMTs while
providing a means to eliminate transplanted T cells should they trigger GVHD.
Thus, the availability of a reliable, selective cell-killing system should both
increase the efficacy of BMT and extend the use of BMT to new disease
populations.
ARIAD scientists have developed all the components of an inducible apoptosis
system and successfully conducted proof-of-concept experiments in animals. The
Company is conducting preclinical testing of its inducible apoptosis dimerizer
drug and the Fas gene transfer vectors.
ARIAD'S FUNCTIONAL GENOMICS PROGRAM
ARIAD's signal transduction inhibitor and orally active protein therapy programs
represent a significant investment in the acquisition, development and
integration of advanced drug discovery technologies. Having put these systems in
place, ARIAD is seeking to build further its target identification and
validation capability. This capability is designed to provide a source of drug
targets for the signal transduction inhibitor program and therapeutic proteins
for the ARGENT(TM) program. A significant part of ARIAD's efforts to enhance its
target identification and validation capability is the expansion of the
Company's program in functional genomics.
Genomics is the study of gene structure and function. Over the past five years,
the convergence of molecular biology, genetics, robotics and advanced
information technologies has given genomics researchers the discovery tools
necessary to begin to understand human diseases at the genetic level.
Researchers are currently engaged in the mapping and sequencing of the estimated
100,000 genes encoded by the human genome. However, knowing a gene's sequence is
only the first step, and often provides little information about how the gene
functions. Functional genomics is the process by which the role of genes in
normal and diseased cellular processes is uncovered. Such an understanding of
gene function may provide researchers with the information required to design
novel and specific therapeutics for disease intervention.
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Genes provide the detailed information required for cells to produce proteins,
the basic building blocks of the human body. Malfunctions in genes and proteins
are frequently the cause of human disease. "Monogenic" disorders such as cystic
fibrosis, which are caused by a mutation in a single gene, have been relatively
easy to characterize with traditional molecular biology techniques. However,
"polygenic" disorders such as cancer, osteoporosis, obesity, diabetes, asthma,
and neurological diseases have traditionally been much more difficult to
understand due to the complex interaction of multiple genes and environmental
influences.
ARIAD has established a joint venture with HMR to pursue functional genomics.
The mission of the joint venture, called the Hoechst-ARIAD Genomics Center, LLC
(the "Genomics Center"), is to identify novel genes associated with disease
processes, and demonstrate that a particular gene or genes either causes or
prevents disease. This objective will be accomplished through the development
and integrated application of advanced technologies in molecular genetics,
cellular biology, pharmacology and bioinformatics. Genes identified by the joint
venture and selected by either ARIAD or HMR for further development will encode
therapeutic proteins, such as erythropoietin, or proteins that are believed to
be responsible for disease, such as the Src protein, ARIAD's small-molecule drug
target for the treatment of osteoporosis.
The discovery of genes involved in disease is accomplished in two steps; each
step serves as a filter to reduce the number of potential disease genes from
100,000 down to 1 or 2 genes shown to be critically important for disease. As
diagrammed in Figure 4, step one involves a series of experiments that identify
a set of candidate genes. These genes are potentially involved in the disease
process. However, after this first step, it is not known whether these genes are
the cause or the effect of the disease. Identification of candidate genes is
accomplished by a set of core technologies within the Genomics Center: (i)
high-throughput differential gene expression, (ii) genetic screens in mammalian
cells, or (iii) proteomic analysis. Bioinformatics, a set of computational tools
for DNA and protein analysis, helps to manage the large volume of genomic data
produced by these core technologies and to focus attention on a subset of
candidate genes thereby reducing the number of genes for further study. In the
second step, these candidate genes are introduced individually or in small
groups into cells and animals where specific gene function is assessed. Genes
that are found to be directly involved in disease (validated genes) may be
selected by either ARIAD or HMR for use in the discovery and development of
pharmaceutical products.
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FIGURE 4
FUNCTIONAL GENOMICS
IDENTIFICATION OF CANDIDATE GENES
- --------------------------------------------------------------------------------
- EST and other genomic databases
- Differential mRNA expression in normal and diseased cells
- Genetic screens
- Positional cloning of human and mouse disease genes
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUNCTIONAL ANALYSIS OF CANDIDATE GENES
- Test whether gene is critical for a cellular or disease
process
- Identify partners or substrates of proteins
- Examine role of gene in mice using conditional knock-outs
- Examine biological activity of gene product in mice
- Identify receptor for an orphan hormone
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALIDATED SMALL- VALIDATED
MOLECULE DRUG THERAPEUTIC OTHER
TARGETS PROTEINS PRODUCTS
------------------------ -------------------- -----------------
- Small-molecule - Secreted proteins - Diagnostics
antagonists of - Soluble receptors - Pharmacogenomics
intracellular proteins - Analog or - Vaccines
- Receptor agonists derivative - Antibodies
or antagonists proteins - Nonpharma-
- Anti-sense ceutical
oligonucleotides products
- --------------------------------------------------------------------------------
ARIAD's approach to functional genomics is based on the belief that the
functional analysis of genes involved in disease processes requires the
integrated application of technologies in molecular genetics, cellular biology,
automation and bioinformatics. During the last half of 1997, Genomics Center
scientists conducted a comprehensive evaluation of technologies for gene
identification and analysis. A number of technologies are now in place within
the Genomics Center, including mRNA isolation, normalization and subtraction of
RNA, cDNA library production, high-throughput DNA sequencing, full-length
cloning and sequencing, high-throughput PCR amplification of gene sequences, and
filter-based differential gene expression analysis. The Company expects to
acquire additional technologies for functional genomics analysis.
A critical experiment in the functional analysis of a given gene is to examine
the behavior of cells and tissues when such gene is on compared to when it is
off. If a gene is critically involved in the disease process, then either
turning it off or on should stop the disease
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process. Therefore, the ability to control genes by turning them on or off at
will can be an extremely powerful tool for determining the role of a gene in a
given disease process. ARGENT(TM), ARIAD's proprietary method for regulating
gene expression using small-molecule drugs, provides a method for genomics
researchers to control gene function. For example, ARIAD scientists have
developed a strain of laboratory mice that contain the genetic components of
ARGENT(TM). Researchers can introduce a gene thought to control bone density
into these animals and activate this gene using the ARGENT(TM) dimerizer drug.
By observing the physiological changes in the mice that have the gene turned on,
it may be possible to gain critical information regarding the role of that gene
in osteoporosis. This principal can be applied to multiple genes and multiple
disease processes.
Given the large number of human genes and the extensive effort involved in
analysis of these genes, the Genomics Center is focusing its initial efforts on
a limited number of therapeutic areas: osteoporosis, atherosclerosis, cancer and
osteoarthritis. Osteoporosis is the lead program. The goal of this project is to
identify genes that play a key role in bone formation. Current drugs, such as
bisphosphonate, block the degradation of bone but have only a limited effect on
rebuilding the bone that has been lost over time. The Genomics Center approach
is to identify genes that stimulate bone cells to produce more bone, thereby
increasing a patient's bone density. Working with partners at HMR, Genomics
Center scientists are using high-throughput differential gene expression
analysis (HTDGE) to identify genes that function in activated osteoblasts, the
cells that form new bone.
Although the osteoporosis program is the most advanced, experiments in other
disease areas are in progress. In atherosclerosis, the Genomics Center is using
HTDGE to find genes involved in smooth muscle proliferation, a key step in
coronary artery restenosis. In the inflammation program, ARIAD researchers have
begun to search for genes that regulate joint inflammation leading to
osteoarthritis. ARIAD believes that several different classes of therapeutic
products could be developed from these investigations.
ARIAD has the right to select for further development half of the validated
genes identified by the Genomics Center. These genes will fall into two distinct
categories: (i) those that encode small-molecule drug targets such as
intracellular signaling proteins and (ii) those that encode secreted proteins
such as hormones. Those genes that encode for intracellular proteins represent a
source of targets for the Company's small-molecule drug discovery program. Those
genes that encode for secreted proteins may be combined with the ARGENT(TM)
program to create orally active therapeutic protein products. In addition, the
Genomics Center may be the source of genes upon which ARIAD could build new drug
discovery programs or base collaborations with biotechnology, pharmaceutical or
diagnostic companies.
DRUG DISCOVERY COLLABORATIONS
ARIAD has established and intends to continue to establish collaborations with
pharmaceutical and biotechnology companies that provide access to (i)
complementary technologies and drug discovery research capabilities and (ii)
clinical research and commercialization capabilities. The Company's
collaborations are set forth below.
HMR OSTEOPOROSIS COLLABORATION. On November 5, 1995, ARIAD entered into an
agreement with HMR to collaborate on the discovery and development of
small-molecule
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signal transduction inhibitor drugs to treat osteoporosis and other
hyperresorptive bone diseases. HMR agreed to invest up to $40 million to support
ARIAD's osteoporosis research activities. In addition, HMR has established a
dedicated research group to collaborate with ARIAD on the discovery of
inhibitors of the Company's Src target for osteoporosis and agreed to fund all
of the preclinical and clinical development activities of the collaboration.
Under the terms of this agreement, ARIAD is employing its capabilities in
combinatorial chemistry and structure-based drug design in a joint effort with
HMR to design and develop Src inhibitor drugs. HMR has exclusive rights to
commercialize these drugs worldwide for the treatment of osteoporosis and
related bone diseases. ARIAD has the right, under certain circumstances, to
participate in the clinical development and commercialization of these products
for nonosteoporosis indications in North America. In addition to an upfront cash
payment of $10 million in 1995, HMR will fund up to $30 million of research at
ARIAD over five years, $10 million of which is tied to the achievement of
certain research milestones. The first of these milestones was achieved in
December 1996, and ARIAD received a $2 million cash payment in January 1997. The
agreement also calls for the payment of royalties to ARIAD based on product
sales.
The 1995 HMR Osteoporosis Agreement has a term that, subject to extension,
expires in November 2000; provided, however, that HMR may elect to terminate
such agreement in November 1998 in the event that ARIAD fails to achieve certain
research milestones prior to that time.
GENOVO, INC. JOINT VENTURE. On February 14, 1997, ARIAD, through its subsidiary,
ARIAD Gene Therapeutics, Inc. ("AGTI"), and Genovo formed a joint venture to
develop and commercialize gene therapy products for the therapeutic protein
market. The joint venture combines ARIAD's regulated gene expression and
apoptosis technology with Genovo's gene transfer technology for the
intramuscular and subcutaneous delivery of gene therapy products. Genovo's
technology is derived largely from its exclusive license of patents and access
to the work of James Wilson, M.D., Ph.D. and his laboratory at the University of
Pennsylvania School of Medicine. Dr. Wilson is Director of the Institute for
Human Gene Therapy at the University of Pennsylvania and scientific founder of
Genovo.
Under the terms of the joint venture agreement, ARIAD and Genovo will seek to
develop gene therapy-based protein products. Each partner will pay its
respective costs of product development, and any payments received by either
party will be divided equally between ARIAD and Genovo, after reimbursement of
certain costs. In addition to developing gene therapy-based protein products
itself, the joint venture will seek partnerships with companies that have a
strong strategic interest in protein therapeutics and the markets they address.
The focus of ARIAD's and Genovo's joint efforts will be on the vector-based
delivery of secreted proteins in the muscle and skin. Each company is free to
develop and partner its respective technologies in all other applications.
Genovo, a privately held company, develops gene transfer technologies, including
both viral- and nonviral-based vectors. These vectors are used in gene therapy
to equip patients' cells with the genes necessary to produce a therapeutic
protein of choice. They
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may also be used to equip cells to produce ARIAD's two-part transcription
factor.
ARIAD's joint venture with Genovo has an initial term that, subject to extension
and other conditions relating to third-party transactions, expires in February
2002.
THE HOECHST-ARIAD GENOMICS CENTER, LLC. On March 4, 1997, ARIAD and HMR entered
into a 50/50 joint venture to pursue functional genomics. The Genomics Center
employs advanced technologies in molecular and cellular genetics and
bioinformatics to analyze human genes and identify those genes that encode for
novel therapeutic proteins or targets for small-molecule drug discovery. ARIAD
and HMR each has the right to select for further development 50% of the genes
identified by the joint venture. ARIAD and HMR also have the right, subject to a
right of first negotiation held by the other party, to form strategic alliances
with other pharmaceutical or biotechnology companies for the development of
products based on genes selected from the joint venture.
The Company and HMR agreed to commit $85 million to the establishment of the
joint venture and its first five years of operations. ARIAD may fund its share
of this commitment through the purchase by HMR of ARIAD series B preferred
stock. The Genomics Center is located in dedicated facilities at ARIAD's
headquarters and is staffed by ARIAD scientists under a contract with the joint
venture. The operating costs of the Genomics Center are divided equally between
ARIAD and HMR, and both companies have access to any new technologies developed
within the Genomics Center. The Company believes that the combined resources of
ARIAD and HMR being made available to the joint venture, and the committed
funding, make it one of the largest dedicated efforts in the functional genomics
area in the pharmaceutical industry.
Concurrent with the signing of the joint venture agreement (the "1997 HMR
Genomics Agreement"), ARIAD and HMR entered into a stock purchase agreement. In
accordance with the terms of this agreement, HMR purchased approximately 2.5
million shares of ARIAD series B convertible preferred stock for $24 million at
closing, which, on March 18, 1997, represented 11.7% of ARIAD's outstanding
shares of common stock on an as converted basis. At ARIAD's option, HMR will
make additional purchases of series B preferred stock during each of the years
1999, 2000, 2001 and 2002. These equity purchases, aggregating up to $25
million, will be made in accordance with a predefined formula but in no case
will represent more than a total of approximately 1.8 million additional shares
of ARIAD series B preferred stock. Should the joint venture require monies in
excess of the committed funding outlined in the agreement, ARIAD may fund its
share of the excess through a loan facility made available by HMR which, at the
option of the Company, is repayable in cash or additional shares of series B
preferred stock. The stock purchase agreement also contains provisions
restricting the further purchase or sale by HMR of ARIAD stock for a period
extending beyond the term of the joint venture.
The 1997 HMR Genomics Agreement has an initial term that, subject to extension,
expires in March 2002.
INCYTE PHARMACEUTICALS, INC. On March 4, 1997, ARIAD became the second
biotechnology company to become a subscriber to the Incyte LifeSeq(R) gene
sequence and expression database. ARIAD pays Incyte access fees and would owe
Incyte milestone payments and royalties on the sale of products derived from the
database, if any. ARIAD
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employs the Incyte database in its functional genomics program. This database
offers one of the largest sources of genomic data, containing gene sequence and
expression information from normal as well as diseased cells and tissues from
most of the major tissue types in the human body. ARIAD, through the Genomics
Center, uses the LifeSeq(R) database in its efforts to identify and characterize
genes that encode for therapeutic proteins and novel small-molecule drug
targets.
HUMAN RESOURCES
As of January 31, 1998, ARIAD had 120 full-time employees, 67 of whom hold
post-graduate degrees, including 47 Ph.D.'s. Most of the Company's employees are
engaged directly in research and development. The Company has entered into
confidentiality and noncompetition agreements with all of its employees. None of
ARIAD's employees is covered by a collective bargaining agreement, and
management considers relations with its employees to be good.
BOARD OF SCIENTIFIC AND MEDICAL ADVISORS
ARIAD has assembled a Board of Scientific and Medical Advisors (the "Advisory
Board") that currently consists of experts in the fields of molecular cell
biology, molecular pharmacology and biochemistry, immunology, bioorganic and
synthetic chemistry and physical and computational chemistry.
On an individual basis, members of the Advisory Board advise the Company's
management and employees on scientific matters relating to the Company's
research programs, including the selection of molecular targets, drug discovery
strategies, clinical applications of proposed products and new technological
developments. In addition, the Advisory Board meets regularly to review and
discuss ARIAD's overall scientific progress.
Each advisor is engaged under a consulting agreement that requires the advisor,
to the extent possible, to provide exclusive consulting services to the Company
in the Company's field of interest. These agreements, which are similar in their
terms, provide for ongoing consulting fees and reimbursement of certain expenses
and provide for the grant of stock options and, in certain cases, the issuance
of common stock. Each advisor has agreed, pursuant to such agreements, not to
disclose any confidential information of the Company.
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<PAGE> 21
ARIAD scientific advisors and their principal occupations and positions as of
January 31, 1998 are as follows:
NAME POSITION
David Baltimore, Ph.D. President, California Institute of Technology
Roland Baron, Ph.D. Professor of Orthopedics and Cell Biology, Yale
University School of Medicine
R. Michael Blaese, M.D. Chief, Clinical Gene Therapy Branch, National
Human Genome Research Institute
Joan S. Brugge, Ph.D. Professor of Cell Biology, Harvard Medical School
(Advisory Board Co-chair) (See "Management")
Jon Clardy, Ph.D. Horace White Professor of Chemistry, Cornell
University
Barry S. Coller, M.D. Murray M. Rosenberg Professor of Medicine and
Chairman, Department of Medicine, Mount Sinai
Medical Center, New York
Gerald R. Crabtree, M.D. Professor of Developmental Biology and Pathology,
Stanford University and Investigator, Howard
Hughes Medical Institute
Samuel J. Danishefsky, Ph.D. Kettering Chair and Head of Bioorganic Chemistry,
Memorial Sloan-Kettering Cancer Center
John M. Deutch, Ph.D. Institute Professor, Massachusetts Institute of
Technology (See "Management")
Philip Felig, M.D. Clinical Professor of Medicine, New York Medical
College (See "Management")
Stephen J. Galli, M.D. Professor of Pathology, Harvard Medical School and
Director, Division of Experimental Pathology, Beth
Israel Hospital
William Jorgensen, Ph.D. C.P. Whitehead Professor of Chemistry, Yale
University
Robert E. Kingston, Ph.D. Professor of Genetics, Harvard Medical School,
Massachusetts General Hospital
Robert J. Lefkowitz, M.D. James B. Duke Professor of Medicine and Professor
of Biochemistry, Duke University Medical Center
and Investigator, Howard Hughes Medical Institute
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Anthony J. Pawson, Ph.D. Professor of Molecular and Medical Genetics,
University of Toronto and Apotex Chair of
Molecular Oncology, Samuel Lunenfeld Research
Institute, Mount Sinai Hospital
James E. Rothman, Ph.D. Vice Chairman, Sloan-Kettering Institute, Paul A.
Marks Chair and Chairman of the Program in
Cellular Biochemistry and Biophysics, Memorial
Sloan-Kettering Cancer Center
Stuart L. Schreiber, Ph.D. Professor of Chemistry and Chemical Biology &
Molecular and Cellular Biology, Harvard University
and Investigator, Howard Hughes Medical Institute
(Advisory Board Co-chair)
Matthew D. Shair, Ph.D. Assistant Professor of Chemistry and Chemical
Biology, Harvard University
Ralph Snyderman, M.D. Chancellor for Health Affairs, Dean of the School
of Medicine, and James B. Duke Professor of
Medicine, Duke University Medical Center
Burton E. Sobel, M.D. Professor and Chair, Department of Medicine,
University of Vermont and Physician-in-Chief,
Fletcher Allen Healthcare Center
Gregory Verdine, Ph.D. Professor of Chemistry and Chemical Biology,
Harvard University
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LICENSES AND SPONSORED RESEARCH
The Company has entered into license arrangements with various research
institutions and universities pursuant to which the Company is the licensee of
certain technologies upon which some of the Company's current and future product
candidates may be based. A partial summary of certain of the Company's licenses
and sponsored research programs is presented below. In many cases, the principal
scientist associated with these programs serves on the Advisory Board. The
options for exclusive licenses mentioned below are subject to negotiation (upon
exercise of the relevant options) of satisfactory royalty and other terms with
the relevant institution. Failure of the Company and the relevant institution to
agree on such terms could result in a loss by the Company of rights underlying
such options.
STANFORD UNIVERSITY AND HARVARD UNIVERSITY (REGULATED GENE EXPRESSION). The
Company has obtained an exclusive license to a series of patent applications and
related technology from Stanford University and Harvard University based upon
the work of Drs. Gerald Crabtree and Stuart Schreiber and their colleagues. The
Company believes that this technology, which includes materials and methods for
regulating the transcription of specific genes in vivo, will be important in
developing regulated gene therapy for a wide range of disease targets. In
connection with this license, Stanford and Harvard were issued an aggregate of
128,571 shares of Common Stock of AGTI (representing approximately 3% of the
currently outstanding capital stock of AGTI).
MASSACHUSETTS INSTITUTE OF TECHNOLOGY (REGULATED GENE EXPRESSION). The Company
has obtained an exclusive license from the Massachusetts Institute of Technology
to a patent application based on work by Drs. Philip Sharp, Carl Pabo and Joel
Pomerantz. The licensed technology involves engineered DNA-binding proteins, DNA
molecules encoding such proteins, DNA sequences to which the engineered proteins
bind and compositions and methods for using such proteins. The Company believes
this technology will be useful in regulating the expression of desired genes in
various gene therapy applications.
CORNELL UNIVERSITY. The Company has obtained an exclusive license from the
Cornell Research Foundation, Inc. to discoveries by Dr. Jon Clardy relating to
the three-dimensional structure of an important mediator of T cell activation
and cell-cycle. This structure may be useful in the Company's drug discovery
efforts.
MOCHIDA (FAS GENE). The Company has obtained a nonexclusive license to a series
of patents from Mochida Pharmaceuticals, Ltd. The technology covered by these
patents relates to the use of the Fas gene for triggering apoptosis, or
controlled cell death. The Company believes that this technology will be
important to its regulated gene and cell therapy programs.
UNIVERSITY OF PENNSYLVANIA (GENE THERAPY). The Company has entered into
agreements with the Trustees of the University of Pennsylvania ("Penn") pursuant
to which Penn has agreed to grant to ARIAD a nonexclusive license under the
terms set forth in such agreements to discoveries made using ARIAD's regulated
gene expression technology by Dr. James Wilson and colleagues. This technology
may be used in various gene therapy applications.
MOUNT SINAI HOSPITAL, UNIVERSITY OF TORONTO (SH2 DOMAINS). The Company has
obtained an exclusive license from Mount Sinai Hospital, an affiliate of the
University of Toronto, to two issued United States patents and related pending
applications based upon the discoveries of Dr. Anthony Pawson. This technology
relates to a specific class of protein domains which are involved in mediating
signal transduction. Furthermore, the Company has a first option to acquire
related technologies and improvements from
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Dr. Pawson's laboratory for the duration of the license, which is equivalent to
the life of the covered patents (unless terminated sooner). The Company believes
that this technology may be important in identifying inhibitors of signal
transduction pathways which may be useful as lead compounds for the treatment of
several diseases.
YALE UNIVERSITY (OSTEOPOROSIS). The Company is sponsoring research in the
laboratory of Dr. Roland Baron at Yale University and has an option to license
exclusively any rights to technology developed as part of the sponsored
research. Dr. Baron also has an existing relationship with HMR. The scope of
this research includes the functional evaluation of potential lead molecules for
the treatment of osteoporosis.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY, THE WHITEHEAD INSTITUTE AND HARVARD
UNIVERSITY. The Company has obtained an exclusive license from the Massachusetts
Institute of Technology, the Whitehead Institute and Harvard University to a
series of United States patent applications and their foreign counterparts,
including an issued European patent, based upon the work of Dr. David Baltimore
and his colleagues. This patent application relates to transcription factors
which are involved in the regulation of cytokines and lymphokines and control of
gene expression.
STANFORD UNIVERSITY. The Company has obtained an exclusive license from Stanford
University to a series of patent applications based upon the work of Dr. Gerald
Crabtree and his colleagues. This technology deals with the identification of
specific transcription factors which control the regulation of cytokines in
certain cell types.
UNIVERSITY OF WISCONSIN. The Company has obtained an exclusive license from the
Wisconsin Alumni Research Foundation (WARF) to discoveries by Drs. Jo Handelsman
and Robert Goodman relating to the identification of natural products from
unculturable microorganisms. The Company also is sponsoring research at the
University of Wisconsin-Madison in the laboratories of Drs. Handelsman and
Goodman to further extend this technology and has an option to exclusively
license from WARF any future discoveries as part of this collaboration.
HARVARD UNIVERSITY. The Company has obtained a nonexclusive license to a patent
application and related technology from Harvard University based on the work of
Dr. Stuart Schreiber and colleagues concerning a high-throughput cellular assay
technology known as the nanodroplet system. The Company believes that this
technology may be important in its drug discovery programs.
STANFORD UNIVERSITY. The Company (through the Genomics Center) has obtained a
nonexclusive license to a pending patent application and related technology
from Stanford University based on the work of Dr. Gary Nolan and colleagues
concerning introduction of libraries of genetic material into cells. The Company
believes that this technology may be useful in the functional genomics program.
The Company has also obtained certain patent rights in connection with its
various collaborations. In particular, the Company's collaboration agreement
with Incyte gives the Company a nonexclusive license to Incyte's gene sequence
and expression database and an option for an exclusive license for any promising
sequences identified by the Company in such database. The Company's
collaboration agreement with Genovo
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<PAGE> 25
provides the Company with access to Genovo intellectual property for use in the
collaboration and provides that the Company and Genovo may grant licenses to
certain of their respective patents to third parties in connection with the
commercialization of any products developed in such collaboration. The Company's
collaboration with HMR also provides for the cross license of certain
technologies.
The Company has agreed to pay royalties to its licensors on sales of certain
products based on the licensed technologies, as well as, in some instances,
milestone payments and patent filing and prosecution costs. The licenses also
impose various milestone, commercialization, sublicensing, royalty as well as
insurance and other obligations. Failure by the Company to comply with these
requirements could result in the termination of the applicable agreement which
could have a material adverse effect on the business, financial condition and
results of operations of the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company owns 36 patent applications in the United States relating to the
Company's technologies and compounds and has filed counterparts of certain of
these applications in foreign countries. The majority of these applications are
directed to inventions and discoveries arising from the Company's ongoing
research and development programs, including materials and methods used in
regulated gene expression and drug discovery research, as well as compounds that
affect intracellular communication pathways discovered thus far in the course of
such research by the Company.
In addition, the Company has obtained exclusive licenses to four issued United
States patents and 24 patent applications pending in the United States. The
Company has further obtained exclusive options on three United States patent
applications. The Company has also secured several nonexclusive technology
licenses with certain institutions in support of its research programs. The
Company anticipates that it will continue to obtain licenses from universities
and others where applicable technology complements its research programs, but no
assurance can be given as to the Company's ability to secure such licenses on
reasonable business terms.
The Company also relies on unpatented trade secrets and proprietary know-how.
However, trade secrets are difficult to protect. The Company enters into
confidentiality agreements with its employees, consultants and collaborators. In
addition, the Company believes that certain technologies utilized in its
research and development programs are in the public domain. Accordingly, the
Company does not believe that patent or other protection is available for these
technologies. If a third party were to obtain patent or other proprietary
protection for any of these technologies, the Company may be required to
challenge such protections, obtain a license for such technologies or terminate
or modify its programs that rely on such technologies.
MANUFACTURING, MARKETING AND SALES
The Company has no history of manufacturing, marketing or product sales and has
not invested in manufacturing, marketing or product sales resources. The Company
expects to manufacture, package, label and distribute its product candidates
independently or to establish arrangements with third parties to perform some or
all of these functions. If the
24
<PAGE> 26
Company is unable to manufacture or contract for a sufficient supply of its
potential therapeutic products on acceptable terms, the Company's preclinical
studies and clinical trials may be delayed, resulting in the delay of submission
of products for regulatory approval, which may have a material adverse effect on
the Company. If the Company chooses to contract for manufacturing services and
encounters delays or difficulties in establishing relationships with
manufacturers to produce, package and distribute its finished pharmaceutical
products, if any, market introduction and subsequent sales of such products
would be adversely affected. Further, if it develops pharmaceutical products
that it determines to commercialize itself, the Company will need to hire
additional personnel skilled in clinical trials and regulatory compliance
process and in marketing and product sales. Contract manufacturers that the
Company may use must adhere to the Good Manufacturing Practices ("GMP")
regulations prescribed by the FDA. To the extent that the Company arranges with
third parties to manufacture or market its products, if any, the success of such
products may depend on the efforts of such third parties. The Company's
potential dependence upon third parties for the manufacture of its products may
adversely affect the Company's profit margins and its ability to develop and
deliver such products on a timely and competitive basis. Should the Company
decide to manufacture its own products, the Company will be subject to the risks
and delays or difficulties inherent in the manufacturing process and would
require substantial additional capital.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products, if any, and its
ongoing research and development activities are subject to extensive regulation
by numerous governmental authorities in the United States and other countries.
Any drug developed by the Company must undergo rigorous preclinical studies and
clinical testing and an extensive regulatory approval process implemented by the
FDA under the federal Food, Drug and Cosmetic Act prior to marketing in the
United States. Satisfaction of such regulatory requirements, which includes
demonstrating that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. Preclinical
studies must be conducted in conformance with the FDA's good laboratory practice
regulations. Before commencing clinical trials in the United States, the Company
must submit to and receive clearance from the FDA of an Investigational New Drug
application ("IND"). There can be no assurance that submission of an IND would
result in FDA clearance to commence clinical trials. Clinical testing must meet
requirements for institutional review board oversight, informed consent and good
clinical practice and is subject to continuing FDA oversight. The Company has a
limited history of conducting preclinical studies and no history of conducting
and managing the clinical trials necessary to obtain regulatory approval.
Furthermore, the Company or the FDA may suspend clinical trials at any time if
they believe that the subjects participating in such trials are being exposed to
unacceptable risks or if the FDA finds deficiencies in the conduct of the
trials.
Before receiving FDA approval to market a product, the Company will have to
demonstrate that the product is safe and effective in the patient population
that will be treated. Data obtained from preclinical studies and clinical trials
are susceptible to varying interpretations which could delay, limit or prevent
regulatory clearances. In addition, delays or rejections may be encountered
based upon additional government
25
<PAGE> 27
regulation from future legislation or administrative action or changes in FDA
policy during the period of product development, clinical trials and FDA
regulatory review. Similar delays also may be encountered in foreign countries.
There can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any products developed by the Company. If
regulatory approval of a product is granted, such approval will be limited to
those disease states and conditions for which the product is useful, as
demonstrated by clinical trials. Furthermore, approval may entail ongoing
requirements for postmarketing studies. Even if such regulatory approval is
obtained, a marketed product, its manufacturer and its manufacturing facilities
are subject to continual review and periodic inspections by the FDA. Discovery
of previously unknown problems with a product, manufacturer or facility may
result in restrictions on such product or manufacturer, including costly recalls
or even withdrawal of the product from the market. There can be no assurance
that any compound developed by the Company alone or in conjunction with others
will prove to be safe and efficacious in clinical trials and will meet all of
the applicable regulatory requirements needed to receive and maintain marketing
approval.
Outside the United States, the Company's ability to market a product will be
contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Community certain registration
procedures are available to companies wishing to market a product in more than
one member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process includes
all of the risks associated with FDA clearance set forth above.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the captions "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company to be
materially different from the historical results or from any results expressed
or implied by such forward-looking statements. Such factors include, among
others, the following:
EARLY STAGE OF PRODUCT DEVELOPMENT; ABSENCE OF PRODUCTS. To date, substantially
all of the Company's resources have been dedicated to the research and
development of its technologies and related compounds. All of ARIAD's compounds
are currently in research or preclinical development, and none has entered human
clinical trials or has been submitted for regulatory approval. There can be no
assurance that any of the Company's compounds will enter human clinical trials
on a timely basis, if at all, or that the Company will develop any product
candidates suitable for commercialization. Failure to develop compounds suitable
for clinical development and commercialization would
26
<PAGE> 28
have a material adverse effect on the business, financial condition and results
of operations of the Company.
UNCERTAINTY RELATED TO NOVEL TECHNOLOGIES. The Company's drug discovery and
development programs are based upon technologies that are relatively new and
unproven, and there can be no assurance that these technologies will lead to the
discovery of products or additional product candidates. The failure of the
Company to validate its technologies through the identification of product
candidates, the commencement of clinical trials or the achievement of regulatory
approval would have a material adverse effect on the business, financial
condition and results of operations of the Company.
UNCERTAINTY RELATED TO GENOMICS CENTER. The Company has only recently begun
operations at the Genomics Center, and many of the research and development
activities that are being and will be undertaken at the Genomics Center are
activities in which the Company and HMR have little or no experience. There can
be no assurance that the Company will be able to recruit, hire and retain highly
skilled scientific personnel, and to acquire or license new technologies
necessary to operate the Genomics Center or that the Genomics Center will be
successful.
DEPENDENCE ON HMR. The Company is relying, in large part, on HMR's obligation to
purchase series B preferred stock to finance the Company's share of expenses
related to the Genomics Center for the next four years, which is expected to
exceed $34 million. The 1997 HMR Genomics Agreement does not provide for funding
beyond March 2002 and provides that, if the parties do not agree to additional
funding prior to such time, the 1997 HMR Genomics Agreement may be terminated.
In the event that additional funding for the Genomics Center is not provided for
subsequent to March 2002, or if HMR breaches its obligation to provide such
funding, the Company's business, financial condition and results of operations
would be adversely affected. The 1995 HMR Osteoporosis Agreement provides for
funding through November 2000, at which time either party may terminate such
agreement. In addition, the 1995 HMR Osteoporosis Agreement provides that HMR
may terminate such agreement and further payment obligations if the Company does
not achieve certain milestones by November 1998. There can be no assurance that
the Company will achieve such milestones by such time, or that the Company will
achieve the results required to receive other milestone payments under the 1995
HMR Osteoporosis Agreement. The termination, cancellation or material breach of
the 1995 HMR Osteoporosis Agreement would have a material adverse effect on the
Company's osteoclast signal transduction inhibitor program and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The Company has incurred
significant operating losses in each year since its inception and has an
accumulated deficit of approximately $66 million from its operations through
December 31, 1997. The Company currently has no product revenue, and there can
be no assurance that it will ever be able to earn such revenue or that its
operations will become profitable, even if it is able to commercialize any
products. In the likely event that costs associated with the Genomics Center
increase beyond what is currently provided for in the 1997 HMR Genomics
Agreement, and the Company finances its share of such costs through a loan from
HMR as provided under the 1997 HMR Genomics Agreement, the Company's
27
<PAGE> 29
outstanding indebtedness would increase.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; FIXED COMMITMENTS. The
operations of the Company to date have consumed substantial amounts of cash, and
substantial additional funding will be necessary in order to continue the
Company's research and development programs, for preclinical studies and
clinical trials of its product candidates, for the pursuit of regulatory
approvals, to establish manufacturing, marketing and sales capabilities, for
working capital and general corporate purposes, and for operating expenses. The
Company intends to seek additional funding through public or private financings
or other arrangements with collaborative partners or from other sources. There
can be no assurance, however, that additional funding will be available when
needed from any of these sources or will be available on terms acceptable to the
Company. Insufficient funds may require the Company to delay, scale back or
eliminate one or more of its research and development programs or to enter into
license arrangements with third parties to commercialize products or
technologies that the Company would otherwise seek to develop itself without
relinquishing rights thereto. To the extent the Company raises additional
capital by issuing equity securities, dilution to the holders of the Company's
common stock may result.
DEPENDENCE ON GENOVO. The Company's ability to commercialize its orally active
protein therapy products will depend, in part, upon Genovo's ability to develop,
or acquire from the Trustees of the University of Pennsylvania ("Penn"), gene
transfer technology, or the Company's ability to acquire such gene transfer
technology elsewhere. ARIAD is relying on Genovo's obligation, pursuant to the
Genovo Agreement, to fund the costs associated with the development of gene
transfer technology for the intramuscular and subcutaneous delivery of its
orally active protein therapy products. Funding for portions of the research at
Penn to develop such technology has been and will be provided through grants
from foundations and federal sources. The pace of such development efforts will
be determined, in part, by the amount and timing of Genovo's funding
contributions, which will be dependent, in part, upon Genovo's access to
capital. There can be no assurance that Genovo will fund such costs to the
extent required to successfully develop this gene transfer technology or that
the development efforts of Genovo or Penn will be successful, or that Genovo
will be successful in securing from Penn all rights necessary to commercialize
this gene transfer technology.
DEPENDENCE ON OTHERS; COLLABORATIONS. A key element of the Company's strategy is
to enhance certain of its drug discovery and development programs and to fund
its capital requirements, in part, by entering into multiple collaborative
arrangements with major pharmaceutical or biotechnology companies, as well as
various arrangements with academic institutions, licensors, licensees and
others. There can be no assurance that the Company's existing collaborations
will be successful or that the Company will be successful in entering into any
such future collaborations, or that these collaborations, if entered into, will
be on terms favorable to the Company or will be successful.
DEPENDENCE ON LICENSES. The Company or its collaborative partners may be
required to obtain licenses to certain technologies in order to continue in
their respective programs. There can be no assurance that the Company or its
collaborative partners will be able to obtain required licenses on commercially
reasonable terms or at all, and failure by the Company or a collaborative
partner to obtain a license to any technology required to
28
<PAGE> 30
develop or commercialize its products could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company has entered into license arrangements with various
research institutions and universities pursuant to which the Company is the
licensee of certain technologies upon which the Company's current and future
product candidates and technologies are based, including certain patents
associated therewith, the loss or termination of any of the Company's licenses
could have a material adverse effect on the Company's research programs,
business, financial condition and results of operations.
INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE. The Company is
engaged in the biopharmaceutical field, which is characterized by extensive
research efforts and rapid technological change. Many of the Company's
competitors and potential competitors have substantially greater capital,
research and development and human resources and experience than the Company,
are conducting research and development programs for the treatment of all the
disease areas in which the Company is focused, and thus represent significant
long-term competition for the Company. The Company's competitors may succeed in
developing technologies or products that are more effective or less costly than
any that may be developed by the Company and may also prove to be more
successful than the Company in manufacturing, marketing and sales.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS. There can be no
assurance that the Company's or its licensor's patent applications will ever
issue as patents or that the claims of any issued patents will afford meaningful
protection for the Company's technologies or products. In addition, there can be
no assurance that any patents issued to the Company or its licensors will not be
challenged and subsequently narrowed, invalidated or circumvented. Furthermore,
if patents having claims that cover the Company's activities are issued to other
parties, there can be no assurance that the Company would be able to obtain
licenses to the rights contained under these patents at a reasonable cost or be
able to develop or obtain alternative technologies. In addition, the Company
believes that certain technologies utilized in its research and development
programs are in the public domain. Accordingly, the Company does not believe
that patent or other protection is available for these technologies. If a third
party were to obtain patent or other proprietary protection for any of these
technologies, the Company may be required to challenge such protections, obtain
a license for such technologies or terminate or modify its programs that rely on
such technologies.
GOVERNMENT REGULATION AND PRODUCT APPROVAL; NO ASSURANCE OF REGULATORY APPROVAL.
The Company has a limited history conducting preclinical studies and has no
history of conducting and managing the clinical testing necessary to obtain
regulatory approval and expects to utilize contract research institutions and
collaborative partners to conduct a portion of its preclinical studies and
clinical trials. To date, the Company has not submitted an IND for any product
candidate, and none of its product candidates has been approved for
commercialization in the United States or elsewhere. There can be no assurance
that the preclinical studies currently being conducted by the Company will lead
to the INDs required to commence clinical trials, that the Company will be able
to identify collaborative partners willing and able to conduct such trials or
that the Company or its partners would be successful in conducting such trials.
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<PAGE> 31
NO HISTORY OF MANUFACTURING, MARKETING OR SALES. The Company has no history of
manufacturing, marketing or product sales and has not invested in manufacturing,
marketing or product sales resources. If the Company successfully develops any
products, the failure to commercialize such products independently or the
failure to enter into satisfactory collaborations for such commercialization
would have a material adverse effect on the Company's business, financial
condition and results of operations.
NEED TO ATTRACT AND RETAIN KEY OFFICERS, EMPLOYEES AND CONSULTANTS. Because of
the specialized scientific nature of the Company's business, the Company is
highly dependent on key members of its scientific and management staff, the loss
of whose services might significantly delay or prevent the achievement of
research, development and business objectives. While the Company has entered
into employment agreements with certain of its key employees, there can be no
assurance that such employees will remain with the Company. In connection with
the Genomics Center, the Company is obligated to recruit and retain a
substantial number of highly qualified scientists over the next four years.
There is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain qualified personnel necessary for the
development of its business.
VOLATILITY OF STOCK PRICE. The market price of the Company's common stock is
highly volatile, and is likely to remain highly volatile for the foreseeable
future. Factors contributing to this volatility include and may include the
validation of the Company's technologies, the success of the Company's
preclinical trials, the success of the Company in commencing clinical studies,
the success of the Company's existing collaborations as well as the ability of
the Company to enter into new collaborations, events relating to the Company's
patent positions as well as the other factors listed above and general market
conditions.
30
<PAGE> 32
ITEM 2. PROPERTIES
The Company has leased approximately 85,000 square feet of laboratory and
office space at 26 Landsdowne Street, located in University Park at
M.I.T., in Cambridge, Massachusetts. The lease is for a ten-year term
ending in the first quarter of the year 2002, with two consecutive
five-year renewal options. The lease also grants to the Company a right of
first refusal on any additional space that may become available in the
100,000 square-foot building under substantially the same terms and
conditions as the initial space. ARIAD believes that its currently leased
facilities will, in large part, be adequate for its research and
development activities at least through the end of 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company was named as a defendant in a purported class action lawsuit
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.
The Company is a named defendant in a purported class action law suit (the
"Degulis Action") commenced on June 8, 1995 in the United States District
Court for the Southern District of New York. The Degulis Action names as
defendants the Company, David Blech (managing director and sole
shareholder of D. Blech & Company Incorporated ("D. Blech & Co.") and a
former director of the Company), D. Blech & Co., (which acted as
underwriter for the Company's initial public offering ("IPO") and a market
maker for the Company's securities), as well as certain members of the
Company's Board of Directors and Shoenberg Hieber, Inc. (which acted as
qualified independent underwriter for the IPO).
In the Degulis Action, plaintiff purports to sue individually and on
behalf of a purported class of persons who purchased securities issued by
the Company during the period May 20, 1994 through September 21, 1994.
Plaintiff alleges, among other things, that the Registration Statement
filed in connection with the IPO was false and misleading. Each of the
defendants therefore are alleged to have violated Sections 11 and 12(2) of
the Securities Act, and the individual defendants also are alleged to be
secondarily liable under Section 15 of the Securities Act. The complaint
also alleges among other things, that David Blech and D. Blech & Co.
participated in purported "sham" sales transactions of the Company's
securities after the IPO in an alleged attempt to artificially inflate the
prices at which the Company's securities were sold in the public markets.
Plaintiff alleges that all defendants knew, or should have known, of this
alleged scheme and that they are liable for their failure to disclose the
alleged scheme to the investing public at the time of the IPO and
thereafter. All defendants are alleged to have participated in this
alleged scheme and thus to have violated Section 10(b) of the Exchange
Act, and SEC Rule 10b-5, and to have engaged in common-law fraud. There
are no allegations that assert specific acts of participation or
wrongdoing by the Company in the alleged schemes. Plaintiffs seek an
unspecified amount of damages, costs and attorneys' fees.
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<PAGE> 33
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 material legal proceedings.
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 December 31, 1997.
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<PAGE> 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock has been traded on the Nasdaq National Market
under the symbol "ARIA" since September 19, 1994. The following table sets
forth the high and low sales prices of the common stock as quoted on the
Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---------- ---------
<S> <C> <C>
1996:
First Quarter 6 3/8 3 9/16
Second Quarter 4 7/8 3 9/16
Third Quarter 4 1/4 2 7/16
Fourth Quarter 5 3/4 3 11/16
1997:
First Quarter 8 3/8 5
Second Quarter 6 5/8 4 13/16
Third Quarter 6 13/16 5 1/16
Fourth Quarter 6 1/16 3 25/32
</TABLE>
HOLDERS
The approximate number of holders of record of the common stock as of
January 31, 1998 was 350.
DIVIDENDS
The Company has not declared or paid dividends in the past and does not
intend to declare or pay dividends in the foreseeable future. The
Company's current long-term debt agreements prohibit the payment of cash
dividends. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
Note 5 of "Notes to Consolidated Financial Statements.")
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<PAGE> 35
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1997, 1996, 1995,
1994 and 1993 and for the years then ended have been derived from the audited
consolidated financial statements of the Company, certain of which are included
elsewhere in this Annual Report on Form 10-K, and are qualified by reference to
such financial statements. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements,
and the notes thereto, and other financial information included herein. The net
loss per share amounts prior to 1997 have been restated as required to comply
with Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share. (See Note 1 to consolidated financial statements.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research revenue (principally
related parties) $ 9,233,708 $ 10,304,332 $ 2,102,222 $ 460,084 $ 592,754
Interest income 1,757,327 1,271,895 1,360,225 1,091,820 1,257,980
------------ ------------ ------------ ------------ ------------
Total revenue 10,991,035 11,576,227 3,462,447 1,551,904 1,850,734
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development 20,286,945 15,253,874 13,675,025 14,566,444 11,968,619
General and administrative 2,924,972 2,229,273 2,281,247 2,089,380 2,042,121
Interest expense 410,072 269,131 323,124 359,581 409,819
------------ ------------ ------------ ------------ ------------
Total operating expenses 23,621,989 17,752,278 16,279,396 17,015,405 14,420,559
------------ ------------ ------------ ------------ ------------
Loss before cumulative effect of
change in accounting principle (12,630,954) (6,176,051) (12,816,949) (15,463,501) (12,569,825)
Cumulative effect of change in
accounting principle 90,909
------------ ------------ ------------ ------------ ------------
Net loss $(12,630,954) $ (6,176,051) $(12,816,949) $(15,372,592) $(12,569,825)
============ ============ ============ ============ ============
Per share (basic and diluted):
Loss before cumulative effect of
change in accounting principle $ (.66) $ (.33) $ (.72) $ (1.07) $ (1.00)
Cumulative effect of change in
accounting principle .01
------------ ------------ ------------ ------------ ------------
Net loss $ (.66) $ (.33) $ (.72) $ (1.06) $ (1.00)
============ ============ ============ ============ ============
Weighted average number of shares
of common stock outstanding 19,252,885 18,999,229 17,738,126 14,515,202 12,558,884
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------
BALANCE SHEET DATA: 1997 1996 1995 1994 1993
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
marketable securities $ 29,359,457 $ 15,702,300 $ 27,056,234 $ 24,188,848 $ 26,960,669
Working capital 16,538,781 11,901,775 20,995,251 22,117,200 24,370,210
Total assets 47,409,176 27,604,993 37,201,730 33,481,980 36,515,356
Long-term debt 5,156,219 1,472,812 1,540,727 2,459,515 3,802,375
Accumulated deficit (66,456,661) (53,825,707) (47,649,656) (34,832,707) (19,460,115)
Stockholders' equity 28,373,818 16,684,471 22,684,447 28,021,482 29,426,677
</TABLE>
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<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company 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 certain research and
administrative services agreements (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 December 31, 1997, the Company had
an accumulated deficit of $66,457,000.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
REVENUE
The Company recognized research revenue under collaborative research
arrangements and government-sponsored grants of $9,234,000, $10,304,000
and $2,102,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease of
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<PAGE> 37
$1,070,000 in 1997 compared to 1996 was due to a $2,427,000 decrease in
research revenue recognized under the 1995 HMR Osteoporosis Agreement and
government-sponsored research grants offset by an increase of $1,357,000
in research revenue recognized under the Services Agreements with the
Genomics Center. The increase in research revenue of $8,202,000 in 1996
compared to 1995 was primarily due to research revenue recognized under
the 1995 HMR Osteoporosis Agreement, which increased to $9,333,000 in 1996
from $1,222,000 in 1995, the year it commenced. Research revenue for 1996
recognized under the 1995 HMR Osteoporosis Agreement included $2,000,000
for the achievement of the first research milestone. Research revenue
resulting from the Services Agreements with the Genomics Center is
expected to increase over the next three years and research revenue
recognized under the 1995 HMR Osteoporosis Agreement is expected to remain
substantially equivalent in 1998. See "-- Liquidity and Capital
Resources."
Interest income was $1,757,000, $1,272,000 and $1,360,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. Interest income
increased by $485,000 in 1997 compared to 1996 as a result of higher
levels of funds invested offset somewhat by lower yields and decreased by
$88,000 in 1996 compared to 1995 primarily as a result of lower levels of
funds invested.
OPERATING EXPENSES
Research and development expenses were $20,287,000, $15,254,000 and
$13,675,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Research and development expenses increased by $5,033,000 or
33.0% in 1997 compared to 1996 primarily due to research services provided
to the Genomics Center under the Services Agreements and increased
expenses in the orally active protein therapy program, including
manufacturing process development and other preclinical development costs.
Research and development expenses increased by $1,579,000 or 11.5% in 1996
compared to 1995 primarily due to increased research activity in
connection with the 1995 HMR Osteoporosis Agreement. The Company expects
its research and development expenses to increase substantially over the
next three 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 were $2,925,000, $2,229,000 and
$2,281,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. General and administrative expenses increased by $696,000 or
31.2% in 1997 compared to 1996 primarily due to increased expenses
incurred with the formation of and services provided to the Genomics
Center and other administrative expenses. General and administrative
expenses decreased by $52,000 or 2.3% in 1996 compared to 1995 primarily
due to savings in insurance and legal expenses.
The Company incurred interest expense of $410,000 in 1997 compared to
$269,000 in 1996 and $323,000 in 1995. The increase of $141,000 in 1997
compared to 1996 was due to the higher level of long-term debt, and the
decrease of $54,000 in 1996 compared to 1995 was due to a lower level of
long-term debt offset somewhat by higher interest rates in 1995.
36
<PAGE> 38
OPERATING RESULTS
The Company incurred losses of $12,631,000 in 1997, $6,176,000 in 1996 and
$12,817,000 in 1995, or $.66, $.33 and $.72 per share, respectively. The
Company expects that substantial operating losses will continue for
several more years and will increase as a result of services provided to
the Genomics Center and as the Company's drug candidates in research, if
successfully developed, undergo preclinical studies and clinical trials.
Operating losses are likely to fluctuate as a result of differences in the
timing and composition of revenue earned and expenses incurred.
At December 31, 1997, the Company had available for federal tax reporting
purposes net operating loss carryforwards of approximately $64,800,000
that expire commencing in 2006. The Company also had federal research and
development tax credit carryovers of approximately $2,600,000 that expire
commencing in 2006. The utilization of both the net operating loss
carryforwards and tax credits is subject to certain limitations under
federal tax laws.
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, most recently, the sale of series B preferred
stock to HMR in connection with the formation of the Genomics Center in
March 1997, the increase in June 1997 of its long-term debt and,
commencing in April 1997, the Services Agreements with the Genomics
Center. Other sources of funds have included sale/leaseback and capital
lease transactions, interest income, government-sponsored research grants
and, commencing in November 1995, research revenue under the 1995 HMR
Osteoporosis Agreement.
At December 31, 1997, the Company had cash, cash equivalents and
marketable securities totaling $29,359,000 and working capital of
$16,539,000 compared to cash, cash equivalents and marketable securities
totaling $15,702,000 and working capital of $11,902,000 at December 31,
1996.
The primary uses of cash during the year ended December 31, 1997 were
$4,351,000 to finance the Company's operations and working capital
requirements, $9,404,000 to purchase laboratory equipment and renovate
space, including $5,878,000 for use by ARIAD in conducting research on
behalf of the Genomics Center, $1,776,000 to repay long-term debt,
$1,449,000 for net investment in the Genomics Center and $2,238,000 to
acquire intellectual property, including the purchase of patents and
pending patent applications and related intellectual property from
Mitotix, Inc. in July 1997. The primary sources of funds during the year
ended December 31, 1997 were $24,000,000 from the issuance of series B
preferred stock to HMR, $6,000,000 of research funding from the 1995 HMR
Osteoporosis Agreement, $6,000,000 in additional long-term debt,
$2,503,000 in advances from the Genomics Center and $2,762,000 from the
sale/leaseback of laboratory equipment.
In February 1997, the Company began renovation of approximately 35,000
square feet of previously leased space to provide laboratories and offices
for the Genomics Center and to expand and improve existing chemistry and
pharmacology laboratories. The leasehold improvements were substantially
completed in October 1997 at an aggregate cost of
37
<PAGE> 39
approximately $5,300,000.
In June 1997, the Company amended its existing debt agreement with its
principal bank and borrowed $6,000,000. The five-year bank term note bears
interest at prime plus 1% and is repayable in monthly installments of
$100,000. In September 1997, the Company entered into a lease credit
agreement with an equipment lessor providing up to $5,000,000 in equipment
financing. The lease agreement is classified as an operating lease and has
a term of five years with a lease renewal or purchase option at the end of
the term. At December 31, 1997, the Company had $2,200,000 of additional
lease credit available through July 1998.
In March 1997, the Company entered into a 50/50 joint venture with HMR to
pursue functional genomics with the goal of identifying novel therapeutic
proteins and small-molecule drug targets. The Company and HMR agreed to
commit $85,000,000 to the establishment of the Genomics Center and its
first five years of operations. The Company and HMR committed to jointly
fund $78,500,000 of operating and related costs, and ARIAD committed 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. Through
December 31, 1997, the Company had invested $5,878,000 in leasehold
improvements and equipment and funded $2,602,000 in operating and related
costs. HMR has 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 through the five-year period, including an
initial investment of $24,000,000 as discussed below. The Company also
entered into the Services Agreements with the Genomics Center to provide
research and administrative services to the Genomics Center on a cost
reimbursement basis.
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, at the Company's option,
HMR has agreed to make subsequent 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 (the
"Series B 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 a
rate of LIBOR plus 0.25% and are repayable by 2003 in cash or series B
preferred stock, at the Series B Price, at the Company's option.
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 inhibitor programs. Under the terms of the 1995 HMR
Osteoporosis Agreement, HMR made an initial cash payment to the Company of
$10,000,000, agreed to 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 agreed to 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
38
<PAGE> 40
the collaboration. The 1995 HMR Osteoporosis Agreement further provides
for the payment of royalties to the Company based on product sales. HMR
may elect to terminate the 1995 HMR Osteoporosis Agreement and further
payment obligations after November 1998, if certain scientific milestones
have not been achieved, whereupon all rights would revert back to the
Company. To date, revenue recognized under the 1995 HMR Osteoporosis
Agreement has amounted to $17,888,000.
The Company has substantial fixed commitments under various research and
licensing agreements, consulting and employment agreements, lease
agreements and long-term debt instruments. Such fixed commitments
currently aggregate in excess of $8,000,000 per year and may increase. 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 establishing manufacturing, marketing and
sales capabilities. Adequate funds for these purposes, whether obtained
through financial markets or collaborative or other arrangements with
collaborative partners, or from other sources, may not be available when
needed or on terms acceptable to the Company.
The Company believes that its existing capital resources, plus interest
income and other sources of funding will be adequate to satisfy its
capital and operating requirements through 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 earlier depletion of the Company's funds.
YEAR 2000
The Company has reviewed the data processing systems and computer
applications which are used in-house and has determined that the Company's
data processing will not be materially impacted by any date-sensitive
calculations related to the year 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income, which requires businesses to disclose
comprehensive income and its components in their general-purpose financial
statements. All items of comprehensive income are to be reported in a
"financial statement that is displayed with the same prominence as other
financial statements." SFAS No. 130 does not require a specific format for
this financial statement, but does mandate the display of an amount
representing total comprehensive income for the period. The Company will
adopt this statement effective January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information,
which will be effective for the Company's fiscal year beginning January 1,
1998. SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about
a company's operating segments. The Company has not yet completed its
analysis of whether operating segment reporting will be required.
39
<PAGE> 41
SECURITIES LITIGATION REFORM ACT
Safe harbor statement under the Private Securities Litigation Reform Act
of 1995: Except for the historical information contained in this Annual
Report on Form 10-K, the matters discussed herein are forward-looking
statements that involve risks and uncertainties, including but not limited
to the factors discussed under the heading "Cautionary Statement Regarding
Forward-Looking Statements" appearing elsewhere herein. As a result of
these factors, actual events or results could differ materially from those
described herein.
40
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
ARIAD Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of ARIAD
Pharmaceuticals, Inc. and its subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ARIAD Pharmaceuticals,
Inc. and its subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 30, 1998
41
<PAGE> 43
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
--------------------------------
NOTES 1997 1996
------------ ---------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents 1 $13,858,910 $ 2,906,851
Marketable securities 1,2 15,500,547 12,795,449
Accounts receivable and other 3 758,463 2,569,404
----------- -----------
Total current assets 30,117,920 18,271,704
----------- -----------
Property and equipment: 1,5,6
Leasehold improvements 12,350,100 7,000,873
Equipment and furniture 5,549,127 4,256,805
----------- -----------
Total 17,899,227 11,257,678
Less accumulated depreciation and amortization 6,459,857 4,748,275
----------- -----------
Property and equipment, net 11,439,370 6,509,403
----------- -----------
Investment in Genomics Center 4 1,418,864
-----------
Intangible and other assets, net 1,6 4,433,022 2,823,886
----------- -----------
Total $47,409,176 $27,604,993
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 5 $ 1,816,583 $ 1,275,956
Accounts payable 3,299,168 788,282
Accrued liabilities 2,849,353 639,026
Advance from Genomics Center 4 2,502,921
Deferred revenue 3 3,111,114 3,666,665
----------- -----------
Total current liabilities 13,579,139 6,369,929
----------- -----------
Long-term debt 5 5,156,219 1,472,812
----------- -----------
Deferred revenue 1,3 300,000 3,077,781
----------- -----------
Commitments and contingencies 6,11
Stockholders' equity: 4,7,8
Series B convertible preferred stock, $.01 par value;
authorized, 5,000,000 shares; issued and outstanding,
2,526,316 shares in 1997 (liquidation preference,
$24,000,000) 25,263
Common stock, $.001 par value; authorized, 60,000,000 shares;
issued and outstanding, 19,308,605 shares in 1997 and
19,036,723 shares in 1996 19,309 19,037
Additional paid-in capital 94,833,479 70,593,840
Net unrealized loss on marketable securities 2 (47,572) (102,699)
Accumulated deficit (66,456,661) (53,825,707)
----------- -----------
Stockholders' equity 28,373,818 16,684,471
----------- -----------
Total $47,409,176 $27,604,993
=========== ===========
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 44
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
NOTES 1997 1996 1995
------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Research revenue (principally
related parties) 1,3,4 $ 9,233,708 $10,304,332 $ 2,102,222
Interest income 2 1,757,327 1,271,895 1,360,225
------------ ----------- ------------
Total revenue 10,991,035 11,576,227 3,462,447
------------ ----------- ------------
Operating expenses:
Research and development 20,286,945 15,253,874 13,675,025
General and administrative 2,924,972 2,229,273 2,281,247
Interest expense 5 410,072 269,131 323,124
------------ ----------- ------------
Total operating expenses 23,621,989 17,752,278 16,279,396
------------ ----------- ------------
Net loss $(12,630,954) $(6,176,051) $(12,816,949)
============ =========== ============
Net loss per share (basic and diluted) 1 $ (.66) $ (.33) $ (.72)
============ =========== ============
Weighted average number of shares of
common stock outstanding 1 19,252,885 18,999,229 17,738,126
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 45
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(12,630,954) $ (6,176,051) $(12,816,949)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,662,291 2,293,446 1,477,433
Stock-based compensation 70,302 27,225
Increase (decrease) from:
Deferred revenue (3,333,332) (3,333,332) 9,777,778
Accounts receivable and other 1,810,941 (2,064,944) 124,875
Other assets (154,262) (233,021) (1,464,809)
Accounts payable 2,510,886 110,364 (148,083)
Accrued liabilities 2,210,327 (121,139) 228,043
Advance from Genomics Center 2,502,921
------------ ------------ ------------
Net cash used in operating activities (4,350,880) (9,497,452) (2,821,712)
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of marketable securities (24,890,446) (17,352,936) (28,131,068)
Proceeds from sales and maturities of
marketable securities 22,102,315 27,752,510 21,414,544
Investment in Genomics Center (2,806,093)
Return of investment in Genomics Center 1,357,377
Investment in property and equipment, net (9,403,738) (1,265,253) (461,418)
Acquisition of intangible and other assets (2,237,571) (451,811) (406,817)
------------ ------------ ------------
Net cash (used in) provided by investing
activities (15,878,156) 8,682,510 (7,584,759)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of series B
preferred stock 24,000,000
Proceeds from borrowings 6,000,000
Repayment of borrowings (1,775,966) (1,558,233) (1,342,860)
Proceeds from sale/leaseback of
equipment, net 2,762,189 1,391,668 366,952
Proceeds from issuance of common stock,
net of issuance costs 7,000,000
Proceeds from issuance of stock pursuant
to stock option and purchase plans 194,872 138,276 108,141
Purchase of warrants (50,000)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 31,181,095 (28,289) 6,082,233
------------ ------------ ------------
Net increase (decrease) in cash and equivalents 10,952,059 (843,231) (4,324,238)
Cash and equivalents, beginning of year 2,906,851 3,750,082 8,074,320
------------ ------------ ------------
Cash and equivalents, end of year $ 13,858,910 $ 2,906,851 $ 3,750,082
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
44
<PAGE> 46
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
SERIES B UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL LOSS ON
---------------- ---------------- PAID-IN MARKETABLE ACCUMULATED STOCKHOLDERS'
NOTES SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES DEFICIT EQUITY
----- ------ ------ ------ ------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 15,911,658 $15,912 $63,373,323 $(535,046) $(34,832,707) $28,021,482
Private placement of common
stock 7 3,000,000 3,000 6,997,000 7,000,000
Exercise of stock options 8 54,070 54 108,087 108,141
Repurchase and retirement of
warrants (50,000) (50,000)
Change in net unrealized loss 2 421,773 421,773
Net loss (12,816,949) (12,816,949)
---------- ------- ----------- --------- ------------ ------------
Balance, December 31, 1995 18,965,728 18,966 70,428,410 (113,273) (47,649,656) 22,684,447
Exercise of stock options 8 70,995 71 138,205 138,276
Stock-based compensation to
consultants 1 27,225 27,225
Change in net unrealized loss 2 10,574 10,574
Net loss (6,176,051) (6,176,051)
---------- ------- ----------- --------- ------------ ------------
Balance, December 31, 1996 19,036,723 19,037 70,593,840 (102,699) (53,825,707) 16,684,471
Issuance of series B preferred
stock 4,7 2,526,316 $25,263 23,974,737 24,000,000
Exercise of 1992 warrants 7 179,182 179 (179)
Issuance of shares pursuant to
stock option and purchase
plans 8 92,700 93 194,779 194,872
Stock-based compensation to
consultants 1 70,302 70,302
Change in net unrealized loss 2 55,127 55,127
Net loss (12,630,954) (12,630,954)
--------- ------- ---------- ------- ----------- --------- ------------ ------------
Balance, December 31, 1997 2,526,316 $25,263 19,308,605 $19,309 $94,833,479 $ (47,572) $(66,456,661) $ 28,373,818
========= ======= ========== ======= =========== ========= ============ ============
</TABLE>
See notes to consolidated financial statements.
45
<PAGE> 47
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
ARIAD Pharmaceuticals, Inc. ("ARIAD" or the "Company") 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.
Principles of Consolidation
The consolidated financial statements include the accounts of ARIAD
Pharmaceuticals, Inc., its wholly owned subsidiary, ARIAD Corporation, and its
97%-owned subsidiary, ARIAD Gene Therapeutics, Inc. ("AGTI"). Intercompany
accounts and transactions have been eliminated.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, accounts payable and accrued
liabilities approximate fair value because of their short-term nature.
Marketable securities are recorded in the consolidated financial statements at
aggregate fair value (Note 2). The carrying amounts of the Company's debt
instruments approximate fair value (Note 5).
Accounting Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions
46
<PAGE> 48
that affect the reported amounts and disclosure of assets and liabilities at the
date of the consolidated financial statements and the reported amounts and
disclosure of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
Cash equivalents include short-term, highly liquid investments, which consist
principally of United States Treasury and Agency securities and high-grade
domestic corporate securities, purchased with remaining maturities of 90 days or
less. At December 31, 1997, approximately $3,000,000 of cash equivalent
investments were pledged as collateral securing a $3,000,000 standby letter of
credit which matured on January 10, 1998.
Marketable Securities
The Company has classified its marketable securities as "available for sale"
and, accordingly, carries such securities at aggregate fair value. Fair value
has been determined based on quoted market prices, in a dealer market, at the
closing bid for each individual security held.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets (3 to 10
years). Assets acquired under capital lease obligations are stated at the lower
of the present value of the minimum lease payments or the fair market value at
the inception of the lease. Assets recorded under capital leases and leasehold
improvements are amortized over the shorter of their useful lives or lease term
using the straight-line method (4 to 10 years).
Investment in Genomics Center
The Company accounts for its investment in the Genomics Center using the equity
method (Note 4). Intercompany transactions are eliminated to the extent of the
Company's interest (50%) in the Genomics Center.
Intangible and Other Assets
Intangible and other assets consist primarily of purchased patents, patent
applications, costs incurred in connection with the 1995 HMR Osteoporosis
Agreement (Note 3) and deposits.
The cost of purchased patents and patent applications and costs incurred in
filing for patents are capitalized. Capitalized costs related to patent
applications are expensed when it becomes determinable that such applications
will not be pursued. Capitalized costs related to issued patents are amortized
over a period not to exceed seventeen years or the remaining life of the patent,
whichever is shorter, using the straight-line method. Costs incurred in
connection with the 1995 HMR Osteoporosis Agreement (Note 3) are being
47
<PAGE> 49
amortized over a three-year period beginning November 1995. Accumulated
amortization of intangible and other assets at December 31, 1997 and 1996 was
$2,110,977 and $1,425,710, respectively.
Revenue Recognition
Research revenue under collaborative research and development agreements is
recognized as research is performed under the terms of the respective applicable
agreement. Amounts received in advance under the 1995 HMR Osteoporosis Agreement
(Note 3) are recorded as deferred revenue and are being amortized over the
minimum term of the agreement, using the straight-line method. Revenue earned
upon the attainment of research milestones is recognized when achieved. Research
revenue billed on a cost reimbursement basis, which includes direct costs
incurred in connection with research activities and an allocation of certain
other costs incurred by the Company, under the terms of the Services Agreements
with the Genomics Center (Note 4) is recognized as services are provided.
Stock-Based Compensation
The Company applies the intrinsic value method to account for employee
stock-based compensation and the fair value method to account for stock-based
compensation to consultants.
Net Loss Per Share
In the fourth quarter of 1997, the Company adopted SFAS No. 128, Earnings per
Share. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, unvested restricted stock, warrants and convertible securities. Net
loss per share amounts for all periods have been restated to conform to the SFAS
No. 128 requirements. Because of the net loss reported in each year, diluted and
basic per share amounts are the same.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform with the 1997 presentation.
Recently Issued Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which requires businesses to disclose
comprehensive income and its components in their general-purpose financial
statements. All items of comprehensive income are to be reported in a "financial
statement that is displayed with the same prominence as other financial
statements." SFAS No. 130 does not require a specific format for this financial
statement, but does mandate the display of an amount
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<PAGE> 50
representing total comprehensive income for the period. The Company will adopt
this statement effective January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which will
be effective for the Company's fiscal year beginning January 1, 1998. SFAS No.
131 redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company has not yet completed its analysis of whether operating
segment reporting will be required.
2. MARKETABLE SECURITIES
The Company has classified its marketable securities as available for sale and,
accordingly, carries such securities at aggregate fair value. At December 31,
1997 and 1996, the Company's marketable securities consisted of the following:
<TABLE>
<CAPTION>
Aggregate Amortized Gross Unrealized
1997 Fair Value Cost Basis Gains Losses
- ---- ----------- ----------- ------ ---------
<S> <C> <C> <C> <C>
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)
=========== =========== ====== =========
1996
- ----
U.S. Government obligations $ 4,444,217 $ 4,507,983 $ 580 $ (64,346)
Corporate debt securities 8,101,761 8,140,694 3,120 (42,053)
Certificate of deposit 249,471 249,471
----------- ----------- ------ ---------
Total $12,795,449 $12,898,148 $3,700 $(106,399)
=========== =========== ====== =========
</TABLE>
At December 31, 1997 and 1996, approximately $14,504,000 and $8,545,000,
respectively, 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 years ended December 31, 1997 and 1996.
Changes in market values resulted in a reduction of $55,127 and $10,574 in net
unrealized losses for the years ended December 31, 1997 and 1996, respectively.
3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
In November 1995, the Company entered into an agreement with Hoechst Marion
Roussel ("HMR") (the "1995 HMR Osteoporosis Agreement") 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 1995 HMR Osteoporosis
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<PAGE> 51
Agreement, the Company granted to HMR exclusive rights to develop and
commercialize these drugs worldwide. The Company has the right, under certain
circumstances, to participate in the development and commercialization of these
products for certain indications in North America. Under the terms of the 1995
HMR Osteoporosis Agreement, HMR made an initial cash payment to the Company of
$10,000,000, agreed to 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 agreed
to provide an aggregate of up to $10,000,000 upon the attainment of certain
research milestones. In addition, HMR established a dedicated research group to
collaborate with the Company on the discovery of osteoporosis drugs and agreed
to fund all of the preclinical and clinical development costs for products that
emerge from the collaboration. The 1995 HMR Osteoporosis Agreement further
provides for the payment of royalties to the Company based on product sales. HMR
may elect to terminate the 1995 HMR Osteoporosis Agreement and further payment
obligations after November 1998 if certain scientific milestones have not been
achieved, whereupon all rights would revert back to the Company. Revenue
recognized under the 1995 HMR Osteoporosis Agreement amounted to $7,333,000,
$9,333,000 and $1,222,000 for 1997, 1996 and 1995, respectively, including, in
1996, $2,000,000 for the achievement of the first research milestone which was
included in accounts receivable at December 31, 1996.
The Company was the grantee organization of four grants from the National
Institutes of Health to conduct research related to signal transduction. Costs
incurred and the corresponding research revenue recognized were approximately
$543,000, $971,000 and $880,000 for 1997, 1996 and 1995, respectively.
4. HOECHST-ARIAD GENOMICS CENTER, LLC
In March 1997, the Company entered into an agreement which established a 50/50
joint venture with HMR to pursue functional genomics (the "1997 HMR Genomics
Agreement") with the goal of identifying genes that encode novel therapeutic
proteins and small-molecule drug targets. 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. Through December 31, 1997, the Company had
invested $5,878,000 in leasehold improvements and equipment and funded
$2,602,000 in operating and related costs. 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 (Note 7). 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 a rate of LIBOR plus 0.25%
and are repayable by 2003 in cash or series B preferred stock, at the Company's
option.
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<PAGE> 52
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 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 $1,357,000 for the year ended December 31, 1997. The Genomics Center
had total assets of $2,507,000 at December 31, 1997 and incurred a net loss of
$2,696,000 for the year ended December 31, 1997.
5. LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Bank term-note at prime plus 1% (9.5%) payable in monthly
installments of $100,000 plus interest, through July 1, 2003 $5,500,000 $ 700,000
Capital lease obligation, at 9.0%, payable in monthly
installments of $46,518 including interest, through
December 31, 2000 1,199,007 1,632,113
Government-sponsored seven-year term note, at prime plus
2.75% (11.0%), payable in monthly installments of $11,905
plus interest, through November 1, 1999 273,795 416,655
---------- ----------
Total 6,972,802 2,748,768
Less current portion 1,816,583 1,275,956
---------- ----------
Long-term debt $5,156,219 $1,472,812
========== ==========
</TABLE>
The notes and capital lease obligation are collateralized by all assets of the
Company, and the government-sponsored note is partially guaranteed by the Small
Business Administration. The Company may, at its option, pledge marketable
securities under the bank term note, and, in such event, the interest rate would
be adjusted to the equivalent of 90-day LIBOR plus 1.25%.
The above agreements contain certain covenants that restrict additional
indebtedness, capital spending and stock redemption; prohibit dividend
distributions; and require the Company to maintain minimum levels of tangible
net worth of $11,000,000, working capital of $7,000,000 and liquid assets of
$15,000,000, all as defined.
The aggregate future principal payments are $1,817,000 in 1998, $1,828,000 in
1999, $1,404,000 in 2000, $1,200,000 in 2001 and $700,000 in 2002. Interest
payments during 1997, 1996 and 1995 were $395,447, $231,130 and $264,124,
respectively.
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<PAGE> 53
6. LEASES, LICENSED TECHNOLOGY AND OTHER COMMITMENTS
Facility Lease
In 1992, the Company entered into a ten-year noncancelable operating lease for
approximately 50,000 square feet of office and laboratory space. The lease
grants to the Company a right of first refusal on any additional space that may
become available in the 100,000 square-foot building under substantially the
same terms and conditions as the initial space. Pursuant to this right, the
Company leased an additional 35,000 square feet of unimproved space, and
completed renovations at an aggregate cost of $5,327,000. Rent expense for the
years ended December 31, 1997, 1996 and 1995 amounted to $945,000, $802,990 and
$813,990, respectively. Future minimum annual rental payments under the lease
are approximately $1,026,000 for each of the five years 1998 through 2002.
Equipment Leases
The Company utilizes lease credit facilities from various equipment leasing
companies. The lease agreements, which are classified as operating leases for
financial reporting purposes, have terms ranging from three to five years, with
various lease renewal or purchase options at the end of the initial term.
Pursuant to a commitment from its principal equipment lessor, the Company has
$2,238,000 of additional lease credit available through July 1998. Equipment
rental expense for the years ended December 31, 1997, 1996 and 1995 amounted to
$1,010,723, $1,461,951 and $1,846,564, respectively. Some of the agreements
contain covenants requiring the Company to maintain certain minimum levels of
net worth, working capital and liquid assets. Minimum future rental payments
under the initial terms of the leases are approximately $1,316,000 for 1998,
$800,000 for 1999, $673,000 for 2000, $673,000 for 2001 and $603,000 for 2002.
Collaborative Agreement
In connection with the establishment of the Genomics Center (Note 4), the
Company entered into a three-year collaborative agreement that provides the
Company with access to various genomic data. Under the terms of the agreement
the Company is required to pay fees of $3,000,000 annually; $833,000 was charged
to research expense in 1997 and is included in accrued liabilities at December
31, 1997. The agreement provides for additional payments for exclusive licenses,
the achievement of certain milestones in drug development and royalties on net
sales.
Licensed Technology
The Company and AGTI have entered into agreements with several universities
under the terms of which the Company has received exclusive licenses or options
to technology in
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<PAGE> 54
certain patent applications. The agreements, which are generally cancelable by
the Company, provide for the payment of license fees and/or minimum payments,
which are generally creditable against future royalties. Fees aggregated
$105,000, $125,000 and $105,500 for 1997, 1996 and 1995, respectively, and are
expected to amount to approximately $165,000 for 1998, $120,000 during each of
the three years in the period ending December 31, 2001 and $225,000 for 2002. In
addition, the agreements provide for payments upon the achievement of certain
milestones in drug development, such as the filing of an Investigational New
Drug application or the filing of a New Drug Application for regulatory approval
in the United States. The agreements also require the Company to fund certain
costs associated with the filing of patent applications.
Other Commitments
The Company has entered into various employment agreements with its senior
executive officers. The agreements provide for aggregate annual base salaries of
$1,160,000 and remaining terms of employment ranging up to four years.
7. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock which the Board
of Directors is empowered to designate and issue in different series. At
December 31, 1997, the Board of Directors had designated 500,000 shares as
series A preferred stock, 5,000,000 shares as series B preferred stock and
4,500,000 shares remained undesignated.
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, at the
Company's option, HMR has agreed to make subsequent 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). The series B
preferred stock is convertible one-for-one into common stock upon the earliest
to occur of: (i) six months following termination of the Genomics Center, (ii)
June 30, 2003, or (iii) upon a change of control of the Company; and, if still
outstanding, the series B preferred stock shall be automatically converted on
December 31, 2006. The series B stockholders have voting rights equivalent to
common stockholders, subject to certain restrictions relative to a merger or
acquisition of the Company.
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<PAGE> 55
Warrants
In 1997, warrants to purchase 733,258 shares of common stock, with an exercise
price of $5.60 per share, issued in connection with a 1992 private placement,
were exercised on a conversion right basis (cashless exercise) resulting in the
issuance of 179,182 shares of common stock, and warrants to purchase 1,522
shares expired.
In 1994, in connection with an initial public offering, the Company issued
2,125,225 warrants with an exercise price of $8.40 per share, subject to
adjustment. These publicly traded warrants expire on May 20, 1999 and are
subject to earlier redemption.
Stockholder Rights Plan
On December 15, 1994, the Board of Directors adopted a stockholder rights plan
which provided for the distribution to each stockholder of one series A
preferred stock purchase right for each outstanding share of common stock. Under
certain circumstances involving an acquisition by a person or group of 20% or
more of ARIAD common stock or involving a 15% stockholder entering into certain
transactions involving the Company, or into certain business combinations, the
rights permit the holders (other than such person or group) to purchase ARIAD
common stock at a 50% discount. The plan is designed to protect ARIAD
stockholders in the event that an attempt is made to acquire the Company without
an offer of fair value.
Minority Interest in Subsidiary
In 1995, pursuant to the terms of a 1994 license agreement, the Company
distributed shares representing an aggregate of 3% of AGTI common stock
outstanding to Stanford University and Harvard University. In addition, AGTI has
granted stock options to certain ARIAD employees and consultants for the
purchase of its common stock (Note 8).
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<PAGE> 56
8. STOCK OPTION AND STOCK PURCHASE PLANS
Stock Option Plans
The Company's 1991 and 1994 Stock Option Plans (the "Plans") provide for the
granting of nonqualified and incentive stock options to purchase up to a maximum
of 6,068,608 shares of common stock to officers, directors, employees and
consultants of the Company. Options become exercisable as specified in the
related option agreement and expire ten years from the date of grant.
Transactions under the Plans for the years ended December 31, 1995, 1996 and
1997 are as follows:
Weighted
Average
Number Exercise Price
of Shares per Share
--------- --------------
Options outstanding, January 1, 1995 2,164,817 $4.82
Granted 468,115 2.41
Forfeited (131,507) 2.14
Exercised (54,070) 2.00
---------
Options outstanding, December 31, 1995 2,447,355 2.25
Granted 773,585 4.23
Forfeited (70,584) 2.70
Exercised (70,995) 1.91
---------
Options outstanding, December 31, 1996 3,079,361 2.57
Granted 618,196 6.53
Forfeited (63,404) 4.88
Exercised (91,596) 2.07
---------
Options outstanding, December 31, 1997 3,542,557 $3.23
=========
Options exercisable, December 31, 1995 1,463,501 $2.11
=========
December 31, 1996 1,878,668 $2.18
=========
December 31, 1997 2,197,320 $2.37
=========
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<PAGE> 57
The following table sets forth information regarding options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Range of Weighted Weighted Average Number of Option Exercise Price for
Exercise Number of Average Remaining Life Shares Currently Currently
Prices Shares Exercise Price (years) Exercisable Exercisable
- ------------ --------- -------------- ---------------- ---------------- ------------------
<C> <C> <C> <C> <C> <C>
$1.59 - 2.31 2,115,664 $1.94 5.3 1,846,649 $1.95
3.62 - 4.88 834,562 4.17 8.3 255,671 4.27
4.88 - 7.63 592,331 6.49 9.5 95,000 5.36
- ------------ ------- ---- --- ------ ----
$1.59 - 7.63 3,542,557 $3.23 6.7 2,197,320 $2.37
============ ========= ===== === ========= =====
</TABLE>
In March 1995, the Company repriced options previously granted to purchase
1,391,732 shares (with original exercise prices ranging from $5.00 to $8.25 per
share) to $2.00 per share, the then fair market value.
As described in Note 1, the Company uses the intrinsic value method to measure
compensation expense associated with grants of stock options to employees. Had
the Company used the fair value method to measure compensation, the reported net
loss and net loss per share would have been reported as follows:
1997 1996 1995
------------ ------------- ------------
Net loss $(13,663,496) $(6,726,601) $(13,082,789)
Net loss per share
(basic and diluted) $ (.71) $ (.35) $ (.74)
The above disclosure, required by SFAS No. 123, includes only the effect of
grants made subsequent to January 1, 1995. For purposes of calculating the above
disclosure, the fair value of options on their grant date was measured using a
Black/Scholes option pricing model. Key assumptions used to apply this pricing
model included a risk-free interest rate of 6%, expected lives of the option
grants ranging from two to six years and expected rates of volatility for the
underlying stock of 78% for 1997 and 1996 and 86% for 1995. Using this model,
the weighted average fair value per option for all options granted to
consultants and employees in 1997, 1996 and 1995 was $3.10, $2.40 and $1.54,
respectively.
The Company's subsidiary, AGTI, adopted stock option plans in 1993 substantially
similar to the Plans and reserved 1,785,714 shares of AGTI's common stock for
issuance pursuant to such plans. At December 31, 1997, options with respect to
1,238,565 shares of AGTI's common stock were outstanding at an exercise price of
$.42 per share, and 928,930 shares were exercisable. If all of the options
exercisable
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<PAGE> 58
at December 31, 1997 had been exercised, the holders would own 17.8% of the
outstanding shares of AGTI (22.2% if all outstanding options had been
exercised).
Employee Stock Purchase Plan
In 1997, the Company adopted the 1997 Employee Stock Purchase Plan and reserved
500,000 shares of common stock. Under this plan, substantially all of its
employees may, through payroll withholdings, purchase shares of the Company's
stock at a price of 85% of the lesser of the fair market value at the beginning
or end of each three-month withholding period. During 1997, 1,104 shares of
common stock were issued.
9. RELATED-PARTY TRANSACTIONS
In 1995, Vector Securities International, Inc. ("Vector Securities") provided
consulting and investment banking services to the Company in seeking strategic
alliances with established pharmaceutical and biotechnology companies. In
connection with the 1995 HMR Osteoporosis Agreement (Note 3), the Company
incurred fees to Vector Securities aggregating $75,000 in 1996 and $1,200,000 in
1995. A member of the Board of Directors of the Company served as Vice Chairman
of Vector Securities during 1995 and 1996.
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<PAGE> 59
10. INCOME TAXES
At December 31, 1997, the Company had available for federal tax reporting
purposes, net operating loss carryforwards of approximately $64.8 million which
expire commencing in 2006. The Company also had federal research and development
credit carryovers of approximately $2.6 million which expire commencing in 2006.
Both the net operating loss carryforwards and credits are subject to certain
limitations under federal tax law.
The components of deferred income taxes were as follows:
1997 1996
------------ ------------
Deferred tax liabilities:
Intangible and other assets $ 1,390,000 $ 481,000
Organizational costs 1,000 1,000
------------ ------------
Total deferred tax liabilities 1,391,000 482,000
------------ ------------
Deferred tax assets:
Net operating loss carryforwards 25,383,000 18,842,000
Tax credit carryovers 5,398,000 4,288,000
Depreciation 749,000 458,000
Deferred revenue 1,244,000 2,698,000
Other 42,000 30,000
------------ ------------
Total deferred tax assets 32,816,000 26,316,000
------------ ------------
Deferred tax assets, net 31,425,000 25,834,000
Valuation allowance (31,425,000) (25,834,000)
------------ ------------
Total deferred taxes $ -0- $ -0-
============ ============
The Company has not yet achieved profitable operations. Accordingly, management
believes the tax benefits as of December 31, 1997 do not satisfy the realization
criteria set forth in SFAS No. 109 and has recorded a valuation allowance for
the entire net deferred tax asset. The valuation allowance increased during 1997
primarily due to an increase in the Company's net operating loss carryforwards
and tax credit carryovers.
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<PAGE> 60
11. LITIGATION
The Company was named as a defendant in a purported class action lawsuit
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.
The Company is a named defendant in a purported class action law suit (the
"Degulis Action") commenced on June 8, 1995 in the United States District Court
for the Southern District of New York. The Degulis Action names as defendants
the Company, David Blech (managing director and sole shareholder of D. Blech &
Company Incorporated ("D. Blech & Co.") and a former director of the Company),
D. Blech & Co., (which acted as underwriter for the Company's initial public
offering ("IPO") and a market maker for the Company's securities), as well as
certain members of the Company's Board of Directors and Shoenberg Hieber, Inc.
(which acted as qualified independent underwriter for the IPO).
In the Degulis Action, plaintiff purports to sue individually and on behalf of a
purported class of persons who purchased securities issued by the Company during
the period May 20, 1994 through September 21, 1994. Plaintiff alleges, among
other things, that the Registration Statement filed in connection with the IPO
was false and misleading. Each of the defendants therefore are alleged to have
violated Sections 11 and 12(2) of the Securities Act, and the individual
defendants also are alleged to be secondarily liable under Section 15 of the
Securities Act. The complaint also alleges among other things, that David Blech
and D. Blech & Co. participated in purported "sham" sales transactions of the
Company's securities after the IPO in an alleged attempt to artificially inflate
the prices at which the Company's securities were sold in the public markets.
Plaintiff alleges that all defendants knew, or should have known, of this
alleged scheme and that they are liable for their failure to disclose the
alleged scheme to the investing public at the time of the IPO and thereafter.
All defendants are alleged to have participated in this alleged scheme and thus
to have violated Section 10(b) of the Exchange Act, and SEC Rule 10b-5, and to
have engaged in common-law fraud. There are no allegations that assert specific
acts of participation or wrongdoing by the Company in the alleged schemes.
Plaintiffs seek an unspecified amount of damages, costs and attorneys' fees.
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.
The ultimate outcome of the litigation cannot be presently determined.
Accordingly, no provision for any loss that may result upon resolution of this
matter has been made in the accompanying consolidated financial statements.
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<PAGE> 61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
60
<PAGE> 62
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Harvey J. Berger, M.D.(1) 47 Chairman of the Board of Directors,
President and Chief Executive
Officer
Charles C. Cabot III 41 Executive Vice President and Chief
Operating Officer
Michael Gilman, Ph.D. 42 Executive Vice President and Chief
Scientific Officer and Scientific
Director, ARIAD Gene Therapeutics,
Inc.
Jay R. LaMarche(1) 51 Executive Vice President and Chief
Financial Officer, Treasurer and
Director
Manfred Weigele, Ph.D. 65 Senior Vice President, Physical and
Chemical Sciences
David L. Berstein 45 Vice President, Chief Patent
Counsel
Rainer Fuchs, Ph.D. 37 Vice President, Chief Information
Officer and Director,
Bioinformatics, Hoechst-ARIAD
Genomics Center, LLC
Dennis A. Holt, Ph.D. 41 Vice President, Drug Discovery -
Chemistry
John D. Iuliucci, Ph.D. 55 Vice President, Drug Development
Kathleen L. Mattis 41 Vice President, Finance and
Corporate Controller
Mark J. Zoller, Ph.D. 44 Vice President, Genomics and Acting
Scientific Director, Hoechst-ARIAD
Genomics Center, LLC
Joan S. Brugge, Ph.D. 48 Co-chair, Board of Scientific and
Medical Advisors and Director
Vaughn D. Bryson(1) 59 Director
John M. Deutch, Ph.D. 59 Director
Philip Felig, M.D.(2) 61 Director
Peter T. Joseph(3) 47 Director
Joel S. Marcus(3) 50 Director
Sandford D. Smith(2) 50 Director
Raymond S. Troubh(2) 71 Director
David T. Washburn 67 Secretary
- ---------------------------
(1) Member of the Executive Committee.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Audit Committee.
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<PAGE> 63
Harvey J. Berger, M.D. is the principal founder of ARIAD and has served as
the Company's Chairman of the Board, President and Chief Executive Officer
since April 1991. From 1986 to 1991, Dr. Berger held a series of senior
management positions at Centocor, Inc., a biotechnology company, most
recently as Executive Vice President and President, Research and Development
Division. Dr. Berger currently is a Lecturer in the Division of Health
Sciences and Technology at the Massachusetts Institute of Technology and the
Harvard Medical School. He also has held senior academic and administrative
appointments at Emory University, Yale University and the University of
Pennsylvania and was an Established Investigator of the American Heart
Association. Dr. Berger received his A.B. degree in Biology from Colgate
University and his M.D. degree from Yale University School of Medicine and
did further medical and research training at the Massachusetts General
Hospital and Yale-New Haven Hospital.
Charles C. Cabot III has served as Executive Vice President and Chief
Operating Officer of ARIAD since March 1997. He served as Senior Vice
President and Chief Operating Officer from January 1994 to February 1997 and
as Senior Vice President, Business Operations of ARIAD from January 1992 to
December 1993. Prior to joining ARIAD, from 1985 to 1991, Mr. Cabot held
several positions at Centocor, Inc., most recently as a Vice President in
the corporate group. Prior to joining Centocor, Inc., he was employed at
Arthur D. Little where he was a Program Manager in the Decision Resources
Division. Mr. Cabot received his A.B. degree in English and American
Literature from Harvard College.
Michael Gilman, Ph.D. has served as Executive Vice President and Chief
Scientific Officer since March 1997. He served as Senior Vice President,
Drug Discovery from October 1996 to February 1997 and as Vice President,
Research - Gene Therapy from August 1994 to September 1996. Dr. Gilman has
served as Scientific Director of ARIAD Gene Therapeutics, Inc. since August
1994. Prior to joining ARIAD, Dr. Gilman was on the staff at the Cold
Spring Harbor Laboratory since 1986, most recently as a Senior Scientist.
Dr. Gilman received his Ph.D. degree in Biochemistry from the University of
California, Berkeley. He received an S.B. degree in life sciences from the
Massachusetts Institute of Technology.
Jay R. LaMarche has served as Chief Financial Officer, Treasurer, and a
Director of ARIAD since January 1992. Mr. LaMarche has served as Executive
Vice President since March 1997, and as Senior Vice President, Finance from
January 1992 to February 1997. Prior to joining ARIAD, he was Chief
Financial Officer and a Director of ChemDesign Corporation, a fine chemicals
manufacturer, where he served in several capacities, most recently as
Executive Vice President. Prior to his employment at ChemDesign, Mr.
LaMarche was a partner with Deloitte Haskins & Sells. Mr. LaMarche received
his B.B.A. degree in Public Accountancy from the University of Notre Dame
and served as an officer in the United States Navy.
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<PAGE> 64
Manfred Weigele, Ph.D. has served as Senior Vice President, Physical and
Chemical Sciences since October 1996 and served as Senior Vice President,
Research - Chemistry of ARIAD from October 1991 to September 1996. Prior to
joining ARIAD, from 1985 to 1991, Dr. Weigele was a Vice President and Group
Director of Chemistry Research for Hoffmann-LaRoche Inc., where he directed
chemistry research. He joined Hoffmann-LaRoche, a worldwide pharmaceuticals
company, in 1965. Dr. Weigele received his undergraduate training at
Technische Universitat in Braunschweig, Germany and his Ph.D. degree from
the University of Wisconsin.
David L. Berstein has served as Vice President, Chief Patent Counsel of
ARIAD since September 1993. Prior to joining ARIAD, from 1990 through 1993,
Mr. Berstein was Patent Counsel at BASF Bioresearch Corporation, where he
was responsible for intellectual property matters, including patents and
licensing. Prior to joining BASF, from 1985 to 1990, Mr. Berstein was a
patent attorney at Genetics Institute, Inc. where he was involved in various
aspects of the patent process from patent procurement through litigation.
Mr. Berstein joined Genetics Institute from the law firm of Cooper & Dunham.
Mr. Berstein received his B.S. degree from the University of Michigan and
his J.D. degree from Fordham University.
Rainer Fuchs, Ph.D. has served as Vice President, Chief Information Officer
since January 1998. Dr. Fuchs also serves as Director, Bioinformatics for
the Hoechst-ARIAD Genomics Center, LLC. Prior to joining ARIAD, Dr. Fuchs
established and directed the bioinformatics group at Glaxo Wellcome, where
he served most recently as Director of Bioinformatics. Dr. Fuchs began his
career at the European Molecular Biology Laboratory (EMBL) Data Library
Program in Heidelberg, Germany. He received his Ph.D. degree in Biochemistry
from Technische Hochschule Darmstadt in Germany.
Dennis Holt, Ph.D. has served as Vice President, Drug Discovery - Chemistry
since October 1996 and served as Director of Research, Chemistry from August
1994 to September 1996. Prior to joining ARIAD, Dr. Holt was Associate
Director of the medicinal chemistry group at SmithKline Beecham
Pharmaceuticals where he focused on the discovery of novel synthetic and
semi-synthetic drugs. Dr. Holt received his B.A. degree from Johns Hopkins
University and his M.A. and Ph.D. degrees from Harvard University.
John D. Iuliucci, Ph.D. has served as Vice President, Drug Development since
October 1996 and served as Vice President, Preclinical Development of ARIAD
from June 1992 to September 1996. Prior to joining ARIAD, Dr. Iuliucci was
Director of Preclinical Pharmacology and Toxicology at Centocor, Inc. from
1984 to 1992. From 1975 to 1984, Dr. Iuliucci headed the Drug Safety
Evaluation Department at Adria Laboratories. He was a Senior Toxicologist at
the Warner-Lambert Pharmaceutical Research Institute from 1972 to 1975.
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<PAGE> 65
Dr. Iuliucci received a B.S. degree in Pharmacy and M.S. and Ph.D. degrees
in Pharmacology from Temple University.
Kathleen L. Mattis has served as Vice President, Finance and Corporate
Controller of ARIAD since November 1994. Previously, she served as Director
of Finance and Corporate Controller for ARIAD from February 1992 to October
1994. Ms. Mattis was formerly Director of Finance in the Research and
Development Division of Centocor, Inc. from 1990 to 1992. Previously, she
was Director of Finance and Controller of Novo Nordisk Pharmaceuticals, Inc.
She also held positions as Financial Analyst and Senior Auditor at
Bristol-Myers Squibb. Ms. Mattis received her B.S. degree in Accounting from
Drexel University and M.B.A. degree from the Wharton School of the
University of Pennsylvania.
Mark J. Zoller, Ph.D. has served as Vice President, Genomics of ARIAD and
Acting Scientific Director for the Hoechst-ARIAD Genomics Center, LLC since
April 1997. Dr. Zoller also served as Vice President, Drug Discovery -
Signal Transduction from October 1996 to March 1997 and as Vice President,
Research - Molecular Biology from November 1994 to September 1996.
Previously, he served as Director, Molecular Biology for ARIAD from June
1992 to October 1994. Prior to joining ARIAD, he was a Senior Scientist and
group leader of Genentech, Inc. Previously, Dr. Zoller was a Senior Staff
Investigator at the Cold Spring Harbor Laboratory where he focused on the
development of molecular genetic systems to study protein kinases. Dr.
Zoller received his Ph.D. degree in Chemistry from the University of
California, San Diego and was a Postdoctoral Fellow in Molecular Biology at
the University of Vancouver, Canada.
Joan S. Brugge, Ph.D., a Director since February 1995, is Professor of Cell
Biology at Harvard Medical School and, since March 1997, she has co-chaired
the Advisory Board. Dr. Brugge served as Senior Vice President, Exploratory
Research at ARIAD from October 1996 through July 1997 and as Senior Vice
President, Research-Biology from May 1992 to September 1996 and as
Scientific Director of ARIAD from May 1992 to February 1997. From 1989 to
1992, Dr. Brugge was a Professor of Microbiology at the University of
Pennsylvania School of Medicine and an Investigator of the Howard Hughes
Medical Institute. Dr. Brugge currently serves on the Medical Advisory Board
of the Howard Hughes Medical Institute and the Advisory Committee to the
Director and the Board of Scientific Advisors of the National Cancer
Institute. She received her A.B. degree in Biology from Northwestern
University and her Ph.D. degree in Virology from Baylor College of Medicine
and completed postdoctoral research at the University of Colorado Medical
Center.
Vaughn D. Bryson, a Director of ARIAD since February 1995, is President of
Life Science Advisors, Inc. Mr. Bryson was a thirty-two year employee of Eli
Lilly & Co. ("Lilly") and served as President and Chief Executive Officer of
Lilly from 1991 to 1993. He was Executive Vice President from 1986 until
1991. He served as a member of Lilly's Board of Directors from 1984 until
his retirement in 1993. Mr. Bryson was Vice Chairman of Vector Securities
International Inc. from April 1994 to December 1996. He also is a Director
of Chiron Corporation, Fusion Medical Technologies, Inc., Perclose, Inc. and
Quintiles Transnational Corporation. He received
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<PAGE> 66
a B.S. degree in Pharmacy from the University of North Carolina and
completed the Sloan Program at the Stanford University Graduate School of
Business.
John M. Deutch, Ph.D., a Director of ARIAD since March 1997, is an Institute
Professor at the Massachusetts Institute of Technology. He has previously
served as Director of Central Intelligence, Deputy Secretary of Defense,
Undersecretary of Defense (Acquisition and Technology), Provost of the
Massachusetts Institute of Technology, Dean of the School of Science,
Chairman of the Department of Chemistry and the Karl Taylor Compton
Professor of Chemistry. Mr. Deutch has received numerous awards and honors
in physical chemistry and computational sciences. Mr. Deutch received his
B.A. degree from Amherst College and his D.Sc. degree from the Massachusetts
Institute of Technology. Mr. Deutch is a Director of Citicorp, CMS Energy,
Cummins Engine Company, Inc. and Schlumberger Ltd.
Philip Felig, M.D., a Director of ARIAD since October 1991, is currently in
medical practice specializing in endocrinology and diabetes as an Attending
Physician on the Senior Medical Staff at Lenox Hill Hospital. Prior to
this, from 1986 to 1987, he was Chief Executive Officer of Sandoz
Pharmaceuticals Corporation and from 1984 to 1987, President of the Sandoz
Research Institute. Dr. Felig came to Sandoz from the Yale University School
of Medicine where he was Professor and Vice-Chairman of the Department of
Medicine and Chief of Endocrinology. Dr. Felig received his B.A. degree from
Princeton University and his M.D. degree from the Yale University School of
Medicine and did further medical training at the Yale-New Haven Hospital,
the Joslin Laboratory at Harvard Medical School and the Peter Bent Brigham
Hospital. Dr. Felig also holds an Honorary Doctor of Medicine from the
Karolinska Institute.
Peter T. Joseph, a Director of ARIAD since October 1991, is Chairman and
Chief Executive Officer of Rosecliff, Inc., an investment management firm
which he has headed since 1987. Mr. Joseph joined the Bass family interests
in 1984 and became a Vice President of Keystone, Inc. (formerly the Robert
M. Bass Group, Inc.) in 1986. He founded Acadia Partners, L.P. in 1987,
where he was the Managing General Partner. He served as Vice President of
Keystone, Inc. and Managing Partner of Acadia until March 1992. Prior to
joining the Bass family interests, Mr. Joseph managed his own merchant
banking firm, worked in the corporate finance and merger and acquisition
areas at Morgan Stanley & Co. and practiced as a tax and corporate attorney
at Paul, Weiss, Rifkind, Wharton & Garrison. He graduated from the Woodrow
Wilson School of Public and International Affairs at Princeton University
with an A.B. degree and an M.P.A. degree in Public Affairs and earned a J.D.
degree from Yale Law School.
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<PAGE> 67
Joel S. Marcus, a Director of ARIAD since February 1995, is Chief Executive
Officer of Alexandria Real Estate Equities, Inc., the only publicly held
real estate investment trust principally focused on the life sciences
industry. Mr. Marcus is a founder and principal of Health Science Capital
Partners, which invests in healthcare related companies. From 1986 to 1994,
Mr. Marcus was a partner with Brobeck, Phleger & Harrison, a law firm (and
its predecessor). Mr. Marcus is a co-founder of the International Life
Science Partnering Conference and was one of the original architects and
officers of the Kirin-Amgen, Inc. joint venture, which financed the
development of two leading genetically engineered pharmaceuticals. He
received his undergraduate degree from the University of California, Los
Angeles ("UCLA"), and a J.D. degree also from UCLA. He is also a licensed
certified public accountant.
Sandford D. Smith, a Director of ARIAD since October 1991, is President,
Therapeutics International, Genzyme Corporation. Previously, from May 1996
to September 1996, he was Vice President and General Manager, Specialty
Therapeutics and International Group, Genzyme Corporation. Mr. Smith was
President and Chief Executive Officer and a Director of the Repligen
Corporation from 1986 to March 1996. Mr. Smith previously held a number of
positions with the Bristol-Myers Company from 1977 to 1986, including, most
recently, Vice President of Corporate Development and Planning for the
United States Pharmaceutical and Nutritional Group. Mr. Smith earned his
B.A. degree from the University of Denver. Mr. Smith is also a Director of
CSPI.
Raymond S. Troubh, a Director of ARIAD since October 1991, has been a
financial consultant for more than the past five years. He was a general
partner of Lazard Freres & Co., an investment banking firm, and a governor
of the American Stock Exchange. Mr. Troubh is a Director of America West
Airlines, Inc., Becton, Dickinson and Company, Diamond Offshore Drilling,
Inc., Foundation Health Systems Inc., General American Investors Company,
Inc., Olsten Corporation, Petrie Stores Corporation, Time Warner Inc.,
Triarc Companies, Inc. and WHX Corporation. He received his A.B. degree from
Bowdoin College and his LL.B. degree from Yale Law School.
David T. Washburn, Secretary of ARIAD since October 1991, is of counsel to
the firm of Paul, Weiss, Rifkind, Wharton & Garrison, corporate counsel to
ARIAD. Mr. Washburn received his B.A. from the University of Vermont in 1952
and his LL.B. from New York University in 1955.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the captions
"Proposal 1.-- Election of Class 1 Directors -- Additional Information
Concerning the Board of Directors" and "Executive Compensation" is
incorporated herein by this reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management" is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by this
reference.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following Consolidated Financial Statements, Notes thereto
and Independent Auditors' Report are incorporated herein by
reference to Item 8:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) The Exhibits listed in the Exhibit Index are filed herewith
in the manner set forth therein.
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<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts on the 5th of March, 1998.
ARIAD PHARMACEUTICALS, INC.
By: /s/ Harvey J. Berger
--------------------
Name: Harvey J. Berger, M.D.
Title: Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Harvey J. Berger Chairman Of The Board Of Directors, March 5, 1998
- -------------------- President And Chief Executive Officer
Harvey J. Berger, M.D. (Principal Executive Officer)
/s/ Jay R. LaMarche Executive Vice President, Chief Financial March 5, 1998
- -------------------- Officer, Treasurer And Director
Jay R. LaMarche (Principal Financial And Accounting Officer)
/s/ Joan S. Brugge Director March 5, 1998
- ------------------
Joan S. Brugge, Ph.D.
/s/ Vaughn D. Bryson Director March 5, 1998
- ---------------------
Vaughn D. Bryson
/s/ John M. Deutch Director March 5, 1998
- ------------------
John M. Deutch, Ph.D.
/s/ Philip Felig Director March 5, 1998
- ------------------
Philip Felig, M.D.
/s/ Peter T. Joseph Director March 5, 1998
- -------------------
Peter T. Joseph
/s/ Joel S. Marcus Director March 5, 1998
- -------------------
Joel S. Marcus
/s/ Sandford D. Smith Director March 5, 1998
- ----------------------
Sandford D. Smith
/s/ Raymond S. Troubh Director March 5, 1998
- ---------------------
Raymond S. Troubh
</TABLE>
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<PAGE> 71
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)
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)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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)
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)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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)
23.1 Consent of Deloitte & Touche LLP (9)
</TABLE>
---------------
<TABLE>
<CAPTION>
<S> <C>
(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.
(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) Filed herewith.
</TABLE>
72
<PAGE> 1
EXHIBIT 10.14
ARIAD PHARMACEUTICALS, INC. HAS OMITTED FROM THIS EXHIBIT 10.14 PORTIONS OF THE
AGREEMENT FOR WHICH ARIAD PHARMACEUTICALS, INC. HAS REQUESTED CONFIDENTIAL
TREATMENT FROM THE SECURITIES AND EXCHANGE COMMISSION. THE PORTIONS OF THE
AGREEMENT FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED ARE MARKED WITH AN
ASTERISK AND SUCH CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
AMENDED AND RESTATED
AGREEMENT
Effective as of December 12, 1997, THE BOARD OF TRUSTEES OF THE LELAND STANFORD
JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of
California ("STANFORD") and ARIAD GENE THERAPEUTICS, a Delaware corporation
having a principal place of business at 26 Landsdowne Street, Cambridge, MA
02139 ("AGT"), agree as follows:
1. BACKGROUND
1.1. STANFORD and the President and Fellows of Harvard College
("HARVARD") ("LICENSORS") have an assignment of those patent
applications set forth on Exhibit A ("Invention(s)"), and any
Licensed Patent(s), as hereinafter defined, which may issue to such
Invention(s).
1.2. LICENSORS own certain proprietary materials and information as
herein defined ("Technology") pertaining to the subject matter of
the Licensed Patents.
1.3. STANFORD has entered into an agreement with HARVARD granting
STANFORD authority to act on HARVARD's behalf and to bind HARVARD in
licensing HARVARD's rights in Invention(s), Licensed
<PAGE> 2
Patent(s) and Technology. A copy of that agreement between STANFORD
and HARVARD is attached hereto as Exhibit B.
1.4. LICENSORS desire to have the subject matter of the Licensed
Patent(s), Invention(s) and Technology perfected and marketed at the
earliest possible time in order that products resulting therefrom
may be available for public use and benefit.
1.5. LICENSORS granted AGT a license under said Invention(s), Technology
and Licensed Patent(s) to develop, manufacture, use, and sell
Licensed Product(s) in the fields of use of human and veterinary
healthcare, genetically engineered animals and plants and research
reagents under an Agreement effective as of January 1, 1994, which
was amended on July 3, 1996 (collectively, the "License Agreement").
1.6. The parties hereto desire to further amend and restate the License
Agreement.
1.7. The Invention(s) was made in the course of research conducted by the
Howard Hughes Medical Institute ("HHMI") in affiliation with
Stanford University and with research support from the National
Institutes of Health at Harvard College.
2. DEFINITIONS
2.1. "Licensed Patent(s)" means those United States Patent Applications
and international patent applications set forth on Exhibit A; and/or
any divisional, continuation, continuation-in-part, reissue,
reexamination or foreign counterpart application which claim
inventions disclosed in any of the foregoing applications; and any
United States and/or foreign patent(s) and any extensions thereof,
which may be granted upon, claim the priority of or claim inventions
disclosed in any of the foregoing.
-2-
<PAGE> 3
2.2. "Technology" means LICENSORS' proprietary rights, if any, in
tangible materials and information which pertain to the invention(s)
disclosed in the Licensed Patents and/or Invention(s), which are
conceived and/or reduced to practice as of the Effective Date, which
arise out of the research by Drs. Schreiber and Crabtree, and which
may be provided by Licensors to AGT, subject to sponsors' rights if
any.
2.3. "Licensed Product(s)" means any product in the Licensed Field of
Use, the manufacture, use, or sale of which would infringe a valid
claim of an issued, unexpired Licensed Patent(s); is covered by a
pending claim of a Licensed Patent for which there is a reasonable
good faith expectation of issuance; and/or which embodies any of the
Technology. A claim of issued, unexpired Licensed Patent(s) shall be
presumed to be valid unless and until it has been held to be invalid
by a final judgment of a patent office or court of competent
jurisdiction.
2.4. "Net Sales" means the amount of gross revenue received by the Seller
of the Licensed Product as a result of sales of Licensed Product(s)
to independent third parties by AGT and/or sublicensees and/or
Co-venturers, less the following items but only insofar as they
actually pertain to the disposition of such Licensed Product(s) by
AGT and/or sublicensee(s) and/or Co-venturers and are separately
billed or accounted for:
(a) customary discounts and rebates actually allowed or granted
from the amount billed;
(b) credits or allowances granted upon claims or returns;
(c) packing, insurance and freight charges paid by AGT and/or
sublicensee(s) and/or Co-venturers;
-3-
<PAGE> 4
(d) import, export, sales, use, excise or other taxes, customs
duties, or other governmental charges levied on or measured by
the selling price and included in the billing price whether
absorbed by AGT and/or sublicensee(s) and/or Co-venturers or
their customers; and
(e) all royalties and other fees required for making, using, or
selling Licensed Product(s) which are paid to third parties by
AGT and/or sublicensee(s) and/or Co-venturers.
Net Sales shall not include any transfers of Licensed Products made
in connection with preclinical or clinical studies.
2.5. "Research Reagents" means Licensed Product(s) which are sold for in
vitro laboratory research purposes only.
2.6. "Licensed Field of Use" means human and veterinary healthcare,
genetically engineered animals and plants and Research Reagents.
2.7. "Licensed Territory" means worldwide.
2.8. "Exclusive" means that, subject to Paragraph 3.4 and Article 4,
STANFORD shall not grant any further commercial license in the
Licensed Territory in the Licensed Field of Use.
2.9. "First Commercial Sale" shall mean the first sale in a given country
by AGT or a sublicensee or Co-venturer thereof to an unrelated third
party, in an arms-length transaction, following receipt of all
relevant governmental regulatory approvals which may be necessary
for commercialization of said Licensed Product, of a Licensed
Product in a final package form ready for use by the ultimate
consumer as a human therapeutic agent. The term "First Commercial
Sale" shall not include (i) a cost recovery sale made by AGT, or a
sublicensee or Co-venturer of
-4-
<PAGE> 5
AGT, under an investigational regulatory submission; and (ii) sales
and disposals, without charge, for experimental purposes or for
purposes of clinically or otherwise testing any Licensed Product(s).
2.10. "Manufacturing Profit" shall mean the price at which Licensed
Products are [*].
2.11. "Co-venturer" means Genovo, Inc. when operating under the AGT-Genovo
Agreement or any other third party entity with which AGT
participates in the sale of Licensed Product(s) pursuant to a joint
venture agreement, notice of the execution of which has been
provided to STANFORD (a "Joint Venture Agreement"). A Co-venturer
may or may not also be [*].
2.12. "Joint Venture Percentage" means the portion of [*] due to either
AGT or a Co-venturer pursuant to a Joint Venture Agreement. AGT's
Joint Venture Percentage in the AGT-Genovo Agreement, as defined
below, [*].
2.13. "AGT-Genovo Agreement" means the Joint Venture Agreement dated
February 14, 1997 between AGT and Genovo, Inc.
2.14. "Effective Date" means January 1, 1994.
3. GRANT
3.1. STANFORD hereby grants to AGT, and AGT hereby accepts, an Exclusive
license under LICENSORS' rights in the Licensed Patent(s),
Invention(s) and the Technology, to make and have made, use and have
used, sell and have sold Licensed Product(s), and/or to otherwise
engage in research, development and commercial activities relating
to the Licensed Patent(s), Invention(s) and/or Technology within the
Licensed Field of Use and Licensed Territory. Subject to the royalty
obligations set
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forth in Paragraphs 6.5, 6.6, 6.7, 6.8, 6.9 and 6.10 below, STANFORD
hereby further grants to AGT the right to grant to purchasers and
users of the Licensed Products immunity from suit for infringement
of the Licensed Patents in their use of such materials. Said license
shall include the right to grant sublicenses in accordance with
Article 14 hereunder.
3.2. The initial term of said license shall commence on January 1, 1994
and shall extend for a [*] following the date of First Commercial
Sale, augmented by the length of any patent term extension awarded
in connection with the Licensed Patent(s) in the United States, but
not to exceed life of Licensed Patent(s), or unless sooner
terminated under Article 15 hereunder (the "Initial Term"). AGT
agrees to promptly inform STANFORD in writing of the First
Commercial Sale.
3.3. At the end of the Initial Term, said license shall be extended for
[*], unless and to the extent that STANFORD can demonstrate that AGT
has not diligently pursued commercialization of, or will not
effectively commercialize the Licensed Product(s). Such extension(s)
shall not be unreasonably denied by STANFORD. The parties agree to
discuss such extension about twelve (12) months prior to the
conclusion of the Initial Term.
In the event of any such demonstration, AGT shall be provided
reasonable prior written notice and a reasonable opportunity to
refute or cure the basis for STANFORD's concern. In the event of
timely refutation or cure by AGT, the exclusive license shall be
extended for renewable [*].
Should the exclusive license not be extended in its entirety due to
a demonstrated inadequacy, said license shall become non-exclusive
with respect to the scope of the demonstrated inadequacy until
expiration of the last to expire of Licensed Patent(s).
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3.4. STANFORD and HARVARD and the inventors shall have the right to
practice the Invention(s) and use the Technology solely for
non-commercial research purposes, whether by themselves or in
collaboration with third party academic or not-for-profit research
institutions. STANFORD and HARVARD and the inventors shall have the
right to publish any information included in Technology. STANFORD
and HARVARD and the inventors shall have the right to provide any
tangible materials included in Technology to third party academic or
not-for-profit research institutions under the terms of a material
transfer agreement in substantially the form which has been provided
to AGT. However, no rights shall be granted by STANFORD or HARVARD
to any inventions or technology incorporating or utilizing such
materials for any commercial purpose. STANFORD shall use its
reasonable efforts to have the inventors provide a list of all such
material transfer agreements to AGT on a quarterly basis and to
provide AGT with copies of any such agreements which differ
materially from the form provided to AGT, as well as copies of such
other agreements as AGT shall reasonably request.
3.5. STANFORD and HARVARD agree that future inventions and discoveries
from the laboratories of Drs. Crabtree and Schreiber (including but
not limited to modes of synthesis, synthetic or natural analogs,
antagonists, precursors, constructs or artificial receptors) not
already disclosed in and expressly covered under Licensed Patent(s)
and/or Technology may be useful to AGT in the development and/or
commercialization of a Licensed Product(s). Subject to STANFORD's
and HARVARD's obligations to sponsors of research, STANFORD and
HARVARD will, as soon as practicable, bring any such new invention
and discovery to AGT's attention and provide AGT a reasonable
non-exclusive opportunity to negotiate a license therefor.
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3.6. Nothing in this Agreement shall be construed so as to restrict the
rights of Drs. Crabtree or Schreiber to publish the results of their
work.
4. SPONSORS' RIGHTS
This Agreement is subject to all of the terms and conditions of Title 35
United States Code Sections 200 through 204, including an obligation that
Licensed Product(s) sold or produced in the United States be "manufactured
substantially in the United States," as well as certain obligations to
HHMI (attached hereto as Exhibit C) and AGT agrees to take all reasonable
action necessary on its part as licensee to enable STANFORD and HARVARD to
satisfy their obligations thereunder, relating to the subject matter of
the Licensed Patents.
5. DILIGENCE
5.1. The parties agree that the use of all reasonable efforts and
diligence in the development, manufacture, and sale of Licensed
Product(s) and in the development of markets for the Licensed
Product(s) is of mutually critical importance. STANFORD and AGT
agree that achievement of the following development milestones shall
constitute diligence on the part of AGT during the initial exclusive
license period:
(a) [*] of an embodiment of the [*];
(b) Submission of a development plan or equivalent covering
commercialization of genetically engineered animals and
products for human healthcare by AGT or sublicensee(s) or
Co-venturers by [*];
(c) Submission of a development plan or equivalent detailing the
time lines and other appropriate information for the
development of
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genetically engineered plants and products for veterinary
healthcare by [*];
(d) [*];
(e) Submission of an updated business plan or equivalent detailing
the specific indications, time lines and other appropriate
information for the development and approval of human
pharmaceuticals, as well as indicating how products for the
veterinary healthcare and genetically engineered animal
markets may be developed using information derived from human
pharmaceutical product lines, by [*];
(f) Submission to the Food and Drug Administration by [*] of a PLA
or equivalent application for marketing approval .
Both parties agree that achievement of these diligence milestones is
subject to uncertainties regarding the availability of [*]; social,
medical and ethical issues regarding gene therapy, territorial or legal
restrictions on the use of biotechnology products, the regulatory climate
and approval process, pricing or other government restrictions on certain
pharmaceutical products, in addition to unforeseen difficulties which may
arise in reducing the technology to practice for commercialization.
Therefore, the parties agree to discuss and, if appropriate, rewrite said
milestones upon AGT's notice to STANFORD on or about [*] or at any other
time upon mutual agreement of the parties.
Unless AGT can demonstrate diligent pursuit and progress toward commercial
development of Licensed Product(s) (itself or through sublicensees or
Co-venturers), STANFORD may cause the license agreement to revert to
non-exclusive status, but only with respect to the scope of the
inadequacy. Any such reversion shall involve
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reasonable written notice and a reasonable opportunity for AGT to refute
or cure the basis for STANFORD's concern.
5.2. In addition to the foregoing, AGT agrees to use reasonable efforts
to make the first sale of a Research Reagent as quickly as possible
by or before [*], with the understanding that
(a) any sale of a Research Reagent should be made only after [*],
including the [*], such that the sale of Research Reagents
will [*];
(b) prior to the issuance of a relevant patent based on the
Licensed Patent(s), sales of Research Reagents by unlicensed,
third party competitors may substantially diminish the
commercial feasibility and/or volume of sales of Research
Reagents by or for AGT;
(c) distribution by STANFORD and/or HARVARD of Research Reagents
to third parties other than actual non-commercial
collaborators may substantially diminish the commercial
feasibility and/or volume of sales of Research Reagents by or
for AGT; and,
(d) AGT may be prohibited from making, using and/or selling
certain Research Reagents by virtue of third party patents;
and that upon the occurrence of situations such as the foregoing which may
be beyond AGT's control and may delay the sale of Research Reagents under
this Agreement in spite of AGT's reasonable efforts, the parties shall
meet to discuss a reasonable alternative timeline or framework for the
distribution of Research Reagents hereunder.
5.3. Progress Report - On or before January 1 of each year until AGT
markets a Licensed Product(s), AGT shall make a written annual
report to
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STANFORD covering the preceding year, regarding the progress of AGT
and its sublicensees and Co-venturers toward the commercialization
of Licensed Product(s). Such report shall include, as a minimum,
information sufficient to enable STANFORD to satisfy reporting
requirements of the United States Government and to ascertain
progress by AGT and its sublicensees and Co-venturers toward meeting
the diligence requirements of this Article 5.
6. ROYALTIES
6.1. AGT agrees to pay to STANFORD a non-creditable, non-refundable
license issue royalty of [*] within thirty (30) days following the
Effective Date.
6.2. AGT also agrees to hold in the names of STANFORD and HARVARD for a
period not to exceed two (2) years after the Effective Date, One
Hundred Eighty Thousand (180,000) shares of AGT's common stock for
each institution (which number may be adjusted to reflect any stock
split so long as the total number of shares to both universities
taken together represents three percent (3.0%) of the initial
capitalization of AGT), which shares shall be transferred to each
institution upon request.
The certificates representing the shares to be issued will contain a
legend providing that the securities represented thereby have not
been registered under the Securities Act of 1933 (the "ACT"), as
amended, or any state securities laws and neither the securities nor
any interest therein may be offered, sold, transferred, pledged or
otherwise disposed of except (i) pursuant to an effective
registration statement under the ACT or such laws or (ii) if, in the
opinion of counsel for the holder, which counsel and opinion are
reasonably satisfactory to counsel for AGT an exemption from
registration under such Securities Act and
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such laws is available. The stock shall not, without AGT's prior
written consent, be transferable until one year after AGT's initial
public offering, if any.
6.3. In addition, AGT shall pay license milestone royalties as follows:
(a) [*] on the first to occur of:
[*]; or
[*];
(b) [*] on the first to occur of:
[*]; or
IND filing in the United States by or on behalf of AGT for a
product covered by Licensed Patent(s);
(c) [*] on the first to occur of:
[*]; or
Submission by AGT of the first Product License Application
(PLA) in the United States for a product covered under
Licensed Patent(s);
(d) [*] upon the first approval in the United States of a PLA (or
its functional equivalent) filed by AGT for a product covered
by the Licensed Patent(s); and
(e) [*] for issuance of the first Licensed Patent in the United
States which contains one or more claims which would be
infringed by the making, using or selling by a third party of
products or services which would compete with a Licensed
Product(s) in the field of human and veterinary healthcare.
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6.4. Beginning [*] and each January 1 thereafter prior to its receipt of
official written approval of a Product License Application (PLA) for
the first human therapeutic Licensed Product in the United States,
AGT also shall pay to STANFORD an annual license maintenance royalty
of [*]. Such annual license maintenance royalties shall be
nonrefundable, but shall be [*] creditable against earned royalties
to the extent provided in Paragraph 6.14.
Beginning with the first calendar year following said receipt of
official written approval of said PLA, said annual license
maintenance royalty shall increase to [*]. Such annual license
maintenance royalties shall be nonrefundable, but shall be [*]
creditable against earned royalties in the year in which said earned
royalties are due.
No annual license maintenance royalty shall be due in the years in
which payments are also made under 6.3(a) and/or 6.3(b) above.
6.5. Subject to Sections 6.6, 6.9 and 6.10, AGT shall also pay STANFORD
earned royalties on Net Sales resulting from sales of Licensed
Product by AGT and/or its Co-venturers as follows:
On Net Sales of Licensed Product(s) covered only by one or more
pending, unissued claims of the Licensed Patent(s):
(a) [*] on such Net Sales of Licensed Products other than Research
Reagents for sales made before [*] after which no such royalty
obligations exist until such time as Licensed Patent(s) issue
containing one or more claims which would be infringed by the
making, using or selling of such Licensed Product(s); and
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<PAGE> 14
(b) [*] on such Net Sales in which the Licensed Product(s) are
Research Reagents;
On Net Sales of Licensed Product(s) in any country to the extent
that manufacture or sale of such Licensed Product(s) would infringe
a valid claim of an issued, unexpired Licensed Patent in that
country or the country of manufacture:
(a) [*] in Net Sales per year of Licensed Product(s) other than
Research Reagents;
(b) [*] on amounts in excess of [*] in Net Sales per year of
Licensed Product(s) other than Research Reagents; and
(c) [*] of Net Sales of Research Reagents.
6.6. Nothwithstanding any other provision of this Agreement including,
without limitation, Paragraph 6.5 above,
(a) the royalty payable to STANFORD with respect to Net Sales
resulting from sales of Licensed Product by AGT or a
Co-venturer or by a sublicensee of AGT of a Licensed Product
[*]; provided, however, that [*] covered by Paragraphs
14.6(a)(i) and 14.6(b)(i) below with respect to such
sublicense.
(b) the royalty payable to STANFORD with respect to Net Sales
resulting from sales of Licensed Product by AGT or a
Co-venturer of a Licensed Product for which [*] shall be made
pursuant to Paragraph 6.5 above based on [*].
6.7. For any sublicenses of the type described in Paragraph 14.5, AGT
shall also pay STANFORD royalties on Net Sales resulting from sales
of
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<PAGE> 15
Licensed Product by its sublicensee(s) who are not Co-venturers in
accordance with the terms of Paragraph 6.5 and 6.6 above.
6.8. Subject to Section 6.16, for any sublicenses entered into [*], of
the type described in Paragraph 14.6, AGT shall also pay STANFORD
royalties on the Net Sales resulting from sales of Licensed Product
by its sublicensee(s) who are not Co-venturers in accordance with
the terms of Paragraph 6.5 and 6.6(a) above. Payment of royalties
with respect to sales of Licensed Product by sublicensees under
sublicenses of the type described in Paragraph 14.6 entered into [*]
shall be governed by Paragraph 14.6.
6.9. Notwithstanding any other provision of this Agreement including,
without limitation, Paragraph 6.5 above, for sales of Licensed
Product(s) by AGT, and/or its Co-venturers, to third party strategic
partners for resale, in lieu of any payment based on the transfer
price of the Licensed Product to the strategic partner, AGT shall
pay to STANFORD a royalty of [*] received and retained by AGT for
such Licensed Product. This payment shall be in addition to any
payment due as a result of any royalties paid by strategic partners
to AGT and/or its Co-venturers with respect to such Licensed
Product(s).
6.10. Notwithstanding anything in this Article 6 or Article 14 to the
contrary, for any Licensed Product which is a Licensed Product
solely because of the use of Licensed Patents or Technology in the
manufacture of such Licensed Product, but where the [*], AGT shall
pay STANFORD a royalty of [*].
6.11. No multiple royalties shall be due in the event that a Licensed
Product(s) is covered by more than one claim of the Licensed
Patent(s).
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6.12. Notwithstanding any other provision herein, AGT's obligation to pay
earned royalties hereunder shall terminate upon the latter of:
(a) [*] , if no relevant Licensed Patent(s) issues; or
(b) For so long as AGT, by its activities would, but for the
license granted herein, infringe a valid claim of an issued,
unexpired Licensed Patent(s).
6.13. Upon conversion by STANFORD of this Exclusive license to
non-exclusive status with respect to any Licensed Product(s) in the
field of human and veterinary healthcare, the royalties due
hereunder on Net Sales of such Licensed Product(s) shall be reduced
to [*] upon the execution by STANFORD and/or HARVARD of any license
to a third party which would permit the making, using and/or selling
of one or more products which could compete with Licensed
Product(s). STANFORD agrees to promptly notify AGT of the execution
of any such third party license. All other royalties shall remain at
their respective levels, provided, however, that if STANFORD or
HARVARD grant any license to one or more third parties under the
Licensed Patent(s), under royalty rates which are less than those
set forth in this Agreement as modified by this Paragraph, the
royalties owed by AGT hereunder shall be reduced to the same
level(s) as those of the third party agreement having the lowest
royalty rate(s).
6.14. Creditable payments under this Agreement may be applied against up
to [*] of each earned royalty payment which AGT would be required to
pay pursuant to Paragraphs 6.5, 6.6, 6.7, 6.8, 6.9 and 6.10 above
until the entire credit is exhausted.
6.15. Any royalties payable by AGT pursuant to this Agreement shall be
paid in United States Dollars. To the extent that royalties are
accrued in accordance with Paragraphs 6.5, 6.6, 6.7, 6.8, 6.9 or
6.10 upon Net Sales
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or Manufacturing Profit in a currency other than United States
Dollars, the royalty statement required in accordance with Paragraph
8.1 shall be accompanied by AGT's payment of royalty in United
States Dollars, with conversion to be made at the rate published in
the Wall Street Journal on the business day next following the end
of the Calendar Quarter. All non-U.S. taxes related to royalty
payments shall be paid by AGT and are not deductible from the
payments due STANFORD provided that STANFORD use reasonable efforts
to cooperate with AGT in obtaining any available waivers or
abatements of such taxes.
6.16. The parties shall meet on or before [*] to discuss in good faith
whether the provisions in Paragraphs 6.8 and 14.7 should be [*].
7. PATENT PROSECUTION
7.1. STANFORD, HARVARD and AGT shall share responsibility for patent
prosecution as follows: AGT shall lead the management of prosecution
of the Licensed Patent(s) using patent counsel reasonably acceptable
to STANFORD and HARVARD, and AGT shall be responsible for all costs
relating thereto. Counsel will directly notify STANFORD, HARVARD and
AGT, and provide them copies of any official communications from
United States and foreign patent offices relating to said
prosecution. Counsel shall also provide STANFORD and HARVARD with
copies of all relevant communications to the various patent offices,
so that STANFORD and HARVARD may be informed and apprised of the
continuing prosecution of the Licensed Patent(s). STANFORD and
HARVARD shall have reasonable opportunities to participate in
decision making on all key decisions affecting filing, prosecution
and maintenance of the Licensed Patent(s), including, without
limitation, reasonable opportunity to review the abandonment of any
Licensed Patent(s) or claims thereof, and AGT will use best efforts
to incorporate STANFORD
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and HARVARD's reasonable suggestions regarding said prosecution. AGT
shall use all reasonable efforts to amend any patent application to
include claims reasonably requested by STANFORD and HARVARD to
protect Licensed Product(s). No case will be abandoned without
giving STANFORD and HARVARD reasonable notice and opportunity to
pursue the application.
7.2. Except as by mutual agreement between the parties, patent
applications comprising the Licensed Patent(s) are to be filed in
the major world markets which filing shall be satisfied by filing in
the following patent offices: [*].
7.3. If STANFORD and HARVARD can demonstrate that they are not being
adequately informed or apprised of the continuing prosecution of
Licensed Patent(s), or that they are not being provided with
reasonable opportunities to participate in decision making as
indicated in the above Paragraph, STANFORD and HARVARD shall assume
lead management of the prosecution of the Licensed Patent(s), using
patent counsel reasonably acceptable to AGT. STANFORD and HARVARD
shall thereafter provide AGT with the same safeguards which STANFORD
and HARVARD were due under Paragraph 7.1. Any such demonstration
shall involve reasonable written notice and a reasonable opportunity
for AGT to refute or cure the basis for STANFORD and HARVARD's
concern. STANFORD and HARVARD agree to diligently prosecute or
assist in prosecuting Licensed Patent(s).
7.4. Within thirty (30) days after receipt of a statement from STANFORD,
AGT shall reimburse STANFORD for all reasonable costs incurred by
STANFORD prior to the Effective Date in connection with the
preparation and filing of the Licensed Patent(s), which costs total
[*].
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7.5. In the event that STANFORD and HARVARD assume lead management of the
Licensed Patent(s) under Paragraph 7.3 above, AGT shall reimburse
STANFORD for all reasonable costs incurred in the preparation,
filing, prosecution and maintenance of the Licensed Patent(s) within
thirty (30) days after receipt of a statement from STANFORD.
STANFORD and HARVARD agree to use reasonable efforts to minimize
such patent costs by whatever means necessary for the benefit of
AGT, provided however, that the quality and scope of the Licensed
Patent(s) shall not be jeopardized by such minimization.
8. QUARTERLY REPORTS, PAYMENTS AND ACCOUNTING
8.1. QUARTERLY EARNED ROYALTY PAYMENT AND REPORT - AGT shall notify
STANFORD within sixty (60) days of the First Commercial Sale of a
Licensed Product. Subsequently, AGT shall make written reports and
earned royalty payments to STANFORD within ninety (90) days after
the end of each calendar quarter in which royalties accrued under
this Agreement. Each such report shall state the number,
description, aggregate revenues from sales by AGT and/or its
sublicensee(s) and/or its Co-venturers, deductions applicable to
determine the Net Sales and the amount of the royalty due pursuant
to Paragraphs 6.5, 6.6, 6.7, 6.8, 6.9 and 6.10 hereof for said
calendar quarter. If no sales were made, the report shall so state.
Royalty payments based on good faith estimates by AGT shall be
adjusted in the next subsequent quarter and shall be accompanied by
an explanation of said adjustment. Concurrent with the making of
each such report, AGT shall include the payment then due STANFORD.
Late payments shall be subject to an interest charge of one and one
half percent (1 1/2%) per month.
8.2. ACCOUNTING - AGT agrees to keep and maintain records for a period of
three (3) years showing the manufacture, sale, use, and other
disposition
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of products sold or otherwise disposed of under the license herein
granted. Such records will be kept in a format as required by
Generally Accepted Accounting Principles and in sufficient detail to
enable the royalties payable hereunder by AGT to be determined.
STANFORD shall have the right to nominate an independent certified
public accountant acceptable to AGT who may be permitted access to
AGT's Records during reasonable business hours and upon reasonable
notice given to AGT in advance of such visit, for the purpose of
verifying the royalty payable as provided for in this agreement for
the two preceding years, but this right may not be exercised more
than once in any year, and the accountant shall agree in writing to
hold in confidence such records except to the extent of verifying to
STANFORD information relating solely to the accuracy of the royalty
report and the royalty payments made according to this agreement.
The entire cost for such inspection shall be borne by the STANFORD
unless the audit shows that AGT has underpaid royalties due to
STANFORD by more than five percent (5%) of the amount due according
to such audit and such an underreporting is not corrected or
correctable in the following quarter, whereupon AGT shall bear such
reasonable cost of the audit. If an audit shows any underpayment or
overpayment, a correcting payment or refund shall be made within
thirty (30) days of receipt of verification by the party owing the
same. Particular documents from which the accounting or royalties
are determined need not be retained by the AGT for more than two (2)
years after the completion of an audit thereof, if an audit has been
requested, and, in any event, no more than three (3) years from
their date of origin.
9. NEGATION OF WARRANTIES
9.1. Nothing in this Agreement is or shall be construed as:
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(a) A warranty or representation by STANFORD or HARVARD as to the
validity or scope of any Licensed Patent(s);
(b) A warranty or representation that anything made, used, sold,
or otherwise disposed of under any license granted in this
Agreement is or will be free from infringement of any other
patents, copyrights, and rights;
(c) An obligation to bring or prosecute actions or suits against
third parties for infringement, except to the extent and in
the circumstances described in Article 13;
(d) Granting by implication, estoppel, or otherwise any licenses
or rights under patents or other rights of STANFORD or HARVARD
or other persons other than Licensed Patent(s), regardless of
whether such patents or other rights are dominant or
subordinate to any Licensed Patent(s); or
(e) An obligation to furnish any technology or technological
information other than that presented or described in the
Licensed Patent(s).
9.2. Except as expressly set forth in this Agreement, STANFORD AND
HARVARD MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
OR THAT THE MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT(S) WILL
NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR
ANY OTHER EXPRESS OR IMPLIED WARRANTIES.
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9.3. AGT agrees that nothing in this Agreement grants AGT any express or
implied license or right under or to:
(a) United States Patent No. 4,237,224, "Process for Producing
Biologically Functional Molecular Chimeras"; United States
Patent No. 4,468,464 and United States Patent No. 4,740,470,
both entitled, "Biologically Functional Molecular Chimeras"
(collectively known as the Cohen/Boyer patents), or reissues
thereof; or
(b) United States Patent 4,656,134 "Amplification of Eucaryotic
Genes" or any patent application corresponding thereto.
10. INDEMNITY
10.1. AGT agrees to indemnify, hold harmless, and defend STANFORD,
HARVARD, HHMI and Stanford University Hospital and their respective
directors, governing board members, trustees, officers, faculty,
medical and professional staff, employees, students, and agents and
their respective successors, heirs, and assigns against any and all
claims arising from breach of this Agreement by AGT, any
sublicensee(s) or Co-venturers, including without limitation any and
all claims for death, illness, personal injury, property damage, and
improper business practices arising out of the manufacture, use,
sale, or other disposition of Invention(s), Licensed Patent(s), or
Licensed Product(s) by AGT or sublicensee(s) or Co-venturers, or
their customers, except as may be due solely to grossly negligent
acts by STANFORD, HHMI and/or HARVARD.
10.2. STANFORD, HARVARD and HHMI shall not be liable for any indirect,
special, consequential, or other damages whatsoever, whether
grounded in tort (including negligence), strict liability, contract
or otherwise.
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STANFORD and HARVARD and HHMI shall not have any responsibilities or
liabilities whatsoever with respect to Licensed Product(s).
10.3. AGT shall at all times comply, through insurance or self-insurance,
with all statutory workers' compensation and employers' liability
requirements covering any and all employees with respect to
activities performed under this Agreement.
10.4. In addition to the foregoing, AGT shall maintain, during the term of
this Agreement, Comprehensive General Liability Insurance, including
Products Liability Insurance, with reputable and financially secure
insurance carrier(s) to cover the activities of AGT and its
sublicensee(s). Such insurance shall provide minimum limits of
liability considered to be standard for AGT's industry prior to
human clinical trials.
Commencing with human clinical trials of Licensed Product(s), AGT
shall maintain such insurance with minimum limits of liability of
[*] and shall include STANFORD, HARVARD, HHMI, Stanford University
Hospital, their trustees, directors, officers, employees, students,
and agents as additional insureds. Such insurance shall be written
to cover claims incurred, discovered, manifested, or made during or
after the expiration of this Agreement. At STANFORD's request, AGT
shall furnish a Certificate of Insurance evidencing primary coverage
and requiring thirty (30) days prior written notice of cancellation
or material change to STANFORD. AGT shall advise STANFORD, in
writing, that it maintains excess liability coverage (following
form) over primary insurance for at least the minimum limits set
forth above. All such insurance of AGT shall be primary coverage;
insurance of STANFORD, HARVARD, HHMI or Stanford University Hospital
shall be excess and noncontributory. STANFORD acknowledges that the
insurance specified in this Paragraph may be or become unavailable
or
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unavailable on commercially practicable terms. In such event,
STANFORD agrees to discuss with AGT commercially reasonable
alternatives.
11. MARKING
Prior to the issuance of patents on the Invention(s), AGT agrees to mark
Licensed Product(s) (or their containers or labels) made, sold, or
otherwise disposed of by it under the license granted in this Agreement
with the words "Patent Pending," and following the issuance of one or more
patents, with the numbers of the Licensed Patent(s).
12. NAMES AND MARKS
It is understood that the names of HARVARD, STANFORD and HHMI will appear
in disclosure documents required by securities laws, and in other
regulatory and administrative filings in the ordinary course of AGT's
business. The above described use will be deemed to be non-commercial
uses. AGT agrees not to identify STANFORD, HARVARD or HHMI or to use the
name of any STANFORD or HARVARD faculty member, employee, or student or
any trademark, service mark, trade name, or symbol of STANFORD, HARVARD,
HHMI or the Stanford University Hospital, in any commercial advertisement
or similar material that is used to promote or sell products, without
STANFORD'S, HARVARD'S, or HHMI's prior written consent, except that AGT
may state that it has acquired this license from STANFORD and HARVARD.
13. INFRINGEMENT BY OTHERS: PROTECTION OF PATENTS
13.1. AGT and STANFORD shall promptly inform each other of any suspected
infringement of any issued Licensed Patent(s) by a third party
during the term of this Agreement. During the initial term of the
Exclusive license provided in Paragraph 3.2 and for so long as the
license of exclusive rights may be extended thereafter, STANFORD and
AGT each shall have
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<PAGE> 25
the right to institute an action for infringement of the Licensed
Patent(s) against such third party in accordance with this Article
13.
13.2. Joint Action
[*].
13.3. Absent joint action pursuant to Paragraph 13.2, [*] in the first
instance to (but not the obligation to):
(a) bring any action for infringement of the Licensed Patent(s),
provided that AGT will keep STANFORD advised with regard to
any action that is brought or proposed to be brought;
(b) defend any action relating to enforcement of the Licensed
Patent(s);
(c) bring such action in its own name, or, if in the opinion of
counsel for AGT, that it is necessary or desirable, in the
name of LICENSORS or in the names of LICENSORS and AGT; [*];
(d) [*];
(e) settle the lawsuit, at it sole discretion; provided that (i)
such settlement is not inconsistent with the terms of this
Agreement; [*]; and [*].
(f) [*]; and
(g) retain any monetary recovery in any action brought or proposed
to be brought by (or defended by) AGT as a result of any
judgment rendered in favor of AGT or collected as a result of
any settlement of a lawsuit hereunder; provided, however, that
sums, net of
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<PAGE> 26
expenses of such litigation, that are collected by AGT on
account of past infringing sales by such third parties shall
be computed in accordance with Paragraphs 6.5 and 6.6 hereof
[*] and that AGT further [*].
13.4. Action by LICENSORS.
In the event that AGT declines to take action against an infringer,
and in the absence of an agreement to institute a suit jointly,
STANFORD may institute suit, and, at its option, join AGT as a
plaintiff. If STANFORD decides to institute suit, then it shall so
notify AGT in writing. AGT shall have the right to join STANFORD in
such suit pursuant to Paragraph 13.2. However, if AGT declines to do
so and fails to notify STANFORD in writing, within thirty (30) days
after the date of such notice, that it will join in enforcing the
patent pursuant to the provisions hereof, AGT shall be deemed to
assign to STANFORD all of AGT's rights, causes of action, and
damages resulting from any such alleged infringement. STANFORD shall
bear the entire cost of such litigation and shall be entitled to
retain the entire amount of any recovery or settlement it obtains
from said infringer.
13.5. Multiple Infringement.
Notwithstanding any provision or implication to the contrary in this
Agreement, neither party shall be obligated under this Article 13 to
proceed against more than one infringer at a time.
13.6. Should any of STANFORD, HARVARD or AGT commence a suit under the
provisions of this Article 13 and thereafter elect to abandon the
same, it shall give timely notice to the other party who may, if it
so desires, continue prosecution of such suit, provided, however,
that the sharing of
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<PAGE> 27
expenses and any recovery in such suit shall be as agreed upon
between STANFORD and AGT.
14. SUBLICENSE(s)
14.1. AGT may grant sublicense(s) during the Exclusive period.
14.2. If at any time [*], AGT has not commercialized or is not actively
attempting to commercialize the Invention(s) in a potential and
material market or market territory, AGT will attempt to:
(a) Identify a willing sublicensee reasonably acceptable to AGT;
and
(b) Negotiate in good faith a sublicense(s) in such market or
territory.
14.3. Any sublicense(s) granted by AGT under this Agreement shall be
subject and subordinate to terms and conditions of this Agreement,
except:
(a) Sublicense terms and conditions shall reflect that any
sublicensee(s) shall not further sublicense [*]; and
(b) The earned royalty rate specified in the sublicense(s) may be
at higher rates than the rates in this Agreement. Any such
sublicense(s) also shall expressly include the provisions of
Articles 8, 9, and 10 for the benefit of STANFORD, HARVARD and
HHMI and provide for the transfer of all obligations,
including the payment of royalties specified in such
sublicense(s), to STANFORD or its designee, in the event that
this Agreement is terminated.
14.4. AGT agrees to provide STANFORD with a copy of all portions of
sublicense agreement(s) which are relevant to STANFORD and
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<PAGE> 28
HARVARD and to the obligations of AGT and its sublicensees thereto
under this Agreement.
14.5. If AGT grants sublicense(s) solely under LICENSORS' rights in the
Licensed Patent(s), AGT shall pay to STANFORD:
(a) In the case of sublicense(s) for the fields of human and
veterinary healthcare or genetically engineered animals, [*]
of the following revenue: all non-royalty income and all
earned royalties on Net Sales for sublicensee(s) in excess of
royalty due to STANFORD under Paragraph 6.7 which are actually
received by AGT; and
(b) In the case of sublicense(s) for the fields of Research
Reagents or genetically engineered plants, [*] of the
following revenue: all non-royalty income and all earned
royalties on Net Sales of sublicensee(s) in excess of royalty
due to STANFORD under Paragraph 6.7 which are actually
received by AGT.
14.6. The following provisions shall apply to sublicense(s) other than
sublicense(s) covered in Paragraph 14.5 above granted to
non-Co-venturers on or before [*]:
(a) If AGT grants sublicense(s) other than sublicense(s) covered
in Paragraph 14.5 above to non-Co-venturers, in the fields of
human and veterinary healthcare or genetically engineered
animals, under LICENSORS' rights in the Licensed Patent(s),
then AGT shall pay to STANFORD: [*].
(b) If AGT grants sublicense(s) other than sublicense(s) covered
in Paragraph 14.5 above to non-Co-venturers, in the fields of
Research Reagents or genetically engineered plants, under
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<PAGE> 29
LICENSORS' rights in the Licensed Patent(s), then AGT shall
pay to STANFORD: [*].
(c) Notwithstanding the foregoing, in no event will STANFORD be
paid less than [*] of the Net Sales of AGT's sublicensees
other than Co-venturers unless AGT elects, at its sole
discretion, upon any execution of a sublicense to a
non-Co-venturer hereunder, to pay STANFORD [*] covered by
Paragraphs 14.6(a)(i) and 14.6(b)(i) above, in which case
STANFORD shall receive [*].
(d) Notwithstanding all of the foregoing, in the event that
payments and earned royalties under sublicenses of LICENSORS'
rights in the Licensed Patents are to be shared with
Co-venturers under the AGT-Genovo Agreement or any other Joint
Venture Agreements between AGT and Co-venturers, payments to
STANFORD shall be made pursuant to Paragraphs 14.6(a)(i) and
(ii) above, or Paragraphs 14.6(b)(i) and (ii) above, if
applicable, as modified by Paragraph 14.6(c), based on that
portion of upfront cash payments, other license fee payments
and earned royalties received by AGT after deduction of any
amounts payable to any Co-venturer or retained by the
Co-venturer. Accordingly, for sublicenses to third parties
resulting from the joint venture between AGT and Genovo, Inc.,
payments under Paragraphs 14.6(a)(i) and (ii) shall be based
[*].
(e) For the avoidance of doubt, it is acknowledged and agreed that
payments for [*] for the purposes of this Agreement.
14.7. Subject to Paragraph 6.16, the following provisions shall apply to
sublicense(s) other than sublicense(s) covered in Paragraph 14.5
above granted to non-Co-venturers after [*]: If AGT grants
sublicense(s), other
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<PAGE> 30
than sublicense(s) covered in Paragraph 14.5 above, to
non-Co-venturers in the fields of Research Reagents or genetically
engineered plants, under LICENSORS' rights in the Licensed
Patent(s), then AGT shall pay to STANFORD [*] of the following
non-royalty income: upfront cash payments and other license fee
payments received by AGT in consideration of said sublicense(s).
15. TERMINATION
15.1. AGT may terminate this Agreement by giving STANFORD at least thirty
(30) days prior written notice.
15.2. STANFORD may terminate this Agreement on thirty days' prior written
notice in the event of material breach by AGT in the substantial
performance of its essential obligations hereunder, specifically
including the payment of royalties and providing of reports, by
causes and reasons within its control and responsibility (and not
subject to force Majeure as set forth below), but only if AGT has
not cured such breach or has not taken substantial steps toward
curing such breach within sixty (60) days after written notice
requesting the correction of such breach.
15.3. Surviving any termination are:
(a) AGT's obligation to pay royalties accrued or accruable;
(b) Any cause of action or claim of AGT or STANFORD, accrued or to
accrue, because of any breach or default by the other party;
(c) The provisions of Articles 8, 9, and 10; and
(d) AGT's right to sell or otherwise dispose of any Licensed
Product(s) remaining in its inventory at the time of
termination, provided that royalties shall be due to STANFORD
on Net Sales
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<PAGE> 31
of such inventory as if this Agreement were still in full
force and effect.
16. ASSIGNMENT
AGT may assign this Agreement with the prior written consent of STANFORD.
However, upon notice to STANFORD, AGT may, without further obligation to
STANFORD, assign this Agreement to an entity with which it merges or
consolidates or to a corporation, partnership or other business entity
which during the term of this Agreement, directly or indirectly, is
controlled by, controls, or is under common control with AGT, or to which
substantially all of its assets relating to the Licensed Patent(s) are
sold or otherwise transferred or to a partnership of which AGT is a
partner.
17. ARBITRATION
17.1. Any controversy arising under or related to a material provision of
this Agreement, and any disputed, substantial claim by either party
against the other under this Agreement, excluding any dispute
relating to patent validity or infringement arising under this
Agreement or any controversy or dispute relating to HHMI's rights
under Article 10 hereof, shall be settled by arbitration in
accordance with the Licensing Agreement Arbitration Rules of the
American Arbitration Association.
17.2. Upon request by either party, arbitration will be by a third party
arbitrator mutually agreed upon in writing by AGT and STANFORD
within thirty (30) days of such arbitration request. Judgment upon
the decision rendered by the arbitrator shall be final and
nonappealable and may be entered in any court having jurisdiction
thereof.
17.3. The parties shall be entitled to discovery in like manner as if the
arbitration were a civil suit before a United States Federal Court
for a
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<PAGE> 32
District to be chosen by the party other than the party which
initiated the request for arbitration. The Arbitrator may limit the
scope, time and/or issues involved in discovery.
17.4. Any arbitration shall be held at a neutral location mutually agreed
upon in writing by the parties hereto and shall be conducted in
adherence to the Federal Rules of Evidence.
17.5. The fact that arbitration proceedings have been requested, are being
conducted and/or have concluded, as well as all information
concerning the nature of the controversy, the subject matter of the
arbitration, materials and/or testimony produced for discovery
whether or not admitted into evidence as well as the nature and/or
details of any decision by an arbitrator, shall be maintained in
confidence to the fullest extent provided by law. Any disclosure of
any of the foregoing by any party shall be preceded by written
notice to the other parties of the nature, scope, content, place,
date and time of any such intended disclosure, permitting any other
party hereto to seek a protective order or any other action
appropriate under the circumstances.
17.6. All expenses incurred in the arbitration, without limitation, shall
be divided equally among the parties. Each party shall be
responsible for paying its own share of such expenses.
18. CONFIDENTIALITY
18.1. AGT, in its performance hereunder, may be disclosing to the Office
of Technology Licensing at STANFORD confidential and proprietary
information comprising correspondence, documents (such as progress
reports, royalty reports and development plans) and other
information relating to AGT's performance of its obligations under
this Agreement ("Confidential Information").
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<PAGE> 33
18.2. The Office of Technology Licensing at STANFORD agrees to use the
Confidential Information only for the purpose for which disclosed by
AGT.
18.3. The Office of Technology Licensing at STANFORD agrees not to
disclose, directly or indirectly, the Confidential Information to
any third person or entity. The Office of Technology Licensing at
STANFORD shall have the right to disclose such Confidential
Information to employees of the Office for Technology and Trademark
Licensing at HARVARD and to other employees of STANFORD and HARVARD
who have a need to know such information and agree to be bound by
the confidentiality provisions herein. The Office of Technology
Licensing at STANFORD and the Office for Patent and Trademark
Licensing at HARVARD will treat all such information as confidential
and proprietary property of AGT. STANFORD and HARVARD may, however,
disclose to third parties total annual royalty payments and general
statistical information made hereunder in the context of disclosing
statistical information pertaining to the performance of the Office
of Technology Licensing.
18.4. The term "Confidential Information" does not include information
that
(a) is or becomes available to the public other than by disclosure
in violation of this Agreement,
(b) was within the possession of STANFORD or HARVARD prior to the
disclosure thereto by AGT,
(c) is obtained by the STANFORD and HARVARD from a third party who
had the legal right to disclose the information to STANFORD
and HARVARD, or
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<PAGE> 34
(d) is required to be disclosed by law, government regulation or
court order requiring disclosure thereof, or is required to be
disclosed to HHMI and/or DHHS as sponsors of the research
resulting in the Invention(s), in any such case, provided that
AGT is provided with prior written notice of any such
disclosure so that AGT may seek a protective order or take
other action reasonable in light of the circumstances.
19. MISCELLANEOUS
19.1. Waivers.
Any delay or forbearance by either party in exercising any right
hereunder shall not be deemed a waiver of that right.
19.2. Entire Agreement.
This Agreement, including the Exhibits attached hereto and which are
incorporated herein by reference, contains the entire understanding
of the parties hereto, and there are no other agreements or
understandings, express or implied, written or oral, as to the
subject matter hereof. Without limiting the generality of the
foregoing, the License Agreement is hereby superseded.
19.3. Amendments.
This Agreement may not be amended or altered except by a written
instrument signed by an authorized representative of each party.
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<PAGE> 35
19.4. Governing Laws.
This Agreement shall be governed by the laws of the State of
California applicable to agreements negotiated, executed and
performed wholly within California.
19.5. Severability.
The parties agree that if any part, term, or provision of this
Agreement shall be found illegal or in conflict with any valid
controlling law, the validity of the remaining provisions shall not
be affected thereby. In the event of the legality of any provision
of this Agreement is brought into question because of a decision by
a court of competent jurisdiction, the parties shall revise the
provision in question or may delete it entirely so as to comply with
the decision of said court.
20. FORCE MAJEURE
Neither AGT nor its sublicensees shall be liable or be in breach of
any provision of this Agreement for any failure or omission on its
or their part to perform any obligation hereof because of force
majeure, including, without limitation, war, riot, fire, explosion,
flood, sabotage, accident or other impediments or hindrances of
transportation, strike or other labor disturbances, governmental act
or omission including governmental prohibition, or failure to
approve, of the manufacture, sale or use of a Licensed Product, or
any other cause beyond the control of the party; provided that such
failure or omission resulting from one of the foregoing causes is
cured as soon as is practicable after the occurrence of one or more
of the above-mentioned causes.
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<PAGE> 36
21. NOTICES
All notices under this Agreement shall be deemed to have been fully
given when done in writing and deposited in the United States mail,
registered or certified, and addressed as follows:
To STANFORD: Office of Technology Licensing
Stanford University
900 Welch Road, Suite 350
Palo Alto, CA 94304-1850
Attention: Director
To AGT: ARIAD Gene Therapeutics, Inc.
26 Landsdowne Street
Cambridge, MA 02139
Attention: Chairman & Chief Executive Officer
Either party may change its address upon written notice to the other
party.
22. COUNTERPARTS
This Agreement may be executed in one or more counterpart copies, each of
which shall be deemed to be an original and all of which shall together be
deemed to constitute one and the same instrument.
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate originals by their duly authorized officers or representatives.
THE BOARD OF TRUSTEES OF THE LELAND
STANFORD JUNIOR UNIVERSITY
Signature /s/ Katharine Ku
--------------------------
Name Katharine Ku
-------------------------------
Title Director, Technology Licensing
------------------------------
Date Jan. 26, 1998
-------------------------------
ARIAD GENE THERAPEUTICS, INC.
/s/ Harvey Berger
------------------------------------
Harvey J. Berger, M.D.
Chairman and Chief Executive Officer
Date January 21, 1998
-------------------------------
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<PAGE> 38
EXHIBIT A
---------
INVENTIONS
[*]
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<PAGE> 1
EXHIBIT 10.41
ARIAD PHARMACEUTICALS, INC.
EXECUTIVE COMPENSATION PLAN
EFFECTIVE AS OF SEPTEMBER 16, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
- -------------------------------------------------------------------------------
ARTICLE I 1
Purpose 1
ARTICLE II 1
Definitions and Construction 1
ARTICLE III 4
Option Grant 4
ARTICLE IV 6
Option Exercise 6
ARTICLE V 8
Amendment or Termination 8
ARTICLE VI 10
Administration 10
ARTICLE VII 11
Trust Provisions 11
ARTICLE VIII 12
Miscellaneous Provisions 12
- -i-
<PAGE> 3
ARIAD PHARMACEUTICALS, INC.
EXECUTIVE COMPENSATION PLAN
- -------------------------------------------------------------------------------
ARTICLE I
PURPOSE
1.1 PURPOSE. The purpose of the Plan is to provide additional incentive
compensation to certain executives and key individuals, commensurate with their
contributions to the success of the Employer, in a form that will provide
incentives and rewards for superior performance, and encourage the recipients to
continue in the employment of the Employer.
1.2 INTENT. The Plan is intended to be an unfunded plan maintained by the
Employer primarily for a select group of officers and certain key advisors. The
Plan is also intended to be a nonqualified stock option plan within the meaning
of section 83 of the Code (utilizing nonemployer stock.)
- --------------------------------------------------------------------------------
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. As used herein, the following capitalized words and phrases
shall have the respective meanings set forth below:
"BENEFICIARY" means the person or persons designated by a
Participant, pursuant to Section 3.7, to exercise an Option after the
Participant's death.
"BOARD OF DIRECTORS" or "BOARD" means the board of directors of
the Employer.
"BONUS OPTION" means an Option granted by the Employer to a
Participant as a bonus for services rendered.
"CHANGE OF CONTROL" means the occurrence of any of the following
events (without the consent of the Participant):
(i) Any corporation, person or other entity makes a tender or
exchange offer for shares of the Employer's Common Stock pursuant to
which such corporation, person or other entity acquires more than 50%
of the issued and outstanding shares of the Employer's Common Stock;
<PAGE> 4
(ii) The stockholders of the Employer approve a definitive
agreement to merge or consolidate the Employer with or into another
corporation or to sell or otherwise dispose of all or substantially
all of the Employer's assets; or
(iii) Any person within the meaning of Section 3 (a) (9) or
Section 13 (d) of the Securities Exchange Act of 1934 acquires more
than 50% of the combined voting power of Employer's issued and
outstanding voting securities entitled to vote in the election of the
Board."
"CODE" means the Internal Revenue Code of 1986, any amendments
thereto, and any regulations or rulings issued thereunder.
"COMMITTEE" means the Compensation and Stock Option Committee of
the Board, or such other committee as may be appointed in accordance
with Section 6.1.
"DEFERRAL OPTION" means an Option granted by the Employer to a
Participant in connection with an election made by a Participant to
reduce his/her compensation in consideration of the grant of a
Deferral Option under this Plan.
"EFFECTIVE DATE" means July 1, 1997.
"EMPLOYEE" means any individual who is employed by the Employer
(or any affiliate of the Employer).
"EMPLOYER" means ARIAD Pharmaceuticals, Inc., and any successor
thereto.
"EXERCISE PERIOD" means the period during which a Participant may
exercise an Option, as determined under Section 4.1.
"EXERCISE PRICE" means the price to be paid by a Participant to
exercise an Option, as determined under Section 3.3.
"FAIR MARKET VALUE" means the closing price of a share of Stock
reflected in the consolidated trading tables of The Wall Street
Journal (presently the NYSE-Composite Transactions), or other
recognized market source, as determined by the Committee, on the
applicable date of reference hereunder, or if there is no sale on such
date, then the closing price on the last previous day on which a sale
is reported. In the case of a share of Stock issued by a regulated
investment company, the Fair Market Value is the net asset value or
redemption price as disclosed in the regulated investment company's
then current prospectus.
"GRANT DATE" means, with respect to any Option, the date on which
the Option Agreement is executed by the Employer and the Participant.
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<PAGE> 5
"KEY ADVISOR" means any individual who is not an Employee who
provides services to the Employer (or any affiliate of the Employer)
and who is identified by the Board or Committee as a Key Advisor.
"OPTION" means the right of a Participant, granted by the
Employer in accordance with Section 3.2, to purchase Stock from the
Employer at the Exercise Price. An Option may be granted as a Bonus
Option or as a Deferral Option, whichever is applicable.
"OPTION AGREEMENT" means an agreement setting forth the terms of
an Option executed by the Employer and a Participant pursuant to
Section 3.2.
"PARTICIPANT" means any Employee or Key Advisor who has been
granted Options in accordance with the Plan and whose Options have not
been exercised in full or forfeited.
"PLAN" means the ARIAD Pharmaceuticals, Inc. Executive
Compensation Plan, as set forth herein and from time to time amended.
"STOCK" means shares of common or preferred stock of a
corporation listed on a national securities exchange, excluding all
Employer shares or any securities issued by the Employer, or shares of
a regulated investment company designated by the Committee as subject
to purchase through the exercise of an Option.
"TERMINATION OF EMPLOYMENT" means an Employee or Key Advisor's
separation from the service of the Employer (including all
subsidiaries and affiliates of the Employer) by reason of resignation,
discharge, death or other termination. The Committee may, in its sole
discretion, determine whether any leave or other absence from service
constitutes a Termination of Employment for purposes of the Plan.
"TRUST" means the trust, if any, established pursuant to Article
VII to hold the Stock that is subject to purchase through the exercise
of an Option.
"TRUST AGREEMENT" means an agreement setting forth the terms of
the Trust established pursuant to Article VII.
"TRUST FUND" means the Stock subject to an Option that is held in
the Trust.
"TRUSTEE" means the persons or institution acting as trustee of
the Trust.
2.2 HEADINGS. The headings of Articles, Sections and Paragraphs are solely for
convenience of reference. If there is any conflict between such headings and the
text of this Plan, the text shall control.
2.3 GENDER. Unless the context clearly requires a different meaning, all
pronouns shall refer indifferently to persons of any gender.
-3-
<PAGE> 6
2.4 SINGULAR AND PLURAL. Unless the context clearly requires a different
meaning, singular terms shall also include the plural and vice versa.
- -------------------------------------------------------------------------------
ARTICLE III
OPTION GRANT
3.1 ELIGIBILITY. Options may be granted to (i) any Employee selected by the
Committee from the executive officers and other key employees of the Employer
who occupy senior managerial or professional positions and (ii) Key Advisors
selected by the Committee, who have the capability of making a substantial
contribution to the success of the Employer. In making this selection and in
determining the form and amount of Options, the Committee shall consider any
factors that it deems relevant, including the individual's functions,
responsibilities, value of services to the Employer and past and potential
contributions to the Employer.
3.2 GRANT OF OPTIONS. (a) Options may be granted by the Committee (or its
designee) at any time on or after the Effective Date and prior to the
termination of the Plan. The grant of Options hereunder will be evidenced in an
Option Agreement executed by the Employer and the Participant. Upon execution by
the Employer and the Participant of an Option Agreement, the Options are deemed
to be granted. The Option Agreement must specify the Stock, the number of shares
subject to the Option, the Exercise Price, and such other terms and in such form
as the Committee (or its designee) may from time to time determine in accordance
with the Plan. Any terms not specified in the Plan shall be specified in the
Option Agreement. No Committee member may participate in the Plan.
(b) EFFECT OF DIVIDENDS AND DISTRIBUTIONS WITH RESPECT TO STOCK. The
Employer agrees to reinvest all dividends and distributions actually received
with respect to the Stock which is subject to an Option in additional property
of the same kind (or as nearly the same kind as feasible, if property of the
same kind is not available). Any Stock acquired through reinvestment of
dividends and distributions will be subject to an Option in favor of the
Participant with the same exercise price (as a percentage of the Fair Market
Value of the additional Stock acquired)as the percentage of Fair Market Value as
set forth in the pertinent Option Agreement governing the Stock that generated
the dividends and distributions..
3.3 EXERCISE PRICE. The Exercise Price shall be twenty five percent (25%) of the
Fair Market Value of the Stock subject to the Option determined as of the Grant
Date, or such other price as the Committee, in its sole discretion, determines.
The Exercise Price may be subsequently adjusted in the following manner, or as
otherwise provided in the Option Agreement:
(a) On the last day of each calendar quarter, the Committee may adjust the
Exercise Price by an amount that is determined by the Committee in its sole
discretion to equitably take into account such factors as the Committee
deems relevant which may include dividends and other cash distributions
received with respect to the Stock, and any other factors that the
Committee determines, including the Employer's cost of capital.
-4-
<PAGE> 7
(b) In the event of a stock dividend, stock split, reverse stock split,
rights offering, return of capital distribution, recapitalization or
similar transaction that materially affects the Fair Market Value of the
Stock, the Committee shall adjust the Exercise Price so that it retains the
same ratio to the Fair Market Value of the Stock as existed immediately
before such transaction.
3.4 CONDITIONS OF GRANT. As a condition to the grant of a Stock Option, the
Committee may, in its sole discretion, require a Participant to enter into one
or more of the following agreements with the Employer on or before the Grant
Date:
(a) A covenant not to compete with the Employer, which shall become
effective on such date as the Committee determines (which may be on
the date of Termination of Employment of the Participant with the
Employer) and which shall contain such terms and conditions as may be
required by the Committee.
(b) An agreement to remain in the employ of the Employer for at least six
months after the Grant Date of an Option.
(c) An agreement to hold harmless the Committee and the Employer for any
investment losses incurred in connection with any Option granted under
the Plan.
3.5 STOCK MAY BE HELD IN TRUST. Upon the grant of an Option, the Employer may,
in its sole discretion, acquire the Stock and may either hold it as a general
asset of the Employer or contribute it to the Trust as soon as practicable after
the acquisition. At the time contributed to the Trust, the Stock shall not be
subject to any security interest, whether or not perfected, or to any option or
contract under which any other person may acquire any interest in it, except as
otherwise provided in Section 7.2 and Section 12 of the Trust Agreement.
3.6 SUBSTITUTION OF ASSETS. After consultation with the Participant, the
Committee may, in its sole discretion, substitute Stock of equal Fair Market
Value (at the time of substitution) for any Stock subject to purchase through
the exercise of an Option. Following any such substitution, references herein to
Stock shall, to the extent applicable, include such substituted Stock.
3.7 DESIGNATION OF BENEFICIARY. As soon as practicable after the grant of an
Option, the Participant shall designate one or more Beneficiaries and successor
Beneficiaries, and may change a Beneficiary designation at any time, by filing
the prescribed form or another written instrument acceptable to the Committee
with the Committee. The consent of the Participant's current Beneficiary shall
not be required for a change of Beneficiary. No Beneficiary shall have any
rights under the Plan or an Option Agreement during the lifetime of the
Participant, except as may otherwise be provided in Section 3.9.
-5-
<PAGE> 8
(a) The Beneficiary of a Participant who dies without having designated a
Beneficiary in accordance with this Section 3.7 and who is lawfully
married on the date of death shall be the Participant's surviving
spouse.
(b) The Beneficiary of any other Participant who dies without having
designated a Beneficiary in accordance with this Section 3.7 shall be
the Participant's estate.
3.8 GENERAL NON-TRANSFERABILITY. No Option granted under this Plan may be
transferred, assigned, or alienated (whether by operation of law or otherwise),
except as provided herein, and to the extent permitted by law, no Option shall
be subject to execution, attachment or similar process. An Option may be
exercised only by the Participant (or the Participant's Beneficiary pursuant to
Section 3.7, or the Participant's assignee pursuant to Section 3.9).
3.9 PERMITTED TRANSFERS. Notwithstanding the provisions of Section 3.8, a
Participant may at any time prior to death, assign all or any portion of an
Option to:
(a) the Participant's spouse or lineal descendants, ;
(b) the trustee of a trust for the primary benefit of the Participant's
spouse or lineal descendants;
(c) a partnership of which the Participant's spouse and lineal descendants
are the only partners; or
(d) a tax exempt organization described in Section 501(c)(3) of the Code.
Any such assignment shall be permitted only if an assignment is expressly
permitted in the Option Agreement, or approved in writing by the Committee, and
the Participant receives no consideration for the assignment. Any such
assignment shall be evidenced by an appropriate written document executed by the
Participant, and delivered to the Committee on or before the effective date of
the assignment. In the event of such assignment, the spouse, lineal descendant,
trustee, partnership or tax exempt organization shall be entitled to all of the
rights of the Participant with respect to the assigned portion of the Option,
and such portion of the Option, shall continue to be subject to all of the
terms, conditions and restrictions applicable to the Option, as set forth in the
Plan and the Option Agreement.
- -------------------------------------------------------------------------------
ARTICLE IV
OPTION EXERCISE
4.1 EXERCISE PERIOD. All Bonus Options granted under the Plan shall vest over a
period not to exceed 5 years from the date of grant in accordance with the
vesting schedule set forth in the Option Agreement. All Deferral Options shall
be one hundred percent (100%) vested upon
-6-
<PAGE> 9
grant. All Bonus Options shall vest immediately upon a Change of Control. An
Option or a portion of an Option may be exercised beginning on the day the
Option (or a portion thereof) vests and ending on the earlier of -
(a) one year after the Participant's Termination of Employment, unless
modified by action of the Committee;
(b) one year after the Participant attains age 65, unless modified by
action of the Committee;
(c) five years after the death or disability of the Participant, unless
modified by action of the Committee; and
(d) ten years after the Grant Date.
However, in no event may an Option be exercised prior to 6 months from the Grant
Date.
4.2 OPTION EXERCISE. (a) A Participant (or the Participant's Beneficiary
pursuant to Section 3.7, or the Participant's assignee pursuant to Section 3.9)
may exercise all or any portion of an Option that is vested by giving written
notice to the Committee (including tax withholding instructions under Section
4.4 and, if applicable, Section 4.5) and tendering full payment of the Exercise
Price by bank certified or cashiers check on or before the date of exercise. As
provided in the Option Agreement, or with the prior written consent of the
Committee, the Participant may tender payment in whole or in part through the
surrender of previously acquired Stock valued at Fair Market Value on the date
of exercise.
(b) DELAY OF EXERCISE. Notwithstanding the above, the Committee, in its sole
discretion, may defer the effective date of the Bonus Option Exercise for up to
twelve (12) months following notice of exercise to insure that no actions by the
Participant would result in a forfeiture of the Bonus Options. Section 4.7
remains in full force and effect during the exercise delay period.
4.3 DELIVERY OF STOCK. On the date of exercise, or as soon as practicable
thereafter (but in no event later than five business days after the date of
exercise), the Employer shall deliver or cause to be delivered the Stock then
being purchased to or for the account of the Participant (or the Participant's
Beneficiary pursuant to Section 3.7, or the Participant's assignee pursuant to
Section 3.9). In the event that the listing, registration or qualification of
the Option or the Stock on any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary as a condition of, or in connection with, the exercise of the Option,
then the Option shall not be exercised in whole or in part until such listing,
registration, qualification, consent or approval has been effected or obtained.
4.4 TAX WITHHOLDING. Whenever Stock is to be delivered upon exercise of an
Option under the Plan, the Employer shall require as a condition of such
delivery (a) the cash payment by the Participant of an amount sufficient to
satisfy all federal, state and local tax withholding requirements related
thereto, (b) the withholding of such amount from any Stock to be delivered to
the Participant, (c) the withholding of such amount from compensation otherwise
due to the
-7-
<PAGE> 10
Participant, or (d) any combination of the foregoing, at the election
of the Participant with the consent of the Employer.
4.5 ADDITIONAL WITHHOLDING. With the consent of the Employer, the Participant
may elect a greater amount of withholding, not to exceed the estimated amount of
the Participant's total tax liability with respect to the delivery of Stock
under the Plan.
4.6 FAILURE TO EXERCISE. No Option shall be exercised, in whole or in part,
after the end of the Exercise Period, and the Employer shall have no obligation
to deliver or cause to be delivered to the Participant (or the Participant's
Beneficiary or Assignee) the Stock subject to such Option.
4.7 FORFEITURE OF OPTIONS. Notwithstanding the provisions of Section 4.1, all
Bonus Options granted to a Participant under this Plan, whether vested or not,
and not previously exercised shall be forfeited, upon the occurrence of any of
the following events:
(a) A Participant's termination for cause, as defined in the Participant's
employment, consulting or other employment-related agreement;
(b) Violation of the non-compete or non-solicitation provisions of the
Participant's employment, consulting or other employment-related
agreement (including an agreement entered into pursuant to Section
3.4(a) hereof); or
(c) Failure to comply with the Employer's conflict of interest provisions
of the Participant's employment, consulting, or other
employment-related agreement (including an agreement entered into
pursuant to Section 3.4(a) hereof).
The Committee, with the consent of the Board of Directors, may reinstate
any such forfeited vested Options.
- -------------------------------------------------------------------------------
ARTICLE V
AMENDMENT OR TERMINATION
5.1 PLAN AMENDMENT. The Board may, from time to time in its sole discretion,
amend any provision of the Plan, in whole or in part, with respect to any
Participant or group of Participants. Such amendment shall be effective as of
the date specified therein and shall be binding upon the Committee, all
Participants and Beneficiaries, and all other persons claiming an interest under
the Plan. No termination, modification or amendment of the Plan, may be adopted
that materially affects the terms, conditions and restrictions applicable to an
Option already issued in a manner adverse to a Participant. With the consent of
the Participant and subject to the terms and conditions of the Plan, the
Committee may amend outstanding Option Agreements with any Participant.
5.2 PLAN TERMINATION. The Plan shall terminate on such date as the Board may
determine in its sole discretion. Such termination shall be effective as of the
date determined by the Board and
-8-
<PAGE> 11
shall be binding upon the Committee, all Participants and Beneficiaries, and all
other persons claiming an interest under the Plan. Options shall continue to be
exercisable after the effective date of such termination, and may be exercised
in accordance with Article IV, but no new Options shall be granted.
5.3 AMENDMENT OF OPTIONS. An Option may be amended by the Committee at any time,
if the Committee determines that an amendment is necessary or advisable as a
result of:
(a) any addition to or change in the Code, a federal or state securities
law or any other applicable law or regulation, which occurs after the
Grant Date and by its terms applies to the Option,
(b) any substitution of Stock pursuant to Section 3.6,
(c) any Plan amendment pursuant to Section 5.1, or Plan termination
pursuant to Section 5.2, provided that the amendment does not
materially affect the terms, conditions and restrictions applicable to
the Option in a manner adverse to the Participant, or
(d) any circumstances not specified in Paragraphs (a), (b), or (c), with
the consent of the Participant.
5.4 CHANGE OF CONTROL. Notwithstanding any other provision of the Plan or an
Option Agreement, in the event of a Change of Control:
(a) the Participant shall not be required to remain in the employ of the
Employer for at least six months after the Grant Date of an Option
under Section 3.4(b),
(b) the Exercise Period under Section 4.1 shall not end prior to six
months after such Change of Control,
(c) an Option Agreement shall not be amended by the Committee under
Section 5.3 for any reason without the consent of the Participant, and
(d) an Option may be terminated by the Committee on any date after a
Change of Control, in its sole discretion and without the consent of
the Participant, if the Employer makes a cash payment to the
Participant on such date in an amount equal to the Fair Market Value
of the Stock subject to such Option, reduced by the Exercise Price,
and multiplied by the number of shares subject to such Option.
-9-
<PAGE> 12
- -------------------------------------------------------------------------------
ARTICLE VI
ADMINISTRATION
6.1 THE COMMITTEE. The Plan shall be administered by a Committee consisting of
one or more persons, who are nonemployee directors, appointed by the Board of
Directors. The Committee shall act by a majority of its members at the time in
office and may take action either by vote at a meeting or by consent in writing
without a meeting.
(a) The Board may remove any member of the Committee at any time, with or
without cause, and may fill any vacancy. If a vacancy occurs, the
remaining member or members of the Committee shall have full authority
to act.
(b) Any member of the Committee may resign by written resignation
delivered to the Board. Any such resignation shall become effective
upon its receipt by the Board or on such other date as agreed to by
the Board and the resigning member.
6.2 POWERS OF THE COMMITTEE. In carrying out its duties with respect to the
general administration of the Plan, the Committee shall have, in addition to any
other powers conferred by the Plan or by law, the following powers:
(a) to determine eligibility to participate in the Plan and eligibility to
receive Options;
(b) to grant Options, and to determine the form, amount and timing of such
Options;
(c) to determine the terms and provisions of the Option Agreements, and to
modify such Option Agreements as provided in Section 5.3;
(d) to substitute Stock as provided in Section 3.6;
(e) to maintain all records necessary for the administration of the Plan;
(f) to prescribe, amend, and rescind rules for the administration of the
Plan to the extent not inconsistent with the terms thereof;
(g) to appoint such individuals and subcommittees as it deems desirable
for the conduct of its affairs and the administration of the Plan;
(h) to employ counsel, accountants and other consultants to aid in
exercising its powers and carrying out its duties under the Plan; and
(i) to perform any other acts necessary and proper for the conduct of its
affairs and the administration of the Plan, except those reserved by
the Board.
All powers of the Committee are to be exercised in the sole discretion
of the Committee.
-10-
<PAGE> 13
6.3 DETERMINATIONS BY THE COMMITTEE. The Committee shall have discretionary
power to interpret and construe the Plan and the Option Agreements, and its
interpretations and determinations shall be conclusive and binding on all
Participants, Beneficiaries and any other persons claiming an interest under the
Plan or any Option Agreement. The Committee's interpretations and determinations
under the Plan and the Option Agreements need not be uniform and may be made by
it selectively among Participants, Beneficiaries and any other persons whether
or not they are similarly situated.
6.4 INDEMNIFICATION OF THE COMMITTEE. To the extent not prohibited by law or by
the articles or by-laws of the Employer, the Employer shall indemnify and hold
harmless each member of the Committee against any and all expenses and
liabilities arising out of such member's action or failure to act in such
capacity, excepting only expenses and liabilities arising out of such member's
own willful misconduct or gross negligence.
(a) Expenses and liabilities against which a member of the Committee is
indemnified hereunder shall include, without limitation, the amount of
any settlement or judgment, costs, counsel fees and related charges
reasonably incurred in connection with a claim asserted or a
proceeding brought against him or the settlement thereof, provided
that any settlement must be approved in advance by the Employer.
(b) This right of indemnification shall be in addition to any other rights
to which any member of the Committee may be entitled.
(c) The Employer may, at its own expense, settle any claim asserted or
proceeding brought against any member of the Committee when such
settlement appears to be in the best interests of the Employer.
6.6 EXPENSES OF THE COMMITTEE. All reasonable expenses of the Committee shall be
paid by the Employer.
- -------------------------------------------------------------------------------
ARTICLE VII
TRUST PROVISIONS
7.1 ESTABLISHMENT OF THE TRUST. Except as otherwise provided in Section 7.2, and
Section 12 of the Trust Agreement, the Trust, if any, established pursuant to
Section 3.5 shall be irrevocable, and no portion of the Trust Fund shall be used
for any purpose other than the delivery of Stock pursuant to the exercise of an
Option, and the payment of expenses of the Plan and Trust.
7.2 TRUST STATUS. The Trust is intended to be a grantor trust, within the
meaning of section 671 of the Code, of which the Employer is the grantor, and
this Plan is to be construed in accordance with that intention. Notwithstanding
any other provision of this Plan, the Trust Fund shall remain the property of
the Employer and shall be subject to the claims of its creditors in the event
-11-
<PAGE> 14
of its bankruptcy or insolvency. No Participant shall have any priority claim on
the Trust Fund or any security interest or other right superior to the rights of
a general creditor of the Employer.
- -------------------------------------------------------------------------------
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 GOVERNING LAW. Except to the extent preempted by federal law, the
construction and operation of the Plan shall be governed by the laws of the
Commonwealth of Massachusetts without regard to the choice of law principles of
such state.
8.2 SEVERABILITY. If any provision of this Plan is held illegal or invalid by
any court or governmental authority for any reason, the remaining provisions
shall remain in full force and effect and shall be construed and enforced in
accordance with the purposes of the Plan as if the illegal or invalid provision
did not exist.
8.3 NO OBLIGATION TO EXERCISE. The granting of an Option shall impose no
obligation upon a Participant to exercise such Option.
8.4 NO RIGHTS OF SHAREHOLDER. Neither the Participant, a Beneficiary nor any
assignee shall be, or shall have any of the rights and privileges of, a
stockholder with respect to any Stock purchasable or issuable upon the exercise
of an Option, prior to the date of exercise of such Option.
8.5 NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in the Plan shall be
deemed to give any person the right to be retained in the employ of the
Employer, or to interfere with the right of the Employer to discharge any person
at any time without regard to the effect that such discharge shall have upon
such person's rights or potential rights, if any, under the Plan. The provisions
of the Plan are in addition to, and not a limitation on, any rights that a
Participant may have against the Employer by reason of any employment or other
agreement with the Employer.
8.6 NOTICES. Unless otherwise specified in an Option Agreement, any notice to be
provided under the Plan to the Committee shall be mailed (by certified mail,
postage prepaid or express mail service) or delivered to the Committee in care
of the Employer at its executive offices, and any notice to the Participant
shall be mailed (by certified mail, postage prepaid or express mail service) or
delivered to the Participant at either his current address shown on the payroll
records of the Employer or at the Executive offices of the Employer. No notice
shall be binding on the Committee until received by the Committee, and no notice
shall be binding on the Participant until received by the Participant.
-12-
<PAGE> 15
IN WITNESS WHEREOF, this Plan has been duly executed on behalf of the
Employer, effective as of the 16th day of September, 1997.
ARIAD Pharmaceuticals, Inc.
ATTEST/WITNESS
By:
--------------------------------- -----------------------------------
Harvey J. Berger, M.D. Jay R. La Marche
Chairman and Chief Executive Officer Executive Vice President and
Chief Financial Officer
-13-
<PAGE> 16
PARTICIPANT'S ACKNOWLEDGMENT
The Committee, or its designee, which administers the ARIAD Pharmaceuticals,
Inc. Executive Compensation Plan ("Plan") has provided me with a list of
investments which are available for the Option(s) which will be granted under
the Plan. I have reviewed the available investments and have chosen the
investment(s) listed in the Option Agreement that will be subject to the
Option(s) granted to me. In choosing the investment(s) I understand that neither
the Committee nor ARIAD Pharmaceuticals, Inc. guarantees any specific rate of
investment return for the investment vehicle I have chosen. I further understand
that all the investment risk associated with my choice of investment, including
possible investment losses, is mine and I will not look to the Committee or
ARIAD Pharmaceuticals, Inc. to me make me whole.
I agree to hold harmless the Committee and ARIAD Pharmaceuticals, Inc. for the
investment choices made available under the Plan including, but not limited to,
any and all investment losses that may result from my investment choice(s).
I acknowledge that the Committee and ARIAD Pharmaceuticals, Inc. has advised me
to consult with my personal tax and financial advisor regarding my investment
choice(s).
PARTICIPANT:
BY: ________________________ ______________
NAME DATE
<PAGE> 17
[FORM OF BONUS OPTION AGREEMENT]
ARIAD PHARMACEUTICALS, INC.
EXECUTIVE COMPENSATION PLAN
OPTION AGREEMENT
1. Options are hereby granted to the Participant, to purchase the number of
shares of Stock from the Employer at the Exercise Price set forth below:
NAME OF PARTICIPANT: _____________________
BONUS OPTION AMOUNT: ______________________
DATE OF GRANT: _____________________
The aggregate Fair Market Value of the Stock subject to the Options granted is
$___________ : (Note: Values are determined in accordance with the terms of the
Plan.)
The initial exercise price of the Options awarded is: $ ___________
The initial exercise price may be adjusted as provided in Section 3.3 of the
Plan.
The Stock will consist of the following investments:
<TABLE>
<CAPTION>
Fair Market
Value of the
shares on
Share or Unit Number of Date of Grant
Name of Investment Value Shares of The Option
- ------------------------------------ ------------- --------- --------------
<S> <C> <C>
$ $
- ------------------------------------ ------- -------- -----------
$ $
- ------------------------------------ ------- -------- -----------
Total $
======== ===========
</TABLE>
The Options shall vest in accordance with the following vesting schedule:
1
<PAGE> 18
2. Except as specifically provided in this Agreement, the rights of the
Participant, or any other person entitled to exercise Options, are governed by
the terms and provisions of the ARIAD Pharmaceuticals, Inc. Executive
Compensation Plan which is incorporated by reference into this Agreement.
3. The Options may be exercised only by the Participant, or the
Participant's Beneficiary pursuant to Section 3.7 of the Plan.
In addition, under the terms of this agreement an assignment is expressly
permitted in accordance with Section 3.9 of the Plan. The Participant's assignee
as defined in Section 3.9 of the Plan may exercise the Options under the same
Plan terms as the Participant.
The Options shall not otherwise be transferred, assigned, pledged or
hypothecated for any purpose whatsoever and is not subject, in whole or in part,
to execution, attachment, or similar process except to the extent (if any)
permitted by law.
4. Written notice of an election to exercise the Options, specifying the
exercise date and payment of the Exercise Price, shall be (a) delivered to the
Committee, or its designee at the following address no later than the exercise
date, or (b) mailed (by certified mail, postage prepaid or express mail), to the
Committee, or its designee at the following address no later than three business
days prior to the exercise date:
c/o Chief Financial Officer
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, MA 02139-4234
Exercise of the Options may be delayed for up to twelve (12) months following
notice of exercise to insure that no actions by the Participant would result in
a forfeiture of the Options. Section 4.7 of the Plan remains in full force and
effect during the exercise delay period.
5. Payment of the Exercise Price shall be made by bank certified or
cashiers check. The Participant may tender payment in whole or in part through
the surrender of previously acquired Stock valued at Fair Market Value (on the
date of exercise) and the Participant must satisfy all federal, state and local
withholding tax requirements in any manner permitted under the Plan.
6. The Vested Options may be exercised at any time during the period
beginning six months after the Grant Date and ending on the earliest of:
(a) one year after the Participant's Termination of Employment, unless
modified by action of the Committee;
(b) one year after the Participant attains age 65, unless modified by
action of the Committee;
(c) five years after the death or disability of the Participant, unless
modified by action of the Committee; and
2
<PAGE> 19
(d) ten years after the Grant Date.
If a Participant (or his/her Beneficiary or Assignee) fails to exercise an
Option within the Exercise Period, then the Participant (or his/her Beneficiary
or Assignee) loses any and all right to any Option or Stock granted under this
Option Agreement.
7. All Bonus Options granted to a Participant under this Plan, whether
vested or not, and not previously exercised shall be forfeited, upon the
occurrence of any of the following events:
(a) A Participant's termination for cause, as defined in the Participant's
employment, consulting or other employment-related agreement;
(b) Violation of the non-compete or non-solicitation provisions of the
Participant's employment, consulting or other employment-related
agreement (including an agreement entered into pursuant to Section
3.4(a)of the Plan); or
(c) Failure to comply with the Employer's conflict of interest provisions
as set forth in the Participant's employment, consulting, or other
employment-related agreement (including an agreement entered into
pursuant to Section 3.4(a) of the Plan).
The Committee, with the consent of the Board of Directors, may reinstate any
such forfeited vested Options.
8. In the event there is a Substitution of Assets pursuant to Section 3.6
of the Plan, the Participant and the Employer are required to terminate the
pertinent Option Agreement and to adopt a new Option Agreement which awards
(grants) Options on the substituted Stock. The substitution of Stock shall be
considered the grant of new Options and may not be exercised for a period
beginning six (6) months after the grant of the substituted Option.
9. Neither the Participant, a Beneficiary nor any assignee shall be, or
shall have any of the rights and privileges of, a stockholder with respect to
any Stock purchasable or issuable upon the exercise of an Option, unless and
until such Options are exercised and the Exercise Price for the Stock has been
paid in full.
10. The Options are conditioned upon the acceptance of this Agreement by
the Participant as evidenced by the return of an executed copy to the Committee
no later than ten days after the Grant Date.
11. Except to the extent preempted by federal law, the Options and this
Agreement shall be construed and interpreted according to the laws of
Commonwealth of Massachusetts without regard to the choice of law principles of
such Commonwealth.
3
<PAGE> 20
EMPLOYER: ARIAD PHARMACEUTICALS, INC.
By: _________________________ __________________ ______________
NAME TITLE DATE
I have consulted with tax, legal, and financial investment advisors and am not
relying on the advice or representations of the Employer or the Committee on any
legal, tax, or investment matters. I understand that in the event of the
Employer's bankruptcy, I am an unsecured general creditor with no additional
rights granted to me by virtue of this Option Agreement.
PARTICIPANT:
By: _________________________ __________________
NAME DATE
4
<PAGE> 21
ARIAD PHARMACEUTICALS, INC.
EXECUTIVE COMPENSATION PLAN
Salary Reduction Agreement
Name:
---------------------------------------------------------------------------
Last First M.I.
PART I All Participants must complete (check one)
[ ] I have been nominated to participate in the ARIAD Pharmaceuticals, Inc.
Executive Compensation Plan (the "Plan"), which is incorporated by reference
into this Agreement, and I agree to reduce my salary during the remainder of
______ in order to receive options offered under the Plan.
[ ] I do not wish to reduce my salary in order to participate in the ARIAD
Pharmaceuticals, Inc. Executive Compensation Plan.
PART II Amount of Participant's Reduction in Salary: Please reduce my
bi-weekly compensation in the following dollar amount or percentage in
order to enable me to receive options under the Plan (check one):
[ ] $
----------------
[ ] percent
-----------------
I understand that this election shall be effective with respect to compensation
earned from services performed after the election is in effect. I also
understand that this election is irrevocable for the remainder of ________ and
cannot be changed to increase or decrease my salary for the duration of the
calendar year.
I further understand that Options issued in connection with this salary
reduction election will be granted by the Committee on a quarterly basis, or at
such other time as determined by the Committee. The Options will be granted in
an amount not less than $5,000 (in any one year), or such other amount
determined by the Committee.
- ------------------------------------------- ------------------------
Signature Date
<PAGE> 22
[FORM OF SALARY DEFERRAL OPTION AGREEMENT]
ARIAD PHARMACEUTICALS, INC.
EXECUTIVE COMPENSATION PLAN
OPTION AGREEMENT
1. Options are hereby granted to the Participant, to purchase the number of
shares of Stock from the Employer at the Exercise Price set forth below:
NAME OF PARTICIPANT: _____________________
SALARY DEFERRAL AMOUNT: _______________________
DATE OF GRANT: _____________________
The aggregate Fair Market Value of the Stock subject to the Options granted is
$______________ : (Note: Values are determined in accordance with the terms of
the Plan.)
The initial exercise price of the Options awarded is: $ ________________
The initial exercise price may be adjusted as provided in Section 3.3 of the
Plan.
The Stock will consist of the following investments:
<TABLE>
<CAPTION>
Fair Market
Value of the
shares on
Share or Unit Number of Date of Grant
Name of Investment Value Shares of The Option
- ------------------------------------ ------------- --------- --------------
<S> <C> <C>
$ $
- ------------------------------------ ------- -------- -----------
$ $
- ------------------------------------ ------- -------- -----------
Total $
======== ===========
</TABLE>
THE OPTIONS SHALL VEST IMMEDIATELY.
2. Except as specifically provided in this Agreement, the rights of the
Participant, or any other person entitled to exercise Options, are governed by
the terms and provisions ARIAD Pharmaceuticals, Inc. Executive Compensation Plan
which is incorporated by reference into this Agreement.
<PAGE> 23
3. The Options may be exercised only by the Participant, or the
Participant's Beneficiary pursuant to Section 3.7 of the Plan.
In addition, under the terms of this agreement an assignment is expressly
permitted in accordance with Section 3.9 of the Plan. The Participant's assignee
as defined in Section 3.9 of the Plan may exercise the Options under the same
Plan terms as the Participant.
The Options shall not otherwise be transferred, assigned, pledged or
hypothecated for any purpose whatsoever and is not subject, in whole or in part,
to execution, attachment, or similar process except to the extent (if any)
permitted by law.
4. Written notice of an election to exercise the Options, specifying the
exercise date and payment of the Exercise Price, shall be (a) delivered to the
Committee, or its designee at the following address no later than the exercise
date, or (b) mailed (by certified mail, postage prepaid), to the Committee. or
its designee at the following address no later than three business days prior to
the exercise date:
c/o Chief Financial Officer
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, MA 02139-4234
5. Payment of the Exercise Price shall be made by bank certified or
cashiers check. The Participant may tender payment in whole or in part through
the surrender of previously acquired Stock valued at Fair Market Value (on the
date of exercise) and the Participant must satisfy all federal, state and local
withholding tax requirements in any manner permitted under the Plan.
6. The Options may be exercised at any time during the period beginning six
months after the Grant Date and ending on the earliest of:
(a) one month after the Participant's Termination of Employment, if such
Participant is terminated involuntarily for cause,
(b) six months after the later of (i) the Participant's Termination of
Employment, (ii) the termination of compensation payments due the
Participant under the terms of his employment contract, if such
Participant's employment terminates for any reason not specified in
Paragraph (a), and
(c) ten years after the Grant Date.
If a Participant (or his/her Beneficiary or Assignee) fails to exercise an
Option within the Exercise Period, then the Participant (or his/her Beneficiary
or Assignee) loses any and all right to any Option or Stock granted under this
Option Agreement.
7. Neither the Participant, a Beneficiary nor any assignee shall be, or
shall have any of the rights and privileges of, a stockholder with respect to
any Stock purchasable or issuable upon the
2
<PAGE> 24
exercise of an Option, unless and until such Options are exercised and the
Exercise Price for the Stock has been paid in full.
8. In the event there is a Substitution of Assets pursuant to Section 3.6
of the Plan, the Participant and the Employer are required to terminate the
pertinent Option Agreement and to adopt a new Option Agreement which awards
(grants) Options on the substituted Stock. The substitution of Stock shall be
considered the grant of new Options and may not be exercised for a period
beginning six (6) months after the grant of the substituted Option.
9. The Options are conditioned upon the acceptance of this Agreement by
the Participant as evidenced by the return of an executed copy to the Committee
no later than ten days after the Grant Date.
10. Except to the extent preempted by federal law, the Options and this
Agreement shall be construed and interpreted according to the laws of the
Commonwealth of Massachusetts without regard to the choice of law principles of
such Commonwealth.
EMPLOYER: ARIAD PHARMACEUTICALS, INC.
By: _________________________ __________________ ______________
NAME TITLE DATE
I have consulted with tax legal and financial investment advisors and am not
relying on the advice or representations of the Employer or the Committee on any
legal, tax or investment matters. I understand that, in the event of the
Employer's bankruptcy, I am an unsecured general creditor of the Employer with
no additional rights granted to me by virtue of this Option Agreement.
PARTICIPANT
By: _________________________ __________________
NAME DATE
3
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-36597 of ARIAD Pharmaceuticals, Inc. on Form S-8 and Registration Statement
No. 33-76414 of ARIAD Pharmaceuticals, Inc. on Form S-3 of our report dated
January 30, 1998, appearing in this Annual Report on Form 10-K of ARIAD
Pharmaceuticals, Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 30, 1998
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